Can Capitalism Survive?

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would be to devise wage and price restraints that would be effective but not coercive. Rigid, comprehensive controls have almost never been effective for very long. They breed shortages by discouraging businessmen from making investments to expand the output of products that they are not sure can be sold at profitable prices. Controls also freeze into the wage structure inequities that workers find intolerable.

A number of economists argue that there is a way short of comprehensive controls that would oblige corporate chiefs and union leaders to consider the public interest when formulating their private policies. According to this argument, the Government should adopt some form of flexible wage-price surveillance to prevent unions and corporations from using their muscle to force outsize increases. A Government body would monitor wages and prices and demand justification for suspiciously large raises. The trouble is that to be effective this body would have to be authorized to roll back increases that it considered unjustified—and this action would amount to controls and coercion. In sum, a huge question remains unanswered: How can a capitalist economy achieve long-term price stability without risking deep recessions or, much worse, sacrificing some freedoms?

An equally difficult and closely related issue is whether—and how—capitalist economies can improve the functioning of the free market without attacking the vitals of that market. To guide investment and production, capitalism still relies primarily on the response of private businessmen to the signals that the market gives off about the strength of consumer demand and the potential for profit. But the market's ability to anticipate long-range trends is at best imperfect, and it has failed to provide for some critical needs of a complex modern society.

The worst imbalance is between private and public investment. Capitalism has an ancient antipathy to public spending that began with Adam Smith, who classed the King and "all the officers both of justice and war who serve under him" as "unproductive" workers on the ground that they created no new wealth. Government-financed public works rarely if ever turn a profit and they have all too often been neglected while resources have been poured into projects that stood to make more money. Example: the U.S. has built a magnificent highway network to serve the auto, but public transportation generally ranges from poor to nonexistent.

In two overlapping areas, pollution control and energy development, misguidance by the market has hurt capitalist societies. Pollution, of course, is a problem for all industrial countries; Arthur Okun, a member of TIME'S Board of Economists, observes pithily that "socialist smoke pollutes as much as capitalist smoke." But free enterprisers proved as incapable as any production-at-all-costs commissar of foreseeing the pollution danger.

Worse, businessmen found profit in highly polluting technologies like the substitution of synthetic detergents for natural soaps. The cleanup did not begin until the befouling of the environment had become a demonstrable threat to human life. Now the cleansing process is holding back economic growth.

The market also failed to foresee the swift onrush and the grave consequences of the energy crisis. For many years, an abundance of oil