An essay by Richard Wolff critiquing the Right Libertarianism that's so common in North America and some of the fantasies surrounding the idea of a 'pure' capitalism. This essay was written in relation to the 2007-08 financial crisis.

July 1, 2013

As the global economic meltdown drags most of us through its sixth year, one kind of explanation is heard often and from several sides, including the libertarian right. The crisis since 2007, we are told, is not capitalism’s fault or flaw. That is because capitalism is not the system we now have; it is not the systemic problem the world now faces. If only we could ‘get back to’ something like ‘pure’ capitalism, our economic woes would disappear. Proponents envision ‘pure ‘or ‘real’ capitalism as a world of perfect competition among enterprises who are all market price takers (none has the power or size to shape markets), where no advertising enables producers to shape the desires of consumers, where all workers bargain individually for their wages, and so on. It is the capitalism of the introductory economics textbook, the one that seamlessly delivers efficiency, prosperity, and optimal growth.

Policy prescriptions flow smoothly from this explanation. We must end the bad economic system we now have. “Crony,” “gangster,” “casino,” and “monopoly” are among the adjectives designating today’s actually existing – impure – capitalism. It fails to achieve all the progress and prosperity that a pure capitalism would deliver. Those who reason in this way then denounce one or another of the demons they believe to have rendered capitalism impure. Those demons – external and antithetical to pure capitalism – include big government, monopolies, the Federal Reserve, welfare, taxation, and labor unions. Their intrusions interfere with pure capitalism and block its intrinsic efficiency. They prevent economic justice: how pure capitalism would allocate incomes according to each person’s and each enterprise’s contributions to economic output. Those demonic outside institutions distort economic rewards to favor “special interests.” And so the economy and society suffer.

By celebrating pure capitalism, such arguments can criticize the economic crisis without sounding anti-capitalist. They reaffirm their economic loyalty to capitalism in the abstract even as they attack its concrete here and now. The trick is to identify the present system and its enduring, deep crisis as anything but capitalist.

This is fantasy. Impure capitalism is the only kind we have ever had. For example, government always accompanied capitalism. Government often served a rising capitalist class to undermine, defeat, and destroy other classes. In the French Revolution, the rising class of merchants, bankers, and small capitalists captured state power and used it to undermine French feudalism. American revolutionaries took over government from Britain and used it to facilitate the growth of capitalism in the United States in countless ways. Those include the wars on native people and the taking of their land, the enabling and often building of crucial infrastructure (harbors, canals, railways, roadways, and airports), the Civil War and its aftermath, the postal system, the judicial system (police and courts to adjudicate disputes), modern public education, and so on. Capitalism without government is a fantasy.

Likewise, monopolies have always been with capitalism. Each enterprise constantly fears and seeks to block or undermine monopolies within industries from which it must buy inputs. Each enterprise likewise seeks opportunities to organize monopolies for what it sells. The profit motive prompts both behaviors. Competition thus leads to monopoly and vice versa. Capitalism always displays monopolies being erected (competition eroded) and monopolies being dissolved (competition strengthened). A pure capitalism without any monopolies is another fantasy.

The Federal Reserve replaced alternative monetary institutions when and because the latter proved unacceptable for capitalists (among others). Money and credit and their roles within capitalism evolved together with institutions to control or manage them. Every modern capitalist economy has developed a central bank with functions comparable to those of the Federal Reserve. All such central banks serve as well as depend on the large capitalist economy. Developed or modern capitalism without a central monetary authority is a fantasy.

Capitalism’s profit-driven automation and its recurrent business cycles often yielded more workers than there were available jobs. Especially when prolonged and large, unemployment generated suffering, anger, and eventually rebellion. Capitalism’s automation and instability, separately or combined, always risked provoking threats to its survival. To limit such threats by easing the suffering, capitalism developed various modes of charity and welfare for the unemployed. Welfare systems are not external intrusions on but rather self-protective outgrowths of and within capitalism’s actual functioning. Full employment has been extremely rare in capitalism’s history; unemployment was and is the norm. Debates over how much and whose wealth will be diverted to support the unemployed through welfare systems have always agitated capitalism. However, to imagine a pure capitalism without one or another kind of welfare is a delusion.

Finally, capitalism’s recurring tendencies toward greater inequality of income and wealth have always and everywhere led to social mechanisms of redistribution. Taxation has been such a mechanism because it almost always functions as more than a means to raise money for government activities. Shifting between more progressive and more regressive tax structures and their enforcement redistributes income and/or wealth as social conditions shift and political tensions permit. Incomes and wealth get redistributed among capitalists and between them and the rest of the population. A pure capitalism without a tax system that redistributes income and wealth is imaginary.

Labor unions, too, are products of capitalism. Workers’ problems in capitalist economies have almost universally provoked them to try to form unions. They are not some external institutions intruding upon some pure capitalism. Capitalists have always struggled to prevent, destroy, or weaken them. They have never fully succeeded. A pure capitalism without unions is wishful thinking.

Yet such fantasies, delusions, and imaginary scenarios serve ideologically. Beliefs in the possibility and desirability of a “return to pure capitalism” divert people from considering or supporting social change going forward beyond capitalism. Instead, they work to reduce or destroy government, monopolies, the Federal Reserve, tax systems (and agencies like the Internal Revenue Service), the welfare system, and unions. Even when [right] libertarians and others partially achieved such goals, they never thereby solved capitalism’s problems. The capitalism that generated those institutions always responded to their partial destruction by generating them or variations of them.

The economic crisis and decline most of us are now living through will not be overcome by fantasies of return to some golden age of pure capitalism. We need to push forward, to do better than actually existing capitalism. For the first time in a long time, we can ally with the fast-growing number of people reaching that same conclusion.

An essay from Capitalism's Crisis Deepens, by Richard Wolff