Financial History Issue 124 (Winter 2018) | Page 13
EDUCATORS’ PERSPECTIVE
In Defense of Capitalism Part 1:
The Problem and a Definition
By Brian Grinder and Dan Cooper
The vilification of capitalism is nothing
new. Given the abuses of the free market
system that led to the Great Recession of
2008, it is not surprising that such criti-
cism has intensified. This criticism is not
altogether unwelcome, given the adaptive
nature of capitalism. It usually serves to
improve the system.
However, concerns about this negative
trend are abundant. In a review of Andrew
Lo’s [watch video] book Adaptive Markets
for Financial History [Fall 2017, pp. 38-39],
James Prout writes, “These are difficult
days for capitalism and free markets; more
pessimistic than I’ve ever seen.” Some,
such as Mihir Desai [watch video] and
William Cohen [watch video] have risen
to defend the financial markets, an inte-
gral part of capitalism. In The Wisdom of
Finance, Desai writes, “This book takes the
unorthodox position that viewing finance
through the prism of the humanities will
help us restore humanity to finance.” Like-
wise, Cohen introduces his book, Why
Wall Street Matters, by asking:
Should we be angry that Wall Street
seems to be nothing more than a fes-
tering, open wound of rampant self-
interest and malfeasance? Or should
we be happy that Wall Street has
become a convenient metaphor that
politicians use to park blame for every
bad economic thing that has befallen
the country in recent years?
Or could it be that Wall Street is some-
thing altogether very different? Is Wall
Street the left ventricle of capitalism,
the brilliantly designed engine that
powers innovation, job growth, and
wealth creation and that has become
the most sustained way by which bil-
lions of people the world over have
been lifted out of poverty and given a
chance at a better, more economically
fulfilling life?”
A 2016 Harvard University survey of
young people aged 18 to 29 found that 51%
opposed capitalism, while only 42% sup-
ported it. A poll of millennials from late
last year, according to Bloomberg.com,
found that 44% of those surveyed would
prefer to live in a socialist country, while
42% prefer a capitalist society. A 2015 Rea-
son-Rupe poll found that 58% of college-
aged Americans view socialism positively,
while 56% view capitalism positively. By
comparison, 61% of senior citizens in the
same poll had a favorable view of capital-
ism while only 28% had a favorable view
of socialism.
College students have historically
tended to be skeptical of capitalism. Dis-
paraging remarks from students about
the evils of capitalism and the greediness
of capitalists are not surprising in gen-
eral education classes, such as personal
finance. However, when business majors
begin to seriously doubt the viability of
the capitalist free market system, as they
have recently, business and finance pro-
fessors must take heed, re-examine how
they approach capitalism in their courses
and take steps to ensure that students
understand the history of capitalism and
appreciate its role in modern society.
Part of the problem is that capitalism
is a vague term. Historian Joyce Appleby
reminds us that “Capitalism didn’t start
as an ‘ism.’ In the beginning, it wasn’t a
system, a word or a concept, but rather
some scattered ways of doing things dif-
ferently that proved so successful that they
acquired legs.”
No one envisioned capitalism and acted
on that vision to bring it about. Capital-
ism did not spring from some profound
intellectual theory; it developed pragmati-
cally and organically. The term itself was
first used by the opponents of capitalism
to describe a system they wanted to end.
Some argue that the word should be jet-
tisoned as a description of our economic
system, given the historical baggage that
accompanies it.
In his three-volume study of civilization
and capitalism, Fernand Braudel relates
his own struggle with the word capitalism:
Whether through caution or negli-
gence…I have only used the word
capitalism five or six times so far, and
even then I could have avoided it…
Personally, after a long struggle, I gave
up trying to get rid of this trouble-
some intruder. I decided in the end
that there was nothing to be gained by
throwing out along with the word, the
controversies it arouses…if capital-
ism is thrown out the door, it comes
in through the window…As Andrew
Shonfield says, ‘one…justification for
the continued use of the word “capital-
ism” is that no one, not even its sever-
est critics, has proposed a better word
to put in its place.’
19th century critics of capitalism first
coined the term. According to Braudel,
the term “capitalism” in its modern mean-
ing was probably first used in 1850 by
French socialist Louis Blanc, who wrote
pejoratively, “What I call ‘capitalism’ that
is to say the appropriation of capital by
some to the exclusion of others.”
In Capital: A Critique of Political Econ-
omy, Karl Marx describes a capitalist as
follows:
As the conscious bearer [Träger] of this
movement, the possessor of money
becomes a capitalist. His person, or
rather his pocket, is the point from
which the money starts, and to which
it returns. The objective content of
the circulation we have been discuss-
ing — the valorization of value — is his
subjective purpose, and it is only in
so far as the appropriation of ever
more wealth in the abstract is the sole
driving force behind his operations
that he functions as a capitalist, i.e. as
capital personified and endowed with
consciousness and a will. Use-values
must therefore never be treated as the
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