The End of Capitalism and Return to Feudalism


The September issue of Harper’s magazine has a cover line “Joseph Stiglitz: Piketty Is Wrong”. If this sounds like a remake of Godzilla vs. Mechagodzilla, don’t take it seriously, it’s a magazine cover. If magazine covers could be trusted you could lose 15 pounds and two sizes in 5 days, differently every month. It’s semantics, Looking-Glass language:

“‘When I use a word,’ Humpty Dumpty said, in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less.’

“‘The question is,’ said Alice, ‘whether you can make words mean so many different things.’

“‘The question is,’ said Humpty Dumpty, ‘which is to be master — that’s all.’”

When Prof. Siglitz says “capitalism,” he’s going back to Adam Smith, when capitalism had greater transparency and freer competition. When Smith was writing, the articles of commerce were simpler, easier to understand, and there were more people in the trades. Every shopper could compare produce, and if there was a sudden demand for asparagus, every farmer could start planting asparagus. If a sock maker started a fashion for argyle socks there would be a dozen other sock makers with the same design by next market day. When Smith wrote about free markets, he meant it – but he also recognized the need for government intervention and the effects of rent seeking which is defined as “When a company, organization or individual uses their resources to obtain an economic gain from others without reciprocating any benefits back to society through wealth creation.” He even managed to leave behind a couple of quotable lines, even if they won’t fit on a t-shirt: “Our merchants and masters complain much of the bad effects of high wages in raising the price and lessening the sale of goods. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.”

Under real capitalism, it was effectively impossible for anybody to get rich, and even those born to wealth, the landowners, weren’t doing too well as people moved to the cities and went into trade. But Smith saw what was coming: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Prof. Stiglitz summarizes the difference between his opinions and those of Prof. Piketty. “While Piketty tells us that market capitalism naturally creates obscene levels of inequality, I believe we have a different problem: our markets don’t act like competitive markets.”

Our markets don’t act like competitive markets because they aren’t. In 1600, Queen Elizabeth I issued a royal charter to the East India Company, and the idealistic nature of capitalism started to shrivel up. Royal charters generally constituted monopolies, which was the end of free markets. The fact that we still refer to these oligopolies as “market based” and say nice things about the “capitalist system” is a linguistic contortion worthy of Frank Luntz. In this case we have two great economists using the same word at different phases of its entomological evolution.

Words change their meanings over time, and Prof. Piketty is younger than Prof. Stiglitz. But we can’t go back. In colonial America, trades were learned by apprenticeships of four to seven years. Competition was possible because it was easy to enter a trade. That largely ended with the industrial revolution. Granted, a lot of humongous companies started in garages not that long ago – Amazon and Apple, for example – but they started at the same time as a new technologic revolution.

Once an oligopoly forms, it’s hard to break in. We have to adapt to Prof. Piketty’s understanding of “capitalism,” the one that leads to inequality – and to avoid a return to feudalism we’ll need more government regulation, not less. Advocates of small government have their own idealism, that if government went away we could trust each other to make safe Ford Pintos, and our stock broker would never sell us bonds that were programmed to self destruct.

Prof. Stiglitz wrote “We learn in the most elementary economics courses that competitive markets, which promote efficiency and innovation, drive profits down. Wealth winds up in the hands of a few multibillionaires because we don’t have a truly competitive economy. The most successful “entrepreneurs” have figured out how to create barriers to competition, behind which they can earn huge profits.”

If we can’t make markets truly competitive, we can at least develop tax policies that balance the scales, whether it’s taxes on monopolies or fair market prices for minerals extracted from ,public lands. “Moving from corporate to personal taxes, we must enact a fair income tax so that those who work for a living aren’t forced to pay a larger portion of their income in taxes than those who enjoy the fruits of inherited wealth or manage private-equity funds.”

Which means it’s not economics, it’s politics, and we just have to make ourselves heard over the voices of PACs and super-PACS and lobbyists. How hard can it be?

Sam Uretsky is a writer and pharmacist living on Long Island, N.Y. Email

From The Progressive Populist, September 15, 2014

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