Capitalism During a Crisis

Many scientists and environmentalists are often accused of trying to undercut capitalism simply because they are pointing out the tremendous damage we are doing to the environment and are warning us about the consequences. By saying that we cannot continue growth because we have exceeded the carrying capacity of the planet, they are seen as deliberately trying to sabotage the predominant Western economic ideology. Of course, science is only about facts, not ideology, so if the facts are telling us something that is in conflict with our beliefs, perhaps we need to adjust our beliefs. Still, let's set that aside for the moment and look at how Western capitalist countries, and the US in particular, have dealt with serious crises in the past.

We have several examples in the twentieth century that can provide some insight. The first is the Great Depression. During the twenties, there was a period of rapid growth in the economy and accelerating speculation in the stock market. Investing in stocks had previously been limited to relatively wealthy individuals, but during this period a much wider segment of the population began to put their money in the stock market, encouraged by good financial news, opportunistic brokers, and outright Ponzi schemes. Many didn't really understand what they were investing in, and there were few regulations requiring accurate reporting by public companies. Not surprisingly, an unsustainable bubble was created, which popped in the crash of 1929.

During the next decade, people suffered many serious problems. Unemployment was at record levels, food was in short supply, millions lost their homes and farms and many had to live in shanty towns. Industrial production dropped in half, thousands of banks folded, and the housing industry declined by eighty percent. Thousands of Americans actually emigrated to the Soviet Union looking for better lives.

Clearly this was a serious crisis. How did the US government respond? Wage and prices control were put in place. Massive public works programs were setup, employing millions, to build transportation infrastructure, distribute food and clothing, and build libraries, parks, schools and theatres. The New Deal established a wide variety of social programs, including Social Security, which provided old age, unemployment and health insurance benefits, among others. In other words, the free market was deliberately limited and the government took a much more active role in the management of the economy. This took place under both Republican and Democratic administrations. In a pinch, it was capitalism that had to give.

Once World War II began, centralized government control and management was expanded even further. Many items were rationed. Price controls were vigorously enforced and hoarding become a serious offence. Personal vehicles were banned except for official or essential use. Within months all automobile factories were converted to the production of war materiel, including tanks, planes, weapons and ammunition. The production of automobiles and many other products was simply suspended. Fascism clearly represented a global crisis, and it demanded a serious response. The free market was put on hold.

Of course, the US was not unique in their approach. Similar things were done in most other western countries as well. Indeed because of the need to maintain order and rebuild after the war, the UK kept their rationing system until 1954, almost ten years after the war ended.

During the seventies, people had to deal with rapidly rising food prices, low employment, and the oil crisis. Again, wage and price controls were put in place, and the national speed limit was lowered. Gasoline was rationed, and minimum fuel economy standards were put in place for vehicles. Auto racing was limited or cancelled in some cases, and a wide variety of conservation measures were undertaken. This was all done under a Republican administration.

None of this should be surprising. During an emergency or crisis, rapid change is needed and the resources of a society need to be diverted for other purposes. New laws need to be passed and people need to be encouraged to do things differently so that everyone can work together towards a common national goal. This necessarily means a limitation on the rights and priorities of the individual and a focus on the well-being of the collective. This approach helped many survive the depression, and it helped to win World War II.

We now face a new crisis with climate change. The lives of millions, if not billions, are at stake, as is the future of our civilization. This is a bigger and more serious problem than we have ever faced before. Does anyone expect laissez-faire economics and the free market to solve this problem? No, solving this problem will require significant government intervention, and significant changes in our lives. A crisis demands strong, urgent, and coordinated action. This doesn't necessarily mean the abandonment of capitalism, but at the least it will mean putting it on a short leash. This is, after all, precisely the approach we have taken in the past.