Why Capitalism?

Why Capitalism?

by Allan H Meltzer
     
 

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A review of the headlines of the past decade seems to show that disasters are often part of capitalist systems: the high-tech bubble, the Enron fraud, the Madoff Ponzi scheme, the great housing bubble, massive lay-offs, and a widening income gap. Disenchantment with the market economy has reached the point that many even question capitalism itself. Allan H. Meltzer…  See more details below

Overview

A review of the headlines of the past decade seems to show that disasters are often part of capitalist systems: the high-tech bubble, the Enron fraud, the Madoff Ponzi scheme, the great housing bubble, massive lay-offs, and a widening income gap. Disenchantment with the market economy has reached the point that many even question capitalism itself. Allan H. Meltzer disagrees, passionately and persuasively. Drawing on deep expertise as a financial historian and authority on economic theory, he provides a resounding answer to the question, why capitalism? Only capitalism, he writes, maximizes both growth and individual freedom. Unlike socialism, capitalism is adaptive, not rigid--private ownership of the means of production flourishes wherever it takes root, regardless of culture. Laws intended to tamper with its fundamental dynamics, such as those that redistribute wealth, fail. European countries boasting extensive welfare programs have not surpassed the more market-oriented United States. Capitalism does require a strong legal framework, Meltzer writes, and it does not solve all problems efficiently. But he finds that its problems stem from universal human weaknesses--such as dishonesty, venality, and expediency--which are not specific to capitalism. Along the way, he systematically analyzes the role of government, positing that regulations are static, but markets are dynamic, usually seeking ways to skirt the rules. Regulation is socially useful if it brings private costs into line with social costs (for example, the cost of taxes to hire policemen compared to that of the impact of rampant crime); if it doesnt, regulation simply invites circumvention. Vigorously argued, sweeping in scope, Why Capitalism? reminds us of the fundamental vitality of the one economic system that has survived every challenge, and risen to dominate the globe.

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Editorial Reviews

Publishers Weekly
In this polemic, Meltzer (A History of the Federal Reserve) brings forth argument after argument to show how for all of its flaws, “there is no better system for providing growth and personal freedom” than capitalism. Grounded in Kant’s dictum that “most of the faults and flaws on which critics dwell are human faults,” Meltzer defends capitalism while criticizing communism and socialism, the role of government and governmental policies (both historical and current), and the idea of redistribution of income. Too-big-to-fail and fiat currency also have their place in the mix, his choice of topics being both timely and pertinent. Out of these topics, it is government’s reach, policies, regulations, and expansion that seem to have captured the author’s attention. He sums up his stance succinctly: “Much regulation invites corruption, arbitrary decisions, and circumvention.” Reading more like a collection of essays than anything formal, the book is both powerful and opinionated. At times critical and at others solution oriented, Meltzer delivers his ideas in a manner that feels like an extended lecture, intent on demonstrating that it is because “democratic capitalism is not a rigid orthodoxy” that it remains viable. (Mar.)
From the Publisher

"A concise alternative to current economic policies for those who look with suspicion at the writings of economists and financial specialists...A lively, politically challenging contribution to a developing discussion on how to change international monetary arrangements." --Kirkus Reviews

"Allan Meltzer's Why Capitalism is a thoughtful, historically-based analysis of the roles of government and free markets in a democratic society. Meltzer has thought deeply about the workings of both and has a good sense of which functions each best can be trusted to serve. His analysis of financial regulation in general and of the Dodd-Frank bill in particular is the best I have seen." --Robert Lucas, University of Chicago, 1995 Nobel laureate in Economics

"If you want a realpolitik view of the world, Meltzer's your guy. You know right away that you are in for quite a ride when, in the introduction, he acknowledges the range of his influences, from Immanuel Kant (for example, human nature as 'crooked timber') to Karl Popper to Friedrich Hayek, and to Milton Friedman, among others. He takes you back in time and sketches from a broad perspective the old battle of capitalism versus communism and socialism, and extols the genius of the freedom of capitalism. For those interested in recounting the perils of government regulation and failed attempts at income distribution, it's a treasure, especially in the last chapter. There, the author describes the role of the Federal Reserve, particularly in moderating inflation, Meltzer's specialty."--Journal of Environmental Investing

Kirkus Reviews
Meltzer (Political Economy/Carnegie Mellon Univ.; A History of the Federal Reserve, Volume 2, Book 1, 1951-1969, 2010, etc.) provides a concise alternative to current economic policies for those who look with suspicion at the writings of economists and financial specialists. The author presents three main reasons why capitalism should be defended: It is the only system that supports both growth and individual freedom; it can adapt to different cultures; and it takes people as they are, not as they are imagined to be. Meltzer compares it to systems like the socialism of the former Soviet Union, and he argues forcefully for the case that capitalism can change and reform itself. He is sharply critical of the way Ben Bernanke, Henry Paulson and Timothy Geithner handled the subprime mortgage crisis. For him, such choices have brought the world to an unsustainable economic position, which requires "new rules for monetary policy" that will end excessive American fiscal and monetary expansion, as well as Asia's reliance on exports to the U.S. He insists that the post–World War II Pax Americana "has now ended," and the U.S. lacks either domestic or international support for a revival. Meltzer's new monetary order would include an agreement from the Chinese to change its currency policies, and he believes that the American global military posture ought to be re-evaluated from the twin standpoints of need and cost, and be brought into line with what the country can afford. The author presents the full array of regulatory instruments available, and he notes that financial failures must be allowed to occur. A lively, politically challenging contribution to a developing discussion on how to change international monetary arrangements.

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Product Details

ISBN-13:
9780199930104
Publisher:
Oxford University Press
Publication date:
01/23/2012
Sold by:
Barnes & Noble
Format:
NOOK Book
File size:
2 MB

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Meet the Author

Allan H. Meltzer is Allan H. Meltzer University Professor of Political Economy at Carnegie Mellon University. He is the author of A History of the Federal Reserve, Volumes 1 and 2.

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