Gripes about capitalism go back 150 years and more. In the Communist Manifesto of 1848 Marx and Engels thundered that the specter of revolution haunted Europe, that the periodic reappearance of commercial crises “put on its trial, each time more threateningly, the existence of the entire bourgeois society.” They were not the first to assail the system and were followed by numerous others spanning the political spectrum.
Thus the Financial Times recently started a series on “The Crisis of Capitalism.” Europe suffers from a sovereign debt crisis due to over-spending by governments—why is that the crisis of capitalism? But one should not quibble. It is an old tradition. In the 1998 turmoil brought on by Russia’s default on its bonds and the failure of a large hedge fund, commentaries appeared bearing titles such as The Crisis in Global Capitalism,Global Capitalism RIP, Collapse of Capitalism, Who Lost Capitalism? and The Free Market’s Crisis of Faith.
I’ve taken those titles from a response by Michael Boskin, “Capitalism and its Discontents,” a classic that rings true 14 years later and merits re-reading. It makes one realize how very persistent and impervious the attacks are. No matter how well the case is made for capitalism on economic and moral grounds, no matter how clearly the argument is presented (Boskin makes an eminently persuasive and readable case), as soon as a problem arises many voices will condemn the system.
Of course it was communism that in fact collapsed in the late 20th century, but because humans beings are fallible, all political-economic systems are apt to run into some problem, and so pundits continue to write tombstone epitaphs for capitalism.
Boskin’s 1998 speech contains an anecdote illustrating a certain mindset. In 1989 President George H.W. Bush sent Boskin, then Chairman of the Council of Economic Advisers, to Moscow to help Gorbachev with Soviet economic reform. There he met, among others, the head of Gosplan, the government planning agency. The man asked: “Who sets the prices in your economy?” Boskin explained that most prices arise from the decisions of buyers and sellers.
The Gosplan chief asked again: “So who sets the prices in your economy?” Again Boskin explained. No effect. The stolid Soviet bureaucrat took out a giant computer printout containing the official prices of all products in the Soviet Union. Unable to conceive of markets working without government price setting, he may have thought of “reform” as central planners using a different technique for determining prices, perhaps a different computer model that Americans could provide.
I imagine Gosplan honchos’ education did not include reading Hayek, who explained why no central planning technique can work—some half-century before the frustrating meeting in Moscow. Today’s protestors do not call for central planning but do favor more government, whether in the form of greater regulation or measures to equalize income distribution. There is little evidence that these work any better than central planning; interventions like welfare programs are notable for their bad unintended consequences.
Nevertheless, like the Soviet planner Western statists can’t conceive of the possibility that non-intervention is better in most areas. There is a powerful myth that if some government is good, more government is even better and by intervening in everything that we don’t like, we’ll achieve egalitarian Nirvana with no crises.
Meanwhile we’ve been very fortunate. Despite a variety of destructive public policies and the limits to individuals’ wisdom whether in market or government, capitalism has brought about an immense growth in income and numerous innovations that make life easier and more enjoyable. As a result we’re all better off than the authors of the Communist Manifesto 164 years ago.
Engels was a rich industrialist and supported Marx, who wasted a small fortune inherited from his family. They were obviously members of the bourgeois class they condemned, but compared to us their entire bourgeoisie was worse off. We have more food and clothing and better housing, are healthier and live longer. There is no alternative to capitalism because nothing else has worked as well, crises and all.
That’s the reality but we keep hoping we’ll find some government intervention that will take us to Nirvana.