“ (noun) an economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals or corporations, especially as contrasted to cooperatively or state-owned means of wealth.” [Dict.com]
Let’s declare, right out front, that capitalism is NOT a political system. It does, however, require a political apparatus and infrastructure to maintain our economic institutions. Let’s assume that Adam Smith was correct, that monarchical controlled monopolies and charters were counter-productive. Indeed, Adam Smith was quite vehement on the subject of monopolies. He was particularly opposed to those guild members, shop keepers, and manufacturers who conspired to operate in the Wretched Spirit of Monopoly.” [Kurz pdf] He’d seen the results of conglomerates such as the East India companies of Great Britain and the Netherlands – and he disapproved. That critique hasn’t prevented the monopolists from mangling the message by adding a bit of Mandeville here, adding a touch of Samuelson there; marinated in the toxic and sophomoric economics of Rand, and devising a philosophy to justify unadulterated greed.
The problem for the Justification of Greed crowd is that at some point in the economic process someone has to buy something. At least in the real world, someone must manufacture a product using primary products (minerals, timber, etc.) and then must transport the products to distributors (secondary) markets, so that ultimately a consumer will purchase the product at a price determined by the balance of supply and demand. This, at its simplest, is pure capitalism. We need more of it.
In America’s bifurcated economic system the financial sector, which once primarily facilitated the investment in the manufacturing, distribution, and selling of goods and services, has taken it upon itself to function for its own benefit – one all too often at odds with the Main Street economy it was meant to serve.
The financialists [Forbes] discovered the gold to be mined from mountains of debt, and sought profit from the debt, the service of the debts, the trading of debt, the manufacturing of securitized assets based on debts, and they turned Adam Smith on his head:
“Adam Smith never espoused the beliefs that control our capitalist system today, that the only purpose of a business is to create shareholder value and that the unfettered market will effectively regulate itself. These two views have been widely adopted, without empirical foundation, by many influential financial and political policy-makers. They have been used to justify systemic deregulation and a maniacal focus on generating short-term earnings that are not necessarily real economic earnings.” [Forbes]
And, they’ve held sway for almost the last three decades:
“Over the last 25 years American capitalism has become financialism, which is primarily transactional, unrestrained greed. Financialism embraces the view that the only purpose of business is to create shareholder value, measured primarily by short-term results. The dominance of short-termism is evidenced by the magnitude of institutional stock “renting” for terms of 12 months or less, the volume of high-speed, high-frequency algorithmic short-term trading, the short average tenures of chief executive officers and the dominance of executive compensation tied solely to short-term results.” [Forbes]
In short, ‘faster and more volatile’ has replaced ‘visionary and more rational’ in our economic system. And the politicians in place are either wedded to this financialism and actively abetting it, or they are such close allies that the differentiation is difficult to discern. Or to put it in harsher terms: The politicians are selling out the long term benefits of American capitalism for the benefit of short-term financialism. What’s been the result?
“When the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first,” said Piketty, “capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.” [Piketty, Farrell]
We might simplify this statement by saying: When the financialists take over the field from the capitalists the economic inequalities they create unleash havoc on our real economy and our national values. Who warned us about this? None other than the patron saint of financialists – Adam Smith:
“The disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition is the great and most universal cause of the corruption of our moral sentiments.” [Piketty, Farrell]
Smith wasn’t quite finished with the Greedy:
“The great source of both the misery and disorders of human life, seems to arise from over-rating the difference between one permanent situation and another. Avarice over-rates the difference between poverty and riches: ambition, that between a private and a public station: vain-glory, that between obscurity and extensive reputation. The person under the influence of any of those extravagant passions, is not only miserable in his actual situation, but is often disposed to disturb the peace of society, in order to arrive at that which he so foolishly admires.” [Smith; Theory of Moral Sentiments]
So, what have we done for the past 25 years? We de-regulated the avaricious, we praised the vain-glorious, and we rewarded those harboring these “extravagant passions” with riches beyond their dreams. Then we declared it “good,” and “American” and the culmination of “Free Enterprise,” when in fact the effect was to “disturb the peace of society,” and create such income inequality that it is difficult to sustain the basic capitalism we say we admire.
Politicians need to make their positions clear: Do you support American capitalism or do you support Financialism? If the former, you are deserving of our praise and votes. If the latter, you need to be out of any office of influence until you understand that you are destroying the very system you purport to value above all else.