Posts Tagged ‘Free Enterprise’

Neoliberalism is about more than free markets

August 22, 2017

The common mistake about neoliberal ideology is to think that it is about nothing more than unrestricted free markets.

In fact, neoliberalism is about unrestricted accumulation of capital.

Concentration of wealth at the top is an intended, not an unintended, consequence.

The idea is that of classical economics’ three sources of wealth – land, labor and capital – it is capital that is the force multiplier.

Capital investment, as Karl Marx recognized in the Communist Manifesto, is what has increased the total amount of wealth available to humanity in the modern capitalist era.   What neoliberals say is that this process can and should continue, with capital remaining in private hands.

That is why neoliberals advocate upper-bracket tax cuts and government austerity, and oppose minimum wage laws and labor unions.   Working people only waste their wages on their personal needs, neoliberals think; capitalists invest and increase the wealth of society.

That is neoliberals they advocate bailing out banks in the USA and Europe, while insisting that home mortgages, student loans and the debt of nations such as Greece by repaid to the last penny.

There is logic to this, once you accept the underlying assumptions.  The wrongness of this idea is shown, not by economic theory, but by the history of the last 40 years.

We have had increasing austerity and increased concentration of wealth in the upper brackets, but the investment needs of the USA and other advanced countries are unmet.

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Free enterprise vs. capitalism

April 12, 2014
Adam Smith

Adam Smith

I define “free enterprise” as the “system of natural liberty” advocated by Adam Smith, in which people are free to pursue their own goals in their own way, “subject only to the law of justice.”

I define “capitalism” in the same way as Karl Marx, who coined the word — a system in which political and economic power is in the hands of owners of financial assets

By these definitions, free enterprise is not necessary to capitalism, nor vice versa.  What’s necessary for capitalism is institutions that allow great concentrations of wealth, such as limited liability corporations, lending at compound interest and the power of banks to create money.  Government-protected monopolies help, too.

In the same way, capitalism is not necessary to free enterprise.  The Phoenician traders in the ancient world, who traveled from the eastern Mediterranean to Britain to buy tin, were not capitalists in the way that J.P. Morgan or John D. Rockefeller were capitalists, but they certainly had the entrepreneurial spirit.

Karl Marx

Karl Marx

Adam Smith, the great economist and philosopher, did not particularly admire capitalists.  He saw economic competition as a means to hold their power in check.

As for myself, I am not an opponent of either free enterprise nor capitalism, although I am a critic of both, especially the latter.  I think the working of the free market is a more effective way to coordinate economic activity than central planning, provided that it is, as Smith said, “subject to the law of justice” — unlike Milton Friedman and others, who thought a free market could be a substitute for the law of justice.

Likewise, I see a benefit to being able to create concentrations of wealth and use them to create new sources of wealth for the benefit of society.   American capitalists made it possible to create a U.S. steel industry, a computer industry and all the other industries.  Maybe this could have been done in some other way, but this is the way it happened. 

The problem is how to prevent mere possession of wealth from enabling its owners to monopolize the fruits of the economic system, which is what is happening now and which Marx thought was the inevitable result of capitalist ownership.

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