In America we are taught from birth that capitalism is synonymous with markets, democracy, and individual liberty. Whatever its flaws, the only alternative is communism, or so we are told.
This sets up a false and dangerously self-limiting choice between two economic models both of which create concentrations of power that stifle liberty and creativity for all but the few at the top.
Communism is dead. As we now look for solutions to our current economic crisis, the relevant distinction is not between capitalism and communism, but rather between Wall Street and Main Street.
The Wall Street economy is centrally planned and managed by big banks and corporations for which money is both means and end. The primary goal is monopoly control of markets, physical resources, and technology to maximize profits and bonuses.
Main Street economy is comprised of local businesses and working people who self-organize to provide livelihoods for themselves, their families, and their communities producing real goods and services in response to community needs. Main Street exemplifies the market economy envisioned by Adam Smith; Wall Street is the antithesis.
Smith believed that people have a natural and appropriate concern for the well-being of others and a duty not to do them harm. He also believed that government has a responsibility to restrain those who fail in this duty.
Smith and the political economists who followed in his tradition developed an elegant theory of the market’s capacity to self-organize in the community interest based on a number of carefully articulated assumptions, including the following:
- Buyers and sellers must be too small to influence the market price and must honor basic principles of honest dealing.
- Income and ownership must be equitably distributed.
- Complete information must be available to all participants, and there can be no trade secrets.
- Sellers must bear the full cost of the products they sell and incorporate it into the sale price.
- Investment capital must remain within national borders, and trade between countries must be balanced.
- Savings must be invested in the creation of productive capital rather than in speculative trading.
These are the characteristics of a real market economy. Wall Street capitalism violates them all.
Capitalism is a term originally coined to refer to an economic and political regime in which the ownership and benefits of capital are appropriated by the few to the exclusion of the many who through their labor make capital productive. It describes Wall Street perfectly.
Markets work wonderfully within a framework of clear rules and a caring community. The stronger the relations of mutual trust and caring and the more equitably power is distributed, the more the market becomes self-policing and the less need there is for formal governmental intervention. An economy comprised of powerful corporations governed by a culture of greed and a belief that their only legal duty is to maximize their profits requires a strong and intrusive governmental hand to limit the abuse and clean up the messes.
The “free market,” a code word for an unregulated market, is a contradiction. A market without rules facilitates and encourages the unlimited concentration and abuse of corporate power unconstrained by market discipline and democratic accountability.
Market fundamentalists selectively cull bits and pieces of market theory to argue that the public interest is best served when economic power is concentrated in unregulated globe-spanning mega-corporations engaged in monopolizing resources and externalizing costs for short-term financial gain. They distort market theory beyond recognition.
Like cancer cells that attempt to hide from the body’s immune system by masking themselves as healthy cells, Wall Street institutions attempt to conceal themselves from society’s immune system by masquerading as agents of a healthy market economy.
The credit collapse penetrated the facade to reveal the inner workings of Wall Street capitalism as a criminal syndicate engaged in counterfeiting, predatory lending, usury, tax evasion, fraud, and extortion. It may be legal because Wall Street buys the politicians and writes its own rules, but it should be illegal and treated accordingly.
A criminal syndicate is “fixed” by shutting it down through the enforcement of laws that protect the public interest. You “fix” a cancer by removing it and rebuilding the healthy tissue. Main Street is the healthy tissue from a healthy real market economy can be built.