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Richmans' Trade and Taxes Blog
National Capitalism, Rather than Mixed Economy or Socialism, Best Describes Economic System
Norman S. B. Gras, Professor of Business History at Harvard in 1940, described FDR’s New Deal as an example of "national capitalism" similar to that in Fascist Italy and Nazi Germany in an article published in the Harvard Business Review. National capitalism is "a system of business based upon private enterprise publicly controlled." Because Nazism and Fascism used totalitarian methods and ruthlessly killed so many people, the term “national capitalism” should be used instead of fascism to accommodate economic systems that are more democratic and avoid the use of brute force. Gras’s description of the system as national capitalism ought to have been widely adopted by economists and business majors as well as the general public.
Economists are fond of describing economic systems as “capitalist”, “socialist”, “free enterprise”, “private enterprise”, etc. but they tend to avoid calling a system “fascist”, which is to be expected because of the odious character of the Hitler regime and Mussolini’s alliance with Germany. They avoid calling attention to the Japanese economy at all although historically it was equally odious and the Japanese government still plays a substantial role in directing and controlling the economy. The post-WWII American domination of the world has eliminated most attempts to distinguish between economic systems although the Cuban and North Korean economy are often represented as “communist”
Look about you. There are hundreds of thousands of objects in the room you find yourself, where you live, where you work, where you travel, for sale in retail stores and on line and throughout the world. Who invented these objects? Who manufactured them? Whom are they made for? Nearly all of them were invented and produced by private persons without government assistance. Socialists tend to criticize capitalism as greedy. But as Adam Smith noted in the 18th century, everyone acting in his own interest in a capitalist economy ends up acting in the interest of all.
That is not to say that governments have not contributed to invention and innovation. We have patent and copyright laws to encourage private invention and creativity and governments have made important contributions to science, discovery and invention. Governments have built utilities like dams, roads, railroads, and power plants. But government attempts to produce most of the goods and services we use, an economic system called socialism, have failed wherever they have been tried. And where socialism has been tried, governments had to use force, killing and forcing the migration of millions of people as in the USSR.
Most governments play a role in directing their country’s economy. Nearly all governments employ monetary and fiscal counter-cyclical policies designed to control macroeconomic fluctuations using monetary and fiscal policies. They have to do that since nearly all recessions are caused by government policies. Every country has some government enterprises and some communist-dominated countries tolerate some private enterprises. Most economists would describe most economies as “mixed”. But the degree of government involvement is important. That and the use of force and terror is what has distinguished fascist economies from mixed economies
The degree of government involvement in the economy is important. The more that government is involved in business decisions the more like fascism it necessarily becomes. China is directed by a Communist party. It has a high degree of government involvement in the economy, including wage and price controls, operating the central bank and operates a large number of government enterprises. In the USA, governments have engaged in rent controls, minimum wage laws, and other price controls but comes nowhere near to China in the number of production units. The Federal Reserve System, an independent agency created by the government, controls the money supply and interest rates and has assumed responsibility for counter cyclical policy. But it is easier for the Fed to buy government securities and expand the money supply that it is to reverse the process during a recovery. The central bank, independent or not, has to be counted in determining the degree of national capitalism.
The grant of patents and copyrights by governments is universal. Their purpose is to provide incentives to invention and innovation. A USA patent or copyright guarantees monopoly in the USA market, not beyond its borders unless there is a treaty requiring each country to respect the patents of the other.
China has been accused of not respecting patents, copyrights, and secret industrial practices but it is hard to justify a single country’s patents, copyright and business practices as having the right to international enforcement of the monopoly legally granted by patents and copyrights. As for copying secret business practices, successful competition requires alert competitors to learn such practices. It is hard to justify the USA’s criticism of China’s efforts in this regard. Top of Form
Socialism is misnamed. Its true name is fascism, a name so vile we have to call it by another name that it is not, namely socialism. It is simply a system that forces private enterprises to obey government decisions. Both Hitler and Mussolini recognized the New Deal for what it was, fascistic, what we would now call a high degree of national capitalism. The only true socialist state was the USSR and it collapsed. “National capitalism” describes the economies of different countries better than “mixed economy”. The multi-national companies that dominate the world economy would prefer “international capitalism” but national states still exist and decide the role of corporations that operate within their boundaries.
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