The End of American Capitalism? was the portentous headline in the October 10 Washington Post. It’s part of an apocalyptic story line about the coming of socialism that is prominent these days in the media and on the McCain campaign trail. The accompanying article by Anthony Faiola went on to say, “Many economists are asking whether it remains a free market if the government is so deeply enmeshed in the financial system.”
He has, I suggest, little to fear. The American version of the “free market” is a hyperbolic conception readily abandoned in times of crisis throughout our history. As Steve Lohr pointed out in the New York Times four days later, “the federal government has occasionally taken stakes in railways, coal mines and steel mills, and has even taken a controlling interest in banks when it was deemed to be in the national interest…typically [returning them] to private hands.” That obvious historical fact, though, did not prevent Paul Rubin, an Emory University economics professor, from waxing hysterical in the Wall Street Journal on October 21 over the fearsome prospect of a “New New Deal” that “may soon put our economy on track for a catastrophe.”
If American-style “capitalism” were indeed the real thing, Faiola’s question might be worthy of causing Rubin and other economists palpitations. But the United States is a lonely outlier in the capitalist world, throughout which “free” markets have long been constrained and regulated. Sometimes this has been pushed by organized capitalists at the top–it was not steelworkers who advocated the seizure of the American steel mills in 1952, or left-wing intellectuals who advocated creating the Federal Reserve, or Bernie Sanders who insisted on giving Henry Paulson dictatorial powers over the financial sector–and sometimes the push has come through the demands of organized workers and farmers at the bottom. As Karl Polanyi pointed out in his classic The Great Transformation, it took a great deal of centralized planning and legislative control to create the early “laissez-faire” economies, and the masses of people have never gone for long without demanding that the destructive human results of these economies be brought under at least some control. Such interventions have, on the whole, raised the indexes of well-being and even of democracy in the advanced industrial economies, indexes on which the United States is regularly far from the top. Yet they have yielded little reason for the remaining socialists among us to believe that capitalism is anywhere near disappearing.
This is because the free market, to the extent that it has ever existed for any serious period, is nothing but a favored instrument of capitalism, not the thing itself. Real capitalism is a particular process of material accumulation, an engine of growth and a regime of governance and institutions devoted to keeping that engine running. In a capitalist society this accumulation takes place primarily through the actions of private enterprises, underwritten by laws and customs that make accumulation the primary goal of society. That is only half the story, though. The other half is that a successful capitalist regime creates a surplus in the form of profit, and this surplus, though it is created by workers, is totally appropriated by owners and either saved or expended according to their desires. Some of that surplus is clawed back from them by the government in the form of taxes, but a good deal of those tax revenues further the activities of private enterprise and the owners in the form of necessary improvements to infrastructure, subsidies to troubled but valued enterprises, and funding for armies and police forces to protect their property. So capitalism goes about its business, creating a surplus that enriches the coffers of those who accumulate wealth while providing enough of a living to those who work for the accumulators to keep them from throwing sand in the engine’s gears. When either half of that bargain fails, state intervention is the inevitable result.