Alkis Konstantinidis / Reuters A youth paints a slogan on the wall of the Bank of Greece headquarters as fires caused by petrol bombs thrown by youths burn at the entrance of the bank, during a 24-hour general strike in central Athens, Greece, November 2015.

Capitalism in Crisis

What Went Wrong and What Comes Next

Purchase Review

Ever since the emergence of mass democracy after World War II, an inherent tension has existed between capitalism and democratic politics; capitalism allocates resources through markets, whereas democracy allocates power through votes. Economists, in particular, have been slow to accept that this tension exists. Instead, they have tended to view markets as a realm beyond the political sphere and to see politics as something that gets in the way of an otherwise self-adjusting system. Yet how democratic politics and capitalism fit together determines today’s world. Politics is not a mistake that gets in the way of markets.

The conflict between capitalism and democracy, and the compromises the two systems have struck with each other over time, has shaped our contemporary political and economic world. In the three decades that followed World War II, democracy set the rules, taming markets with the establishment of protective labor laws, restrictive financial regulations, and expanded welfare systems. But in the 1970s, a globalized, deregulated capitalism, unconstrained by national borders, began to push back. Today, capital markets and capitalists set the rules that democratic governments must follow.

But the dominance of capital has now provoked a backlash. As inequality has widened and real wages for the majority of people have stagnated—all while govern­ments have bailed out wealthy institutions at the first sign of trouble—populations have become less willing to accept the so-called costs of adjustment as their lot. A “double movement,” in the words of the Hungarian historian Karl Polanyi, occurs in such moments as these, when those who feel most victimized by markets reclaim the powers of the state to protect them. The rise of Bernie Sanders and Donald Trump in the United States is a product of this reaction, as is the strength­­ening of populist parties in Europe.

Three recent books shed light on this continuing tension between the imperatives of the market and the desires of the people. Together, they offer a biog­raphy of capitalism: where it

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