Refounding Capitalism by Phelps

September 13, 2012

Phelps, Edmund. 2009. “Refounding Capitalism”. Capitalism and Society, vol.4, issue 3 2009, article 2, pg1-11.

Doing well is the result of doing well. That's what capitalism is all about. –Ralph Waldo Emerson

Conceptualizing Capitalism and Dynamism

The capitalist system is of great interest and importance in view of its outstanding dynamism relative to that of other systems tried in this history of mankind. Any good economic system should generate success, and in this case- Capitalism is not an exception. However, the problem with the success is that- those who succeed in this process, generally assumed the power of stewardships to navigate the system. The key word for this stewardship is called ‘incumbency’. The success of the system is generally a threat to the system itself. Phelps thinks that the key element to a good capitalist system is ‘dynamism’. But the concept of dynamism begins to fade away when few people control the system- oligarchy emerges. In this article Phelps talks about two types of capitalism- free market capitalism and state capitalism. Phelps favors free market capitalism which supports the core concept of dynamism, where Phelps points out state capitalism as perverted capitalism. However, he acknowledges there are reasonable measures that point out ‘state capitalism’ could be good. A prime example would be the need for regulatory reformation during the crash of 1929, when the state capitalism played an important role, where regulations were enacted to reduce the vulnerability of investors, lenders, banks, companies, and workers to unanticipated swings in financial markets. In order to understand capitalism and its functions in our society and the message Phelps is trying to convey, we need to understand certain keywords- incumbency, dynamism, state and free market capitalism. There are co-relations among those terms, and often when those terms work together, the system seems to work smoothly. The idea of...