24
Jul
09

The Many Faces of Capitalism

Throughout the blog I have been discussing various aspects of Capitalism, however, one must keep in mind that Capitalism isn’t so much an economic theory in and of itself but rather a general category of economic theories based around capital (money). For one to describe Capitalism without making note of the various schools of thought within the system would be the equivalent of describing Christianity without mentioned the beliefs of Catholics, Orthodox, and Protestants, or describing warfare without noting the invention of gunpowder. So, in the interests of clarity, listed below are the descriptions of the major classes of Capitalism.

Classical Capitalism

While the actual term “Capitalism” was coined by Karl Marx, the first comprehensive work on the subject of Capitalism (or “commerce”, as it was simply known as) was penned by British economist Adam Smith, in his The Wealth of Nations (considered by many to be the “Bible of Capitalism”. Smith’s essential argument was that humans ought to work in their self-interests which would create a strong and healthy society. Smith stated that if one person owns a product and attempts to sell it, the purchaser will buy it for whatever he deems it to be worth, leaving both seller and buyer richer and happier than before their transaction. Throughout his work, Smith advocates this concept of self-interest as the foundation of commerce, stating that “We address ourselves, not to their humanity, but to their self-love, and never talk to them of our own necessities, but of their advantages.”. Additionally, Smith claimed that it is in the best interests of the economy and the government for the government to interfere as little as possible with the economy (see “Free Trade” below).  Today, Adam Smith is viewed by many as the founding father of Capitalism and one of the most important economic theorists in the history of the world.

Laisseiz-Faire

Laisseiz-faire (literally “Hands-off” or “Let-do”) can perhaps best be described as an aspect of Capitalism (Classical Capitalism, to be precise) rather than a school of Capitalism. Based on the works of Adam Smith, Laisseiz-faire is a philosophy that states that the government should never interfere or attempt to regulate the economy which- according to the advocates of Laisseiz-faire- functions best without outside influence. While developed separately from Adam Smith, the philosophy of Laisseiz-faire and Classical Capitalism are often combined or associated with each other. While Smith primarily objects to government tariffs, Laisseiz-faire has historically opposed government interference in the form of anti-monopoly laws, minimum wage, and unions.

Christian Capitalism

While the US and much of Europe has never had any theocratic rule since the end of the Renaissance, it is undeniable that in the West, a Christian concept of Capitalism has existed for some time. Of course, this “Christian Capitalism” by no means applies to all Christians, but the fact remains that this philosophy does indeed exist. Christian Capitalism attempts to reconcile the self-focused, competitive tenets of Classical Capitalism with the rather community-focused, anti-materialist teachings of the Christian religion. The end result is what one might call a “moralistic Capitalism”, where competition and materialism do exist, but are tempered by ethics. Those within the system are free to make a profit, but gouging the buyer, deceiving the competition, or tricking the seller is considered to be unacceptable. Charity is advocated but not mandated (as opposed to other religious economic theories to be discussed later). While this form of Capitalism is often considered to be the ideal, there are many split on issues of what is and is not moral (what are the limits when trying to outsell a competitor, for example).

Regulated Capitalism

Contrary to common belief, regulated Capitalism is not a form of Communism or Social but simple government interference. Regulated Capitalism, like Laisseiz-faire, isn’t so much a theory of Capitalism but an aspect of Capitalism. Teaching the very opposite of Laisseiz-faire, regulated Capitalism states that economies require some form of control in order to flourish. This “control” can range from basic laws on minimum wage and worker-safety (such as in post 1940s America) to major government control (as in 1920s and 1930s Italy). While regulation is often confused with Socialism, one must keep in mind that so long as the state does not own the company, the products it sells, and the revenue generated, it does not count as Socialism.

Keynesian Capitalism

British economist John Maynard Keynes could perhaps be described as the most anti-Capitalist Capitalist the world has ever known. Keynes held that Capitalism is “the astounding belief that the most wickedest [sic] of men will do the most wickedest of things for the greatest good of everyone.”, and yet was himself a Capitalist. From a philosophical standpoint, Keynes despised Capitalism and yet saw it as the only option. As a result of this, his economic theory (known as “Keynesian economics”) attempts to protect the public from Capitalism’s costs while maximizing its benefits. Keynes advocates government regulation to protect the public while stating that the public, in order to prevent recessions and depressions, should spend their money without excessive investment or saving. Currently, Keynesian economics are often criticized by other schools of Capitalism as requiring too much collective and government interference.

Ayn Rand Capitalism

Also called “tooth-and-claw Capitalism” “Anarchist/Anarcho-Capitalism”, and “Social Darwinism”, this form of economics focuses on individualism to the point of egotism (or as Rand dubbed it, rational self-interest). Theorized by novelist Ayn Rand (most famously in her books The Fountainhead and Atlas Shrugged), this form of Capitalism is perhaps the most brutal. Rand’s philosophy vehemently opposes all forms of government interference, charitable aid, altruism, and religion. While never explicitly stated in her works, Rand’s economic theory holds that the wealthy and privileged are wealthy and privileged because they earned it, while the poor and proletariat are at the bottom of the economic food-chain because they are lazy or simply choose to be poor. In her book Atlas Shrugged, Rand submits that the wealthy and powerful are the most productive and useful members of society, capable of bringing the world to a sudden halt by going on strike. While Rand’s theories are essentially Capitalist, many other schools of Capitalism look down on Rand’s theories as barbaric, excessively anti-charity, and basically flawed. Despite public criticism, many hold that Rand’s Capitalism is by far the most pure form of Capitalism.

Free Trade

Free trade, like regulated Capitalism and Laisseiz-faire Capitalism, is a concept- not a theory. Free trade essentially is the belief that international trade should not be regulated or controlled by governments. Outsourcing, the import/export of resources and goods, multinational corporations, and international investment are all aspects of Free Trade that its advocates state will produce higher profits, lower production costs, more jobs, more demand, and generally stronger economy.

Protectionism

Protection (perhaps more of a political concept than an economic one) demands the very opposite of Free Trade. Protectionists believe that jobs should go to citizens of the country the company is in, that resources and products should be obtained and produced locally and that massive export and import tariffs should be maintained for the purpose of preserving jobs for the citizens of the country. Protectionists will often also oppose immigration for the same reason.

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4 Responses to “The Many Faces of Capitalism”


  1. July 24, 2009 at 3:29 pm

    Adam Smith, as I think I might have mentioned once before, did specify one role of the government in the economy– the government is to ensure that justice is done. As people become rich they will inevitably become powerful, and they might attempt to use that power to turn circumstances unfairly to their own benefit. For example, look at the way labor was oppressed in the United States during the Gilded Age. Laborers were not allowed to unionize, and this was an abuse of power. It was also manifestly unjust, because people have a right to gather. Smith believed that so long as the government prevented such acts of injustice, capitalism was the most efficient system for generating and distributing wealth.

    With that in mind, how does Classical Capitalism differ from Christian Capitalism? You give examples of Christian Capitalism forbidding deceit and treachery, but these are injustices to begin with, and so would be similarly forbidden under Classical Capitalism.

  2. 2 trotskyite
    July 24, 2009 at 6:16 pm

    It’s a tricky issue. Since Classical Capitalism isn’t based in any specific moral-code, defining “justice” isn’t easy. Especially now that post-modernism has become the mainstream philosophy, the concept of what is and what isn’t just is even harder to define. Christian Capitalists, on the other hand, are able to define business practices are and are not acceptable using their religious doctrines (though even there, they too have issues of how much a command is to be applied to life).

  3. July 25, 2009 at 3:11 am

    “(D)efining “justice” isn’t easy.”

    Justice is the act of giving to someone that which is due him. I went into detail on what justice is here: http://alamanach.com/burning-down-the-gates/ How do we know if something is due someone? Thomas Aquinas had a simple test. If by taking or witholding something from somebody, you do more harm to yourself than to that other person, then it was properly his. For Aquinas, the thief is the real victim in a robbery. Aquinas wasn’t ignoring the material harm done to the person who had something stolen from them of course, he just ranked the spiritual harm suffered by the criminal as something much greater.

    Throughout history people have tried to find ways to cheat justice in order to make life better. It has never worked. I work in international aid, and I see attempts on a daily basis to give things for free to impoverished Afghans, with nothing given in return. Though the aid organizations do this voluntarily, it is still an injustice, and it is in fact the Afghans who fare the worst for it. Their economy is constantly undercut by an unending stream of random handouts and the people are reduced to beggary. (For what its worth, I’m working hard to change things from the inside.)

    As another example, we’ve seen plenty of political movements that promised utopia at the expense of short-term injustices– Nazi Germany, for example. They saw material gain in the short run, but it wasn’t long before the country was drawn and quartered. Zimbabwe unjustly grabbed white-owned farms, and it quickly went from being the breadbasket of Africa to perhaps the world’s worst failed state. (Right now, Zimbabwe is even worse off than Afghanistan.) One could make the argument “communist” Russia and China were similar examples.

    If you want to quibble with Aquinas’ definition of justice you may come up with another, but universally humans understand that it is wrong to take what does not belong to you. Any legitimate definition of justice will run along those lines. Smart-alecky attempts to philosophically redefine who owns what, when implemented as policy, always turn out badly. Justice is real and it exists and it can be defined. History’s long list of failed regimes and failed states testify to this.

    Post-modernism is a few insightful ideas taken way too far. You don’t see post-modernists fighting wars or building nations, mostly they just sit around being more clever than everbody else. I have limited patience for them, as you may have guessed. Adam Smith was not a post-modernist, and so I would expect him to hold, as I do, that justice is something objectively real. I guess then the difference between his capitalism and what we are calling Christian Capitalism would be that the people of the latter hold a more-or-less post-modernist outlook. In operation these two forms of capitalism would be basically identical, but in philosophical justification somewhat different.

  4. 4 trotskyite
    July 25, 2009 at 6:49 am

    I never said that Adam Smith was a post-modernist, however, it is undeniable that most people today are both Capitalist and post-modernist. When I said that defining justice isn’t easy, perhaps I wasn’t as clear as I should’ve been. What I meant was “defining justice isn’t easy in our current world which is torn between the ideas of post-modernism and various absolute-philosophies.”.


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