Has Capitalism Failed?

There is a meme going about both the mainstream and social media that Capitalism is failing.  The Left seems to be promoting the idea that today's economic and social failures are somehow the fault of a Capitalist system.

It is prudent here to define three economic systems to see which one best matches the current order.

(from Dictionary.com)

Capitalism -

an economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals or corporations, especially contrasted to cooperatively or state owned means of wealth.

Socialism -

a theory or system of social organisation that advocates the vesting of the ownership and control of the means of production and distribution, of capital, land, etc., in the community as a whole.

Communism -

1.  a theory or systems of social organization based on the holding of all property in common, actual ownership being ascribed to the community as a whole or to the state.

2.  (often initial capital letter) a system of social organization in which all economic and social activity is controlled by a totalitarian state dominated by a single and self perpetuating political party.

If we are honest in evaluating the system that most accurately describes Western economies, we must conclude that no country in the West totally qualifies as a capitalist state.  Most are somewhere in between Capitalism and Socialism, with some, particularly in Europe, meeting most of the criteria of Socialism.

Central Banking is an example of Socialist group-think.  A group of individuals with Ph.D.'s decide whether to raise or lower the overnight interest rates that affect everything from savings rates on bank accounts to the rates consumers pay on their home and business mortgages.  This is central planning, a system of social organisation, it is not Capitalist or market driven in any real sense.  In a way, it says to the market, we don't trust you to set interest rates, we know better and will set them according to our collective wisdom.

When this sort of thinking dominates, as it has since at least 1913 with the creation of the Federal Reserve, markets have a price mechanism set by politics and collectivism rather than the free exchange of goods and services to guide them.  The closure of the gold window by Nixon in 1973 pushed the reserve currency US dollar further away from a market system to a pure fiat currency to further distort the market mechanism.  This has created one of the largest transfers of wealth in history, from the lower and middle classes to the proverbial "1%".  So the statement that Capitalism requires more resources to pay back interest is simply untrue.  Interest rates measure demand for money, and Central Banks distort the market mechanism to tinkering with rates.  This has led to some monumental distortions of assets prices, as can be seen in the following chart of the S&P 500 compared to Quantitative Easing programs.

 In a pure Capitalism system, there are seasons of growth over many years.  Some refer to this as the Longwave cycle.  It appears to vary from 50 to 70 years from peak to peak.  This observation was made by Nikolai Kondratieff, the Russian economist who was rewarded for his work on the Capitalist system by execution in 1938 under Josef Stalin.

One of the aspects of Kondratieff's work was its recognition of boom bust cycle that take two or three human generations to complete.  A Socialist system, which in the author's view is primarily what our current system is, does not wish to permit, and indeed, can not permit the bust cycle.  So the political and central banking solution is to borrow massive amounts of fiat money through the bond market to attempt to "revive" a struggling economy.
Is there any evidence that this works?
Ask the Japanese who have been unsuccessfully fighting deflation for 25 years.
Perhaps intervention can delay the inevitable collapse, but in the mean time, consider the gross inflation of assets prices - housing prices and stock prices being the main beneficiaries.
Eventually the interventions will no longer have the desired effect, and we will see big government and socialist policies overturned.  Unless the socialists manage to spring a totalitarian Communist/Marxist type of system upon us by redefining words and calling our current system Capitalism and blaming it for their own mismanagement.  The totalitarian movement is already underway, with the IMF directing or perhaps coercing interest rate policies of nation states.

Have central banks saved us?

No, they have delayed the inevitable and contributed to the unsustainability of the current system.  Central planning policies tend to reward inefficiency and punish creativity and innovation.  It is this type of collective thinking that will cause this particular downturn to be felt more severely by most citizens in the lower and middle classes than the great recession of 2008.  The tax and spend policies of the socialist state can not bring prosperity, it is a logical fallacy.  So when the current system collapses under the weight of its own inefficiencies and corruption, it will be the failure of Socialism rather than Capitalism.


  1. Thank you PW, but it's a bit rich to lay the failings of capitalism at the feet of another discredited system. The predicament we are in today is a consequence of 200 years of fine energy dining, but that banquet is nearly at an end. So, when the system finally collapses how will it be able to bounce back without cheaply available energy, easily extractable resources, a stable climate, or a diverse and clean ecosystem? These things have been totally ravaged and today only the printing of fake energy credits (QE, ZIRP, NIRP, Bail Outs, Bail Ins etc) are able to stave off inevitable disaster, which will lead to mass starvation. Pray they keep printing...

    1. Screw that....as they print, they steal my savings for retirement, I am already retired, so screw that.

    2. I concur. Printing is a band aid solution on a gushing wound. Only a currency reset and all that involves will restore even the possibility of sound money that is a store of value.


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