Capitalists’ Animosity Against Capitalism

May 27, 2011

Joseph Schumpeter in Capitalism, Socialism, and Democracy, argued that capitalism would eventually destroy itself because it “creates, educates and subsidizes a vested interest in social unrest.” He publicized and borrowed the idea of the early usage version of “creative destruction” to criticize capitalism’s perceived self perpetual and cyclical liquidation. Capitalism’s success, he added, would lead to a form of corporatism which would hold hostile values against capitalism especially amongst intellectuals – ideas of which I do not fully agree with.

These ideas perceived that it is inherent of capitalism to periodically and systematically destroy value while I believe that those systematic devaluation comes from impacts of highly improbable events. A crisis then manifest itself and we formulate narrative explanations, draw up new regulations ex post facto to ‘prevent’ such an event from reoccurring. Regulations, like Basel III, that has been drafted to prevent banks from manufacturing too much money, has come under heavy criticism from the blue suits people. Banks seem to have this double standard when it comes to regulating their losses. They are like hedonistic children who can’t seem to make up their minds.

Capitalism as I have thought of it for many years, was supposed to produce losses on a bad investment. For the president of Japan’s largest bank, however, that was not part of the deal. Executives across the board were outraged over the announced proposed deal that the banks which have lent to the nuclear power company involved in the nuclear catastrophe in Japan would need to take losses on their loans. Meanwhile, in continental Europe, the CEO of Austria’s largest bank is not too happy about the prospects of Basel III. He can’t perceive the notion of now having to have just EUR 300,000 to fabricate EUR 5 million of new loans.

Too much competition. Too much risk. Too much regulation for the suits people.