Civilizing Capitalism

This is a lengthy (16 pages) article that is well worth the time that it will take to read it.  It provides an interesting historical perspective on many of the economic problems that we are currently experiencing.  It is highly critical of the Manchester School of economics which provides the foundation for what we call neo-liberalism today.  David Ricardo's formalist approach to economics is also criticized.  It provided a morally defensible argument for free trade that justified colonialism.  It also failed to make a distinction between the financial sector and the real economy that provides goods and services.  It is impossible to describe an economy with a parasitic financial sector that is bad for the real economy in his theory.

Manchester liberalism, and communism are described as irrational twins.  Both of these systems are derived from models that make assumptions about how humans behave.  The are idealized systems that fail to describe how economic systems really operate.  Since the fall of communism, the other irrational twin has survived and prospered.  It cannot distinguish between good greed and bad greed.  When self interest coincides with the public interest we have good greed.  Finance and the real economy work in harmony to expand the economic pie and serve the public interest.  Our current problems are the product of bad greed.  The financial sector has turned to speculation on price changes in assets that have already been produced. It extracts wealth from the real economy.  Under Margaret Thatcher, there is no such thing as society, or the public interest. It is impossible to distinguish between good greed and bad greed.  All greed is good.  We have a crisis of excessive economic freedom that serves the interest of predatory wealth extraction.

There are parallels to our current financial crisis.  The financial crisis of the 1890's in the US led to calls for economic reforms that are similar to those that we need today.  The Great Depression led to regulated capitalism and efforts to assure a more equal distribution of economic output.  It also stabilized the financial system.  Over time the regulatory system has been weakened and we no longer distinguish between good greed and bad greed.  We have a new system of feudalism.  The old system was based upon the ownership of land.  Our current system is based upon the control of finance.  We need to have a financial system that is more in harmony with the real economy and less centered on speculation that does not increase the economic pie.

The real economy is not run by angels either.  Enron was a classic example of a firm that made money by using political clout to deregulate the energy system so that it could make money by manipulating energy prices in California and speculating on price changes.  The Koch brothers spend millions to raise questions about the science behind climate change and the need for investment in renewable energy.  These are examples of bad greed in the real economy. We need to civilize capitalism so that it better serves the public interest.  We have done it before and we can do it again.