JPF Home Page Forums Stop The Bailout

Brian,

Capitalism (http://en.wikipedia.org/wiki/Capitalism - see web site for the underlying footnoted references):

"Capitalism is the economic system in which the means of production are owned by private persons, and operated for profit[1] and where investments, distribution, income, production and pricing of goods and services are predominantly determined through the operation of a free market[2], rather than by central economic planning. Capitalism is usually considered to involve the right of individuals and corporations to trade, incorporate, employ workers, and use money provided by central banks, in goods, services (including finance), labor and land.[2] In theory, production and distribution in a capitalist system are governed by the free market rather than state regulation,[3] with state action confined to defining and enforcing the basic rules of the market[4] though the state may provide a few basic public goods and infrastructure.[5] Unrestrained capitalism is confined to theory, as "all of the capitalistic societies of the West have mixed economies" with interventionist state regulation, social programs[6] and state ownership of some sectors."

Let's focus on the last sentence. It says that all modern Western societies are mixed, employing some form of capitalism *and* socialism. Just as socialism "...is not a discrete philosophy of fixed doctrine and program..." neither is capitalism.

"Socialists mainly share the belief that capitalism unfairly concentrates power and wealth into a small section of society who control capital, and creates an unequal society".

The underpinnings of modern capitalism believes the same thing. Otherwise, why enforce any regulation, or discourage monopoly, etc.?

"Socialism refers to a broad set of economic theories of social organization advocating state or collective ownership and administration of the means of production and distribution of goods....".

Loaning money to car companies or buying shares of banks (especially the latter) could be seen as "state or collective ownership". However, neither is "administering...the means of production". The loans are of course just that, loans. The government is not asking for seats on the boards or input on how to run the companies. Neither is it with the bank issues. In fact, now that it has moved from buying debt to injecting capital via buying preferred shares, it could be looked at as the government simply making investments with its money (yes, I understand it is borrowed money). Besides, the FDIC is "socialist". It insures that banks remain in business by insuring deposits (and this hopefully avoiding bank runs).

Does this violate pure capitalism, sure. Does it violate modern capitalism, no. These moves are simply part of the tool kit a modern capitalist government may use. This is not a fundamental shift away from private ownership and stewardship. It's an emergency procedure to keep the economy running. We and other modern capitalist societies have done things like this in the past, no worse for wear (ya, famous last words I know).

The problem with calling the Emergency Economic Stabilization Act a socialist move is that modern capitalism is socialist in many ways. And, modern capitalism "shifts to socialism and vise-a-versa" as needed and is practiced differently depending on the country. There is no bright line between socialism and capitalism. However, people don't acknowledge this connection. So, in our country particularly, the word socialism has a bad connotation. Anyone labeled "socialist" in our country is evil personified. And thus that label gets used politically to block things like universal health care.

Our current problems came about two ways: The housing market tanked due to inflated demand from too many loans, and Credit Default Swaps insuring the loans. A Credit Default Swap is basically insurance that lives outside of any regulation, such as maintaining reserves, etc. The SEC Chairman knew full well of this shadow economy, and the possible extreme problems, but allowed this so as not to interfere with a "free market". Sounds like we needed some "socialism" in this case...