The Link Between Capitalism … and Contracts and Property Rights

I am struck by how little Americans at all levels know and understand the foundations of capitalism, how little or rarely they think deeply about them, and how little they have thought about the different types or shades of capitalism and their pros and cons (e.g., in what way is China more capitalist than the US?).

I am also struck by how they are also often so willing to readily accept the benefits of capitalism but are then unwilling to vigorously defend it (or are intellectually unable to do so) when it is attacked. Not sure if this is driven by guilt, an unwillingness to be unpopular, or other.

This above observations are especially apropos given the current financial crisis. This post is also timely in that it ties into last week’s seminar by our Orfalea College economics faculty that a number of you attended.

So let’s take a minute or two to think more deeply and discuss the topic of capitalism.

To that end I recently came across this very interesting PBS short video that features the famous South American economist, Hernando de Soto, with an insightful take on the relationship between capitalism, the existence of contracts and property rights, and the development of societal and cultural trust and how such trust is formed (Francis Fukuyama, by the way, has written a very insightful book that is listed in your syllabus on this latter topic called Trust: The Social Virtues and The Creation of Prosperity).

Click HERE to watch this PBS segment. (You will need to scroll down and click on the “Chapter 19 – Capitalism Redfined” link. ) This segment has direct relevance to what you will witness in China and India.

And to dig deeper see also these recent WSJ articles, opinion pieces and letters to the editor:

A Capitalist Manifesto

Capitalism Encourages More Personal Responsibility

Is the Rescue Plan Socialism? The Far Left Says ‘No Way’ Comrade

Crisis Stirs Critics of Free Markets

And for a well received book that discusses the different types of capitalism and their tradeoffs, see Good Capitalism, Bad Capitalism: And the Economics of Growth and Prosperity by Baumol, et al.

Your thoughts, biases, beliefs, arguments, concerns?

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One Response to The Link Between Capitalism … and Contracts and Property Rights

  1. Jimmy Spann says:

    What we must first realize is that our economy is not a pure capitalistic or free market economy. We do have government regulations on products, which the general public would agree is beneficial. It prevents companies from making faulty and dangerous products as well as protects the general public working conditions. Some perfect examples are the Food and Drug Administration and Minimum wage. Even though everyone claims that they want a capitalistic and free market economy. I think that everyone would also agree that some government regulations are beneficial. So we want some type of balance between what is best for the community, or county, and what is best for the individual.
    What we must first realize is that our economy is not a pure capitalistic or free market economy. We do have government regulations on products, which the general public would agree is beneficial. It prevents companies from making faulty and dangerous products as well as protects the general public working conditions. Some perfect examples are the Food and Drug Administration and Minimum wage. Even though everyone claims that they want a capitalistic and free market economy. I think that everyone would also agree that some government regulations are beneficial. So we want some type of balance between what is best for the community, or county, and what is best for the individual.
    I also would like to try to answer the question on ‘How is China more capitalist than the U.S.A.?’ Since they are changing from a communist country to a capitalist country, we see the country and government implementing new tactics. They do not have a centralized health care because the economy is attempting to convert to capitalism. They do not want the government to have anything to do with it because it is not the capitalistic way. However it will be interesting to see what type of role their government begins to play in the future. The U.S. started with a somewhat purer capitalistic economy and over the years we have seen the government play more and more of a role during times of crisis. I think that finding the correct balance is the best strategy.
    In the video link, Hernando De Soto says that capitalism is, “a tool for poor people o prosper.” He also says that for the poor to prosper they need people to “believe” in them to earn credit. In the poorer third world countries, they are missing a system that allows the people to prove they own land. This is a very important aspect and was very important to our forefathers when starting our country. By owning land we have something that we can use as collateral for people to trust us. Without this trust and collateral it is hard for anyone to prosper in the capitalistic economy, and thus provides benefits for the rich and, detriments to the poor.

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