Capitalism and philosophy

Sean Gabb by the Baltic
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In the last session, someone asked “what is capitalism?” and said that there are many different kinds of capitalism, e.g. “Japanese capitalism”.

First, it is important to be clear about the meanings and definitions. The kind of economy in Britain, the United States, and Japan, is not pure capitalism because it includes a great deal of government control and regulation. Such an economy should correctly be called “a mixed economy“. “Japanese capitalism”,  therefore, should more correctly be called “Japanese mixed economy”, i.e. a mixture of capitalism and statism or socialism.

Secondly, is America a truly capitalist country? Here is a quote from a financial newsletter “The Daily Reckoning” June 3 2009 “The Eye of the Economic Storm”.

Americans are not necessarily in favour of socialism… But the country has clearly moved towards more government intervention in the economy. In 1986, 40% of Americans thought government regulated the economy too much. Now, 40% think it doesn’t regulate enough. And get this… The Economist reports the results of a worldwide poll. When asked if “people [were] better off under free markets,” 75% of Indians say ‘yes’ and so did about 72% of Chinese. But put the question to Americans and only about 69% think so. Even Italians are more in favor of free enterprise than Americans. Go figure.

Another comment, this time from a British libertarian, Sean Gabb:

big business capitalism we see around us is not the same as a free market”

Finally, another comment from a free-market financial commentator, Bill Jenkins, writing in the Daily Reckoning of May 28th, 2009: To Hell in a Bond Basket:

In a larger sense, the US is at war with capitalism…and with nature herself. Markets have natural rhythms. They go from boom to bust…from inflation to deflation…from expansion to contraction naturally. Trying to stop the bust is futile. It is a fight against Fate…a losing proposition. And it is diabolically unnatural. You have to take the bad with the good in life.

and

“The idea is ‘to make holding money less attractive’ so people will spend it.”

In other words, this is not free-market capitalism: the Federal reserve holds interest rates artificially low to “force” people to spend instead of to save. But where does capital come from? From savings. If people are discouraged from saving, where will capitalism’s capital come from?

Writes Bill Jenkins,

“What we need is to be left alone. The market has been, and remains, the most efficient system for regulating itself. Is it perfect? Not in a moral or theological sense.  Not even in a fairness sense. The market will make some men rich while impoverishing others. Many people do not consider that ” fair”. But it doesn’t matter. The market does what it does because it is the most efficient way of doing things. .. The ironic thing is, bubbles are created by regulation.”

Here is what Ayn Rand wrote about capitalism:

Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned.

When I say “capitalism,” I mean a full, pure, uncontrolled, unregulated laissez-faire capitalism—with a separation of state and economics, in the same way and for the same reasons as the separation of state and church.

We must understand the meanings of the words we use. Then, we must look around at the world around us, and see clearly through our own eyes, not through the eyes of the media, or what we read in the newspapers, or what the politicians tell us.

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3 thoughts on “Capitalism and philosophy”

  1. Thanks for explaining the meaning of Capitalism, Marc.

    Pure Capitalism looks ideal but I can’t imagine how our living would be without any government intervention. When you say “government regulation or control,” do you mean any type of regulation? How do people prevent the problems caused by corrupting side of human nature like greed or ignorance? Doesn’t market need minimum level of law and order?

    Oil price is getting higher again, and it’s clear that the cause is speculation. I feel prices are not always determined by supply and demand, market’s natural mechanism. Money games by speculators give terrible impact on real economy and could be out of control, but speculation is part of capitalism, so I wonder if Mr. Bill Jenkins still says to let them(speculators) alone?

    1. Thanks for taking the time and trouble to comment. This is a difficult subject, and you are doing it in a foreign language!
      First, “I can’t imagine how our living would be without any government intervention”. Human beings naturally accept the situation they grow up in as “the norm”. In order to see a world with a minimum of government intervention, we have to look at “Westerns”, movies about life in the Wild West of the United States in its early years. (Not all of the makers of such movies showed this world in a good light.)

      Second, “it’s the fault of those greedy speculators” is a common theme in today’s newspapers, but I wonder if this is a true picture? You might want to investigate what speculators do and how speculation works. For example, to give a counter argument, here is part of a recent article by a free-market economist, Robert Murphy:

      “the commodities futures markets perform a vital function by allowing parties to “lock in” a price of oil months or even years in advance. By removing their exposure to huge price swings, both oil producers and major consumers (such as refiners and airlines) can more confidently plan their future operations.

      For example, the owner of an oil field might be willing to sink new wells if he expects oil prices to average at least $50 per barrel in 2010, while an airline might expand its service area to include a new city, but only if it can buy oil at less than $75 per barrel throughout 2010. If there were no futures markets, the oil producer and airline might decide to play it safe, rather than investing millions in projects that could prove unprofitable if oil prices move the wrong way. But fortunately with sophisticated financial markets, the two enterprises can hedge away this risk with futures contracts. The oil producer can sell (“go short”) futures contracts, agreeing to sell his output in 2010 for, say, $65 per barrel, and the airline can take the other side of the contracts. Both parties benefit by locking in the price of $65, rather than being subject to the volatile spot price of oil.

      Successful Speculation Reduces Price Volatility

      (Read the whole article at the Institute for Energy Research)
      If you have the courage and the time, here is another article (in English, I’m afraid! Where are the Japanese free-market economists??!!?):
      Speculators are part of the market
      This article is on the wonderful website of the Mises Institute. You can find out who Mises was (in Japanese) on Wikipedia.

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