English Capitalism, Free Market Capitalism, is the capitalism of Empire.
How can you tell if the American empire is for you? Do you run a transnational corporation producing goods in a foreign workshop and selling them in the US with an offshore bank account. If so, this empire is for you. If not, it's not.
"But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavors as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value, every individual necessarily labors to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was not part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it."
- Adam Smith Book IV, Chapter II, paragraph IX of
The Wealth of Nations.
According to this model of Capitalism, profit isn't the main thing, it is the only thing. However, in theory, profits are connected to social utility. As above, Smith correctly said that frequently the entrepreneur promotes the general welfare when he is only seeking a personal profit. This is of course true. Smith does not say this is always the case, but Free Market enthusiasts express a faith in this invisible hand when promoting Anglo Saxon capitalism. They are making a case further than the evidence allows. You can hypothesize a beneficent invisible hand as the optimal instrument of growth when your pattern of capitalism is producing fruits you find pleasing, as in Adam Smith's day. That is no longer logical when the results are poor. Looking at the historical record, there are several glaring problems with this model of capitalism:
1) Underperformance of the English economy since 1890.
The English economy was outperformed by Germany following German unification under Bismarck in the 1870 Franco Prussian War. Some of this was due to tariffs imposed by Germany, some of it was due to catch up by the Germans, and certainly other factors could be involved. The United States also had a relatively closed economy (tariff protected) compared with Great Britain and also outperformed the British. There has also been significant underperformance of the English economy since WWII versus the German economy. Scientifically when you repeat an experiment and you repeatedly fail, it might be time to reconsider your hypothesis.
2) Lack of a theory of effective demand.
Adam Smith did not discuss demand in his work. Ricardo side-stepped the issue- "Political Economy you think is an enquiry into the nature and causes of wealth- I think it should be called an enquiry into the laws which determine the division of the produce of industry amongst the classes who concur in its formation. No law can be laid down respecting quantity, but a tolerably correct one can be laid down respecting proportions. Every day I am more satisfied that the former enquiry is vain and delusive, and the latter only the only true objects of the science." Letter to Malthus of October 9, 1820 from Page 4, The General Theory of Employment, Interest, and Money, John Maynard Keynes.
3) Plantation Capitalism.
Plantation Capitalism, where capitalists make their margin by pushing down the wage scale, has led to severe human
disasters in the past. More salient, it is the general business plan of Free Market capitalists today and is currently leading to oppression of working / middle classes in developed countries and huge deflationary pressures.
4) Underperformance of the American economy since 1973.
Wages (inflation adjusted) in the US economy have been stagnant/ slowly declining for the past 40 years. 40 years of failure is enough. QED.
5) Lack of corporate accountability. Lack of the world of finance to behave responsibly towards main street.
The corporation is set up not to have normal accountability. The CEO's interest may differ from the shareholders leading to unwarranted stock options. There are other ways that the corporation can be looted contrary to the interest of the owners. Two quotes from Keynes illustrate this. "Experience is accumulating that remoteness between ownership and operation is an evil in the relations among men, likely or certain in the long run to set up strains and enmities which will bring to nought the financial calculation." "When the same principal is applied internationally it is, in times of stress, intolerable. I am irresponsible towards what I own, and those who operate what I own are irresponsible towards me."
Adam Smith thought the corporations of his day were not well run and would be surprised and dismayed by their dominance today.
6) Corruption of governments around the world. Crony capitalism.
7) Environmental law.
There is the possibility that in various endeavors (mining comes to mind), the profits may be concentrated but the costs distributed to the general society. This ability of a business entity to cause general mayhem while making a profit needs to be addressed by governmental policy (or it simply won't be addressed and mayhem will ensue- things fall apart).
8) Lack of any discussion for the need for antitrust legal framework. The historical record shows that capitalism is cumulative. This is in many ways good because it puts capital in capable hands initially. However, there are downsides. After the initial winnowing process, companies may survive by being big rather than being great which can suppress other companies with good ideas but insufficient capital. Also large corporations are bad for democracy because they will get laws passed that favor them. This tends to push political power away from the people.
9) Poorer management on the shop floor.
The top down organization flowing from the treatment of workers as commodities to be hired and fired rather than long term partners in a productive enterprise renders the US and UK models of capitalism vulnerable to competition from models that more carefully manage their workforces. When workers are made expendable and are not respected, the quality of their output is reduced. Low expectations breed low performance. Further, bottom up insights are lost/ ignored leading to mistakes and waste. It is difficult to create a learning organization without respecting the workers. The organization will learn little from the workers it disrespects. It can still learn from those workers and consultants that it does respect, but from those that it commoditizes, it will learn little.
- Adam Smith Book IV, Chapter II, paragraph IX of
The Wealth of Nations.
According to this model of Capitalism, profit isn't the main thing, it is the only thing. However, in theory, profits are connected to social utility. As above, Smith correctly said that frequently the entrepreneur promotes the general welfare when he is only seeking a personal profit. This is of course true. Smith does not say this is always the case, but Free Market enthusiasts express a faith in this invisible hand when promoting Anglo Saxon capitalism. They are making a case further than the evidence allows. You can hypothesize a beneficent invisible hand as the optimal instrument of growth when your pattern of capitalism is producing fruits you find pleasing, as in Adam Smith's day. That is no longer logical when the results are poor. Looking at the historical record, there are several glaring problems with this model of capitalism:
1) Underperformance of the English economy since 1890.
The English economy was outperformed by Germany following German unification under Bismarck in the 1870 Franco Prussian War. Some of this was due to tariffs imposed by Germany, some of it was due to catch up by the Germans, and certainly other factors could be involved. The United States also had a relatively closed economy (tariff protected) compared with Great Britain and also outperformed the British. There has also been significant underperformance of the English economy since WWII versus the German economy. Scientifically when you repeat an experiment and you repeatedly fail, it might be time to reconsider your hypothesis.
2) Lack of a theory of effective demand.
Adam Smith did not discuss demand in his work. Ricardo side-stepped the issue- "Political Economy you think is an enquiry into the nature and causes of wealth- I think it should be called an enquiry into the laws which determine the division of the produce of industry amongst the classes who concur in its formation. No law can be laid down respecting quantity, but a tolerably correct one can be laid down respecting proportions. Every day I am more satisfied that the former enquiry is vain and delusive, and the latter only the only true objects of the science." Letter to Malthus of October 9, 1820 from Page 4, The General Theory of Employment, Interest, and Money, John Maynard Keynes.
3) Plantation Capitalism.
Plantation Capitalism, where capitalists make their margin by pushing down the wage scale, has led to severe human
disasters in the past. More salient, it is the general business plan of Free Market capitalists today and is currently leading to oppression of working / middle classes in developed countries and huge deflationary pressures.
4) Underperformance of the American economy since 1973.
Wages (inflation adjusted) in the US economy have been stagnant/ slowly declining for the past 40 years. 40 years of failure is enough. QED.
5) Lack of corporate accountability. Lack of the world of finance to behave responsibly towards main street.
The corporation is set up not to have normal accountability. The CEO's interest may differ from the shareholders leading to unwarranted stock options. There are other ways that the corporation can be looted contrary to the interest of the owners. Two quotes from Keynes illustrate this. "Experience is accumulating that remoteness between ownership and operation is an evil in the relations among men, likely or certain in the long run to set up strains and enmities which will bring to nought the financial calculation." "When the same principal is applied internationally it is, in times of stress, intolerable. I am irresponsible towards what I own, and those who operate what I own are irresponsible towards me."
Adam Smith thought the corporations of his day were not well run and would be surprised and dismayed by their dominance today.
6) Corruption of governments around the world. Crony capitalism.
7) Environmental law.
There is the possibility that in various endeavors (mining comes to mind), the profits may be concentrated but the costs distributed to the general society. This ability of a business entity to cause general mayhem while making a profit needs to be addressed by governmental policy (or it simply won't be addressed and mayhem will ensue- things fall apart).
8) Lack of any discussion for the need for antitrust legal framework. The historical record shows that capitalism is cumulative. This is in many ways good because it puts capital in capable hands initially. However, there are downsides. After the initial winnowing process, companies may survive by being big rather than being great which can suppress other companies with good ideas but insufficient capital. Also large corporations are bad for democracy because they will get laws passed that favor them. This tends to push political power away from the people.
9) Poorer management on the shop floor.
The top down organization flowing from the treatment of workers as commodities to be hired and fired rather than long term partners in a productive enterprise renders the US and UK models of capitalism vulnerable to competition from models that more carefully manage their workforces. When workers are made expendable and are not respected, the quality of their output is reduced. Low expectations breed low performance. Further, bottom up insights are lost/ ignored leading to mistakes and waste. It is difficult to create a learning organization without respecting the workers. The organization will learn little from the workers it disrespects. It can still learn from those workers and consultants that it does respect, but from those that it commoditizes, it will learn little.
