Amartya Sen On Capitalism

Amartya Sen is an Indian professor of economics at Harvard University and the 1998 Nobel Prize winner for Economics. His curriculum vitae is impressive. He cannot vote in U.S. elections, but considered himself a supporter of Barak Obama's candidacy for president of the United States. Amit Roy in "All for Obama, Amartya counts the gains," for the Telegraph of Calcutta India reported,

New York, Nov. 5: Amartya Sen today told The Telegraph he was delighted with Barack Obama’s victory and that it had important consequences for India.

“It was a big night. I went to bed late. It’s an excellent result. I obviously don’t have a vote in America — I am an exclusively Indian citizen — but I have been a supporter of Barack Obama’s candidature right from the beginning,” the Nobel laureate, who teaches at Harvard, said from his home in Boston.

In "Economic Systems" I observe that many political pundits are calling President Obama a socialist. I then describe several economic systems and let the reader decide how to classify the president. Based on his article, "Capitalism Beyond the Crisis," (The New York Review of Books, Vol. 56, Num. 5, March 26, 2009.), I believe that Sen would classify Obama as an old-fashioned adherent of capitalism. His description of the role of government in a capitalist system comes very close to President Obama's agenda.

Sen begins by describing fundamental features of a market system.

It seems to be generally assumed that relying on markets for economic transactions is a necessary condition for an economy to be identified as capitalist. In a similar way, dependence on the profit motive and on individual rewards based on private ownership are seen as archetypal features of capitalism.

He notes that Adam Smith, the founder of economics who wrote on the efficiency of markets, also expressed concern about what markets leave undone, including alleviation of poverty and education.

The most immediate failure of the market mechanism lies in the things that the market leaves undone. Smith's economic analysis went well beyond leaving everything to the invisible hand of the market mechanism. He was not only a defender of the role of the state in providing public services, such as education, and in poverty relief,...he was also deeply concerned about the inequality and poverty that might survive in an otherwise successful market economy.

Sen also finds support for regulation of financial markets in Smith's writing.

If we were to look for a new approach to the organization of economic activity that included a pragmatic choice of a variety of public services and well-considered regulations, we would be following rather than departing from the agenda of reform that Smith outlined as he both defended and criticized capitalism.

Sen goes beyond Smith and finds support for government actions in dealing with economic psychology and externalities like pollution in the work of Cecil Pigou. He expresses the need of government to provide public goods. Few economists would deny the importance of government in dealing with externalities and public goods.

Sen ends by supporting capitalism moderated by government actions to ameliorate its shortcomings.

The present economic crises do not, I would argue, call for a "new capitalism," but they do demand a new understanding of older ideas, such as those of Smith and, nearer our time, of Pigou, many of which have been sadly neglected. What is also needed is a clearheaded perception of how different institutions actually work, and of how a variety of organizations—from the market to the institutions of the state—can go beyond short-term solutions and contribute to producing a more decent economic world.

Although nearly all economists see the need for markets in providing goods and services and allocating resources, and most see some role for the government in correcting market failures, there is often a chasm between economists on these issues. Like Cole Sear in "Sixth Sense," some economists see market failures,...they're everywhere, and others see very few.

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Economic Systems

Radio talk show hosts, blogs, and other forms of news dissemination, noting the growth of government in the first two months of the Obama administration have been calling President Obama a socialist. I even heard one talk show host refer to his supporters as Obamunists. Such complaints made their way through a New York Times reporter to the president, who gave a dismissive answer. Joe Curl writing for the Washington Post in "Obama makes Oval Office call to reporters," explains that President Obama has become concerned that his answer was inadequate.

President Obama was so concerned that he had appeared to dismiss a question from New York Times reporters about whether he was a socialist that he called the newspaper from the Oval Office to clarify his policies.

"It was hard for me to believe that you were entirely serious about that socialist question," he told reporters, who had interviewed the president aboard Air Force One on Friday.

Below I have provided definitions of several economic systems and a little information about the economists providing the definitions. You can decide which system best describes the collection of policies thus far expressed by the Obama administration.

From the Concise Encyclopedia of Economics, in an article titled "Socialism," Robert Heilbroner defines socialism

Socialism—defined as a centrally planned economy in which the government controls all means of production—was the tragic failure of the twentieth century. Born of a commitment to remedy the economic and moral defects of capitalism, it has far surpassed capitalism in both economic malfunction and moral cruelty.

The "About the Author" section of the article states,

Robert Heilbroner, a socialist for most of his adult life, was the Norman Thomas Professor of Economics (emeritus) at the New School for Social Research and author of the best-seller The Worldly Philosophers. He died in 2005.

Milton Friedman the Nobel Prize Laureate in Economics who supported capitalism in the popular press in Capitalism and Freedom (The University of Chicago Press, 1962, pg. 5.) writes,

As it developed in the late eighteenth and early nineteenth centuries, the intellectual movement that went under the name of liberalism emphasized freedom as the ultimate goal and the individual as the ultimate entity in society. The kind of economic organization that provides economic freedom directly, namely competitive capitalism, also promotes political freedom because it separates economic power from political power and in this way enables the one to offset the other. History suggests only that capitalism is a necessary condition for political freedom. Clearly it is not a sufficient condition.

Robert Hessen, who writes on business and economic history, and is a senior research fellow at Stanford University’s Hoover Institution writes in the Concise Encyclopedia of Economics ("Capitalism") that

Capitalism,” a term of disparagement coined by socialists in the mid-nineteenth century, is a misnomer for “economic individualism,” which Adam Smith earlier called “the obvious and simple system of natural liberty” (Wealth of Nations).

Sheldon Richman, the editor of The Freeman: Ideas on Liberty at the Foundation for Economic Education, writes for the Concise Encyclopedia of Economics ("Fascism")

As an economic system, fascism is socialism with a capitalist veneer.

Where socialism sought totalitarian control of a society’s economic processes through direct state operation of the means of production, fascism sought that control indirectly, through domination of nominally private owners. Where socialism nationalized property explicitly, fascism did so implicitly, by requiring owners to use their property in the “national interest”—that is, as the autocratic authority conceived it.

George Reisman, writing for the Mises Daily in "What is Interventionism?," describes interventionism,

Interventionism is any act of government that both represents the initiation of physical force and, at the same time, stops short of imposing an all-round socialist economic system, in which production takes place entirely, or at least characteristically, at the initiative of the government. In contrast to socialism, interventionism is a system in which production continues to take place characteristically, at the initiative of private individuals, including private corporations, and is motivated by the desire to earn private profit. Interventionism exists in the framework of a market economy, though, as von Mises puts it, such a market economy is a hampered market economy.

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Cardinal Cormac Murphy-O'Connor On Capitalism

Writing for Timesonline, in an article titled, "Cardinal Cormac Murphy-O'Connor: recession may be jolt that selfish Britain needs," Alice Thomson and Rachel Sylvester quote Cardinal Murphy-O'Connor on the recession, capitalism and greed.

It's the end of a certain kind of selfish capitalism. This particular recession is a moment - a kairos - when we have to reflect as a country on what are the things that nourish the values, the virtues, we want to have ... Capitalism needs to be underpinned with regulation and a moral purpose.

As an ongoing crusade on economic education, I recommend leaving out the word capitalism. Greed predated capitalism. It is part of human nature.

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