Figure 1.-- |
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The two poles of modern economic life are free market capitalism and socialism. Capitalism essentially built the modern world. Invented in the Netherlands and England (17th century), capitlalism was a major factor in the industrial Revolution.
Capitalism is surely why the Industrial Revolution occurred in the West and not China wjich for most of the modern era (meaning since the pas two millenia) has been more technlogically advanced than the West. There were of course other factors such as Chinese unity compased to competing Western nation states, but capitalism has to be one of the factors. For the first time in history, ordinary individuals in sustantial numbers were leading prosperous lives. Except in America, capitalism developed before the rise of democracy leading to a concentration of wealth. American independence began in the same year that Adam Smith published Wealth of Nations (1776). And the combination of democracy, capitalism, and a virgin continent created a world power out of a wildreness in a century. In Europe a prosperous middle-class emerged, but the working-class did not fully share in the bounty of capitalism. This was the genisus of socialism, Karl Marx published Das Kapital (1848). Many in Europe took to his theories as virtually a new religion. In the chaos of World War I, the first Communist state was born, combining a totalitarian political system and socialist economics. It appared precisely where Marx predicted it would not--pre-industrial Russia. World War II is often seen as the showdown between Fascism and Communism. It is more curately viewed as a conflict between liberal democtacy and the totalitarians. After World War II similar Communist regimes in Eastern Europe and Asia leading to the Cold War, an economic contest between the capitalist United States and the Communist Soviet Union. . In addition, the newly independent Third World adopted socialist policies which they were convinced would jump start economic development. It proved a disaster. Communism failed. When Communism and Capitalism went toe to toe (divided Germany and Korea), it was clear that capitalism was the most effective and prosperous system. In the Third World, not only did socialism fail to jump start development, but living conditions actually declined in many of the new nations. Eventually the inherent weakeness of socialist economics destroyed the Soviet Union. And Third World leaders began to see the inherent strength of capitlism. This began with the Asian Tigers (South Korea, Singapore, and Taiwan). Eventually market reforms were adopted in China, resulting in an economic transformtion of staggering proportions. But as capitalism was bringing prosperity to the Third World at a pace never believed possible, socialism as undermining the economies of Europe. The bright hope of European unification beginning with the European Coal and Steel Community (1951) brought considerable gains in the aftermath of World War II. Europe achieved economic successes without parallel in its history. And it was widely believed that the European Union (EU) (1993) and the Euro would ensure continued prosperity. But Europe had increasingly turned to Socialist economics and by the time the contrast between the market reformsa nd the economic straight jacket of socialism was becoming increasinly apparent. This finally reached a crisis when the EU perifery began to go bankrupt (2009). The EU managed to paper over this crisis, but the unresolved problems at the perifery are now appearing at the EU core (2014). And America is not far behind. And this should not be seen as a purely economic problem. When the liberal democracies fail with economic polities, the dictators and totalitarians are empowered.
The two poles of modern economic life are free market capitalism and socialism. And between these two poles are a multitude of permutations.
Free market capitalism is an economic system in which the means of production are privately owned and operated. The economic goal is profit. Investments and business expansion are are determined by private decisions in the free market as opposed to the state through central economic planning. Prices are set in the open market by supply and demand. Private individuals invest in new enterprises seeking profit. Government in a capitalist system should pursue laizze faire policies. Laissez faire is a French term meaning "leave alone," meaning that the Goverment should not interfere in the operation of the free market. The Dutch invented capitalism which was appropriated by the English. It is no accident of history that those two small countries prevailed in deadly conflicts against much larger and potentially more powerful countries. The mechanics of capitalism were clearly set out by the 18th century philosophes, most notably by Adam Smith in the Wealth of Nations (1776) just as capitalism was generating the indistrial revolution which was reshaping Britain. Smith describes an invisible hands, meaning the self-regulating operation of the marketplace. Economics has been called the 'dismal science'. Some economists can be found to support virtually any economic system or polivy. One of the few unrefutable economic trends is that those countries which more closely approach Smith's free market approach are the most prosperous (America, Britain, France, Germany, and Japan) and those countries which most greatly diverge and interfere or even control the market tend to be the least prosperous (Cuba, North Korea, the Soviet Union, and Vietnam). The change in China after the introduction of capitalist economics is the most stunning confirmation of Smith's economic theories. Not only are capitalist countries the most prosperous, but they are also the most creative and innovative. Liberals in the 19th century struggled to remove the heavy hand of government, mostly monarchies, from the economy. Their successes were part of the massive increase of wealth during the century. It is interesting to hear politicians talk about change and new ideas. Adam Smith clearly described how a nation can achieve prosperity and the passage of time has only confirmed that he was correct. Smith did not believe as subsequently advocated by important industrialists that there was no role for government. Smith saw the need for the government to set rules to ensure the operartion of the free market. Smith foresaw that concentrations of capital could prevent the operation of the free market. While capitalism has clerly been shown to be the most successful economic system, it is also clear that the Government is needed to establish and enforce minimum social, health, worker safety, and environmental standards.
The other basic economic system is socialism. Socialism is an economic theory advocating public or common ownership and cooperative management of the means of production and allocation of resource in a society. And like capitalism, socialism had an outstanding theorist--Karl Marx. Mark publised Das Kapital about a century after Smith's ground-breaking work (1867). Unlike Smith, very little of what Marx wrote proved to be accurate or workable. Marx explained that the driving force of capitalism was the exploitation of workers. He postulated that essential source of capitalist profits was the unpaid labor of wage laborers. He postulated that the excesses of capitalism would lead to worker revolutions in advanced industrial countries and the eventual creation of a communist society in which the state would whiter away. This of course did not occur. Unlike Adam Smith who captured the nature of man, Marx's image of the future proved fanciful. The communist Revolutions occurred in China and Russia, the two least advanced states in Europe and Asia. And Marx's theories proved so unworkable that Lenin/Stalin and later Mao had to rewrite the book--creating Marxist-Lennist ideology. This was a repudiation of liberalism, and the reintroduction of state controls on a massive scale. Thus rather than new ideas, Marxist-Lenniism was in actuality a return to the failed economic approaches of the 18th century monarchies, only the levers of control were indifferent hands. It is no accident that several Communist connties revert to hereditary leadership (Korea and Romania). The 20th century Communists of course went far beyond the monarchial controls of the 19th century, but attempted to totally operate the economy. The results for Russia, China, and other countries attempting this approach was economic failure and poverty. And they required brutal totalitarian police states to operare, primarily because the Maxist idea is so divorced from the inherent nature of man. Marxist thought through the world socialist movement had a major impact on the modern world.
Capitalism essentially built the modern world. Invented in the Netherlands and England (17th century), capitlalism was a major factor in the industrial Revolution. Capitalism is surely why the Industrial Revolution occurred in the West and not China which for most of the modern era (meaning since the pas two millenia) has been more technlogically advanced than the West. There were of course other factors such as Chinese unity compased to competing Western nation states, but capitalism has to be one of the factors. For the first time in history, ordinary individuals in sustantial numbers were leading prosperous lives.
Except in America, capitalism developed before the rise of democracy leading to a concentration of wealth. American independence began in the same year that Adam Smith published Wealth of Nations (1776). And the combination of democracy, capitalism, and a virgin continent created a world power out of a wildreness in a century. In Europe a prosperous middle-class emerged, but the working-class did not fully share in the bounty of capitalism. This was the genisus of socialism, Karl Marx published Das Kapital (1848). Many in Europe took to his theories as virtually a new religin. In the chaos of World War I, the first Communist state was born, combining a totalitarian political system and socialist economics. It appared precisely where Marx predicted it would not--pre-industrial Russia. It became apparent early n that socialism was not working. ennin himself institted market reforms with the New Economic Policy (NEP). This revialized the economy, but Stalin ebded it and doubled down with collectivization resulting in millions of deaths and the ruin of Soviet agricuture wich would never recover,
World War II is often seen as the showdown btween Fascism and Communism. It is more curately viewed as a conflict between liberal democtacy and the totalitarians.
After World War II similar Communist regimes in Eastern Europe and Asia leading to the Cold War, an economic contest between the capitalist United States and the Communist Soviet Union. . In addition, the newly independent Third World adopted socialist policies which they were convinced would jump start economic development. It proved a disaster. Communism failed. When Communism and Capitalism went toe to toe (divided Germany and Korea), it was clear that capitalism was the most effective and prosperous system. In the Third World, not only did socialism fail to jump start development, but living conditions actually declined in many of the new nations. Eventually the inherent weakeness of socialist economics destroyed the Soviet Union.
Third World leaders began to see the ingerent strength of capitalism. This began with the Asian Tigers (South Korea, Singapore, and Taiwan). Eventually market reforms were adopted in China, resulting in an economic transformtion of staggering proportions. We have had discussions with American and European socialists. They dismiss the Third orld successes, saying that theu are ffom a small base. Well that was true, but these is no longer small in Tawan and South Korea. And certaonly not in China, although China is difficult to assess because it still has atotalitarian government in which econmic statistics are state secrets. But what is sure is that Third Wrld countries are growing and becoming more prosperous. And Europe is not.
As capitalist market reforms were bringing prosperity to the Third World at a pace never believed possible, socialism as undermining the economies of Europe. The bright hope of European unification beginning with the European Coal and Steel Community (1951) brought considerable gains in the aftermath of World War II. Europe achieved economic successes without parallel in its history. And it was widely believed that the European Union (EU) (1993) and the Euro would ensure continued prosperity. But Europe had increasingly turned to Socialist economics and by the time the contrast between the market reformsa nd the economic straight jacket of socialism was becoming increasinly apparent. This finally reached a crisis when the EU perifery began to go bankrupt (2009). The EU managed to paper over this crisis, but the unresolved problems at the perifery are now appearing at the EU core (2014). Of course the socialist welfare state ws developed with all the best intentions. And because it was finded by a prosperous private sector, it brough prosperity. But in coutryafter country, governments had to begin borrowing money to meet the demands of the welfare system--esentially stealing from the next generation. Gradually socialist governments imposed more and more demands on the private sector as well a an increasingly restructive legal framework. The result has been slowing growth and actual decline in some cases, high unemployment (especially youth nemployment), rising taxes, and increased borrowing. Another impotant concern is the impact on the innvation spawned by capitalism thrughout Europe. This can be seen most dramtically seen in the field of informtion technology, the whole computer revolution. The ECB has attempted to prevent financil diaster by backing soverign bonds. But fiscal policy can keep the lid on only so long. Major market reforms are needed. he Eu economy is plagued with bad government policies: including excessively high taxes, job-destroying labor regulations, astronomical government spending (governments of course don’t gnerate weath), government/corporate cronyism, an ever expanding body of rules and edicts, and tragically flawed monetary policies. This all restricts the pulse of commercial activity which is the basis of the economy and on which both personal properity and government social programs rest. There is no evidence, however, that Europeans publics are prepared to support candidated prepared to make the needed reforms. In fact, the Greek public which was the touchstone of the crisis looks like it might elect politicans (SYRIZA party) prepared not only to reject reform, but adopt even more radical socialist policies than those that drove the country into bankruptsy.
And America is not far behind.
Te failure of democratic socialism should not be seen as a purely economic problem. When the liberal democracies fail with economic polities, the dictators and totalitarians are empowered.
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