On Capitalism

Image credit.

In a critique of the Left's critcism-free hero Karl Polanyi ("The Great Transformation"), G. M. Hodgson makes a number of points that I consider constructrive and circumspect, encouraging a more balanced understanding of the pros and cons of capitalism:

Another major problem with Polanyi’s analysis is its focus on the deleterious effects of markets, and not on unique aspects of the modern capitalist system. If we include such features as a modern financial system in the definition of capitalism, then markets have existed for much longer than capitalism.

By focusing on the general growth of markets, Polanyi downplayed the emergence of key institutions that powered the eighteenth-century transformation into a capitalist economy. By contrast, both John Commons and Joseph Schumpeter saw the development of financial institutions – rather than markets in general – as crucial in this regard. By contrast, Polanyi gave more emphasis to the extension of markets, not the growth of specific financial institutions, as the grounding of capitalism.

Consequently, Polanyi’s writing has fuelled the anti-market mentality – we can use the Greek word agoraphobia to describe it – found on much of the Left. This part of the Left has got locked into an ill-conceived battle against markets, proposing public ownership and comprehensive planning of much of the economy as an alternative.

While some public ownership and planning may be desirable, I argue in my Conceptualizing Capitalism (2015) and Wrong Turnings (2017) books that a modern complex economy is unfeasible without extensive markets. Furthermore, the ownership and exchange of property is a human right, the abolition of which would endanger freedom.

I argue in Conceptualizing Capitalism that markets as such do not necessarily generate inequality. By contrast capitalism contains mechanisms that can greatly exacerbate the unequal distribution of income and wealth. We need to address these mechanisms, rather than embarking on a misguided mission to abolish markets.

Geoffrey M. Hodgson - more at The Source.