The Collapse of Capitalism?

by MaxPower

When the West won the Cold War, it was universally seen as the triumph of capitalism (less so than democracy per se) over the evils (economic and otherwise) of communism and the centrally planned economy. Capitalism owned the central planned economy’s world, everything was superior. I challenge anyone to come up with one actual economic theory that central planning was more advanced in than the invisible hand of capitalism. In fact I’m surprised the commies lasted as long as they did.

For example, to plan correctly in a centrally planned economy one must know at any point in time what everyone in the economy needs. Last time I checked you needed to be omnipotent to know this. Capitalism on the other hand evaluates everyone’s needs and desires by looking at where supply crosses demand. Individual firms make production decisions based on how much they think they will be able to sell. If the firm guess wrong its toast – out of business. Darwinian economics baby, survival of the fittest. This is the antithesis (seriously it actually is) of a centrally planned economy where some guy was sitting in an office drinking vodka and said we need more left footed boots, make some. So while the western economies were balancing what was needed with what was supplied the commies were producing millions of boots, tanks, and nukes while allocating no production to pants, tractors and bread. Never were short of vodka though…

This and the world history for the last 80 years leads me to inescapable conclusion that capitalism is by far and away the best economic system the world could possibly have now. However, recently with the completely over-hyped accounting scandals over Enron, Tyco and WorldCom some commentators – mainly on CNN, MSNBC and other high strung US media firms have been pulling out logos for their newscasts showing ‘The Collapse of Capitalism’. Even the usually level headed publication out of London, the Economist, recently had an issue where is showed Capitalism as Superman getting walloped by a large fist (probably the invisible hand, hahah, its an economist joke).

Anyway, my point is that the collapse of the firms like Enron and WorldCom proves that Capitalism is alive, well and even stronger than it has been. Think of it this way, in the Soviet Union, the economy was is a state of chaos for probably 20 years before it dissolved. It was held together by a strong central government who threw money at the problem without any worry of inflation (as very few rubles were available to be changed on the international money markets). Most Western observers had no idea the Soviet economy was in as bad shape as it was. However, as people (both inside the USSR and outside) couldn’t see the problem, they couldn’t fix it.

Those accounting scandals in the States show me the same thing that was shown in the past by putting someone’s head on a stake. If you do this, you’ll end up on this stake. Any firm knows if they are even a bit ‘aggressive’ with their accounting they are toast. Bankrupt, CEO’s dragged around in the public and their reputations ruined. They will be punished not by a posse, but rather by the same people who made them rich – their investors. That’s it I’m taking my money out of that company to punish it. This is the invisible hand at work, you have ultimate control of your finances. Any investor can punish a company who is not meeting with your expectations by taking your capital out of the company.

People who have lost their savings in the Enron collapse had put all of their cash into Enron and never invested in any other companies. Its called diversifying baby, spread the risk out, putting all you financial eggs in one basket is akin to committing economic suicide. Maybe if you have never taken a financial course and have no idea how to calculate the NPV of your investment, you shouldn’t be betting your family’s future on such an inherently risky proposition as the stock market. Put your money in T-bills, the only risk with that is if the government files for bankruptcy, and if that happens your last worries will be with your savings. You’ll be too busy fighting off looters.

I bought a shirt in a London boutique, its a red t-shirt with the letters CCCP also known as the USSR. It also features a small hammer & sickle which is the classic symbol of the Soviet Union. That shirt is in essence the triumph of capitalism, I can wear a shirt of the vanquished foe of the West. The shirt has been mass produced in the finest capitalism traditions, priced out according to demand and available to me in the store without waiting in line. All things which you would never get in a centrally planned economy. Fear not as long as there are economists the West will be safe from left leaning ideologues.

MaxPower