Capitalism and Society

Volume 4, Issue 3 2009 Article 2

T HE F UTURE OF C APITALISM

Refounding Capitalism
Edmund S. Phelps∗

∗
Director, Center on Capitalism and Society, Columbia University

Copyright 2009
c The Berkeley Electronic Press. All rights reserved.
 Phelps: Refounding Capitalism

The lesson drawn from the crash of 1929 was the need for regulatory
reform. In the United States, regulations were enacted to reduce the vulnerability
of investors, lenders, banks, companies, and workers to unanticipated swings in
financial markets. The lesson drawn from the recent spectacle – by some
governments at any rate – was the need for intervention of a different sort.
Recently envisioned legislation in the U.S. would supplement the capitalist
system with new programs for health care, climate control and energy
conservation. Yet the recent experience – the “speculative excesses” and the
ensuing collapse – reveal a perverse financial sector and a dysfunctional business
sector that are not well treated by enlarged regulation or enlarged public
expenditure. In the felicitous term of President Sarkozy, the need is to refound
capitalist systems in ways that will make them well-functioning again. This need
is acute in the United States, where the perversion and deterioration of capitalist
mechanisms appear to have left the economy with less dynamism as well as less
business activity. It is profound in Europe, where capitalist mechanisms have long
been hamstrung by Italian corporatism, French statism, German socialism,
Scandinavian welfarism and the rest.
Over the past decade I have maintained that countries would still benefit
from the innovative activity of original thinkers, visionary entrepreneurs, canny
investors, pioneering managers and devoted employees that – starting in the 19th
century and in some countries ending in the 20th – drew an ever widening share of
people in an ever-growing number of nations into engaging jobs, exciting
explorations and remarkable commercial advances. I will try to explain, leaving
for the last section the issues of instability and their resolution.

What is capitalism? Any concept of a capitalist economy must include private

wealth owning. Yet that private wealth must extend to ownership of all or most of
the economy’s business capital – not merely cars, homes and debts of the state
and state enterprises, as under market socialism. It is also necessary that private
owners of businesses be accorded control over where to invest – not just along the
narrow lines assented to by managers, guilds or unions, as in corporatism, or as
dictated by the state or oligarchs. To this day there survives an image of
capitalism as a game in which each generation’s players make their moves in
hopes of riches and then leave the field to take stock of the wealth they won or
lost. But these wealth-centered features are insufficient to capture the character of
capitalism in the modern age, particularly the importance of the experience of
participating in it.
Modern economies – of which several well-functioning capitalist
economies are thus far the sole historical specimens – started to sprout up only in
the 19th century. With the development of company law, corporate finance,
investment banking and patent law, the way was opened for a process of

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 Capitalism and Society, Vol. 4 [2009], Iss. 3, Art. 2

innovation: the conception of novel commercial ideas, the selection by financiers

of some of these ideas for development, the realization by entrepreneurs of the
envisioned products or methods, and the adoption or rejection by managers or
consumers of some of the new products reaching the market. The propensity of
such a system to innovate depends very much on a multiplicity of “idea-men,”
entrepreneurs, financiers, marketers and end-users – consumers and managers. It
helps to have diversity in their business backgrounds, education, strategic vision,
and talents. It is not surprising, therefore, that significant indigenous innovation,
since it began early in the 19th century, has been driven mainly by the private
sector; private ownership has been typical, whether or not required in every case.
Laissez-faire – a free market of low taxes, tariffs and regulation – is not required;
so much freedom would badly undermine capitalism’s functioning. In the recent
episode, we have seen again that capitalist systems require well-chosen
regulations.
Note that a new commercial idea in a country may be an application of an
invention or discovery made by scientists outside the economy or an innovation
made by a business in another economy. That was Josef Schumpeter’s early view
of how commercial ideas came to a country.1 Or the new idea might come from
within the nation’s economy: an original idea inspired by the observations and
imagination of producers, employees, managers or consumers – people “on the
spot.” This was the view of Friedrich Hayek2 and of most experts today.3 If
innovation were mere Schumpeterian application or imitation, a socialist system
could approximate the results of a capitalist system.4

What is the distinctive merit of capitalism? For many, capitalism’s main merits
are the wealth accumulation it fosters and the “individual freedom” it helps to
protect. Referring to capitalism in his Inaugural Address, President Obama said
that “[i]ts power to generate wealth and expand freedom is unmatched.”5 For me,
that does not capture the value of a well-functioning capitalism. In fact, it largely
misses the value.

1
Schumpeter, Theorie der wirtschaftlichen Entwicklung, Leipzig: Duncker & Humblot, 1912. His
main thesis was that developing a new idea into a new product at an economical price required the
skills of a savvy entrepreneur.
2
The earliest example is F. A. Hayek, Collectivist Economic Planning, London: Routledge, 1935.
See also Hayek, “Competition as a Discovery Procedure [1968],” in Hayek, New Studies in
Philosophy, politics, Economics, and the History of Ideas, Chicago: Univ. of Chicago Press, 1978.
3
It is the view of Alfred Chandler, Peter Drucker, Richard Nelson, Sidney Winter, Giovanni Dosi,
Roman Frydman and Andrzej Rapaczynski, Virginia Postrel, Amar Bhide and my view too.
4
In the U.S. the greater part of medical progress comes from practice, not from science. See
Richard Nelson, “How Medical Know-How Progresses”, Working Paper No. 23, Center on
Capitalism and Society, 2008, which is available at www.capitalism.columbia.edu
5
Barack Obama, Inaugural Address, January 20, 2009.

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 Phelps: Refounding Capitalism

Regarding wealth, it may be that the challenge of making money, perhaps

getting rich, in one’s young or middle years is absorbing and fun: as Friedrich
Nietzsche and Frank Knight suggested, trying to make a fortune is like
participating in a sport. Yet social observers are right to question whether people
find significant satisfaction from increased relative wealth beyond a certain
point.6 After you have won the game, what point is there in winning by a bigger
point spread? Many entrepreneurs speak of the wealth received as a by-product of
what they sought to do or achieve rather than as the goal. In any case, an increase
in some people’s relative wealth means a decrease in some others’ relative wealth.
There is no reason for the government of a society to promote that sort of sport.
The value of nationwide advances in wealth may be on more solid ground. It is
better to have more wealth in a city or nation where most others have more wealth
too: possibilities of a richer and more rewarding life result.
The fault in this view is that the relatively capitalist countries are not
distinguished by high levels of wealth. The somewhat more socialist economies
and more corporatist economies of Western Europe reach wealth levels exceeding
the levels in the capitalist economies. The reasons are familiar. One of the major
drivers of wealth, the propensity to save, is higher in Luxembourg, Switzerland,
Belgium, France and Germany than in the U.S., the U.K. and Canada – despite the
high security offered by the continental welfare system.
The other driver of private wealth, namely, the level of productivity, is
also equal if not greater in the former group of countries than in the latter group.
A proposed explanation is that while the capitalist exemplars may be at or close to
the “technical frontier,” thanks to their “lead” in cutting-edge innovation, they
“waste” much of their output potential in false steps, in the costly processes of
marketing, and in over-investment caused by the winner-take-all competition of
costly R&D projects.7 Furthermore, the top-down techno-nationalist projects that
some relatively corporatist nations have substituted for discoveries bubbling up
naturally from the business sector may do well on that score thanks to the
resources saved by avoiding “wasteful competition” for new products involving
parallel development work and marketing efforts. One has to conclude that
“generation of wealth” is not special to capitalism. Corporatist economies are
quite good at that.

6
I am thinking of attitude surveys and commentaries by Bruno Frey, Richard Layard and Andrew
Oswald, to name just those that immediately come to mind.
7
Historically, some corporatist economies have sought to substitute a top-down “scientism” for
the discoveries bubbling up naturally from the business sector. Of course, the techno-nationalist
projects undertaken in corporatist economies may produce some productivity gains. Yet the
selection among these projects and the development decisions along the way are not immune to
mis-steps. And techno-nationalism is prone to flaws of its own, such as a tendency to the
grandiose and to over-engineering. So it is doubtful that industrial research policy can be credited
for the good productivity levels exhibited in some corporatist economies.

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As for freedom, some have argued that a capitalist economy – far more
than a socialist or a corporatist one – helps to buttress people’s political freedoms
and some of their personal freedoms against the tyrannies of the state,
communities and the culture. Owners of a firm in a capitalist economy would feel
it in their pocket book if employees were hired or fired on the basis of their beliefs
rather than the firm’s profits.8 Yet the evidence is mixed: some of the relatively
socialist and corporatist economies of western Europe appear to be pretty tolerant
of deviance from the mainstream.
A merit of a well-functioning capitalism (again: I do not mean free-market
policy: low tax rates, etc.) is the economic freedoms it offers entrepreneurs,
managers, employees and consumers – freedoms that socialist, corporatist and
statist systems do not provide. It is worth noting that some “personal” freedoms
are also economic. If you have a deep need, say, to be a dancer or to restore mid-
1930s films, capitalism is likely to be the system for you. I came away with the
impression that Milton Friedman valued these economic freedoms (and other
freedoms) for their own sake, though other readers may interpret him differently.
Friedman’s work, however, does clearly value the “freedom to choose” as
a means to income.9 He suggests that incomes will be higher when participants
are free to move over a wide range of regions, occupations and industries and
when individuals and enterprises are free to collect micro data on which to make
decisions. But, as noted earlier, the thesis that well-functioning capitalist
economies are better at producing income and wealth than more corporatist
systems (and socialist ones) is in doubt: the best corporatist economies tend to
exhibit comparable productivity. In a different vein, Amartya Sen has been
emphasizing the value of economic systems that provide participants with an
expansion of their “capabilities.”10
The work of Hayek from his Road to Serfdom onward is suggestive of
another kind of value in some economic freedoms.11 In any real life economy (not
theoretical models in which everything in the present and the future is known),
actors may sense or conjecture opportunities or dangers about which there is little
or no public knowledge while the individual has significant private knowledge
about possible benefits or costs as well as imagination and personal experience.

8
See for example Henry C. Wallich, The Cost of Freedom, New York, Harper, 1960. Somewhere
Professor Wallich is quoted as writing that “power is the great enemy of freedom.”
9
Milton Friedman, Capitalism and Freedom, Chicago: University of Chicago, 1962, and Milton &
Rose Friedman, Free to Choose, New York, Harcourt, 1980.
10
Amartya Sen, Inequality Reexamined, New York, Norton, 1992, and Commodities and
Capabilities, New York: Oxford University Press, 1999. The critique of both communism and
capitalism by John Dewey was that neither system was good at allowing workers to develop their
talents. The classic work is Experience and Education (New York: Simon and Schuster, 1938).
11
Hayek, The Road to Serfdom, London: Routledge, 1944. See also the commentary in Amartya
Sen, “An Insight into the Purpose of Prosperity,” Financial Times, September 20, 2004.

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 Phelps: Refounding Capitalism

Individuals’ freedom to act (or not act) on their unique knowledge, intuition and
judgment may be indispensable to their sense of self-worth and self-reliance. In
this view, it would be inadequate to gauge the value of freedom by its
contribution to income, consumption, investment and even to the pragmatists’
“expansion of talents” and “capabilities.” The freedom to act on this basis – to
take charge of one’s own heading and make one’s own mistakes – is a primary
good in itself, one of huge importance. Is there evidence of greater economic
freedoms in capitalist economies than in the more socialist or corporatist
economies?12 My research using survey data supports the widespread impression
that, in the relatively capitalist economies, people in ordinary jobs have freedoms
that they value – more so than workers in the relatively socialist or corporatist
economies. In the former economies more than in the latter, workers say they
want jobs offering chances to take initiative and responsibility (which reveals that
they know that such jobs are available), while acknowledging also the value of
teamwork – thus the need both to give and take orders.13 Relatedly, earning one’s
way in the impersonal world of business – supporting oneself – is, for most
people, necessary for what John Rawls called self-respect.14
I would make a further point in the same context and in a somewhat
similar vein that Hayek left unsaid. As a long line of Western humanists and
philosophers from Bergson, James and Nietzsche back to Cervantes and Cellini
have propounded, in a world in which we know little about the effects of what is
untried, one’s freedom to experiment, to explore, to act on impulse, and to test
ideas offer another category of benefits: “self-actualization” and “self-discovery.”
In my recent papers I have been arguing that most people, if not all, find such
satisfactions from taking part in the innovation process of a capitalist economy:
from examining untried ways of producing something, conceiving and developing
an innovative product or method, and pioneering the adoption of a new product or
method.15

12
Jeffrey D. Sachs says no in his “Response to Easterly on Hayek,” Greg Mankiw’s Blog,
Monday, November 27, 2006. He notes that the Heritage Foundation/Wall Street Journal Index of
Economic Freedom ranks Finland, Sweden and Denmark as ‘free economies,’ with Denmark
ranked ahead of the United States – and this in spite of their high rates of taxation, which counts
heavily in the Heritage index. This is undeniably interesting, since those three countries are widely
regarded as pretty corporatist as well as somewhat socialist. However, the Heritage indicators of
“freedom” largely differ from the individual freedoms in the workplace, financial markets, and
product markets that I am clearly referring to.
13
Phelps, “Economic Culture and Economic Performance: What Light is Shed on the Continent’s
Problem,” 3rd Annual Conference of the Center on Capitalism and Society, Venice, July 2006.
14
Rawls, A Theory of Justice Cambridge, Mass., Harvard University Press, 1971.
15
See my Prize Lecture, “Macroeconomics for a Modern Economy,” Stockholm: Nobel
Foundation, 2007, and papers of mine going back at least to 2003.

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From the latter perspective, the dynamism of a well-functioning capitalism

has a fundamental merit. Ordinary people, if they are to find intellectual growth
and an engaging life, have to look outside the home: these things can be found
only at work, if anywhere. And for these rewards to be available for large
numbers of people, the economy must be modern. And as a practical matter, that
requires that it be based predominantly on a well-functioning capitalist system.
Thanks to the grassroots, bottom-up processes of innovation, capitalism at its best
can deliver – far more broadly than Soviet communism, eastern European
socialism, and western European corporatism can – chances for the mental
stimulation, problem-solving, exploration and discovery required for a life of
engagement and personal growth.16

Can dynamism justify capitalism? Could it be that the value of a well-

functioning capitalism in providing participants with opportunities to act on their
own knowledge, intuition and judgment, and in providing opportunities to be
engaged and to flourish serves to justify that capitalism? It is clear how that might
be argued: if a well-functioning capitalist system offers a broad swath of society
chances for a life of initiative and discovery, while the other systems deprive
people of that experience, then imposing the latter systems on society would be
terribly unjust. The answer would appear to be yes. I argue as follows.
Dynamic innovation transforms the workplace (in the firms developing an
innovation and also in the firms competing against them). The challenges that
arise in developing a new idea and in its acceptance in the marketplace provide
the workforce with high levels of mental stimulation, problem solving, and thus
employee engagement and personal growth. An individual working alone cannot
easily create the continual arrival of new challenges; it “takes a village”, or even a
whole society.
The notion that people need problem-solving and intellectual development
is an old one. Aristotle wrote of the “development of talents;” in the Renaissance,
Cellini jubilated in his achievements and Cervantes admired vitality and
challenge. In 1892, Alfred Marshall observed that the job is in the worker’s
thoughts for most of the day. And Gunnar Myrdal wrote in 1932 that the time
would soon come when people would be more satisfied by working than by
consuming. This view, sometimes called vitalism, became strongly associated
with the pragmatist school of philosophy, but perhaps most famously with
Abraham Maslow’s concept of “self-actualization.”
All of these writers were pointing out the importance of a person’s
emerging sense of mastery and the experience of adventure. The American
application of this western ethic – Aristotle plus Cervantes – is the thesis that self-
16
My argument can be sampled in my paper for a 2003 Baumol conference and my June 2006
speech at Sciences-Po as well as the Venice paper and Prize Lecture cited above.

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realization and self-discovery can come from the involvement and challenge
offered by the business sphere of a modern economy. Americans cannot go tilting
at windmills but they can take on the ever-fresh challenges of a business career.
For most people there is nowhere else from which such challenges can arise.
I should also mention a “derived” benefit of the capitalist model that flows
from the effects of dynamism on productivity. A more innovative economy tends
to devote more resources to investments of all kinds—to investing in new
employees and new customers as well as new office and factory space. And
although this may come about through a shift of resources from the consumer-
goods sector, it also comes from the recruitment of new participants into the labor
force. Employees who are thus engaged—employees who do not need to work for
pressing financial reasons, but are drawn to work for its intrinsic satisfactions—
are less likely to quit, reducing the “natural” unemployment rate. Thus, dynamism
tends to bring a pervasive prosperity to an economy in addition to higher levels of
productivity caused by product innovation—as well as higher levels of self-
realization. Of course, even the healthiest economy may suffer slumps.
A plausible objection is that even a well-functioning capitalist system
would not be just if it failed to strive for the largest possible inclusion of the
productive population in that system. We can accept that such a system is not
fully just, thus unjust. I certainly agree. But that does not imply that dynamism is
not and cannot be just until a just level of inclusion is sought and achieved.
Moreover, it is not capitalism that stands in the way of inclusion; it is the failure
to legislate wage subsidies and inadequate desegregation of neighborhoods and
schools.

Taking instability and crisis into account. When President Sarkozy spoke of a
“refounding” of capitalism I wondered whether he had in mind what might be
termed a capitalist reformation analogous to the Protestant Reformation of the
1500s. There is the appearance of a parallel between the Church’s creation in
medieval times of lucrative indulgences, which national governments did nothing
to stop, and the banking industry’s sale in recent years of overvalued packages of
mortgages, called CDOs, which governments did nothing to stop. But the banks
held such CDOs on their own account, in addition to selling them to naïve buyers.
The moral shortcoming in the banks, it appears, was that the leaders did not have
the moral strength to protest the rise of leverage and the deterioration in the
quality of the securitized assets to which they gave their seal of approval. With
varying discomfort, the CEOs seem to have felt too weak to try to call a halt to
further expansion of credit – to “get off the merry-go-round,” in the famous words
of Charles (“Chuck”) Prince, former CEO of Citigroup.
I feel that in combating this aspect of the financial sector’s problem, the
first line of defense ought to be laws and regulations. Altruism is a valuable

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resource but we do not want to risk wreaking havoc by appealing to it in a

comprehensive way at all levels of life. There must be social responsibility at
critical points, but we cannot afford to over-use this resource lest we find
ourselves with too little of it left when we need it most.
How does the element of instability in capitalist systems affect the
argument for continuing with capitalism? One’s first reaction, especially if one
has high appreciation for capitalism, might be to say that the big swings to which
capitalist systems are inherently prone should not stay society’s hand in creating
and maintaining a system that is so essential to engaging work and personal
growth. The instability experienced does diminish our satisfaction as participants
in the economy but it does not diminish our thirst for the good life.
On reflection, there are valid points in favor of regulation aimed at
reducing vulnerability to severe fluctuation. First of all, the good life is not a
binary variable: you have it or you don’t. A capitalist system dogged by frequent
crisis and fears of crisis may levy a toll not only on people’s comforts and sense
of security but also on the generation of innovation itself. So there may be a gain
in the degree of dynamism to be obtained by fortifying the financial system
against speculative crises. The second point I would make involves another
dimension: No human system can be expected to innovate at all times, just as no
composer would be expected to be constantly in the heat of creation. It is possible,
then, that a financial system that is more robust in the face of speculative
movements will exhibit dynamism a greater proportion of the time. So, in
principle, creating a financial sector that is less vulnerable to speculative shifts
might not be harmful to dynamism.
It is worth noting that unemployment is viewed with far more anxiety and
far more fear by politicians in the United States than it is in continental Europe –
no matter that there is unemployment compensation in the U.S. as well as Europe.
The reason may be in part that in an economy with as much dynamism as ours,
there really is no “compensation” for unemployment. Employment has become a
good in itself. The paradox is that greater the dynamism of an economy, the more
anxiety there is over the prospect of unemployment. If so, another paradox is that
many Americans call for an end to dynamism in the interest of job security – as if
their own job would remain as engaging and rewarding as ever. But this enters the
realm of speculation.
Indeed, most economists discussing the need for financial reform appear
to believe that better alignment of “incentives” and serious regulatory restraints
on ruinous competition for profits, though aimed at “economic efficiency” and
perhaps increased returns to shareowners, will cost the economy nothing in
innovation and employment. But this sort of theorizing, though well-intentioned
and even useful in exposing the perils of excessive gearing of pay to crude
measures of performance, is itself dangerous in leaving the impression that, after

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reforming bonuses, asset markets will no longer be susceptible to huge asset price
swings that are driven only by “speculative excesses” (to use Spiethoff’s
convenient shorthand).

Unambiguously good reforms. Are there reforms that address speculative swings
while causing little or no damage to economic dynamism and inclusion? There are
ways of fortifying the financial sector against the speculative fever of investors
and entrepreneurs in the business sector without obstructing the speculative
investment waves that are emblematic of a healthy capitalism. One suggestion,
which comes from my colleague Richard Robb, calls for a small tax on the short-
term indebtedeness of financial companies such as banks.17 So much of the banks’
problems arose from excessive short-term borrowing of little or no social utility.
Let us tax that in order to force banks to finance their lending with long-term
borrowing instead. There are also ways of tempering the speculative swings
themselves without suppressing the spirit of capitalism. A suggestion from my
long-time collaborator Roman Frydman calls for the introduction of a band
around the index of housing prices, a band around the main index of stock market
prices, and so forth.18 When the index rises or falls outside the band, the
government will increase margin requirements, short-selling requirements, and
various other costs so as to dampen – but not outlaw – speculation on a further
move of the asset price index.
Are there reforms that would address the decline in the past decade of
economic dynamism while causing little or no increase in instability? I have been
moving toward a proposal to establish new banks of a new kind. It is not
uncommon to see financial entities in a country that are dedicated to residential
construction, agriculture, or exports and so forth. This is curious and disturbing
because little or no economic dynamism comes from our stock of housing as
against, say, our stores of clothing and from producing for export rather than
home use. There is no awareness among the general public and its legislatures that
most of the economic dynamism inherent in the structure of a country’s economy
comes from the innovative inclinations of the ordinary people making their
careers in the business sector! To right the balance, I suggest that every country’s
government establish a corps of banks that are dedicated to lending to – or
investing in – companies in the business sector, particularly for investment
projects of an innovative character. This is not really “new.” I like to remind
audiences that Germany, with its famous Deutsche Bank, had just such a financial

17
For more detail on Robb’s ideas, refer to my letter to the G-20 written immediately following
the 6th Annual Conference of the Center on Capitalism and Society in February 2009, available at
http://capitalism.columbia.edu/view/events/conference.
18
More on this idea is available in the same letter to the G-20, mentioned above.

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institution serving its business sector during its brilliant economic development in
the 1890s, when the bank backed the new electrical engineering industries.
Are there reforms that would address the still insufficient levels of
economic inclusion without stifling dynamism? Here I would recall the sort of
program that has been adopted to a degree in France, the Netherlands, and most
recently Singapore: subsidies to companies for their ongoing employment of low-
wage workers. (Mention might be made also of Italy’s cassa integrazione and
Germany’s kurzarbeit.) Notwithstanding these breakthroughs, the United States
still has no program of general subsidies for low-wage employment. And the
outlays of this kind in Europe are still under 2 per cent of the GDP.
Yet there is the looming threat that the public, in its understandable desire
to keep fluctuations within tighter limits, will push regulations affecting
incentives and competition to a point where a tradeoff begins: where further
regulatory tightening weakens or narrows some of the sources of dynamism.
Europeans, in vilifying all hedge funds, all private equity and all short selling, are
making it more difficult to increase dynamism in their economies – while failing
to get at the real sources of excessive swings. We must hope that the Europeans
will come to see that they are aiming their wrath at the wrong targets.

References

John Dewey, Experience and Education, New York: Simon and Schuster, 1938.

Milton Friedman, Capitalism and Freedom, Chicago: University of Chicago,

1962.

Milton & Rose Friedman, Free to Choose, New York: Harcourt, 1980.

Friedrich von Hayek, Collectivist Economic Planning, London: Routledge, 1935.

——, The Road to Serfdom, London: Routledge, 1944.

——, “Competition as a Discovery Procedure [1968],” in Hayek, New Studies in

Philosophy, politics, Economics, and the History of Ideas, Chicago:
University of Chicago Press, 1978.

Richard Nelson, “How Medical Know-How Progresses”, Working Paper No. 23,
Center on Capitalism and Society, 2008, available at
http://capitalism.columbia.edu/working-papers.

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Barack Obama, Inaugural Address, January 20, 2009. Transcript available at

http://www.nytimes.com/2009/01/20/us/politics/20text-obama.html.

Edmund S. Phelps, “Economic Culture and Economic Performance: What Light is

Shed on the Continent’s Problem,” 3rd Annual Conference of the Center
on Capitalism and Society, Venice, July 2006.

——, Nobel Prize Lecture, “Macroeconomics for a Modern Economy,”

Stockholm: Nobel Foundation, 2007.

——, Letter to the G-20: Recommendations from the 6th Annual Conference of
the Center on Capitalism and Society, March 2009, available at
http://capitalism.columbia.edu/view/events/conference.

John Rawls, A Theory of Justice Cambridge, Mass.: Harvard University Press,

1971.

Jeffrey D. Sachs, “Response to Easterly on Hayek,” Greg Mankiw’s Blog,

November 27, 2006.

Joseph Schumpeter, Theorie der wirtschaftlichen Entwicklung, Leipzig: Duncker

& Humblot, 1912.

Amartya Sen, Inequality Reexamined, New York: Norton, 1992.

——, Commodities and Capabilities, New York: Oxford University Press, 1999.

——, “An Insight into the Purpose of Prosperity,” Financial Times, September
20, 2004.

Henry C. Wallich, The Cost of Freedom, New York: Harper, 1960.

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