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Is the "Capitalism" in a crisis?

By Ben Hedenberg
last updated Sunday, February 12, 2012

Is the market economy to be blamed for the dim outlook

Only the use of the word capitalism points to the left. Karl Marx and Friedrich Engels invented the term capitalist and used it frequently in "Das Kapital." In most of the Western world the journalists favour socialistic economic principles. It is not a coincidence that the major media channels have emphasized on the founders of the World Economic Forum statement that capitalism is out of whack and are welcoming ideas of how to fix it.

During all times we have had and will have economic cycles. It is inevitable that recessions occur in any economic system. The free market economy is in-itself extremely self-healing, as fare as the political class avoid to intervene. Politicians in Europe like in US believe that they must intervene and fix things. The US government is deploying staggering amounts of money that it is spending, in the belief that it can avoid a repetition of the 1930s. But it was exactly what the FDR governemt did and what caused the long and deep depression.

Now when the enormous budget deficits are piling up and is enlarged by sharply declining federal-tax revenues the left is blaming the market economy.

Market economy is the only system that has worked to improve the standard of living for the vast majority of the global population. Never has the humanity achieved such staggering amount of wealth as today. Economic growth from 5000 B.C. up until 1500 was next to no growth in output per worker for the average human. Even during the 1800s the average human had a material standard of living (and an economic productivity level) at best twice that of the average human alive in year 1. The problem was not that there was no technological progress. But there was no fundamentally free market economy before the 19th century. From 1800 to 2000 the GDP per capita has grown from $250 to a staggering $8,175.

England first

The fact that England became the leading nation in the industrial revolution in the 19th century was not depending on the steam engine and other innovations. That England initiated the industrial revolution depended solely on that the government was strong enough to protect property rights and to avoid confiscating the wealth of its citizens. Thanks largely to Adam Smith, the English economy was freed of massive state control. England adopted free trade and a general policy of benign neglect of the economy. This allowed the economy to blossom and caused an incentive to innovate and to use new production methods. In the then newly freed market, capital, labor, land, entrepreneurial talent and so forth was seeking the highest returns possible from employment at their highest valued uses.

There can be no doubt that economic freedom increases the rate of economic growth in a nation and improves the distribution of market income. All data points clearly to that nations with more egalitarian distributions of market income have lower rates of economic growth. The raise of the European welfare state and the American
welfare state in its making has caused a huge damage to the economic freedom and wealth creation. Now the left is accusing that "capitalism" is in crisis and has to reinvent itself.

The fact is that US government interventions, not laissez faire, caused the housing bubble and the ensuing financial crisis. Another fact is that the European economy is unable to perpetually prop up an over extended banking system responsible for underwriting the unsustainable expansion of the continent's sovereign governments is not an indictment of the market economy ("capitalism"). Instead it is an indictment of botched command economic planning and the unchecked expansion of the welfare state, which are conspiring to undermine the free market and its unparalleled ability to create wealth. It was not the Marxist economy but free market reforms that took China out of poverty and made its economy expand 16-fold over the last 30 years. In the last two decades an estimated 440 million Chinese now are out of poverty.

Was the Swedish model successful?

The Swedish model is often debated. Sweden has not yet declined like Greece due to continuous reforms towards economic liberty within the scope of welfare. But the golden age of Swedish entrepreneurship, where one successful firm after another was founded and gained international recognition, occurred during a time when taxes where modest and government was limited. During the Olof Palme époque Sweden shifted to a radicalized social welfare big government state in the 1970s, and the 1980s. How did that workout? Milton Friedman has noted that the millions of Swedish descents living in US also have a low poverty rate, like the Swedish citizens. The Swedish descents living standard exceed over 50 percent to Swedes living in Sweden. This is an embarrassing fact exposing that the socialized income model does not produce the welfare expected but the left. Nowadays the growth of government has come to a halt and even reversed in recent years. Gradually Sweden is returning to the free market policies which served it so well in the past.

Who's crisis…

The problem of the Western society is that unfortunately little of the knowledge and understanding within the economic profession has reached the average voter, leaving politicians free to suggest reforms that would never be accepted if most people understood basic economics.

There is no crisis for "Capitalism" (read the market economy). The crisis belong to the left and its believe that the income can be socialized and that big government is the solution to all problems. The reality is that no government bureaucracy is capable of handling the myriad of information in the market place in order to make the right decisions. Only a free market with limited regulations can handle the information, since each individual only need to be an expert in his own domain. And there are millions of individuals out there having adequate knowledge to perform smart transactions.

Capital Rasied untill 2011

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