Seems we need a distinction to be able to differentiate the parts of capitalism–which have somehow become fused. Digressing for a second, the societal considerations seem to be inherent in the Westphalian system of which we are a participant. That system is dirigistic–setting up the rules or guidelines–which are needed to make sure the impact to the society operates toward the greater good. Once the rules are in place, the system can operate freely.
It seems that the problem is one of definition and non-differentiation between Free Enterprise and pure Finance, or as it has been coined, Financial Capitalism.
The reason the distinction between Free Enterprise and Finance is so important today, lies in the fact that free enterprise or free markets have always generally been able to achieve a natural equilibrium based on supply and demand. However, speculative “financial” practices tend to force real production economies to become unbalanced. This generally creates the “boom and bust” phenomenon. Unfortunately, the two concepts still remain fused today and synthesized in the public’s mind within the definition of capitalism-just as Karl Marx intended it in the mid 1800′s when he coined the term as a pejorative or strictly negative term.
Free enterprise is an economic system in which markets are created by private businesses to sell their goods and services to the general public.
The basic components of capitalism’s current properties would include:
1. Real assets, property, facilities and equipment are privately held.
2. The economy creates equilibrium through the concept of supply and demand– essentially driven primarily by demand, those who need goods and those who have supply.
3. The concept of best use of natural and human resources and the marketing of those resources successfully to consumers to gain maximum exchange.
4. Limited government regulation exists as a dirigisme to ensure fair play and to prevent market manipulation.
5. However, it is worthy of note that this does not imply in any way an anarchy. Government would lay out the ground rules to keep the markets from being undermined or manipulated. This is completely consistent with Adam Smith’s “invisible hand” as taught in “…The Wealth of Nations”. Why? Simply because in his earlier work (which was continually revised), “The Theory of Moral Sentiments” which speaks of social responsibility, could be referred to as a “visible hand”, thus creating a binary and balanced system going hand in hand.
By finance or financial capitalism, we mean the use of capital or wealth to create more wealth including the charging of interest and speculations in different types of financial products such as various types of investments, equities, options or other derivatives. In defining finance by these particular uses, functions and habits, it can be seen that the nature of finance is not centrally (directly) involved in the actual production process. It is generally a facilitator, aiding production, as in providing capital for daily operations or expansion or consumption. This is finance’s true value.
Viewing the current turmoil of 2007, it can be seen that the “capital markets” have frozen dramatically, seriously hindering production, consumption and free enterprise. Question becomes: what would cause this imbalance to occur between these two forces?
We can solve for that.
Stephen R. Ganns