Part of the debate "The current financial crisis sounds the death knell for laissez-faire capitalism"
Proposer: Professor Jonathan Michie
There are a variety of capitalisms. Indeed, there is a large academic literature on the topic. There has been a commensurate array of economic approaches and policies pursued across capitalist economies. But economic policy debate has been dominated, certainly from the 1930s onwards, between on the one hand the advocates of laissez-faire, who believe that markets are essentially self-righting, so that government economic policy can be kept to a minimum, and on the other hand those who hold that there are no such self-equilibrating mechanisms and that, rather, to achieve an objective such as full employment or sustainable economic growth requires economic policy intervention.
The best known opponent of laissez-faire capitalism was John Maynard Keynes. In 1936 he published his most famous book, The General Theory of Employment, Interest and Money, in which he argued that left to itself, the capitalist economy could get stuck in long-term depression. This might sound pretty obvious, being published as it was at the height of mass unemployment. But it did, as he predicted, bring about a revolution in economic thought. Until that time, it had been generally believed that markets were self-correcting and that interest rates, in particular, would adjust to return an economy to full employment. After the publication of the General Theory, and the experience of the Great Depression of the 1930s, there was an acceptance following World War Two that laissez-faire capitalism was dead. Government intervention became accepted as necessary not just for post-war reconstruction, but also to regulate the economic system nationally and internationally to ensure economic growth and full employment.
Laissez-faire capitalism made a return under Thatcher and Reagan. In the US, the 'greed is good' doctrine was espoused in Wall Street. In the UK, we were told that the point about the Good Samaritan was that he had money, and that there was no such thing as society. The 1980s and 1990s was a deregulatory era. Certainly, there was economic growth. But the 'Lawson boom' turned out to be fuelled largely by unsustainable house price rises and consumer debt, and ended in recession, and the international economy proved similarly unstable. Growth over the past few years was again based on unsustainable speculation, resulting in the current banking crisis and global recession.We therefore have a choice: laissez-faire capitalism where we are left to the vagaries of the market, or economic policy to deliver sustainable economic growth?