At the height of the financial crisis in late 2008 and early 2009, a wave of articles declared the end of capitalism. A half-dozen reporters writing about the issue called Allan Meltzer, who since 1957 has been teaching about capitalism at Carnegie Mellon University in Pittsburgh.
Five of the calls he answered. The sixth was from a reporter of Die Zeit, the German weekly, who, as Professor Meltzer recalls it, asked, “Professor, what do you think about the end of capitalism?”
Professor Meltzer replied that that was the stupidest question he’d been asked in 50 years.
The reporter hung up the phone before Mr. Meltzer got to explain why, but the fuller answer is in Mr. Meltzer’s new book, Why Capitalism?, which Oxford University Press published this week.
The book is short — just 160 pages — but its simple, clear, and direct language makes a big point: that capitalism “is the only system known to humanity that increases both growth and freedom.” As a result, far from ending, capitalism has spread to formerly socialist or communist enclaves such as Eastern Europe, India, and even China.
The book is not simply a paean to capitalism, though. It’s also a look at some of the problems the country is facing, including the decline in the value of the dollar, the financial crisis and its aftermath, and the federal debt and deficit.
Mr. Meltzer’s three laws of regulation help in part to explain the crisis. The first is that “lawyers and bureaucrats regulate,” but “markets circumvent regulation.” Second, and related, is that “regulations are static. Markets are dynamic.” Third, “regulation is most effective when it changes the incentives of the regulated.”
While Mr. Meltzer does not favor a return to a gold standard for the dollar, he does acknowledge that when it existed, “governments could not run large, continuous, peacetime budget deficits.” The nation’s current fiscal trajectory, he says, is unsustainable: “Either the United States voluntarily adopts fiscal discipline or eventually it will face a crisis with rising interest rates and a falling currency.”