The one predictable thing about a volatile market is that it will encourage otherwise sane people to make wildly exaggerated statements with a straight face.

We’ve seen a lot of that recently.  Bailouts, stock dives, bubble busts and stimulus packages have seemingly brought out the hyperbole hidden within everyone.  This time around, the tall tale involves the alleged pending death of capitalism itself.

Primed by a Presidential election in which any finger lifted by government could be sophomorically labeled as “socialist” and in which any proposed adjustment to tax policy was tagged as a redistributionist experience in social engineering, it’s become all to easy for people to interpret the recent spate of government tinkering with the economy as proof positive that capitalism is dead or dying.

The Invisible Boot claims that we’re now a socialist nation dedicated only to the protection of the ultra-rich.  France’s Nikolas Sarkozy said,  “Le laisser-faire, c’est fini” as the G20 summit wound down and journalist Steven Brant saw “the death of capitalism” in the AIG bailout.

Everyone seems to be on the same page with this one.  The folks who cling to some kind of wild-eyed Marxist vision for the future are pleased as punch that capitalism is dying.  Those who are still upset at Democratic election wins are convinced that more liberal influence will unplug capitalism’s life support machine.  Libertarians see all of the intervention as an organized assault on the natural wisdom of the marketplace.  Conservatives, liberals, geniuses, whack jobs and everyone else who manages to escape such easy categorization seems to be on the bandwagon.

Capitalism is dead.

The problem with all of this tombstone authorship is the fact that they’re wrong.  Capitalism isn’t dead.  Not even close.  There may be increased regulation of the markets ahead, but it’s not like the marketplace has ever been the open playing field of Freeman fantasies.  Claiming that the changes underway represent a death knell for market-based economies is just as sensible as arguing that a slight increase in the marginal tax rate for individuals making a quarter of a million dollars per annum is akin to socialism.  That’s a good-natured dig, McCainiacs, in case you missed it.

The point is that we haven’t operated in a true free market economy in the past and that likely forthcoming regulations and/or government inteferences in the marketplace don’t represent a wholesale shift in perspective.

Now, you can make a very good argument against proposed and existing policies that fiddle with the free market.  My natural inclination with respect to economics is to embrace those arguments, in fact.  You can talk about inefficiencies, the destruction of incentives and all sorts of other nastiness that tends to come with interference in the marketplace and it shouldn’t be hard to find a few bright people to nod along with you.

However, that doesn’t make those interventions a capitalism killer any more than government-encouraged settlements of tulip options contracts represented the death of the markets.

I’m referring to Tulipomania, the scourge of the 16th century Netherlands.  Tulips became incredibly popular and speculation in the tulip marketes reached unfathomable levels.  When the bubble did what bubbles do (POP!), people were left with contracts requiring them to buy nearly worthless bulbs for big money.  They couldn’t or wouldn’t pony up.  Eventually, the government decided to mandate account settlement at a ten percent rate.

This was a massive market intervention.  Instead of forcing those who made their own beds to take a long nap in them, they were given a chance to walk away for next to nothing.  Unfair?  Sure.  Inconsistent with market principles?  You betcha.  The death of capitalism?  Nah.

Capitalism didn’t keel over when Lee Iacocca came to Washington looking for a loan.  Capitalism didn’t disappear with the invention of a progressive income tax policy.  Adam Smith didn’t vanish from the history books when AIG got its bailout and when the Big 3 get their cash, he’ll still be in there.

Sure, Adam might be rollig over in his grave fast enough to register on the Richter Scale, but capitalism isn’t dead.  Pure capitalism might be a step or so more distant than it was in the past, but it’s still the core underlying principle guiding our economy.

Would it be possible to gut capitalism little by little until it was functionally dead?  Probably so.  And some day we might actually reach that stage.  Today’s “cheats” on the system to save particular businesses and industries, however, don’t represent a real threat to market-based economies.

We might not be rallying around the core principles of the market in the most efficient of ways, but we certainly aren’t giving up on it.  Marx and Lenin are not about to make an appearance on Oprah’s must-read list.  We’re running with an inefficient “mixed” economy that has a decidedly capitalistic engine.