On Capitalism

Something that drives me absolutely bonkers is when I either observe or have to engage with someone who conflates the term “Capitalism” with “Democracy” or the idea of a free market, etc. Can we all agree that to have any kind of logical conversation on the topic of capitalism as an economic system, we have to start with the same (correct) definition/s?

As a theory, capitalism is an economic system in which private citizens own the means of production and commodities are exchanged for profit. Al la Adam Smith, competition leads to the most efficient market for the production and sale of such commodities and services.

But then you have people and politicians who make leaps like those described by Kinsley in this WAPO editorial on the federal student loan program, ensuring that no logical discussion on capitalism can take place.

Capitalism in theory may equal “free market,” but as we practice it in this country, capitalism does not equal “anyone but the government is good.” Why? Because capitalism, as we found throughout history time and time again despite Smith’s idea of the Invisible Hand, must be regulated or abuses occur. What’s happened since Nixon is that conservatives have somehow convinced a great many people that any kind of government program is bad even though government programs are in integral part of their lives (think transportation, law enforcement, local and state services, etc.). So you have Republican tools like congressman Texan Jeb Hensarling declaring “that the very notion of reducing the subsidy to private companies was ‘all part of a Democrat tax-and-spend program’” even though students enrolled in the federal loan program get lower interest rates than students enrolled in the private programs.

And then I saw this post on Dynamical & Non-linear which speaks to the same idea really. Economics has little to do with politics IN THEORY, but economics informs politics and the other way around constantly in practice. Just look at what happened when Alan Greenspan declared that he thought the Iraq War was really about oil in his new book! And its why there is a field of economics (well, its really not just a field in economics but anyway) called Political Economy. Economists and other ists needed a more robust way to look at how the economy influences politics and how politics influence the economy. Come on, is there anyone out there who can tell me with a straight face that Milton Friedman or Karl Marx or John Keynes didn’t have certain agendas in mind while formulating their theories?

So I guess what I’m saying is that it doesn’t matter if economics and politics are different entities in theory because they only mean something in practice. And in practice, they are inseparable.

And Barney Frank wrote a terrific editorial about the importance of transparency (another way of saying regulation) in the mortgage and finance sectors of our economy.

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