Most people will respond by saying, “What an absurd question! Look around you, dummy; of course it works!” And even the most strident critics of capitalism, the distributist, the socialist, the libertarian, is likely to concede that it works. Their critiques are likely to begin, “Yes, but...it could be more 'moral' (or work better, or whatever).” However, I assert that there is a critic whose challenge cannot be successfully answered by the capitalist. This is not the Christian, or the socialist, or even the Marxist challenger. It is a critic that even the most committed capitalist cannot get around. That critic is the capitalist himself. By purely capitalist standards, capitalism does not work and never has.
What, precisely, does a capitalist mean when he says that capitalism works? Simply this: that the capitalist system can provide a relatively stable and prosperous economic order without a lot of government interference in the market. Now, the Marxist critic might point out that the “prosperity” excludes a large number of people, and the Georgist or the Distributist might point out that capitalism depends, contrary to its own theory, on a certain monopolization of land and the other means of production, but the capitalist is likely to reject these critiques. But he cannot fail to notice, if he is intellectually honest, that capitalism has never been a stable economic order without the heavy involvement of the government. We can date the era of massive government intervention in the market from about World War II, with such “Keynesian” practice becoming established government policy in the early 50's. Yet when we look at the economy from 1853 to 1953, we find that it was in recession fully 40% of the time. Hardly a stable order. Further, since 1953, it has been in recession only 15% of the time. Consider the following chart of economic activity in the period 1900-2006 (thanks to John Watkins for generating this chart):
This chart may be difficult to read in such a small format (if you click on the chart, you will get a better view of it). Nevertheless, its message can be gleaned easily enough from its major features. The gray bands represent periods of recession. The red line represents the change in business activity from one quarter to the next. A few things are evident: there is a lot more gray on the left side of the chart than on the right side; the red line (read on the right-hand scale) is far more erratic on the left side of the chart; the blue line (read on the right-hand scale) has a much lower slope on the left side. What the chart shows is that capitalism was extremely unstable in the “pure” capitalist era, that is was prone to near-constant recession, and that it exhibited anemic growth by post-World War II standards.
What is most curious about the capitalist critic of capitalism is that one never meets him. Rather, one notices a curious disconnect between the theory and the practice, a disconnect which doesn't seem to bother practitioners of capitalism. For example, I listen to the business news quite regularly, and I constantly hear statements in the following form: “The government ought to ('lower the interest rate,' 'raise the interest rate' 'expand (or contract) credit,) so that the free market can do its work.”The people who make these statements never seem to realize the disconnect between the first half of their sentences and the second. Or another example: Republican presidential candidates regularly tout the free market, and then propose to give $20 billion to Detroit to save the auto industry, or propose expensive responses to the recession, or the health care crises, or whatever. Or one of my favorite examples comes from Charles Krauthammer, the libertarian columnist. In a column excoriating auto mileage standards, he states that the best way to address the problem is with government controlled prices for gasoline. Now, when a promenent libertarian calls for government price-controls, you know that real capitalism is dead.
Capitalists like to think of themselves as realists. But my minimum requirement for a realist is that he occasionally looks at the real world. I have no objection to those who spend all their time contemplating their ideological navels, but to quality as a realist, one ought to glance up, even if only now and then, at the real world. When the capitalist does this, he will find that nobody really believes in capitalism anymore, or at least no practitioner of capitalism does; they all want government hand-outs, protections, subsidies, and favorable treatment. And maybe that is the right thing to do. But it surely isn't the capitalist thing to do.