The Rise and Fall of Capitalism. Is it Obsolete?

Much of the history in the past 500 years has been dominated by Capitalism in different forms. The history and conflicts of capitalism can be divided into two broad schools. Economic Liberalism in the 18th century by Adam Smith and the other theory is Marxism drawing particular inspiration from 19th-century economist Karl Marx. Liberals see capitalism as originating in trade and commerce and freeing people to exercise their entrepreneurial boundaries. Whereas, Marxist view capitalism as only powerful people taking control of the means of production, and compelling others to sell their labor as a commodity. 

In the 19th century, Britain embraced liberalism, encouraging competition, and the development of the market economy (supply and demand). The era of free trade and globalization began. In the 20th century, a lot of challenges threatened capitalism. The Russian revolution in 1917 established the first socialist state in the world, the ideology of state capitalism “Fascism” appeared in Italy and German, and other responses were to reject capitalism altogether in favour of communism or socialist ideologies. 

Classical liberalism was the political dominant theory in the early 19th century until the First World War. The Great Depression in the 1920s through the 1930s is proof that nothing is inevitable. There was eventually a backlash against the Economic Liberalism by Adam Smith. Many argued that the free market and globalization enables capital to escape national and union control.

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Keynesianism economics became a widely accepted method after the depression. Keynes believed the government should support the economy while the liberals didn’t want any government intervention. He generally endorsed free-market capitalism, but the depression’s unique challenges required unique solutions. His theory runs on the idea that the government can and should spend money on things like infrastructure, unemployment benefits, healthcare, and education to help boost economic growth. 

Keynes emphasized that fiscal policy is more important than monetary policy and government spending should be used to neutralize the volatility of the business cycle. While his theory was dominant for 30 years, economist Milton Friedman came up with the “Monetarism” theory. Friedman expressed the importance of monetary policy and pointed out that changes in the money supply have really short-term and long-term effects. He argued for deregulation or government interventions in most areas of the economy, calling for a return to the free market of classic economists, such as Adam Smith.

Keynesian theory was dominating until long believed to be impossible “Stagflation” hit the economy in the 1970s. Economic stagnation and increasing public debt prompted some economists to advocate a return to classical liberalism, which in its revived form came to be known as “Neoliberalism”. 

The 1980s was a period of economic volatility. There was a Deep Recession in 1981 as the government tried to control inflation. Austrian-born British economist Friedrich von Hayek, who argued that interventionist measures aimed at the redistribution of wealth lead inevitably to totalitarianism, and the American economist Milton Friedman, who rejected government fiscal policy as a means of influencing the business cycle. Their views were enthusiastically embraced by the major conservative political parties in Britain and the United States. Margaret Thatcher and Ronald Regan emphasized market-oriented strategy instead of government control and centralized planning. Privatization constitutes one of the cornerstones of this. Thatcher administration did successfully introduce a degree of privatization in some large public sector companies. By spreading market incentives, it eroded the public sector basis for Labour’s politics. By opening the public sector to profit, it got a lot of capital into circulation. And by reducing the power of public sector workers, it suppressed wage pressures, thus in theory making investment more appealing. 

And there was a financial crisis in 2008. Did capitalism fail? One side of the story; the cause of the crisis was not fatal flaws in capitalism. The culprits were politicians forcing the banks to give out bad loans, monetary authorities flooding the West with cheap credit, and regulators asleep at the wheel. The other side of the story; the 2008 financial crisis did not occur in a vacuum. It emerged at the heart of global free-market capitalism. It is fair to characterize it as a crisis of capitalism.

Did neoliberalism fail? Indeed, the ideology of neoliberalism lost its force and exposed its flaws. Despite its alleged commitment to market competition, the neoliberal economy has brought a decline in competition due to the rise of big companies and their rise to monopoly. Monopolistic mega-corporation threaten democracy as they have the power and resources to lobby politicians and government. 

The grand neoliberal experiment over the past 40 years has demonstrated that markers do not regulate themselves. The managed market turns out to be more equitable and more efficient. This system of governance will keep the neoliberalism ideology alive.  

Throughout history and countless events, the main difference between capitalism and socialism is this: capitalism works. Capitalist countries cannot completely ignore socialism as a spoonful of socialism makes capitalism work. Don’t dare to declare capitalism dead, before it takes us all down with it.