In the intense debate about the U.S. economy, a few key points seem to be overlooked in the heat of partisan and ideological discussion. Among these is the fact that capitalism is the only economic system that can maximize economic growth and thus generalize prosperity, because it is most closely aligned with the acquisitiveness and desire for security and power that are so central to human nature and motivate almost everyone.
By the simple operation of these pursuits, capitalism eventually lays itself low, because its practitioners are competitively self-seeking and have no real responsibility for the collective good, despite a great volume of nauseating pieties about corporate governance and social responsibility. The application of pecuniary ingenuity will always lead to doubtful financial practices and instruments, whose imprudence is too well hidden or glamorized by novelty to attract the protective foresight of legislators. Most wealth-seekers avoid lawbreaking, but will do almost anything else for their own gain. It is like people moving back to the fertile soil at the edge of the volcano, no matter how many times or how lethally it has erupted.
When these economic upheavals occur, only central governments can deal with them, because only these governments are legitimate authorities, can make and enforce laws, and can control the money supply, i.e., print or otherwise create money. But this does not mean that those who direct the relevant departments of government have any aptitude for dealing with such an emergency, only that it is their responsibility and there is no one else to do it.
This is where those historical revisionists who claim that Franklin D. Roosevelt should just have let the Great Depression cure itself in 1933 are mistaken. There were 17 million unemployed, in a population of 125 million people, with no direct federal relief for them (as opposed to 15 million unemployed among 307 million Americans today, and with some sort of safety net). The banking and exchange systems had collapsed and were closed, and nearly half the residential accommodation of the country was under threat of foreclosure. The government had to act: The New Deal earns about a 67 percent grade on economics, but an almost perfect score on catastrophe avoidance.
Roosevelt himself knew little of economics, except that it was largely psychology and basic arithmetic (areas in which he was proficient), and that most economists were frauds and poseurs, including Keynes, whom he regarded as a pompous meddler. No one in his immediate entourage knew much about economics either, except for his Federal Reserve chairman, Marriner Eccles.
In addressing the afflictions of the economy, government has as much natural aptitude to mismanage, to interfere too much and unnecessarily, and to impose the inefficiencies and arrogances of the public sector as businessmen, especially financiers, do to run the economic stoplights in pursuit of a hyper-profit.
The capitalists are now cowed or ashamed (except for a few of the more swashbuckling operators like Carl Icahn and Kirk Kerkorian) and skulk around like uncommercial nebbishes, or like altruistic avuncular sages of the Warren Buffett genre. The political class has locked arms to lay the blame for the present problems on private-sector greed, and to induce public amnesia about their own requirement that trillions of dollars of worthless real-estate debt be issued by the banking system. (Even Buffett has suggested that Congress may wish to cut its own salaries, and has stopped demanding that his taxes be increased.)
The attorney general and secretary of the Treasury seem to be trying to end the blame game by imprisoning a swath of Wall Street and tightening the leash on corporate bailout beneficiaries. In practice, as the public knows, most businessmen have no idea of the public interest, politicians are pusillanimous trimmers, and regulators are clumsy interlopers who had all the authority they needed to avoid this crisis, failed to do so, and so demand more authority to intervene.
Adam Smith was absolutely correct that there should be an efficient division of work, and that production should be aimed to please the consumer rather than to express the whim of the producer. He recognized that mercantilism was essentially a command economy that was certain to be much less productive, less satisfying to consumers, and less likely to grow and flourish and generate wealth, jobs, and incomes, than a free-market economy. He recognized the need for alleviation of the conditions of the indigent, and, as someone who was more a moral philosopher than an economist, he expected that economic restraint, frugality, and altruistic desires would be stronger than, in practice, they are.
Smith could not have foreseen that the U.S. in particular, which was just grasping for its independence in his time, would become such a center of Babylonian decadence and philistine vulgarity as it has, in addition to having many more admirable traits. No one could have foreseen that in advanced countries such as the U.S., cultural factors and not economic policies would be the chief cause of poverty and that obesity would be the greatest public-health problem.