Thursday, August 1, 2013

Capitalism, Socialism and all that

Allan Meltzer has written a book in defense of Capitalism (Why Capitalism?). The funny thing is that nowhere he tries to define capitalism, which he seems to equate with market economies and other inane concepts. If there is a definition in his book is that capitalism is a system based on "a foundation of a rule of law, which protects individual rights to property, and, in the first instance, aligns rewards to values produced."* I'll get to some of the issues with the book on another post [I discussed the meaning of capitalism before here].

Note that the term capitalism only became more widely used in the 1930s, when the system was hit by its most severe crisis in history, and when alternative systems became more attractive. The figure below show the use of the various terms, not just modes of production, like Capitalism (and Communism, which does have a connection to an ancient mode of production) but also political ideologies (these two are often confused in political discussions).
Note that Socialism has declined considerably since the late 1970s, and more so after the collapse of the Soviet bloc. Social Democracy (the Northern European term) was never as popular as Socialism (the Southern European one).

Note also that the term capitalism as a proxy of market economy, or laissez faire, more of an ideology related to economic policy than a proper description of a mode of production was always more popular than the alternatives expressions. If you use alternatives to capitalism you can see that none has been particularly catchy.
While it is difficult to foresee a crisis of a mode of production, and certainly I would agree that the 2007-9 crisis, as bad as it is, does not mark the beginning of the end of Capitalism, I think it is far from clear that alternatives to the free market ideology (Meltzer's capitalism) are not possible. But a proper discussion would require that Meltzer understood the difference between the ideology of free markets, and the existence of modes of production.

I could go on the problems of this confusion, but here is a simple reason why Marx should be still in the curricula of economics. And Marx should be required reading even for those that disagree with him [as much as neoclassical manuals are read by heterodox people]. The quality of the historical understanding of the development of Capitalism, even by economists with reasonably well researched economic history books [I'm referring to Meltzer's history of the Fed, here and here, which I think is misguided, but well researched and relevant] is appalling. Meltzer should avoid writing about why capitalism is good until he learns what Capitalism is.

* If this was true you should have some sort of relation between productivity and remuneration, which is hardly the case.

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