From JOHN IKERD
Professor Emeritus, University of Missouri, Columbia, MO – USA
“The idea that the markets are always right was mad.” This was the reaction of French Prime Minister Nicolas Sarkozy to the meltdown in global financial markets. He blamed the current financial crisis on a betrayal of the “spirit of capitalism.” He argued that capitalist economies should never have been allowed to function without strict government oversight and regulation. He was right. It remains to be seen whether capitalism can survive the betrayal.
During its early stages of development, economics was called political economy. Classical economists such as Adam Smith, David Ricardo, Thomas Malthus, and Karl Marx were clearly as concerned as much about philosophy and politics as what we today call economics. They had clear ideas concerning whether economic choices were good or bad for nations and right or wrong for humanity, though obviously not always agreeing.
Over time, however, academic economists sought to distance themselves from the social and ethical consequences of growing industrialization by retreating to scientific empiricism. They began relying on the observable and quantifiable choices of consumers and producers. They accepted the preferences revealed by those choices as inherently right and good, or at least left such matters to the philosophers, sociologists, and political scientists. Philosophy and politics had no place in the new economics, other than dealing with “market failures,” which they thought to be few. The “spirit of capitalism” had been betrayed long before the financial meltdown of 2008.
Economic systems have acquired their names – capitalism, socialism, communism, fascism… – from their sources of dominant economic power or authority. Under socialism, workers – those who make up the vast majority of society – are the dominant source of economic power. Communism focuses the socialist power of workers on their local communities.