By Allan Meltzer
- The author of Why Capitalism? is a well-known figure in this debate, and is eminently well-qualified
- Capitalism is not the only possible way of organising the world, and Meltzer weighs up the alternatives
- Explains the current debate on the benefits and supposed shortcomings of capitalism
The financial crisis caused many genuinely to reconsider the desirability and feasibility of capitalism. In Why Capitalism? renowned economist Allan Meltzer addresses what he feels are key issues that critics of capitalism routinely fail to adequately recognize. These include the power of incentives and capitalism's adaptability to varying morals, ideals, and cultures.
Meltzer argues that while capitalism is not perfect, it is the best option for providing growth and personal freedom. Citing Kant, he stresses that most of the faults and flaws on which critics dwell are human faults and are not systemically inherent to capitalism.
Other topics he addresses include the regulated welfare state and how it invites corruption, arbitrary decisions, and circumvention; and irresponsible deficit spending and the unsustainable, unfunded promises by politicians eager to please.
Why Capitalism? is a short, powerful book that will raise the level of the current debate among politicians, scholars in the political sciences, and general readers interested in the political issues brought to light by the recent financial crisis, written by one of the strongest voices the public dialogue on the fundamental economic ideas on which the United States economy is based.
Gerardo Serra on LSE Review of Books wrote:
"Though authored by a distinguished economist and the foremost historian of the Federal Reserve, Why Capitalism? is a simple book, capable of resonating with the layman. If its readers do not expect a systematic treatise, but strong arguments in an elegant form, they won’t be disappointed. Meltzer’s defence of capitalism is an appreciation of capitalism as the least indefensible of economic systems. Menare ‘morally imperfect, and so are their institutions’. Institutions exist not to straighten the crooked timber of humanity, but rather to preserve peace and cooperation among the wicked beings we are. [...] The chief merit of this way of reasoning lies in contrasting capitalism with the Utopian dreams of its opponents. Alternative systems proved to be, to use a euphemism, quite inefficient at creating wealth. [...] The rationale of Meltzer’s book is to provide ammunition for a particular intellectual battle: the one that takes place over the ‘narrative’ of the financial crisis originated by the explosion of the subprime mortgage bubble. This explains the structure of the book. The question of the title (‘Why Capitalism?’) is addressed in the first chapter, followed by five (all of which are virtually readable independently of each other) on regulation, deficit spending, ‘sources of post-war progress’, foreign aid and ‘why inflation will return’. The thread that binds them all together is Meltzer’s emphasis on human beings’ fallibility and wickedness. Meltzer is extremely persuasive in applying his wisdom to the realm of regulation, particularly of the banking and financial industries. [...] Meltzer’s Why Capitalism? will thus do a great service to its readers, particularly if they are not naturally inclined to answer ‘why not?’."
Diana W. Thomas on Public Choice wrote:
The book is a short pamphlet divided into five sections. [...] The main message of the book is that 'capitalism is the only system that achieves both economic growth and individual freedom' (p. ix). The specific treatment of the broad themes addressed in each chapter follows with remarkable consistency from its premise, via the application of basic economic theory to real world scenarios. The key word here is ‘incentives’ [...] In the early pages of the book, Meltzer stresses his intellectual debt towards thinkers such as Immanuel Kant, Karl Popper, Friedrich von Hayek and Milton Friedman. While the influence of the latter two is evident, especially in the continuous appeal to individual freedom as both the necessary condition for economic prosperity and the most important end of public policy, the use of the former two’s ideas is somehow oversimplified. [...] Furthermore, the Manichean dualistic distinction between the virtues of the market and the evils of planning does not seem particularly useful in order to envisage authentically innovative solutions to today’s difficulties. In fact when it comes to policy-making, leaving aside some old recipes, Meltzer has surprisingly little to recommend. While the clarity of the book certainly makes it an appealing reading, there is little new material inside. [...] Certainly the adamant clarity of the arguments, their simple, accessible presentation and the terse language show the author’s life-long experience and commitment as a successful teacher and policy-maker. His book works brilliantly as an undergraduate introduction to the virtues of free-markets, and as a compact summary of a certain kind of wisdom for those social scientists who share its basic value premises. However those who were sceptical of the capacity of free-market democratic capitalism to serve human needs are likely to remain so."
Jerry Jordan on International Review of Economics & Finance wrote:
Allan Meltzer’s book Why Capitalism? is a clear and concise indictment of government intervention in the economy as the true source of economic stagnation and instability. It is motivated as a defense of capitalism against accusations of failure that arose as a result of the2008 financial crisis. [...] Given Meltzer’s expertise as a monetary economist, his discussion throughout the book traces all major policy mistakes back to monetary policy. [...] [...] Meltzer ends the book by suggesting an alternative to the current monetary regime that focuses on a system of stable exchange rates and price stability without restoring the gold standard. Such a system would commit the major currencies of the world to a stable inflation rate and fluctuating exchange rates. To make such stable inflation rates possible, Meltzer suggests that more stringent capital requirements for banks should replace the existing policy of too-big-too-fail bailouts. He concludes that capitalism can flourish only if we remember Kant’s principle that men and their institutions are morally imperfect."
"Actually, this recent short book by Professor Meltzer was quite a surprise. Even as short as it is, there is much more in it than the cogent defense of capitalism. First, the book could easily have been titled, 'What is Capitalism?' —and just as important, what it is not. [...] Meltzer draws clear lines between the real thing and the crony mutation of capitalism, but he also stresses that even the best forms of capitalism are far from perfect and will always be less than ideal simply because we humans are flawed creatures. Capitalism requires clear rules and institutional constraints on individual behavior. [...] That we are not angels, and that there is a yearning for better, if not perfect, governance, is Meltzer's underlying theme. Whether the‘good intentions’ lead capitalism's critics to flirt with socialism or to dream of benevolent, almost omniscient regulators to correct the imperfections of markets, the outcome has always been worse. Meltzer treats the critics of capitalism with considerable respect by carefully setting out the flaws in both their diagnoses and prescriptions."
Lecture by Meltzer on Why Capitalism?
A 55-minute lecture:
- Capitalism Remains Our Future - article by Allan Meltzer in The Montréal Review, November 2012
- Why Capitalism? - article by Allan Meltzer on the website of the American Enterprise Institute, 9 March 2009
Table of Contents of Why Capitalism?
- Why Capitalism?
- Regulation and the Welfare State
- Why Big Deficits Now?
- Sources of Postwar Progress
- Foreign Aid
- Why Inflation Will Return
About Allan Meltzer
According to Wikipedia "Allan H. Meltzer (1928 – 2017) was an American economist and Allan H. Meltzer Professor of Political Economy at Carnegie Mellon University's Tepper School of Business and Institute for Politics and Strategy in Pittsburgh, Pennsylvania. Meltzer specialized on studying monetary policy and the US Federal Reserve System, and authored several academic papers and books on the development and applications of monetary policy, and about the history of central banking in the US."