Thursday, 4 July 2013

The Stock Market, Profits, and Credit Expansion

By George Reisman (July 2002)

The plunge in the stock market has resulted in the wiping out of pension funds and many people's life's savings. It has also been accompanied and reinforced by the allegation of accounting scandals at several major firms, in which key executives were apparently able to reap substantial personal gains despite the destruction of the firms that employed them and the losses of their fellow shareholders.

The combination is operating like the collapse of a dam, unleashing a torrent, not of water, but of hatred--hatred of capitalism and its most visible and valuable representatives: big businessmen. They and their "greed" for profit are depicted as the cause of the collapse.

No less a personage than Alan Greenspan, chairman of the Federal Reserve Board and for many years allegedly a staunch defender of capitalism, has attributed the collapse to "infectious greed." A jeering mob of media-types, armed with microphones and other appurtenances of modern technology instead of knitting needles, is as ready to see businessmen brought down as any mob of the French Revolution was to see the hated aristocrats go to the guillotine.

What is happening must be understood against the background of profound ignorance that exists on the part of today's intellectuals concerning the nature and functioning of capitalism and the profit motive. Despite the worldwide collapse of socialism and the undeniable, visible success of capitalism, the intellectual world, for the most part, remains as predisposed to socialism and opposed to capitalism as ever.

The great majority of today's intellectuals--from newspaper and television commentators to university professors, including most professors of economics, not to mention today's politicians and government officials--regard the failure of socialism and success of capitalism as mere "brute facts," that is, facts without intelligible basis; indeed, facts defying and contradicting all understanding. To know otherwise, they would have had to read and study the works of Ludwig von Mises and the other leading theorists of the Austrian and British classical schools of economics. But this they have not done.

As a result of this fundamental intellectual and moral failure on their part, according to all that they still believe, socialism, with its alleged concern for the well-being of all and its alleged rational planning, should have succeeded, and capitalism, with its concern only for personal profit and its alleged anarchy of production, should have failed.

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