Wendy, I think it’s extremely important to distinguish between market economy and capitalism. Strictly speaking, capitalism is the application of capital towards modes of production. So for example if I’m a weaver and I have a hand loom and can weave one carpet per week, saving or borrowing enough funds to get me a water-powered loom can increase my output to three carpets per week. That, in a nutshell, is capitalism.

Markets, on the other hand, are not connected to capitalism in any way. We’ve had markets for thousands of years, yet we’ve only had capitalism for the last 300 years.

Adam Smith pointed out that markets, using money as the signaling mechanism, enable people with needs to signal to people with the things that can satisfy those needs. As such, markets are far more efficient and equitable than command economies which always and without exception lead to shoddy goods and, usually, no goods at all.

So why do markets “go wrong?” Adam Smith also pointed out that it’s the role of governments to act as impartial regulators of markets, otherwise they can be distorted by the wealthy and powerful. Unfortunately, the USA has never addressed this issue except rarely and sporadically. Hence the railroad barons, the oil barons, and now the barons of Wall Street, all buy politicians and get them to legislate unfair advantages.

So the issue really isn’t capitalism nor markets per se but rather persistent deep dysfunction in the political system. Unless we properly understand the causes of our problems our “solutions” will only make things even worse than they are today because whatever system is imposed, the wealthy and powerful will still be able to rig it in their favor. As, of course, happens in every command economy we’ve ever seen.

And by the way, Marx was a hilariously bad economist, imagining that labor has a fixed value. Even Smith, so many years earlier, knew this couldn’t possibly be true for very obvious reasons.

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