So, if the interest rate is supposed to calibrate the amount saved and the money demanded for capital investment, what does a Social Security system do to the interest rate? Social Security both decreases current income and is somewhat interchangeable with private savings, so it seems to me that by taking money out of the private savings market and spending it on government expenditures (so, assuming the government doesn't just go and put it back in the loanable funds market), wouldn't this artificially inflate the interest rate? (Quantity of saved funds drops as people defer less of their actual income for future consumption since the government does that for them, causing the equilibrium rate to go up).
Sam's last post, as well as some idle thinking, has me wondering whether the term Capitalism is an effective term for what economists imagine it to be. (I seem to remember another blog post on this a while back, but I can't remember where, and I may have just imagined it anyways). A purpose of language is to evoke in others what you are visualizing yourself, and as a word 'Capitalism' seems to be doing a bad job of it. My feeling is that Capitalism evokes in us a society where capital is privately owned, while in others the word evokes a society run by Capitalists. I think of early 20th-century US and Britain, Mid-late 20th century Korea, Japan, West Germany. Others think of early 20th century Latin America with United Fruit, post-1991 Russia, and maybe even 21st century US. The former are Capitalist countries, the latter are ruled by Capitalists (granted, the two are not mutually exclusive). Granted, we're using a word popularized by Karl Marx, it's not surprising that many use and perceive 'Capitalism' in the least flattering way possible, and it's not surprising that people can graffiti things such as 'Capitalism is Murder,' which sounds absurd to our ears.
I am reminded of the decision by bloggers over at The Austrian Economists to rename their blog 'Coordination Problem' because of the shift in the meaning in Austrian Economics over time. Would it be worthwhile to come up with an alternative name for the classical liberal's desired society? And what would we use?