"It is possible to defend our economic system on the ground that, patched up with Keynesian correctives, it is, as he put it, the 'best in sight'. Or at any rate that it is not too bad, and change is painful. In short, that our system is the best system that we have got.These days, economists are not trained to competently address these questions. For one thing, economists would have to read both history and philosophy as part of their academic work.
Or it is possible to take the tough-minded line that Schumpeter derived from Marx. The system is cruel, unjust, turbulent, but it does deliver the goods, and, damn it all, it's the goods that you want.
Or, conceding its defects, to defend it on political grounds - that democracy as we know it could not have grown up under any other system and cannot survive without it.
What is not possible, at this time of day, is to defend it, in the neo-classical style, as a delicate self-regulating mechanism, that has only to be left to itself to produce the greatest satisfaction for all.
But none of the alternative defences really sounds very well. Nowadays, to support the status quo, the best course is just to leave all these awkward questions alone." -- Joan Robinson, Economic Philosophy: An Essay on the Progress of Economic Thought (1962): p. 140.
The defenses Robinson offers for capitalism do not say any particular embodiment of capitalism does not require a lot of patching up.
I think Robinson's position that markets cannot be regarded as a "delicate self-regulating mechanism" has become even stronger in the last half-century. For my purposes, never mind looking out your door at our current situation. Consider what we now know about economic theory. My point is not merely that economists have no proof of the stability of a (unique?) equilibrium in models of markets. My point is that what we know about the question suggests that markets, in such models, are not likely to approach equilibrium. I am thinking of, for instance:
- the Sonnenschein-Mantel-Debreu theorem.
- Franklin Fisher's demonstration that one should impose the assumption of "no favorable surprise" to ensure an approach to general equilibrium.
- Fabio Petri's explanation that the Arrow-Debreu model cannot allow production to occur along the approach to equilibrium (since production will change part of the data defining the equilibria, namely the initial endowments).
I think that this perspective on equilibrium leads one to disbelieve that capitalism can be made self-regulating by establishing or restoring competitive forces that do not seem to be operative today. In short, Mark Thoma is simply wrong.
David Ruccio and "Larry, the Barefoot Bum" also have comments about Mark Thoma's editorial. I've previously noted that Marxist exploitation is compatible with perfect competition and every factor receiving the full value of their marginal product. I've also previously expressed my opinion that Marxist exploitation is not about describing an injustice when capitalism is viewed under the aspect of eternity.
- Franklin M. Fisher (1983). Disequilibrium Foundations of Equilibrium Economics, Cambridge University Press.
- Franklin M. Fisher (1989) "Games economists play: A noncooperative view", RAND Journal of Economics. V. 20, N. 1 (Spring) [To read].
- Fabio Petri (2004). General Equilibrium, Capital and Macroeconomics: A Key to Recent Controversies in Equilibrium Theory, Edward Elgar.
- Joan Robinson (1962). Economic Philosophy: An Essay on the Progress of Economic Thought.