Guest Post: Is The Economic Crisis An Indictment Of Capitalism?

Tyler Durden's picture

Submitted by Shawn Ritenour via the Foundations of Economics blog,

One of the sad narratives of the financial meltdown of 2008 and its aftermath is that it was and remains the result of unbridled capitalism. Too much freedom spoiled the economic broth.

While doing research for a current project I'm working on, I came upon a remarkable essay by Ludwig von Mises. It turns out that Mises considered the question of whether economic crisis is an indictment of laissez-faire capitalism back in 1931 in the wake of the worst global economic downturn of the Twentieth Century.

In an essay, "The Economic Crisis and Capitalism," published in the German Neue Freie Presse (available in English Translation in Selected Writings of Ludwig von Mises, Vol. 2), he explains why the answer to the question is a decided no!

It is almost universally asserted that the severe economic crisis under which the world presently is suffering has provided proof of the impossibility of retaining the capitalist system. Capitalism, it is thought, has failed; and its place must be taken by a better system, which clearly can be none other than socialism.
That the currently dominant system has failed can hardly be contested. But it is another question whether the system that has failed was the capitalist system or whether, in fact, it is not anticapitalist policy--interventionism, and national and municipal socialism--that is to blame for the catastrophe.
The structure of our society resets on the division of labor and on the private ownership of the means of production. In this system the means of production are privately owned and are used either by the owners themselves--capitalists and landowners--for production, or turned over to other entrepreneurs who carry out production partly with their own and partly with others' means of production. In the capitalist system the market functions as the regulator of production. The price structure of the market decides what will be produced, how, and in what quantity. Through the structure of prices, wages, and interest rates the market brings supply and demand into balance and sees to it that each branch of production will be as fully occupied as corresponds to the volume and intensity of the effective demand. Thus capitalist production derives its meaning from the market. Of course, a temporary imbalance between production and demand can occur, but the structure of market prices makes sure that the balance is reestablished in a short time. Only when the mechanism of the market is disturbed by external interventions is the effect of market prices on the regulation of production prevented; they are disturbances that no longer can be remedied by the automatic reactions of the market, disturbance that are not temporary but prolonged.

In a free market rooted in private property, the only way entrepreneurs are able to sustain profits is by serving customers better than anyone else. It is only when they receive special privileges through preferential regulation, subsidies, bailouts and the like that they are able to reap profits for which they have not sowed productive activity.

I was struck by how much of what Mises said about the response of many to the Great Depression applies closely to our current situation. Just like Mises, we must never tire of explaining the fallacies in the thinking of those who think the Great Recession is a clear case of the failure of capitalism. In fact, it is a quintessential example of the failures of interventionism to bring about anything other than economic destruction and relative impoverishment.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Baldrick's picture

No, it is an indictment of fascism.

prains's picture

Crony capitalism is not the same as unbridled capitalism, loose lips make for loose definitions, makes for co opted meanings, meaning more confusion less action. STOP fucking it up 

macholatte's picture

 

 

You have been distracted.  All fingers point away from the culprit.

The cause of the "Economic Crisis" is a failure of government.  

Start here: Why does a soverign country cede its sovereignty to a central bank?

 

 

Marco's picture

Government in the US isn't like the Kafka'esque governments of the old eastern block countries though ... they don't exist in isolation. Current US government is almost entirely coopted by money, partly through campaign financing ... but mostly through revolving door employment deals.

James_Cole's picture

whether economic crisis is an indictment of laissez-faire capitalism back in 1931

60 major banking crisis later...But anyway, the good news is the world is exactly the same as it was in 1931 so anything said in 1931 is perfectly applicable to the economic envrionment we currently face. 

In a free market rooted in private property, the only way entrepreneurs are able to sustain profits is by serving customers better than anyone else.

Whenever a sentence starts with "in a free market.." you know you're going to hear some ridiculous bullshit, Ritenour didn't disappoint!

Pinto Currency's picture

 

Central banking/central planning and regulatory capture has destroyed Western countries.  It wasn't a market economy that wiped us out.

Flakmeister's picture

That is very deep, did it take you a long time to reach that conclusion?

Pinto Currency's picture

 

 

It becomes apparent to objective observers over time; most still don't get it.

Assuming from your comment that you are from the "we just need more regulation" camp.

Flakmeister's picture

Apologies...I got detained...

Actually, we need less regulation... We need the right regulation; it must be enforceable regulation. Remember that dude Adam Smith, even he was aware of the need for a "well regulated" market place...

Pinto Currency's picture

 

Ah yes.  The right, enforceable regulation.  And then the centralized regulatory power gets coopted and regulatory capture is achieved and those who own the regulators are overlooked while they fleece the system.

THere were more than enough regulations in place to stop the financial crimes that were committed over the past two decades.

The whole problem starts with central banking and central control of the economy and it ripples out from there to capture of all of the regulatory bodies.  Only the market can effectively regulate.

 

A Nanny Moose's picture

And then the centralized regulatory power gets coopted and regulatory capture

Is watching Teh Pr0z considered regulatory capture?

Flakmeister's picture

I will cite one example, the commercial banking sector in Canada....

Commercial banks are seen as a public utility and are tightly regulated.,.. Care to remind us of how many banking crisis have occured in Canada over the past 200 years?

It is clear that you are incapable of rising above simple slogans when discussing the isses.

Pinto Currency's picture

 

Canadian banks remain levered 20:1, they also received a +$110 billion dollar bailout of which $70 of toxic sub-prime loans were taken on by the CMHC (Fed Gov), and white collar crime is basically not enforced in Canada,.... the list goes on.

http://www.policyalternatives.ca/newsroom/news-releases/canada%E2%80%99s...

http://voices.yahoo.com/canadian-white-collar-crime-haven-criminals-5582...

Flakmeister's picture

The irony of you posting a link to a left wing Canadian thinktank is delectable....

And, really? Op-Ed pieces from Yahoo!   But I tend to agree with you in that white-collar crime is not addressed as it should be...

Pinto Currency's picture

 

Thought that would appeal to you.  They originated the story. Other links to the story of bank bailouts as well if you have any time for research.

http://business.financialpost.com/2012/04/30/did-canadian-banks-receive-...

Now back to your point of Canada's banks and bank regulation being excellent.

Flakmeister's picture

You really need to stop putting words in other peoples mouths if you want to carry on an adult conversation....

LibertarianMenace's picture

Only 60? Now that's bullshit. Centralized control has been such a hit. I'd settle for what's called the principle of least sub-optimality. To paraphrase, it's wise to accept that everything you do is going to suck, so why not do the thing that sucks the least? Like "in a free market"...Only the mentally dangerous strive for perfection.

MachoMan's picture

bingo, at least you can call it the cleanest dirty shirt in the hamper...  that's all it is...  the unbridled capitalism nuthugging that goes on here and elsewhere is nothing short of a religion... 

LibertarianMenace's picture

"...that's all it is..." But least sub-optimality means that picking "the cleanest dirty shirt" is sufficient to do the most economic good.

In this context, there would be no argument, given the history of "freer markets" over that of the alternatives. But as always, progs are looking for

perfection, and finding none, are miserable, and expect us to share their misery. Count me out. I saw the Iron Curtain, and read enough of guillotines

to know that it could be worse. Now based on what progs like (the state) versus what they don't (freer markets), I'd say they're hell bent on making

things worse. To me, that makes them dangerous.

 

Instead all it takes is to judge the problems caused by freer markets the way modern physics considers uncertainty: simply recognize the dangers posed, and therefore consider them half-removed. That sucks the least, and will therefore be best.

 

 

 

xtop23's picture

Government can't fix problems. Government creates problems. 

The only failure of our government, with regard to the economic crisis, is not getting the fuck out of the way and letting the market find its own equilibrium.

Marco's picture

What if the equilibrium is mass culling and neofeudalism for what's left?

xtop23's picture

"We had to suspend Capitalism, to save it."

We're seeing the fruits of that approach as we speak, aren't we?

Stupid and injured antelope die. By putting government in the way, you don't make more healthy and capable antelope. You make idiotic, parasitic lions.

James_Cole's picture

Stupid and injured antelope die. By putting government in the way, you don't make more healthy and capable antelope. You make idiotic, parasitic lions.

lol, didn't realize we had a brilliant resident biologist!

Read up on antelope, you might actually learn a few things. 

xtop23's picture

So you're saying that predators don't make a herd of prey healthier by removing the frail and sick from the population thereby allowing the stronger members increased reproductive success?

James.... that's about the most idiotic thing I have ever read on ZH. 

A very sarcastic +1 for your lack of neuron utilization on this topic.

James_Cole's picture

So you're saying that predators don't make a herd of prey healthier by removing the frail and sick from the population thereby allowing the stronger members increased reproductive success?

Nope, I did not say that.


You said:

Stupid and injured antelope die. By putting government in the way, you don't make more healthy and capable antelope. You make idiotic, parasitic lions.

Which is moronic in many ways but also exactly backward. Lions seek the weak antelope specifically because they have no chance against the herd. Antelope main defence against lions is their numbers, they even protect the weak by encircling them. 

It's comical that you're comparing government negatively against antelope when antelope are among the most collective animal groups and are also very difficult prey for more solitary animals like the cheetah, in spite of the cheetah's superior speed.  

xtop23's picture

Yes, let's ignore the main thrust of my initlal comment to argue the finer points of predator vs. prey on the Serengeti.

Jesus, James have you ever even kissed a girl?

Fine.

In the context I was describing the lions, I suppose I could have simply said, "Less than they could be."

By squeezing out competition (government intervention via legislative or monetary means),

the lions (banks / Wall Street / large corporations)

are in a situation where the antelope (the business "pool", if you will)

are handed to them on a platter (liquidated / relegated to decreased market share / made less competitive).

Would that situation make the lions more or less capable predators?

Or would that in fact make the term "parasite" more appropriate? 

Would that then also make the lions less intelligent, since the stupid and injured antelope would continue to breed young that are even more weak and idiotic?

Would that not then imply that the lions would require less intelligence for a successful kill?

You don't have to sneak up on a Twinkie, do you?

If the above questions, with the fairly obvious answers, are true, my point remains valid in the sense that it was intended.

Yours, simply patronizing.

I suppose it all depends on what your concept of the ideal lion is.

As far as my comment, ".....you don't make more healthy and capable antelope."

When the government prevents the restructuring required, by protecting less competitive or faulty businesses (stupid and injured antelope) which thrive under such an environment,

the result is greater and greater misallocations of capital and propagation of failure (more stupid and injured antelope).

You certainly don't create many successes, and the ones that succeed, rarely do it for less than what the private sector could have done it for.

 

Quote;

"It's comical that you're comparing government negatively against antelope when antelope are among the most collective animal groups and are also very difficult prey for more solitary animals like the cheetah, in spite of the cheetah's superior speed."

 

Well, I find you quite comical, James.

Cheers.

 

 

 

 

 

 

 

James_Cole's picture

This is quite the wandering rant you put together here. 

Your analogy of Antelope / lions has really gone off the rails entirely, not even worth bothering a comment on. 

 

When the government prevents the restructuring required, by protecting less competitive or faulty businesses (stupid and injured antelope) which thrive under such an environment, the result is greater and greater misallocations of capital and propagation of failure (more stupid and injured antelope). 

The US .gov is a ruling group writing laws based on lobbying from special interests, protects US businesses worldwide via trade regulations + a gigantic military & reserve currency and votes on legislation written by corporate lawyers. 

Why on Earth would this government do anything contrary to the interests of the people who pay their elections, the only people of any importance to them?

You certainly don't create many successes, and the ones that succeed, rarely do it for less than what the private sector could have done it for.

"Private sector" in the US is right up there with the Sasquatch, people claim to have seen it but we all know it doesn't really exist. Any company of any importance is tied in tight to the centre of power. 

 

bunnyswanson's picture

A predator should be the strongest, most brilliant, who gains respect and admiration from the masses.  Those who are considered predator have gained their positions by slight of hand.  Only one reason they'd resort to shifty methods is because they are unworthy predators and should in fact be prey. 

If you cannot reach the top without killing everyone on the bottom, you do not deserve to be there.

The weak.  Who are the weak?  The children?  The sick and old?  Are you telling us we should have a world where there are no invalids?  Well, that is a world where comparison to one another would take on a whole new meaning.  The compassion and empathy of man is what I believe is called love.

xtop23's picture

Your first sentence I wholeheartedly agree with.

"Most" of the current predators, yes, they achieved their positions through much less savory means.

They resort to "shifty" means because government creates an environment where the field of play isn't level.

Government has the guns. the laws, the jails, the avenue for recourse (courts), and create the money, along with the ability to control interest rates (at least currently...... Hello Mr.10 year !!)

As far as the last paragraph goes, I was talking about governments, their cozy relationship with corporations and the agents of finance, and its impact on the marketplace.

 

As far as government interventions like the entitlement state, I believe America could use a little bit of social Darwinism.

Not because I look down on helping the sick, infirm, old, destitute, uneducated, and incapable, but because the mechanism by which government does this is ineffective, significantly more expensive, and rather than it "giving those in need a leg up" in fact exiles them to a continued existence in the lowest strata of society.

People that are convinced, that such citizens would be without aid in times of crisis, never seem able to explain to me how these folks were able to survive prior to the establishment of the entitlement state.

Even people with the most hardcore, liberal mindset, must admit that there are a multitude of citizens that are currently collecting funds from the entitlement system and shouldn't.

Here's an example;

I transported a 32 year old caucasian female who was living in a motel, gravida 16 / para 12 (meaning she'd been pregnant 16 times and had 12 kids), and informed me during the transport, that she was attempting to get pregnant again, "so that she could get a bit more on her check."

I don't mind helping people, but are you kidding me?

ARE YOU KIDDING ME ?!!??

That kind of crap should infuriate taxpayers, and the politicians that facilitate this shit.

And even if I was predisposed to largesse at a level as nauseating as this, we have approx. 340 million people in this country. 

Greenspan said it best, "We can guarantee cash benefits as far out and at whatever size you like, but we cannot guarantee their purchasing power."

Anyway, sorry to get off on a rant. 

Heavy flow day, I'll go change my pad.

 

 

 

 

bunnyswanson's picture

Thank you for your reply.  I am so glad I found it.

Americans were not always like this.  If you spent any time in the 1950s and 1960s, you'd know that other than large cities, the poor side of town was a street or two.  There was 1 or 2 pregnant teen girls.  A very small portion of "special education children."  And there were only a few kids out of each class who flunked the grade.  I went to 3 high schools.  Lived or visited many places.  I was fascinated with "The Americans" and so watched from afar at their solid opinions and self-assured approach to everything. 

Broken homes is the problem with regard to churning out nonproductive citizens who cannot stand to be sober for more than a short time.  Not all of them fall apart but sensitive children in a life that is unpredictable, lacks a structured day, a routine that he can count on so he can focus on school work and his relationship with his peers, finding his gifts such as music or art, carpentry, or writing a book.  These features of ours do require the ability to develop them, a person somewhere who has faith in his ability to succeed and if he does it, that is okay as well.

The agenda has been discussed many times.  People have little value to those who appear to be in charge of us.  Hideous crimes, starvation, unfairness reeking out of every crevice of a society is found acceptable.  Distraction.  Distract the masses while a banking scheme to undermine the soverignity of a nation is a mode of operation.   The people in the streets today have been faced with shortages of food, electricity, jobs, freedom to move while their leaders are living large, floating around the seas on a several million dollar yacht, drinking only the finest of wines, enjoying what this planet has to offer us in exchange for the struggle to survive, a fucking vacation on Cloud Nine. 

How in the world do you expect people to survive in a collapsing economy if the govt does not help them?  Everyone on my street has been robbed.  Take away food and you will be seeing desperate people doing desperate things.  The state of the US work force is a reflection of the diet they are fed, the medical care they receive and the failure of the Food and Drug Administration to ensure the food the taxpayer is fed meets their daily nutritional requirements.   Sluggish, unmotivated, so large it pairs me to watch them walk, for god's sake, do you really think these people can put in a 40 hour week without becoming a patient in the ER? 

http://www.youtube.com/watch?v=_doqvkC-jYk  Yuri Bezmenov talks of how a country would be collapsed from within.  He states in so many words something similar to this:  there comes a point when the govt no longer cares about the condition of the citizens, whether they are healthy or not.

Wanting a sick, indebted, overburdened citizenry to be in place makes no sense because they'd not be able to work...unless you did not want them to work,  so that less tax revenue is collected and the bank is required to make up the difference.

PT's picture

xtop23:  "The only failure of our government, with regard to the economic crisis, is not getting the fuck out of the way and letting the market find its own equilibrium."
Like when they repealed Glass-Steagall? 

TruthInSunshine's picture

The crisis (and crises) we've experienced (and have been experiencing throughout history) owes much to the continually more concentrated, focused & creative (many argue the "creative" has now crossed into the "massively parasitic") methods that central banks propped up by private interests (who so happen to have captured the legislative, executive and judiciary branches - and the regulators that they delegate authority to - of our alleged constitutional form of republican democracy, nearly completely now) have implemented to "financialize" large segments of the economy, thus allowing for monopoly control (using monopoly fiat) of all levers of the now centrally planned economy.

It's.....it's.......it's almost as if there's a really, really important reason/purpose (with really, really important people with very strong motives) the central fiat printing "bank" that is sometimes associated with the U.S. (despite it maintaining it's a private entity when it tries to hide documents/data, as in the FOIA case brought be a late Bloomberg Reporter)....it's almost as if there's a reason it's been killed twice before, and yet now has come back under the name "Federal Reserve Bank" for a third time....

Fukkin' tinfoil conspiracy theorists...I know, right?

prains's picture

They figured out the boom bust cycles they'd been manufacturing for decades actually gave them more power after each bust and with a smile they said; "boys it's time to take this ship over" bwwwwaaaaaahhhaaaaaahaaaaaaa

MachoMan's picture

You're...  kind of right.  The overarching issue is self interest.  I'll posit that so long as self interest, security, and comfort are inherent in humans, then we will have power structures that ensure rent seeking.  Central banks are only but a single instance of a rent seeking power structure.  I think the mistake you make by focusing on the central bank is that you ignore that if it isn't a central bank, then it will simply be some other structure.  Thus, you're chasing windmills.

Wealth is continually more and more concentrated because it's what self interest demands.  Past that, the method utilized is rather irrelevant...  it's necessarily going to be at the expense of others and, in all likelihood, punitive towards them (us).

Granted, the tip of the spear that's stuffed up our collective ass is the central bank, but it's rather trivial compared to the rest of the shaft.

prains's picture

self interest.......where has that culturally metastisized to cancerous proportions......hmmmmm, lets ask Jean Baudrillard;

" When the empire declines, the map fades into the landscape and there is neither the representation nor the real remaining"

 

smart fuckers need to last longer

Kayman's picture

"Why does a soverign country cede its sovereignty to a central bank?"

I know it's an incomplete answer, but because politicians sell their souls for peanuts.

A Nanny Moose's picture

The cause of the "Economic Crisis" is government.

FIFY

cynicalskeptic's picture

What we have now is NOT Capitalism - it's a criminal loot-fest not yet Fascist but heading that way.... criminal enterprises paired with government extracting all they can from the population with the protection and connivance of government, a system that benefots a VERY few at the expense of all others.

Capitalism is a competitive enviropnment where the best VALUE - determined by function, perofrmance and price - competing with others - rises to the top.

Theta_Burn's picture

Dont know why you would earn a junk for this post, between you and Prains above, point summed up completely.

MachoMan's picture

Not at all...

Repeat after me, CAPITALISM DOES NOT EXIST OUTSIDE OF ACADEMIA.  Period.  The only thing that exists in the real world is self interest.  The fundamental foundation of capitalism, the market, is the antithesis of self interest.  Conceptually, people are supposed to compete against one another to the point they have normalized (zero) profits?  Really?  I wonder then, why in every instance it's ever attempted, that "capitalism" doesn't last very long?  It's simply a failed concept.

Further, to enforce capitalism, you inherently need a regulator of the markets.  Well, in practice, this ends no differently than a centrally planned economy.  Why?  Because self interest of market participants dictates that the regulator be used for rent seeking, ergo barriers to entry, confiscation, distraction, etc.  Repeat after me, THE MARKET REGULATOR IS ALWAYS CORRUPTED.  (and I'm giving the benefit of the doubt that it starts out with honest intentions).

Humans have been grappling with this issue for centuries (actually, since existence given it's a much broader problem than simple labels for the economy, but I digress) and we act like we just thought it up... 

Sudden Debt's picture

It's getting pretty scary to see America turning into a monster.

Let's hope the Allies will never need to make a landing on American soil.

Here in Europe, maybe not a lot of people understand economics and politics but they all understand what fascisme and What the Nazi's did and this tapping is very very very close as scene 1 at what Germany did in the 30's

Kinskian's picture

Every time the memory of Hitler and the Nazis is evoked by a Western European or American, another non-white immigrant gives birth in a European or American hospital. Which raises the question: when it comes to genocide, is it better to give or to receive?

Sudden Debt's picture

okay, those non white where part of plan A... plan A was look for somebody else to pay for all this crap we call social security.... it kind of backfired...

Rusticus's picture

"No, it is an indictment of fascism."

True ... but Warren Buffet says he'll make the trains run on time.


They trynna catch me ridin dirty's picture

The Judeo-internationalist NWO that we live under is not "fascism"!!!

This can't be said enough. Read Mussolini, Goebbels, Mosley, etc. The core of fascism is NATIONALISM, i.e., the exact opposite of what is being preached by those in power (internationalism).

Kayman's picture

"The core of fascism is NATIONALISM" ?

  A primary TOOL of fascism is Nationalism.  They beat the drum and raise the flag everytime someone threatens their power. Not because a bunch of fascists are nationalists at heart.

Anusocracy's picture

The core of modern facism is WORLDISM.

Get with the times.

Harbanger's picture

You're right.  Modern facism is taking on the form of Worldism or global collectivism, that's what is being promoted by the system and the MSM.  Caring and worrying about the entire world and wanting to change it for the better.  People today are taught to view Nationalism as ignorant, not cool.   Multiculturalism is cool.  We're all citizens of the World.  We can all work together to better serve humanity and protect the environment  That's how they dismiss sovereignty and sell people on the idea of a "necessary" NWO.