Antillian wrote on 10/08/08 at 17:11:01:
I am puzzled when persons blame "greed" for the current financial crisis. Isn't greed ultimately critical to making capitalism successful. One reason that capitalism is so much more successful than socialism is that greed trumps altruism every time. Greed works, let's face it. We all look out for numero uno. Studies by social scientists show that most persons would steal if they were convinced 100% they could get away with it.
Surely the problem is not greed, but lack of accountability, transparency and oversight. We want people in a capitalist society to be greedy, to strive as much as possible to make as much money as possible. That is how wealth is created and propagated. However, rules have to be in place, and they have to be systems in place to catch persons who break the rules, and consequences for the guilty. I suggest that it is all of the latter that was missing and not the former. Sorry to sound so dark, but it is the reality. Greed is good.
We're getting into some deep and uncertain stuff here, but with supreme confidence in my powers of political economic perception, I will proceed.
From the point of view of Adam Smith and his many more recent followers, you're right. This is straight out of Milton Friedman, and it's precisely what I was fed by my most of my professors in graduate school.
My rejoinder is, this theory proposes a model of "free" markets regulated in the "public" interest. Somehow markets exist; are "free" in their natural state or in some imagined primordial state; and produce efficient outcomes so long as no agents are big enough that their individual buying and selling influences prices. Government regulation may be necessary in the "public" interest, to remedy inefficiencies, as when some agents are big, or when there are externalities; and to prevent fraud. But government is assumed to be a neutral arbiter in the "public" interest, and in principle, "that government is best which governs least."
The problems that I have with this model are (1) that it proposes a false distinction between markets and the state and (2) that it supposes that there exists a single, homogeneous "public" interest in which it is possible for the state to act.
As to (1), markets and the state are really the same thing. Not only do markets not precede the state, but they are caused by state: you cannot have a market without a powerful state to maintain security, enforce contracts, and to define a host of regulations that govern trade. We may say for example that NYSE or CME or NYMEX are largely self-governing institutions, but that is only because the state is willing to delegate its power to "private" exchange administrators, who in all but name are agents of the state.
Historically, markets vanished from Europe with the fall of Rome, a powerful state that fostered markets throughout its territories, and it was only many hundreds of years later that they began to be re-established, in precise parallel with the re-establishment of effective state power. They first re-emerged in various city-states; they expanded with the convergence of these into nation-states. Indeed, the emergence of nation-states and that of national markets are pretty much the same thing. In those days, no one ever dreamt of a "free" market and would have been laughed at if he had proposed the idea. It was taken for granted that markets were organized to benefit some people more than others, and it was your choice if you wanted to exchange goods there. But as there were none of the "natural," "free" markets that many people suppose to have existed primordially, it was a choice between highly regulated trade and no trade at all.
Today it is substantially the same, it is only that an ideology has arisen that supposes the existence of "free and unfettered markets," which is an unreal possibility. If you want to participate in a free and unfettered market, the closest thing you will find is the drug market down on your nearest urban street corner. But if you transact in that market, you will very quickly discover that where the government has refused to establish regulation, other powerful agents have established it. The government has ceded its authority on the pretext that these markets don't exist; but they do exist and, like all markets, they require strong governing authority. So-called "weak regulation" is simply another example of regulation, in this case favoring those who would like to do what might otherwise have been prohibited -- it is not the absence of regulation.
Now as to (2), since markets simply must have strong regulation to function and even to exist, it is merely a question in whose interests this regulation will be. You may have in your head a model of democratic political economy, where governments rule rationally in an objective public interest, enforced by the will of an enlightened electorate. The model I have in my head is that of capitalist political economy, where governments rule, case by case, chiefly in the interests of agents wealthy enough and therefore powerful enough to influence the political process. Because almost anything can be argued to be in the public interest ("We here in Louisiana should not allow the sale of milk from Mississippi, because we can't be sure of it's purity,"), it is futile to think that any such thing as a public interest can be objectively identified. Regular attempts to do so are invariably in service of one group's interest or another. In every political decision there are winners and losers, and it is only a question of who they will be.
My conclusion is that there is no such thing as a free market as conceived by Adam Smith or Milton Friedman, and no such thing as an impartial state. What this brings about under capitalism is regulation primarily for the benefit of the wealthy, with some exceptions made necessary by the political struggles of the working class, depending on how successful it has been.
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