Capitalism In Crisis?


Capitalism is in crisis, claims Richard Posner on the pages of the Wall Street Journal today. This crisis happened, he says, because “a capitalist economy, while immensely dynamic and productive, is not inherently stable.” Furthermore, he suggests that “the banking crash might not have occurred had banking not been progressively deregulated beginning in the 1970s.”

Unfortunately for Mr. Posner, unless he lived through the period of economic freedom most resembling capitalism—during the late 1800s—he has no idea what he’s talking about. Mr. Posner’s idea of capitalism is a system in which “businessmen seek to maximize profits within a framework established by government” [emphasis added]. This type of system can by no means be characterized as “capitalism”; what he describes is a mixed economy, a system comprising elements of freedom and statism. Capitalism, on the other hand, is a political system in which the government exists solely for the protection of individual rights; economically, this means laissez-faire—the total separation of economy and state. As we have made clear in our recent bailout flyer and elsewhere, the financial industry is perhaps the most heavily regulated of all industries, myths of banking deregulation notwithstanding. Thus, the problems inherent in a mixed economy are not failures of capitalism, as Mr. Posner claims, but of the destructive role of pervasive government interventions.

Consequently, the solution is not, as Mr. Posner offers, better regulatory oversight but a repeal of regulations and the agencies that enforce them. By restoring freedom to individuals and markets—i.e., by introducing actual laissez-faire capitalism—we can and will emerge from this crisis and prevent future disasters. But before then, we must identify the real nature of the events we are experiencing today: this crisis is a failure of a bloated regulatory state.

For more information on the financial crisis and its causes check out these sources:

Posted by on May 7, 2009. Filed under Business & Economics, Spring 2009. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry
  • Passerby

    The Undercurrent’s cultural commentary is based on Ayn Rand’s philosophy, Objectivism. Objectivism, which animates Ayn Rand’s fiction, is a systematic philosophy of life. It holds that the universe is orderly and comprehensible, that man survives by reason, that his life and happiness comprise his highest moral purpose, and that he flourishes only in a society that protects his individual rights.


    Wait till you are old enough to move out of your parent’s house.

  • Anon

    Not original, but appropriate:

    There are two novels that can change a bookish fourteen-year old’s life: The Lord of the Rings and Atlas Shrugged. One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world. The other, of course, involves orcs.

  • Zev Barnett

    To the above poster:

    Your observation does not reflect what one sees in the world at all.
    Among the fans of Ayn Rand are a multitude of successful, intellectual and happy individuals. Those who work on this newspaper, including myself, are case in point. Still, as a more general observation, the fact that Ayn Rand’s books hover around the number one spot of Amazon’s best seller list should indicate one of two things: either Americans are generally social failures, which your observation would indicate, or else, your opinion is a foolish generalization.

  • Anon

    Among the fans of Tolkien are a multitude of successful, intellectual and happy individuals. So what? I didn’t say that everyone who reads Rand becomes a groupie. If that were the case, Libertarians would be winning more elections. Not that I wouldn’t trade in the Republican Party for Libertarians if I could, but probably still wouldn’t vote for them in most cases.