Phelps On Capitalism
I have to do a second post on this to encourage readers to read (carefully and twice) Edmund Phelps article "Dynamic Capitalism" today in the WSJ. It is an elegantly stirring endorsement of the most dynamic and open form capitalism, not just as a preferable economic system, but also as a philosophically justified way to organize society.
Phelps's, I believe, is a quite Smithian or Friedmanite view, and as Don Luskin points out, there is no mention of Keynes while there is mention of Hayek, Rand, (and I might add) Schumpeter, Marshall, and Knight. These conceptions of capitalism are unfortunately not the conceptions that often prevail everywhere capitalism ostensibly holds sway, like Europe, and Phelps tackles the essence of the problem as to why capitalism is so often reviled:
"Why, then...is capitalism so reviled in Western Continental Europe? ...it appears that the recent street protesters associate business with established wealth; in their minds, giving greater latitude to businesses would increase the privileges of old wealth. By an "entrepreneur" they appear to mean a rich owner of a bank or factory, while for Schumpeter and Knight it meant a newcomer, a parvenu who is an outsider. A tremendous confusion is created by associating "capitalism" with entrenched wealth and power. The textbook capitalism of Schumpeter and Hayek means opening up the economy to new industries, opening industries to start-up companies, and opening existing companies to new owners and new managers. It is inseparable from an adequate degree of competition."
What Phelps is saying is that when people think capitalism, they erroneously think Bill Ford not Jerry Yang, or Bill Gates circa 2002 not Bill Gates circa 1978. Sure enough, Phelps gives examples that are not indicative of this true conception of capitalism - Airbus and today's Microsoft. Also, Europeans see US-style private equity and corporate activism by hedge funds as a just a modern form of barbarism, but Phelps correctly sees the injection of new ideas, new financing, new urgency, and new accountability as a component source of the dynamism that argues favorably for capitalism.
Phelps's bottom line, beyond its core justification, is that capitalism is hardly practiced at the pure level that it could be and that it sows the seeds of its own stultification. When its dynamism grows weak, our mission should not be to dismantle the capitalist system or overlay a protective blanket around what we have, but to renew, refresh and reinvigorate the true capitalism whose essence is openness and that is inseparable from competition.
Phelps's, I believe, is a quite Smithian or Friedmanite view, and as Don Luskin points out, there is no mention of Keynes while there is mention of Hayek, Rand, (and I might add) Schumpeter, Marshall, and Knight. These conceptions of capitalism are unfortunately not the conceptions that often prevail everywhere capitalism ostensibly holds sway, like Europe, and Phelps tackles the essence of the problem as to why capitalism is so often reviled:
"Why, then...is capitalism so reviled in Western Continental Europe? ...it appears that the recent street protesters associate business with established wealth; in their minds, giving greater latitude to businesses would increase the privileges of old wealth. By an "entrepreneur" they appear to mean a rich owner of a bank or factory, while for Schumpeter and Knight it meant a newcomer, a parvenu who is an outsider. A tremendous confusion is created by associating "capitalism" with entrenched wealth and power. The textbook capitalism of Schumpeter and Hayek means opening up the economy to new industries, opening industries to start-up companies, and opening existing companies to new owners and new managers. It is inseparable from an adequate degree of competition."
What Phelps is saying is that when people think capitalism, they erroneously think Bill Ford not Jerry Yang, or Bill Gates circa 2002 not Bill Gates circa 1978. Sure enough, Phelps gives examples that are not indicative of this true conception of capitalism - Airbus and today's Microsoft. Also, Europeans see US-style private equity and corporate activism by hedge funds as a just a modern form of barbarism, but Phelps correctly sees the injection of new ideas, new financing, new urgency, and new accountability as a component source of the dynamism that argues favorably for capitalism.
Phelps's bottom line, beyond its core justification, is that capitalism is hardly practiced at the pure level that it could be and that it sows the seeds of its own stultification. When its dynamism grows weak, our mission should not be to dismantle the capitalist system or overlay a protective blanket around what we have, but to renew, refresh and reinvigorate the true capitalism whose essence is openness and that is inseparable from competition.
posted by Donny Baseball at 3:31 PM
1 Comments:
I tried to read Phelps' article, but his writing is unreadable (at least to me). Perhaps I am just not smart enough. I would really appreciate it if someone could translate his article in plain English.
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