When the economic mess came to light about a year ago, a good many friends
of the welfare state and its full expression, social democracy (a type of
socialism), seized the opportunity and claimed that it is all the fault of
capitalism, of free market economics. James Galbraith, the political
scientist son of the late John Kenneth Galbraith, a professor at the
University of Texas, Austin TX, gave a talk in which he gleefully referred
to the late Milton Friedman as someone who contribute to "the bust,"
hoping to get some laughs out of his audience at Chapman University where
Friedman not only has a small bust displayed in the courtyard but whose
president, James Doti, studied with Uncle Miltie. All because Galbraith
believed, along with such luminaries as Princeton University Nobel
Laureate in economic science and New York Times columnist Paul Krugman,
that it is indeed the free market that's to blame.
One central flaw in this line of analysis, if one should even call such
outbursts by that term, is the plain fact that there has never been any
kind of full blown free market capitalism implemented in the United States
of America. Among the many elements of the country's economy that clearly
diverge severely from that system was slavery.
Under free market capitalism all persons in the market place must be free
to trade, to sell and buy the valuables they own and no human being may be
treated as anyone's property (other than, perhaps, one's own--in the
fashion, as it is sometime put, self-ownership). Any kind of subsidy, a
standard policy of various levels of American governments--whereby the
government confiscates some citizens' resources and hands these to other
citizens--violates the principles of the free market. Those from whom the
resources are confiscated have lost their liberty to make use of them in
their own market activities. Protectionism, which has been practiced in
this country on and off from the beginning, is also a practice that
violates free market principles, preventing citizens from the freedom to
buy goods and services from abroad and forcing them to pay whatever
domestic vendors ask for what they might have obtained elsewhere. And
there are a great many other such breaches of capitalism that have been
features of the American economy, including all those local restrictions
of free trade that come from blue laws, various ordinances as to where one
may build homes, businesses, etc.
Oh, you may say, but these are all results of democratic politicking and
should not be objected to in a country like America where democracy is the
method for determining public policy. Well, if so then at least admit, I
would argue, that democracy has been trumping the free market system from
the nation's birth, making the claim that there's has been rampant free
market capitalism afoot here is utterly false. Yes, compared to many
countries across the globe and throughout human history, America has had a
freer economic system. Before the birth of the USA most countries operated
with a mercantilist system wherein the monarch and his minions decide on
important social, including economic, matters--in science, religion,
publishing, trade with foreign nations, etc. and so forth. So compared
with that the citizens of this country obviously enjoyed more liberty
(except, of course, those kept enslaved).
But just because of the relative greater economic freedom here, it is not
true that there has been free market capitalism in America. In some
regions of the economy freedom has been progressively eroded, such as in
banking and finance which have become nearly nationalized under the rules
of the central bank, the Federal Reserve system, since the early 1900s.
Again, the point here isn't whether this was something right, just as the
point about democracy in the political system isn't about whether that is
just or proper. The issue here is only whether those who loudly blame the
current fiasco on free market capitalism have any kind of case at all. And
they do not.
Making references to the late Milton Friedman, as did Professor Galbraith,
is also quite disingenuous because while the great economist from the
University of Chicago did advocate a virtually fully free market
capitalist economy, his recommendations were hardly followed and, instead,
he was listened to mainly concerning certain technical monetary policies,
rules laid down by the Federal Reserve. But following those rules by no
means gave the country a free market economy.
The task of figuring out how various results are produced in a mixed
economy such as America's is a difficult one. Many claim, of example--and
not at all implausibly--that what largely brought about the current mess
is the federal government's insistence that banks lend money to people who
were utterly unprepared to repay it and how this policy spawned others,
mostly in the financial markets, so that they led to the mess we now face.
But whatever is the right explanation, it simply cannot be that free
market capitalism cause it all since, well, there has not ever been free
market capitalism in America, especially not in the financial sector.
