Why Our Current Brand of “Capitalism” is Inconsistent with Freedom
November 25, 2008 by Mike Wilson · Leave a Comment
“The system of corporate life is a new power for which our language contains no name. We have no word to express government by moneyed corporations.” -Charles Francis Adams
Equal opportunity is the bedrock of freedom. This nation was established to preserve, protect, and ensure that opportunity. The United States (and the world) will need to make a very important decision over the next 30 years: whether to choose democracy or capitalism. Democracy protects equal opportunity while capitalism (as practiced today) stifles it.
Let’s ask some questions to help us see in what ways capitalism and democracy are incongruent. Our first task will be to precisely describe our terms.
What is capitalism and how does it differ from free enterprise?
Capitalism suffers from misused and loose definitions. Capitalism is commonly defined as “an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.”
Unfortunately, in our current state of capitalism, this free market doesn’t exist. What we experience is more closely associated with Karl Marx’s definition of a “capitalist.” It was Marx who first used the term to describe the oppressive and face-grinding economic environment of aristocratic Europe that was buoyed up by legal protection of the few at the expense of the many.
In place of a free market exists a complicated web of laws and regulations that, as one critic suggests, allows the corporate class to “use free-market rhetoric to justify imposing greater economic risk upon the lower classes, while being insulated from the rigors of the market by the political and economic and legal advantages that such wealth affords.”
Capitalism today is an economic system where the government favors those with capital over those with little or none. It’s a marriage between government and big business. You don’t see small businesses being “bailed out” right now, do you? There’s a reason for that.
Although capitalism suffers from these weaknesses, we should recognized that it is a much freer system, both economically and politically, than either communism or socialism.
Nevertheless, capitalism is the systems in which those with the capital make the rules. The rules are made to benefit themselves at the expense of new competition. This is accomplished through financially-privileged and unequal access to political influence and power.
For example, a small business owner would have a difficult road competing against a large “box” store, not only because of volume and pricing (which is part of market forces and free enterprise), but because of fewer obstacles (paperwork, fees, etc) the large “box store” would face because of laws and favors granted due to financial influence (which is what makes it capitalism).
This environment results in exclusionary practices and limits opportunity; and this is where our current state of capitalism breaks with democracy.
Free enterprise is the legal framework that allows all with the desire and the idea and the creativity to compete on a level playing field; free enterprise is therefore more democratic because it is based on equal opportunity before the law. In contrast, capitalism is the legal framework that leads to aristocratic structures by providing advantage to those who have capital via protection and perpetuation of wealth.
What is democracy and why is it currently tightly associated with capitalism?
Democracy is another term with many loose definitions. Historically it denotes that the common people (demos) rule (kratia) in that the population of the society controls the government, and that the government is for, of and by the people. There are many brands of democracy but they are all distinguished from other forms of government by general population-based input into the political process.
Aristocracy, the rule by “the best” (generally determined by birth or status that almost always rule for life) and plutocracy, rule by the wealthy, are enemies of democracy. Our current brand of capitalism tends to create and then maintain these other social forms.
Historically, free enterprise was tied to democracy by the American Revolution, as much of the reasoning for war was a push-back against British mercantilistic policies imposed upon colonists accustomed to operating within an essentially free market.
With the advent of communism and socialism in the mid 19th century and their rise at the turn of that century, capitalism stood out as the “more free” of the economic systems and the alliance with democracy was forged. This bond was fortified during WWI and WWII and the Cold War as the world battled between democracy and totalitarianism.
Why is “a government of the people, by the people, and for the people” inconsistent with mercantilistic capitalism?
1. The increasingly manipulated legal system of capitalism, set up in order to preserve and protect privileged access to the market (try to get a franchise license without incredible personal assets), causes the political process to concurrently become less and less democratic.
Although we are given the impression that the process is becoming more democratic (that we can vote about more things), reality is that those who we choose to represent us are increasingly influenced, and to that degree, controlled by those who fund their political ascendancy. This tends to aristocracy or oligarchy (rule by the few).
2. Thus, only those with legal and political influence are able to manipulate the system to their advantage. At some point (I think we’re getting close) the common man disengages from the political and civil conversation and the wealthy and powerful (whether conservative or liberal) are the only ones involved in the functioning of government, making decisions based on protecting their wealth and power.
3. Even if the political structures don’t change form, the economic and legal systems create a de facto wealth-based aristocracy. The ability of the common people (demos) to influence the political situation diminishes into insignificance and thus capitalism changes the political structure.
4. The laws currently in place give capitalism a decided advantage in the choice between capitalism and democracy. Money purchases political influence and will continue to bring into play laws that perpetuate the capitalist system at the expense of free enterprise and democracy.
5. Remember that we are not talking about overnight change. This is a trend that has progressed for decades. Only now are we able to distinguish the two, and we need to choose before we reach a point of no return.
How are democracy and capitalism perceived internationally?
The United States is currently the self-proclaimed “bastion” of both capitalism and democracy. However, in international opinion the U.S. government is associated (through sad experience) with rapacious capitalistic policies and oft-times hypocritical democratic interventions that have been claimed have the intention of “spreading democracy and prosperity,” only to have had the opposite effects in multiple countries throughout the world.
Much of U.S. foreign policy has supposedly been to “spread democracy”; however the means chosen seem to indicate that the purpose has been to make the world safe for mercantilistic capitalism at the expense of popular sovereignty and paced and sequenced movements, determined by each country, to improve the freedom in their markets and the prosperity of the people of these lands.
It’s not yet clear whether the incoming executive administration will continue to force on other countries the concepts of free government and free markets through the use of the military and international financial organizations. Regardless, we must choose, as soon as possible, whether as a people we will continue to align ourselves with mercantilistic capitalism, or if we will trust free government, free markets, and popular sovereignty.
Conclusion
Our rampant commercialism, consumerism, and materialism indicate which way we are leaning. Our ethics and our legal system to which we sacrifice our morals demonstrate that we value capital and wealth (and especially protecting it) more than we value liberty. We demonstrate that we would rather have an aristocratic plutocracy govern us than to govern ourselves (if it means we can maintain our current level of luxury).
Mercantilistic capitalism is winning in the U.S. and will continue to do so until appropriate corporate and tax reforms are undertaken and until financial influence of the political system is eliminated.
Will we wait until our own government implements “Intolerable Acts” that protect its mercantilistic desires at the expense of the free market, or until our foreign economic and political policies become so unfair that our security is even more seriously compromised? Or will we pro-actively choose democracy, free enterprise, and liberty at home and abroad?
We must call our current economic system what it is — mercantilistic capitalism — recognize how distant we are from liberty in our government and our economics, and move forward the overhaul that needs to occur.
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Copyright © 2008 by The Cause of Liberty. All rights reserved.
What Does it Mean to Be “American?”
October 24, 2008 by Mike Wilson · Leave a Comment
Representative Michele Bachmann from Minnesota recently accused (and she was not the first) Barack Obama of holding positions that are ”anti-American.” What did she mean? In order to define what it means to be “anti-American” we should define what it means to be “American” and use examples from history to see if our judgment is fair or even accurate.
Was Patrick Henry “American?” Was he who emphatically and boldly challenged: “…but as for me, give me liberty or give me death!” American? Or did his adamant opposition to the Constitution as it was written in 1787-88 make him “anti-American?”
What does it mean to be “American?” The fundamental philosophies and ideas that undergird the founding of the American Republic are the following (feel free to add suggestions): 1) equality before the law; 2) national and local sovereignty; 3) powerful self-governance and self-determination; 4) peace through strength; 5) disdain for imperialism and privilege; 6) “light on the hill” example of freedom; and 7) a willingness to fight against tyranny and oppression in all its forms.
Which of these principles is Barack Obama opposed to? How many of these principles have been not only ignored, but trampled by the policies of the outgoing Republican administration? Which “America” is Rep. Bachmann talking about?
Was Henry David Thoreau being “anti-American” in his willingness to be jailed for his refusal to pay a poll tax used to finance the Mexican-American War, which he believed to be unjust?
Was Martin Luther King Jr. “anti-American” when he helped “freedom riders” show Americans the absolute “un-American-ness” of “separate, but equal” and segregation?
When will we stop questioning one another’s “American-ness,” or patriotism? I am as grateful for those whose patriotism is demonstrated in fighting with truth and justice to protect my rights at home from an ever-increasingly invasive government as I am for those who fight with weapons with defend my life. What gives Rep. Bachmann the right to question anyone’s “American-ness”, especially when America is made up of thinking individuals who see things distinctly from their neighbor?
I challenge you to find someone whose motives you have questioned, then make a conscious effort to trust their motives, their love for their country, and the hope they have for its people.
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Fear, Expediency, and the Economy
September 25, 2008 by Mike Wilson · Leave a Comment
So leave everything you know and carry only what you fear.
Daily we face the onslaught from the media. A murder here, a rape there. Illegal immigrants taking your jobs here; globalism outsourcing your job to over there. It is called news. Fundamentally, however, it is fear-mongering — and if succumbed to, it is fatal to our soul.
Both political parties attempt to play on fear, portraying the opposition candidate in the most negative light possible to the point where this campaign has become more immature than a kindergarten shout-down (”My dad can beat up your dad!”). In order to achieve support for means that we know are questionable, those in office instill fear of the unknown or the different. Fundamentalism Muslims are referred to as “Islamo-fascists” (a convenient compounding of any word to denigrate the former term).
Our current economic situation is a result of fear…fear of work, fear of hard times, fear of the housing
market plunging more deeply. This fear will cause us to operate from a position of expediency. Expediency resulting from fear pushes us towards means that seem to be fixes to the fearful problem, but are really methods that will, like termites, slowly eat away at our structural foundation.
In the years of the Roaring 20’s, economists (mainly following the theories of Irving Fisher) were convinced that slowly increasing the money supply would allow for continued expansion of the economy without increasing prices too much or causing any damage to the financial and industrial structures. However, an economist in Austria (Ludwig von Mises) was writing a contrary view, contending that increasing the money supply, thus lowering interest rates and making borrowing cheaper and more attractive than savings, might just pull the rug out from under the glass table on which the economy sat. He felt that “if monetary policy pushed ‘market’ interest rates below the ‘natural’ rate, the central bank could create an unstable business cycle that could lead to financial disaster” (’natural’ rate of interest defined to be “the rate that equalizes the supply and demand for saving based on the social rate of time preference”) [Skousen--The Big Three in Economics].
Mises predictions were ignored and the Federal Reserve in the U.S. continued to increase the money supply and lowered interest rates below the natural rate such that structural imbalances were introduced into the economy, contributing to the Great Depression.
Fast-forward to the 1990’s, a time of great economic growth and increases to the money supply as demonstrated by the decreasing interest rates imposed by the Federal Reserve over the last 18 years. What are we facing again? An economy that isn’t saving because the cost of borrowing was cheaper than it should have been is loading the investment market with mortgage-backed that are described as “radioactive toxic waste.” Fear of the economy slowing down during the 90’s and the early 2000’s gave impetus to regulators to adjust the money supply to such a degree that it is likely to have dropped the market rate of interest below the natural rate of interest, leading to the instabilities we’ve seen over the last few months, coming to a head these last ten days.
We know that in order to prosper we need to save. However, we buy into the information spoon-fed to us by a media that is inherently a business and operates on a 24-hour news cycle, thus it is not only subject to fear-mongering, but media is also an objective participant in the generation of economic fear. Politicians also aren’t hesitant to promote fear since our fear gives them greater power as we feel a deeper need for security and every politician will tell us that “changing horses midstream” is a dubious and dangerous proposition.
I started this post with a line from Bruce Springsteen’s ironic warning entitled Magic. We need to listen to the warning voice by holding onto “everything [we] know and [letting go of] what [we] fear”. We must recognize that fear, as described in the following lyrics, is a dangerous thing and if allowed, will turn our heart black and take our God-filled soul and “fill it with devils and dust.”
Now every woman and every man
They want to take a righteous stand
Find the love that God wills
And the faith that He commands
Well I’ve got God on my side
And I’m just trying to survive.
What if what you do to survive
Kills the things you love?
Fear’s a dangerous thing.
It can turn your heart black, you can trust;
It’ll take your God filled soul, fill it with devils and dust.
Decisions based on fear using expediency instead of principles will most often destroy those fundamental principles. Let us be aware of what is seen and unseen and make decisions based on principles and re-establish liberty.
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Adjusting Interest Rates (errr…What’s Really Going On)
September 22, 2008 by Mike Wilson · 1 Comment
This will be short. While we are witnessing some of the most aggressive and interventionalist economic policy we’ve seen in decades this week, I’ve had the chance to be reading ideas from free market gurus like Adam Smith and Frederic Bastiat. I don’t agree with everything Bastiat has to say (I agree with most of Smith’s points) but I wanted to discuss two policies that are used to deal with economic difficulties in the United States and talk about their ramifications.
Fiscal Policy
Fiscal policy is the idea promoted by John Maynard Keynes that when the economy isn’t growing, the quickest and most sure way to increase economic growth is to stimulate demand. This is most efficiently done by deficit spending (he only recommended it over the short term) wherein the government directly plants money into the economy. The “stimulus checks” that went out earlier this year were examples of fiscal policy in the Keynesian sense. Does it work? Growth in the second quarter increased to the extent that economists expected. Does it fix things long term? No. It’s a short term solution, most often in response to fundamental problems with saving and investing. We’ll discuss this in a later post.
Monetary Policy
The second type of financial policy used to adjust the economy is referred to as monetary policy. This idea was promoted by Milton Friedman and implemented during the 1990’s and earlier part of this decade by Alan Greenspan. It’s name, monetary policy, would indicate that it has something to do with money policy, which it does. However, when the Federal Reserve meets to discuss monetary policy it is presented as an adjustment to the interest rate. The lower the interest rate the cheaper it is to borrow money and this cheaper credit encourages the economy to expand. It encourages borrowing for capital investment, home purchasing, car purchasing. It discourages savings (again we’ll talk about saving in a minute).
How, then, does the Fed adjust the interest rate? They do so by affecting the money supply. In order to make money cheaper (lower the interest rate) they do what microeconomics says will cheapen any commodity — they increase the supply of money. They do so mainly by buy bonds on the bond market and thus increasing the amount of circulating capital. With an increased money supply, banks are more willing to lend to each other and to consumers and consumption increases.
Besides the inherent problems with increasing consumption without addressing production and supply, monetary policy (although less traumatic to long-term economic fundamentals than fiscal policy and deficit spending), because of the way it’s described, has the tendency to impoverish the poor. Increasing the money supply doesn’t make anyone richer. All it does is increase the number of transactions and thus stimulate exchanges, but if there isn’t any more production of labor and capital to purchase, no real growth takes place. But because it is couched in the terminology of “lowering interest rates” instead of “increasing the money supply”, most people don’t realize that it is the money supply that is being adjusted, not the interest rates directly. This affects the laborer more than the owner/merchant in the following way. From Bastiat’s What is Money?:
Under the influence of ignorance and custom, the day’s pay of a country laborer will remain for a long time at a franc, while the saleable price of all the articles of consumption around him will be rising. He will sink into destitution without being able to discover the cause…But this rise in prices is not instantaneous and equal for all things. Sharp men, brokers, and men of business, will not suffer by it; for it is their trade to watch the fluctuations of prices, to observe the cause, and even to speculate upon it. But little tradesmen, countrymen, and workmen, will bear the whole weight of it. The rich man is not any richer for it, but the poor man becomes poorer by it. Therefore, expedients of this kind have the effect of increasing the distance which separates wealth from poverty, of paralyzing the social tendencies which are incessantly bring men to the same level, and it will require centuries for the suffering classes to regain the ground which they have lost.
Remember that this is from one of the most outspoken free market promoters of all time. I think that his assessment is correct. It takes longer for the day laborer, the wage earner, to realize that everything is costing more money because of the increase in supply of dollars, while he is making the same amount of money, than for the business man whose decision-making awaits all the financial news on Bloomberg, FOX, or CNN. One way to lessen this effect would be to change the terminology for what the Fed does: tell everyone that the Fed is increasing the money supply, not that it is lowering interest rates. And be aware when ever anything is done for expediency. There are almost alway unseen costs associated with those interventions.
Move the Cause of Liberty by (1) subscribing to the Sentinel, a free weekly newsletter boldly illuminating the principles of freedom in a darkening nation, and (2) pledging your Life, Liberty, and Sacred Honor to the Cause by signing the Declaration of Dependence.
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Copyright © 2008 by The Cause of Liberty. All rights reserved.
The Law — Tool of Acquisition, Redistribution, or Justice?
September 1, 2008 by Mike Wilson · 1 Comment
How To Keep The Law In Its Rightful Place
The only legitimate purpose of legislation is to establish some level of justice in society. However, it doesn’t take long for that proposed intent to be abused. Human beings have a tendency to self-interest and legislators are no different.
The French physiocrat Frederic Bastiat, popularized the phrase “legal plunder” in his essay The Law. Legal plunder means to use legislation to accomplish exchanges of money, capital, labor, resources, etc. that one could not do without the law. This legalization does the following: “And, as law cannot exist without the sanction and the support of a preponderating force, it must finally place this force in the hands of those who legislate.”
Historically, how has this been manifested? How do we understand it today? What can we do about this problem in order to increase our liberty and prosperity?
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