An article at project-syndicate.org, “The Case Against Free-Market Capitalism” by Ngaire Woods, perpetuates the myth:
Free-market capitalism is on trial. In the United Kingdom, Labour Party leader Jeremy Corbyn accuses neoliberalism of increasing homelessness, throwing children into poverty, and causing wages to fall below subsistence level....
Just a quarter-century ago, the debate about economic systems – state-managed socialism or liberal democracy and capitalism – seemed to have been settled. With the Soviet Union’s collapse, the case was closed – or so it seemed.
Since then, the rise of China has belied the view that a state-led strategy will always fail, and the global financial crisis exposed the perils of inadequately regulated markets.” Woods calls the US “the paragon of free-market democracy.When I first began learning economics in the 1980s, most scholars called the US system a mixed economy. The idea was that the country had implemented some aspects of socialism while allowing some aspects of a market economy. However, that depiction of our economy advertised a shocking ignorance of the history of socialism because Lenin had already created a “mixed” economy in the USSR in the 1920s after the failure of a purer form of socialism. Lenin changed the definition of socialism at that time and called his mixed economy “market socialism”. It no longer meant what Karl Marx intended because Marx’s nonsense had failed miserably, as Lenin had learned, Mao would learn and North Korea and Venezuela have learned. The new socialism of Lenin needed a small space for markets in order to keep people from starving. It was a mixed economy.
The US began its long slide into the quicksand of socialism with the election of Wilson as President and the passage of the income tax law. The slope of that incline steepened sharply under Roosevelt with his New Deal, which was an effort to remake the US in the image of fascist Italy. Johnson added to it his “Great Society” socialist legislation. Then came the disasters of stagflation and energy shortages in the 1970s. No socialist solution, such as Nixon’s wage and price controls, alleviated the pain, so out of sheer desperation President Carter reached for a pro-market solution – he abolished price controls in the energy industry. He did not deregulate anything as historians and the media claim. He merely ended the policy of bureaucrats setting the prices of oil and natural gas. He left all other regulations in place.
Historians and the media, the propaganda arms of socialism, didn’t announce the resurrection of laissez-faire when Carter ended price controls because he was a Democrat Party member and a socialist, and they wanted him to be re-elected. They announced the great Wild West, laissez-faire, free market juggernaut with the election of Republican Ronald Reagan who had promoted free markets in speeches for decades.
But what did Reagan accomplish? He passed a tax reform bill that reduced the top rate while eliminating so many deductions that few people saw an actual reduction in taxes. He preached free markets but accomplished little more than the small change in the tax code. He continued Carter’s policy of ending federal price controls on transportation and built up the military through massive deficit spending that destroyed the Republican Party’s concern over deficits. In his second term he passed the largest tax increase in US history at the time. His successor, Bush I, passed another tax increase which was larger. Then Clinton passed another tax increase that was the largest in US history at the time.
Through the 1980s and 1990s there was no deregulation at all as historians the media claim. In fact, the Federal Register of new regulations grew at a rate of 75,000 pages per year from 1970 until 2008 when it accelerated to 100,000 pages per year.
But according to historians, eliminating price controls with small tax code changes thrust the US into no-holds-barred, Wild West, free market capitalism. The facts of three massive tax increases and the speed of light increase in business regulations had no impact and should not figure into the debate according to historians and the media.
The truth is that the US is more socialist than ever today, closer to the fascist flavor. There are no large capitalist nations today if you measure capitalism by the standard of the US before FDR. Under FDR the US became a market socialist economy like Lenin’s with more freedom. But because the propaganda arm of socialism, historians and media, have succeeded in convincing most people that the US practices an extreme form of laissez-faire, gullible people blame the past recession and all economic problems on that policy.
This isn’t a new situation. Socialists have always done this. Ludwig von Mises records the same thing in his history of socialism in Germany, Omnipotent Government. By the end of the First World War, Germany had become a fully democratic socialist nation in which socialist policies had destroyed the economy. Instead of confessing the failure of those policies, the socialists blamed residual capitalism. But they had no new policies to offer because they had already implemented all of the socialist policies they could imagine. A committee of the top economists, all socialists and including Joseph Schumpeter, deliberated for months on the economic problems and came up with nothing to recommend.
We have currently arrived at a similar situation. Wood wrote,
The practical solutions on offer seem to be fairly consistent across the political spectrum. Indeed, for all their furious positioning, the differences between left and right seem to have collapsed in this regard.That’s what happened in socialist Germany. No one is suggesting that we free markets, as Carter and Reagan did, because they’re all under the delusion that we have the freest markets possible and that is the problem. So the only solutions on the table advocate more socialism, but the US and UK have already implemented all of the socialist ideas. There aren’t any new ones left. All Bernie Sanders, the leader of socialist politics in the US, could throw out was to add paid parental leave and free college tuition. That’s all that separates us from the idyll of full-blown socialism.
Even the advocates of free markets in the US call the current system a form of capitalism, usually adding “crony” in front of it to signal that they know something is wrong. They just don’t know what.
At best, the US and UK have mercantile economies like those opposed by Adam Smith. Every aspect of mercantile economies was controlled by the state, which issued monopolies to the well-connected and dictated prices. But that is hardly different from the corporate fascism of Italy and nation socialism of Germany before WWII.
Until the US and UK have a free press and free market economists who understand history we will continue to suffer from socialist propaganda that blames all economic and social problems on an non-existent capitalist system.