Capitalism: Use the invisible hand or the heavy hand?


To end poverty in the world, let loose the dogs of capitalism, seemed to be the message of historian Joyce Appleby, at the Judge Philip Pro Lectureship in Legal History at the Boyd School of Law on the campus of UNLV Wednesday evening, for her overflow audience.

Using her book, “
The Relentless Revolution: A History of Capitalism,” as her outline, Appleby traced capitalism from its roots in ancient commerce through the industrialization in England and the United States to the phenomena of micro-loans today, the roots of the current recession and the path out of it.

Appleby, professor emerita of UCLA and a former newspaper reporter, described capitalism as not so much an economic endeavor but a fundamental part of social culture and a way of thinking and living by taking risks and creating wealth and profits through innovation.

“Some historians have presented capitalism as foisted on common men and women by outsiders,” she said, “but I think they missed the central feature of free-market economies. No one can predict the consequences of cumulative decisions. That’s what rules in the market — cumulative decisions, to invest or to buy or sell.”

Sounds a bit like Adam Smith’s invisible hand.

I was taken aback a bit by her apparent respect for the theorems of John Maynard Keynes and asked her about that afterward. She stated sometimes stimulus from the government is needed to aright a listing economy.
In her book she discusses the back and forth battle for the hearts and minds and wallets of politicians in the U.S. and England between Keynes and archrival Milton Friedman, who advocated a hands-off approach and letting the market take care of itself.

She concluded, “Keynes came out the better in the contest of ideas while the countries themselves suffered from following Friedman’s prescriptions.”

Sounds like a very visible hand trying to influence those unpredictable cumulative decisions.

The trouble with trying to judge the efficacy of economic stimulation is that the whole word is the laboratory and there is no way to run side by side experiments to see which works better. In the short run, it is hard to tell if stimulus improved the economy or prolonged the problem. In the long run, as Keynes famously said, "we're all dead."

Appleby closed by saying, “Participants can shape the future of capitalism.” It is just a question of how they do that, I guess.

Here is a snippet of an interview she did with Reason magazine.