Modern Capitalism: From Keynesian Economics to Neoliberalism

After Adam Smith and Karl Marx, capitalism has predominantly manifested in two major forms in the contemporary world.

The first is Keynesian macroeconomics, which dominated the 20th century. John Maynard Keynes revolutionized the paradigm of economics. Traditionally, Adam Smith viewed the economy as comprising households and businesses, with the government playing a minimal role as a night-watchman state. Modern economics, however, considers three elements: the government, households, and businesses. From this perspective, Smith's approach minimized the role of government, suggesting that households and businesses alone were sufficient, an idea typical of microeconomics.

Keynes introduced a significant shift by asserting that the government should actively participate in guiding the economy, especially during challenging times. He advocated for increasing "effective demand" through appropriate interventions to ensure the economy functions smoothly, thus broadening the scope to macroeconomics.

However, fundamentally, Keynes did not diverge radically from Smith in their core views about the essence of capitalism, which both saw as a system where continuous money circulation is crucial. Like blood in the veins keeps a body healthy, money circulating through the economy revitalizes a nation.

In contrast, Friedrich Hayek, advocating for neoliberalism, trusted in the market's self-regulating ability. He believed that government intervention, even during tough times, could potentially exacerbate market debts, leading to short-term recovery at the cost of long-term stability. This perspective honors Adam Smith’s concept of the "invisible hand."

Expanding on this notion, the comparison between Hayek's neoliberal approach and Laozi's "Wu Wei" deepens when considering their underlying belief in the intrinsic order of systems. Hayek argued that the market, if left largely to its own devices, would find its own equilibrium through the actions of individual agents acting in their own interests. This market-driven balance is achieved without the need for heavy-handed governmental directives, which Hayek believed could disrupt the natural order and lead to inefficiencies.

Similarly, Laozi’s "Wu Wei" is not about inaction per se, but about an action that does not assert forceful intervention. It's about allowing things to evolve according to their inherent nature, which in governance translates to a role that is more about fostering conditions for growth and less about controlling or dictating the exact form that growth should take. By not imposing artificial structures on natural processes, both Laozi and Hayek envision a system where outcomes are the direct result of unhindered intrinsic activities.

Furthermore, this idea can be extended to critique modern economic policies that heavily favor intervention. The fiscal and monetary policies often implemented in times of economic downturn—characterized by significant government spending and manipulation of interest rates—might be seen as contrary to the principles discussed by Hayek and Laozi. While such policies aim to stabilize and stimulate the economy, they also risk creating dependencies and expectations that may not align with the underlying economic realities, potentially leading to distortions and imbalances.

The resonance between Hayek’s and Laozi’s thoughts offers a valuable lens through which to examine current economic challenges. It encourages policymakers and thinkers to consider whether solutions that involve less intervention could lead to more durable and effective outcomes. This approach advocates for a trust in the self-correcting nature of systems, whether they are markets or social orders, suggesting that sometimes the most effective action is to restrain the impulse to control and instead let the system self-adjust according to its innate dynamics.