Economists, ever since their dismal science was born, have shown a penchant for debating the fate of capitalism. In 1981, Nobel Prize winner George Stigler entered the fray with an essay called "American Capitalism at High Noon." In addition to his prodigious talents as an economist, Stigler displays a refreshing droll humor that is uncommon in our science, and in this essay he is at his wittiest.
Nevertheless, I would dissent from Stigler: I would replace high noon with sunset as the more appropriate metaphor for describing the current state of American capitalism. While impartial observers might disagree about exactly when "high noon" came to pass, it seems clear that only a most desperate barrister would attempt on a contingency-fee basis to convince a judge or jury that the sun shines on capitalism most directly in the 1980s.
It should be noted that Stigler's assessment is not grounded in any measure of the condition of capitalism as such. It is an inference drawn from the proposition that business leaders are a self-interested, intelligent, politically powerful lot who would not condone regulation that did serious violence to their welfare. Given the political potency of the business community, he argues, we must conclude that what is, is what they prefer; ergo, capitalism is at high noon.
As he puts it, "The larger part of the regulations to which businessmen are subjected must be of their own contriving and acceptance. It is they who persuaded the federal and state governments to initiate the controls over financial institutions, transportation systems, communication systems, extractive industries, and so on."
And a bit later in his essay, Stigler observes, "The American business community includes vast numbers of people of high ability, with many more on the horizon because professors in leading business schools are now teaching an elite class of recent college graduates. The American business community has ample financial resources even in these days of onerous taxation. What the American business community lacks is the will to eliminate most business regulations.... I hope that you will... consider whether our ocean of regulations could possibly have been achieved under high capitalism except by the consent of the capitalists. American business likes what it is getting."
As a testimonial to the health of American capitalism, this thesis leaves me puzzled. For one thing, there is no good reason that the health of capitalism should be identified with the success of businessmen in tapping the political process. The ICC-contrived and controlled by railroad tycoons-may very well have benefitted the tycoons themselves and some of their friends. But it is a big step from there to the inference that the welfare of businessmen generally, much less the health of capitalism, was thereby improved. Indeed, there are many (myself among them) who would argue precisely the opposite, that what is good for the New York Central (or railroads in general) need not be good for capitalism.
Moreover, it is worth emphasizing in this context that the political clout of individual producer subgroups, such as the railroads, tells us nothing about the political potency or will of the business community when it comes to eliciting truly pro-capitalism legislation-that is, legislation that fosters markets and economic freedom generally rather than simply transfers wealth.
A second closely related problem I have with Stigler's thesis is the identification of the health of capitalism with regulation. Surely the health of capitalism also depends on the extent to which production is carried on in private, as distinct from government, enterprises.
Indeed, socialization and taxation are examples of a large class of government policies not generally included under the rubric of regulation, but which cannot be ignored in any realistic assessment of the health of capitalism. Two other examples are worth noting: the creation of communal property (the most extreme version of which is the current wilderness-area lunacy), and the care and feeding of labor organizations.
When it comes to evidence for his assessment of the state of American capitalism, Stigler is, with one exception, largely silent. In that exception he addresses only regulation narrowly defined, and he confines his comments to a rejection of one common measure of the level of regulation. "One can count up regulatory statutes," he admits, "but a statute and its regulations are hardly a measure of effective regulations."
It is true that the number of linear feet of IAW-library shelf space devoted to regulatory statutes, the number of pages in the Federal Register annually, the number of regulatory agencies and their employees, aggregate expenditures by regulatory agencies, and the like are not by themselves evidence of effective regulations. However, only someone who held unshakeable beliefs against the existence of regulatory growth would refuse to revise his views after he was told that all of these measures were growing at an increasing rate.
In fact, such measures are not the only evidence-and not even the most compelling evidence-for assessing the state of capitalism. A more reliable measure of capitalism's role in society is the fraction of output attributable to capitalist organizations, or its complement, the fraction of output accounted for by government expenditures. By that measure, the descent of capitalism from its zenith began long ago almost everywhere in the Western world.
Other indicators that lead to the same conclusion are the fraction of wealth owned by governments, and the extent to which private industry is being nationalized. Expropriation of the world's oil resources and massive nationalizations of industry are examples. In the United States in recent years, the prime example is land. And if we take into consideration the Soviet bloc, China, and similar polities, we would certainly want to revise our impression of what nightfall is like and our estimate of how large a fraction of the planet is in darkness.
It might be argued that the fraction of GNP accounted for by government is surely not a satisfactory measure of the health of capitalism. That is true, just as temperature alone is not a satisfactory measure of the state of the human body. There is no single satisfactory measure of the health of capitalism. Any defensible diagnosis will be a blend of measures.
Economic growth rates, for example, also reveal something about the patient's condition. If we ask what has been happening to the more important growth rates, however, the news is not encouraging. The growth of productivity and disposable income in the United States, for example, have been substantially below historical norms for a decade or more, and that pattern predominates throughout most of the Western world.