During times of normalcy, well-regulated capitalism with an abundance of oversight, is indeed the best economic system. We are being reminded once again, however, how woefully inadequate it is to sustain itself through any type of major crisis. Ironically, other economic systems and theories must intervene to save capitalism from itself.
Time and again history has shown us that when we are hit with major a crisis we turn to other economic processes. The Great Depression and, more recently, the Great Recession are two vivid examples of the limitations of capitalism. And now, we can add COVID-19 to the list.
The true believer, if you will, in capitalism sees government interference in the economy as anathema. The root of this line of thought is what is referred to as laissez-faire capitalism. It is credited to 18th century Scottish economist Adam Smith, author of the classic economic treatise, An Inquiry into the Nature and Causes of the Wealth of Nations, usually just referred to as The Wealth of Nations.
As a byproduct of the late 18th and 19th century Industrial Revolution, economic theories started to develop and Smith’s was quite prominent and still is today.
Others such as late 19th and early 20th-century British economist John Maynard Keynes would push back against Smith. Whereas to Smith, government must have a limited role, if any, in the economy, Keynes would argue that government interference is valid and indeed necessary in times of economic downturn.
During the Great Depression, President Hoover, a proponent of limited government, was reticent to interfere in the economy and most certainly exacerbated those difficult of times. His successor, FDR, took very much the opposite view and created a myriad of different social programs to try to alleviate the suffering and get the country back on track. In addition, his first week in office he ordered banks to close to defend against a panicked rush.
During the Great Recession that we just came through, Republican George W. Bush and Democrat Barack Obama, both pushed through massive stimulus packages to get the economy back on track.
And now we have COVID-19. Once again, capitalism is not up to the economic task. Congress has passed a massive package to aid both corporations and the American people. As part of this effort, social programs such as unemployment insurance are being expanded.
What then are we to really make of capitalism as an economic system? It is the best economic system when there is economic sunshine. Throw in a few economic clouds and capitalism starts to stutter. Introduce an economic earthquake and capitalism collapses.
But capitalism always survives. It survives not of its own accord, but because of government—in the form of Keynesian economics—and tenets of socialism that arrive on the scene to resuscitate it.
Lawrence J. Burns