A reader wrote in to ask me whether I thought that Elizabeth Warren was a capitalist. The question stems from an article in The Atlantic by Franklin Foer (‘Elizabeth Warren’s Theory of Capitalism.’) Frequent readers know that I link to The Atlantic often. (I’m a subscriber.) I’m also a free-market guy, so here’s a quick stab at this. (I’ve replied to the reader directly, and this is a post along the same lines.)
Quick answer: Warren advocates a heavily-regulated market economy. While capitalism narrowly understood is private ownership of the means of production, free-market theory is far more expansive, so most discussion is about free markets in capital, labor, and goods (all three). (Indeed, that’s how Warren talks about the topic, too – as a matter of markets.) By strict definition, Warren is a capitalist, as she supports capitalism, as she is not calling for state ownership of the means of production, state employment of all workers, or state control of the means of distribution.
Hers, however, is a heavily regulated capitalism, although Foer positions Warren as ‘doubling down’ on capitalism (“A conversation with the Democratic senator about why she’s doubling down on market competition at a moment when her party is flirting with socialism”).
Heavy regulation here looks more like slow strangulation.
Distinctions where distinctions should be made: Warren is not a ‘democratic socialist’ in the vein of Sanders or Ocasio-Cortez. Foer sees that distinction, but he over-emphasizes – to my mind – her ‘capitalist’ zeal. Warren does know well, however, how markets work, as an anecdote she relates to Foer shows:
Markets create wealth. Okay, so I used to teach contract law, and if you really want to go back to first principles: On the first day, I used to take my watch off and I would sell it to someone in class. We’d agree on a price, $20. Then the question I always asked the students was: What did the buyer value the watch at? Much of the class would say $20.
That’s not the right answer. All we know is that the person would rather have the watch than have the $20 bill. What did you know about the value I placed on it? Exactly the inverse. I’d rather have the $20 bill than have the watch. Now, most people think the benefit of markets is: I walked away with a $20 bill, great, which I valued more highly than the watch, and you walked away with the watch that you valued more highly than the $20, but look at all the excess value there.
Maybe you wanted that watch because it completed your fabulous watch collection or you desperately needed a watch or it was so attractive to you that the value you placed on it would be in the hundreds of dollars. You got all that surplus value, and me, I really needed that $20. I had an investment opportunity over here for that $20 that has yielded a manyfold return for me. That’s how markets create additional value.
That’s right: the transaction amounts to more – for the parties and society – than shifting a twenty dollar bill from one person to another. Warren easily sees that, and sadly fewer people each day see that.
How heavily Warren would regulate markets – in capital, labor, and goods – is significant on its own. For her recent positions – ones Foer in fairness cites – see in particular the Accountable Capitalism Act – one sees her willingness to require by law that major public corporate board elections include a large electorate of non-owners. It’s worth reminding that free markets by their very nature are accountable to communities through the choices of an unfettered people.
The second of Warren’s two proposals – the Anti-Corruption and Public Integrity Act – is her way of getting at special interests’ manipulation of government institutions. I’d support much of this, but would offer the obvious suggestion that a smaller government offers less for lobbyists to manipulate in the first place.
For more about her proposal on corporate governance, in opposition one finds Elizabeth Warren’s Corporate Catastrophe, and in support Elizabeth Warren has a plan to save capitalism.
As for her plan to limit lobbyists’ influence (the Anti-Corruption and Public Integrity Act), I doubt that her proposal will eliminate Washinton corruption. If, however, Warren’s proposal might reach even part of her goal, I’d support her plan as heartily as a proposal to eradicate locusts before a harvest. If every lobbyist in Washington were to vanish today, the lot of them wouldn’t merit a single, salty tear in remorse.
Most important of all: We’ve a long way from ’18 to ’20, but I’d wish every democratically-minded person – including Warren – the very best in the effort against Trumpism.