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We have been warned before

Economists have been warning us about the flaws in capitalism for quite some time now.  Sure, most are on the left side of the political spectrum but did you expect someone on the right to be critical of capitalism.  Maybe its time to re-read and understand what people have said about capitalism.  Our survival may depend on it.

Here are just a few (that I have read) who have provided a critique of capitalism:

Starting in 1876 Karl Marx wrote an extensive treatise/critique (3 volumes) of capitalism called Das Kapital.  I admit I have been only through the first volume.  FYI - Professor David Harvey has a FREE online course covering the first volume of Marx’s Das Kapital.  I did find a great short synopsis of Das Kapital in this article - The Fate of Capitalism: Was Marx Right? (a good sign that this website would publish such an article):

Marx argued that at capitalism would succeed in its initial stages quite well in promoting growth by means of capital investment in new technology and improved means of production. Everyone would prosper. As capitalism developed, however, he argued that capitalists would appropriate to themselves more and more of the profits or income from the economy and that laborers would come to have increasingly less.

Over time, in time and such circumstances, Marx claimed that, first, capitalistic economies would undergo ever more vicious cyclical swings from boom to bust. These cycles and the on-going process of capitalism would, second, result in ever richer capitalists and ever poorer working classes, until, finally, at some point, laborers would revolt and take over the means of production, causing Socialism to ensue as a result. Socialism, in turn, was merely a transitional step to Communism.

This synopsis is offered for the un-initiated.  Professor Harvey’s class is worth the time. 

John M. Keynes also warned us about capitalism.  Keynes began the last chapter of The General Theory of Employment, Interest and Money with this:

The outstanding faults of the economic [capitalist] society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes. The bearing of the foregoing theory on the first of these is obvious. But there are also two important respects in which it is relevant to the second. [Emphasis added]

Keynes offered two conditions that he thought were necessary to make capitalism less painful for most people: 1) stop wars and 2) slow population growth.  We haven’t been very successful in these two areas.

John K. Galbraith offered an interesting theory in his book American Capitalism: The concept of Countervailing Powers (1952).  Galbraith showed that the concepts of perfect competition and free markets were dead - most industries were controlled by 2 or 3 big companies.  He asserted that Countervailing Powers were needed to offset the power of these few companies to set prices.  The Countervailing Powers were unions, consumer/citizen organizations and government regulation if unions and consumer/citizen organization couldn’t assert their power. 

Today, with weakness of labor unions and no real citizen/consumer organizations, Countervailing Powers are non-existent.

Hyman Minsky endorsed what Keynes said in the last chapter of The General Theory but he added to it.  Minsky studied the financial system extensively - he concluded that much of the instability in a capitalist system comes from the financial system and the creation/issuance of debt to finance the acquisition of capital assets.  He taught that economic stability actually lead to instability - that the financial sector becomes comfortable in good times and over time starts taking more and more risks and loosens credit standards.  Sounds very familiar - Minsky’s Financial Instability Hypothesis which was published in 1986 but was largely ignored by mainstream economists and banking regulators.  This hypothesis basically fore told the global financial crisis of 2008. 

Marx, Keynes, Galbraith and Minsky have all warned us about the problems with capitalism.  Obviously their proposed remedies were very different at least Marx versus the others.  Marx obviously thought capitalism wasn’t worth fixing or tinkering with and it needed to be replaced.  Keynes, Galbraith and Minsky believed that capitalism was the best system but that we needed a ‘mixed economy’ with much more regulatory involvement and government/public investment in the economy. 

Currently, we are ignoring even the more moderate - Keynes, Galbraith and Minsky.  Financial regulatory reform was a slap on the wrist to Wall Street - it did very little to change behavior and just today President Obama wrote an op-ed in Big Business’ favorite newspaper rag talking about need for less regulation.  Keep in mind regulation is necessary only because capitalism is flawed and capitalists tend to exploit a lot of people and resources for profit.  As for the government/public investments that Keynes and Minsky envisioned we are not even close.  For example, Minsky advocated an employer as last resort program or a permanent direct jobs program.  Such a program is highly unlikely in this political environment. 

We have been warned but we continue to ignore the warnings.  But what is more disturbing is that we never learn from history and in many cases very recent history.  Oh well.  I offer the following prediction:  If we fail or refuse to change (even the slightest changes) our economic system then our global climate/environment will force us to change it as a matter of survival. 

Good luck.