“Capitalism is the astounding belief that the wickedest of men will do the most wickedest of things for the greatest good of everyone.”
John Maynard Keynes
“Religion” is a complicated word, often misconstrued as a set of practices and rituals centered around the worship of a deity. This is a gross. misconception, as religions can be nontheistic or indifferent to the existence of God(s) as well. Buddhism for example, while accommodating various gods in its rich pantheon, does not necessarily place central importance in the existence of a higher power, but instead prescribes a way of life that minimizes suffering. In a manner of speaking, anything that can be defined as a set of ideas and beliefs that provides norms for the livelihood of its followers can be called a religion. With that being said, Ironically, today’s most prominent religion would have no relation to God in any way. Instead, that title would belong to the world’s most implemented economic system, Capitalism. It can be defined as an economic/political system in which trade and industry are controlled by private owners to earn a profit, rather than by the state. Like all major religions, it has a set of norms, rules, and believers. Much like Christianity, Hinduism, or Islam, it only exists in the minds of its billions of followers but it manifests the impacts of its existence into the physical world and hence is, very real. And like Christianity, Hinduism, or Islam, it also competes with rival schools of thought and even takes measures to defend itself, as the world witnessed in the second half of the 20th century during the Cold War.
Throughout history, various economic principles have paved the way for the emergence of Capitalism. Lassiez Faire, (“Let Go” in French) was one such school of thought which was popularised in France during the 1700s. It refers to the absence of government intervention in the economy, thereby letting the markets determine the output and prices. The French society was then led by economic thinkers (now called the Physiocrats), who were the precursors to the first capitalists. Francois Quesnay, one of the most prominent physiocrats, came up with a model called the Tableau Economique in 1758 which stated that the wealth of a Nation is determined by agricultural production, and not reserves of gold and silver. This had one major implication in specific. This meant that the economy’s wealth could be increased by employing more labour in the economy. The answer was no longer trade as previously thought by the Mercantilists of Europe, but was instead increasing productivity by hiring more labour to work in the existing land.
The world underwent the Industrial Revolution in the late 18th century introducing new production techniques, automation, and technology that geometrically increased the existing production capacities of economies. Capitalist ideas ran rampant throughout Europe. Consequently, a new wave of Economists now called the Classical Economists emerged. It was at this time that Capitalism started its journey to become the status quo. In his revolutionary book written in 1776, An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith formally started the branch of science that is today called Economics (Thus earning him the nickname “The father of Economics”). He introduced concepts like the Invisible Hand, the division of labour and the labour theory to the academic world. Smith argued that humans’ natural tendency towards self-interest brought economic prosperity, and preached the idea of Laissez Faire. He spoke of the division of labour and how different classes within the producing society was essential to generate profits. Classical economics was finally born. In the following few decades, economists such as T.R Malthus, David Ricardo,J.B Say, and J.S Mill had come very far in explaining various complicated phenomena such as absolute and comparative advantage, the labour theory of value and circular flow of income and goods that are considered essential parts of the classical school of thought. Economics had not only become a full-fledged branch of science but was proving to be essential for the sustenance of society andits development. Naturally, however, due to the dynamic nature of human society, the science evolved exposing some major flaws in the system and thus began a long line of criticism of capitalism that spanned over for the next century.
Inspired by the thoughts of Smith and Ricardo, a certain philosopher named Karl Marx started formulating his own theories with fellow philosopher Friedrich Engels during the mid 19th century. In 1848, they published a political document named The Communist Manifesto, which discussed the inherent problems caused by the class division of the capitalistic society. Marx attacked the materialistic capitalist class, “The Bourgeois”, and how they prospered at the expense of the working class, “The Proletariat”. Marx proclaimed that the capitalistic society created a huge gap between the living standards of the two classes as the capitalists, motivated by greed, exploited the workers acting as feudal lords and property owners. He hypothesized that this would create social tensions between the two classes ultimately leading to a revolution by the Proletariat. The new society formed after the revolution would be “socialist” in nature, where there would be state-sponsored production of goods and public ownership of property. This too would be an interim step as society would evolve even further to a “communist society”. This is Marx’s final stage of communist theory. There would be no more government, no god, and no classes. Society would work collectively and reap the benefits as per the needs of the people.
The first half of the 20th century brought more problems for the classical school of thought and their idea of capitalism. The Wall Street Crash of 1929, the US government’s poor monetary policy, trade policies, and lack of investment caused aggregate demand to fall sharply during the late 1920s and eventually caused the worst economic crisis in history. The Great Depression began in 1929 and lasted for almost a decade. The fall in aggregate demand which resulted in a fall in US GDP by 30 percent, sent shockwaves throughout the economies of the rest of the world. Various economists were in the favour of a do-nothing policy, which only worsened the situation putting their faith in the free market system. However, In his magnum opus, The General Theory of Employment, Interest, and Money published in 1936, John Maynard Keynes completely revolutionized macroeconomics and gave an effective solution to the crisis. He advocated the use of fiscal and monetary policies by the government to increase aggregate demand to compensate for the lack of spending from the private sector. This contested the effectiveness of the notion of Laissez Faire, implying that perhaps free-market capitalism could be self-destructive if not kept in check by the government. By the end of the 1950s, almost all capitalists had adopted Keynesian economics. The image of capitalism had been harmed and was facing great scrutiny.
The end of World War II marked the beginning of The Cold War which had polarised the entire world. This is when Capitalism had to defend itself against its dominant rival, Communism. The USSR, led by Nikita Krushchev, now preached Socialism and had become a world superpower. They frequently locked horns against the United States other in various proxy wars in the second half of the 20th century. Eventually, however, due to the inherent problems in implementing socialist ideas, the authoritarian governments, corruption, and various economic problems seen in socialist countries, Capitalism had its victory. The USSR disintegrated in 1989, leaving the United States, and thus by definition, Capitalism unchallenged.
Additionally, in the 1970s a new wave of economic thinkers called the Monetarists, led by Milton Friedman, let capitalism off the hook for causing the great depression. They argued that The Great Depression was not a result of a lack of investments as suggested by Keynes, but the problems associated with money supply and was the government’s fault, instead of the private sectors. Keynesian economics was unable to explain the issues of the US economy as it experienced stagflation in the 1970s.In the 1980s Ronald Reagan’s new policies (colloquially referred to as Reaganomics) that encouraged free-market policies and reduction of the role of the government in the economy’s growth showed a great effect in boosting GDP growth and ending stagflation. Critics pointed out that there was an increase in inequalities and an atmosphere of greed, which supporters called an “entrepreneurial hunger”. The fact however remained, that capitalism was back and was very effective in solving economic issues, something that socialism or communism was not.
The 1990s were an era where capitalist culture reached its peak. New technology, the internet, new ideas flowed across borders as globalization integrated the world economy. People started to buy more as mass manufacturing became a new trend. Economies were either a market or were producers for markets. Consumerism became an essential part of human life. Various countries started to take part in this phenomenon and liberalized their economic laws. Capitalism had finally become a religion of this new world. One that billions of people were a part of. However, like many times before, the success of this system was proven to be cyclical as the 2000s proved to be a turbulent decade. The Dot Com Crash in the early 2000s started to bring down the hot sizzle of the 1990s by creating a recession. The decade slowly led up to the global financial crisis that exposed capitalism, and the monstrosity that the banking sector had mutated into. The Housing Crisis shed light on the corruption of some of the biggest corporations of the world along with ratings agencies. The entire global economy, now more interconnected than ever, had to experience severe damages in the worst economic period in history since the great depression. The need for the government’s watch was reiterated. Capitalism, in the end, is far too uncontrollable to be left loose.
Needless to say, the capitalistic model is variable. No two economies are the same in terms of their demography, their resources, or their geography. But some models have proven to be more successful than the others. The last two decades demonstrate how diverse the capitalist spectrum can be. The Nordic model of being a welfare state with profits invested in socialist policies prove that it is possible to bring in successful development in the economy along with social improvement as well. The Irish Economy exhibited how the market and low taxes can bring in rapid economic development in a country tethered by a crisis. The Chinese economy used a unique hybrid of socialism and capitalism, now called State Capitalism, to become the second-largest economy in the world from a third world country in two decades. The State owns all means of production, but private companies take care of the production methods itself. Japan, Singapore, South Korea, Taiwan, or Four Asian Tigers have all tackled their different demographic, geographical, and social obstacles and have all used different models of capitalism to show tremendous economic growth. There is no single right way to use this system, but there is a wrong one: leaving it unchecked. Schumpeter’s theory of business cycles states that the economy would keep on alternating between booms and busts. Does that mean that recessions are independent of the economic system implemented by a country? Partially. Though the markets will fluctuate, using the right model to minimize the damage is of utmost importance. Capitalism is not perfect, it has various flaws, as periodical evidence suggests. However, it has also had the best track record of economic growth.
It is also inappropriate to discount capitalism as just an economic system, as it has major social and humanitarian ramifications. As mentioned before, it is more than that. It’s a way of life, a religion. And like any religion, it is not objectively good or bad. Its value to society can only by determined by what change it brings. To bring a positive change, it needs the right prophets, who interpret it correctly. It could be a system motivated by greed trying to serve the rich get richer, or it could be a system driven by ambition trying to establish social equality. Economics will always bear an effect on the environment, politics, and the collective psychology of society. It is important to accept the fact that no action would bring desired changes without attracting some undesired repercussions as well. With the world well into a global pandemic and an economic crisis, undoubtedly a notable phase for the history books, capitalism would have to prove its mettle again, as it has had to do so many times in the past. One can only hope that it would evolve into a better system this time around and avoid the mistakes it made in the past.