Capitalism Needs Reform, Not Revolution

When even leading economists are questioning the very idea of capitalism, you know the system is in trouble. In a recent article, Nobel economics winner Angus Deaton reviewed two books by other distinguished economists -- Raghuram Rajan and Paul Collier -- that argue that capitalism is fundamentally flawed. Rajan laments the demise of local communities in the face of big government and mass markets, while Collier discusses the tendency of meritocracy to concentrate talent and money. Meanwhile, income and wealth inequality is at the center of the well-known critique of capitalism by economist Thomas Piketty. Some critics of capitalism argue that the problem is monopoly power, while others say that capitalism is the culprit behind climate change.

These critiques of the modern economy have some validity. But in the rush to bash capitalism -- or to capitalize on the sudden unpopularity of the term -- the critics haven’t done a good job of defining what capitalism means. Does it mean private property? Private ownership of industry? Market economies? Public asset markets and joint-stock ownership? Often, the term capitalism seems like simply a stand-in for whatever market-like features of modern economies someone doesn’t like.