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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Wonder Bread, Twinkies, & The Economy
October 11, 2008 by Stephen Palmer · 2 Comments
Revealing Lessons On Booms & Busts From A Bread Salesman
It may surprise you that I haven’t always been a world-renowned writer. Okay, so I’ve never been a world-renowned anything, but I have been a lot of other things throughout my illustrious career.
One of my early jobs was as a Wonder Bread and Hostess snack salesman servicing Mesquite, Nevada, a small casino town a half hour south of St. George, Utah. Interestingly, pushing bread and Twinkies taught me much about the economy, and it specifically gave me the ability to see through economic fallacies.
One of the lies perpetuated by the Great Depression, and which is being mirrored in our current economic crisis, is that the free market, by virtue of the profit motive run amuck, causes recessions. And, of course, the logic is that since busts are caused by the free market, government intervention and increased regulation is the solution.
Read on while an old bread salesman tackles this lie head on and demonstrates how ridiculous it is.
A bread salesman has three days to sell his product off the shelf before he has to remove it as stale. Any stales came off my bottom line, which meant that I had to track my numbers religiously. If I put too much bread on the shelf it would stale out; too little would result in lost sales.
In other words, I had every incentive to match my production with existing market demand. If I tried to inflate my production by ordering too much bread, it would do nothing but harm me. While I could, to a certain degree, increase market demand by offering discounts and bettering my marketing efforts, my influence was limited, checked and balanced by my consumers and competitors.
Lesson #1: Entrepreneurs have every incentive to ensure that their predictions match market demand.
A critical role of entrepreneurs is to predict the types and quantities of goods and services that people will actually buy. They use natural market indicators, such as past consumption, to make their predictions. Producing more than the market will bear harms entrepreneurs, whether they sell bread, steel, clothes, or mortgages.
As an entrepreneurial bread salesman, I had a route book that tracked every sale of every product on every day, which was my ordering Bible. Without that I was shooting in the dark and my profits would diminish substantially. With it, efficiency was optimized, waste was reduced, and profits were maximized.
However, occasionally I would experience sharp deviations from my normal sales, which threw off my entire process. For example, one day, shortly before a Superbowl Sunday, all of my hot dog buns in the grocery store mysteriously disappeared. My numbers were perfectly in line, yet some external force that I didn’t understand was at work.
I bumped up my orders. The next day, the shelf was wiped clean of hot dog buns yet again. I bumped up my orders even further. The next day, same thing. This time I really cranked up my orders. Super Bowl weekend came and passed, and on Monday I walked into mountains of hot dog buns, most of which eventually staled out.
In other words, there was a hot dog bun-boom, followed by a bust. Traditional economic theory says that I caused the bust with my profit-motivated greed. I wanted to make money so badly that I ramped up my orders. The truth is the exact opposite; I had no incentive to do so, and the bust was caused by forces beyond my knowledge and control.
In that case, what had happened was one of my casinos held a last-minute Super Bowl party for which they needed hot dog buns. Rather than ordering them directly from me, which is what they should have done, they had gone to the store for several days in a row and bought every package of buns on the shelf.
The boom was a fluke; the bust was simply a market correction of the fluke.
Lesson #2: Abnormal, artificially-induced market factors cause entrepreneurs to make faulty judgments regarding production.
Entrepreneurs who inaccurately predict demand fail; those who predict accurately thrive. But when external factors distort the indicators that they base their predictions on, the result is chaos and lost production.
Just as politicians leveraged the panic of the Great Depression to blame the failure on the free market to amass more power, so are we being told today that our financial crisis was initiated by greedy and speculative entrepreneurs.
What we’re not being told is how the Federal Reserve and other government agencies distorted free market indicators prior to the crisis. For example, in September of 1999 the New York Times reported that, “In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders. The action…will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans.”
This report details how Federal Reserve policy heavily influenced the crash, including controlling the interests rates and margin requirements.
Here’s the big picture: The Fed controls the money supply and interest rates, which are huge determinants of market demand. When money flows freely, people spend freely. A “booming” economy in America today is largely false and artificially created by the Federal Reserve manipulating the money supply. Then, when the true demand catches up to the Fed-created market lies, it all comes crashing down.
In other words, our booms are false and our busts are but corrections.
Lesson #3: When created by the manipulation of the money supply, economic booms and busts do not represent the free market, and the culprit is illegitimate government intervention, not the free market.
In actuality, an economic bust — when preceded by a government-interventionist boom — shows the true power of the free market to realign itself even when influenced by massive external forces.
In the case of my hot dog buns, the culprit was a casino that failed to order enough product at the last minute then distorted my grocery store numbers without my knowledge.
Similarly, our current financial crisis was not caused by the free market; it was caused by government intervention. The Federal Reserve distorted natural market indicators which in turn prevented entrepreneurs from predicting accurately.
Lesson #4: The solution is less regulation, not more.
The way to prevent economic booms and busts is to prevent the government from illegitimately manipulating the money supply. The money supply must be backed by hard, precious assets, which largely prevents top-down exploitation.
Keep the money supply stable, protect unalienable rights, then get out of the way as entrepreneurs pursue the profit motive, understanding that they are naturally incentivized to match their production with legitimate market demand.
Stay tuned for more articles further explaining our current economic crisis and its solution.
While you’re waiting, consider these questions and provide your answers as comments to this post:
- Which societal institution has incentive to manipulate market demand and why?
- If material things have no intrinsic value, then why does a gold-backed currency largely prevent manipulation of the money supply?
- What caused the Great Depression?
- How does our current crisis mirror the Great Depression and why does that matter?
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Copyright © 2008 by The Cause of Liberty. All rights reserved.
I heard it on…Princess Bride?
October 4, 2008 by Aspen Eggimann · 1 Comment
“Do you always begin conversations this way?”
The most humorous conversations are peppered with quotes from the classic movie Princess Bride. If you haven’t seen it, stop reading and go watch it. Like any good classic it gets better and more applicable each time seen.
What can we learn from this classic? Let me point out a few lessons that I think fit perfectly with our times.
1. When I hear our presidential candidates use the word “change” every couple of minutes, unfailingly Indigo’s voice comes into my head saying, “You keep using that word. I do not think it means what you think it means.”
Change is not being in Afghanistan versus Iraq, or visa versa. It is getting out of foreign nations we shouldn’t be in.
Change in education is not working on “No Child Left Behind” as was suggested in the VP Debate. Change would be getting the Federal Government out of education and and giving that power back to the parents and states.
2. As for the bailout just passed in Congress;
“Think it will work?”
“It would take a miracle.”
One senator, after changing his vote to yes on the economic bailout, said that the fear on Wall Street was going to affect Main Street.
Maybe it is time that Wall Street be afraid.
As a nation we cannot continue on in our current economic situation. We have become a nation that consumes more than it creates, spends more then it earns, and takes more then it gives.
Wall Street does affect Main Street, so let us start the process of changing our economic strategies as a nation. Having the government there to catch business when it falls only prolongs and extenuates the long range problems we will face.
3. Longfellow said our nation was a “ship of state” and that all humanity hung upon its fate. If that is the case where is the watchmen crying, “Look! The cliffs of insanity!”
4. I always get a funny feeling when I hear someone in government make statements about easing the burdens of the American people, having the government look out for the middle class and defending the common workers of America. For as the Dread Pirate Roberts said, “Life is pain… Anyone who says otherwise is selling something.”
It is human nature to tend to fall into a trap of wanting things to be easier, to not have to think about problems and to let someone else do the dirty work for us. But it is better to do the work then buy up the services of the government and let it run our lives.
In closing, “Let me explain — no there is to much — let me sum up.”
First, understand that the current debates between presidential candidates are not about change in policy; they are about change in approach.
Second, as uncertain as the future of our economy is right now, “bailouts” aren’t going to help. Ronald Reagan once said that you can talk to a child until you’re blue in the face about spending — or you can cut their allowance. Giving more money isn’t going to cure the mismanagement of it. Our $700 billion dollars is only a band aid on a gaping wound.
Third, lets listen to people who are telling us we are headed towards disaster.
Fourth, now is the time to reclaim the responsibility of self-governance and watch over our nation and communities. Lets stop abdicating our responsibility to others in exchange for convenience.
And next time you watch Princess Bride, think about government — I promise you’ll learn a lot.
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21st Century Georgics: An Introduction
July 29, 2008 by Hyrum Lefler · 4 Comments
A key factor in maintaining freedom is sustainable economic forms. Are you maintaining freedom through the financial principles and practices you are using? Have American families adopted the economic forms necessary for the preservation of a free people?
The average American household pays over 34.5% of every dollar earned to interest payments. Forget about the taxes — that is serious bondage! Our system has become top heavy, threatening our economic solvency as a nation and necessitating large government bailouts to offset their blunders. When a government is forced to tax its people heavily to keep economic centers of capital from collapsing, how can we expect it to reduce in size? To force such a thing is tantamount to economic collapse.
We have allowed our wealth to centralize and grow in the hands of OTHERS. We have given them our money and the control of it for the “magic of compound interest” and then turned around and borrowed from them with a price.
Families are the foundation of American stability and economic growth, and it is time for families to regain real control of the resources of the economy. What do I suggest? We obviously cannot steal all of the money and put it in our families’ accounts! No, I am suggesting that we have all of the resources we need, and they flow through our hands day after day, and we relinquish control of them day after day. This is because we do not understand money; or, more importantly, we do not understand economy.
The Roman Poet Virgil wrote The Georgics in 29 BC. The concept of “Georgics” that came out of this poem was widely debated and discussed in the founding era of our country. The word basically means “to work the land.”
In early spring-tide, when the icy drip
Melts from the mountains hoar, and Zephyr’s breath
Unbinds the crumbling clod, even then ’tis time;
Press deep your plough behind the groaning ox,
And teach the furrow-burnished share to shine.
That land the craving farmer’s prayer fulfils,
Which twice the sunshine, twice the frost has felt;
Ay, that’s the land whose boundless harvest-crops
Burst, see! the barns.
It was felt by many of our Founders that this connection to the land, to hard work, and the dependence on God that is pre-supposed when seeds are planted, had a profound effect of building an independent and free people — especially when coupled with the other Foundations of Freedom.
Up until 100 years ago, 97% of Americans worked the land with plows — they were farmers. Short of a massive catastrophe, that isn’t going to happen in our time. What can be done in our day to bring the Family Farm — or at least its principles — back to life?
We must first understand Georgics. In the coming weeks I will be posting several articles outlining the basic tenets of Georgic Economics, with links to sites where you can learn how to establish a rebirth of freedom in your family through Georgic principles and forms.
American families must become independent centers of the U.S. economy if our liberties are to be preserved. I am calling for a regeneration of organic, financial systems centered in and controlled by America’s families.
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.
Question #10: What are the connections between liberty and property?
July 12, 2008 by Stephen Palmer · 2 Comments
| 10 Foundational Questions | Introduction | Question #1 | Question #2 | Question #3 | Question #4 | Question #5 | Question #6 | Question #7 | Question #8 | Question #9 |
“…power over a man’s subsistence amounts to a power over his will.” -Alexander Hamilton in Federalist Paper #79
A malignant idea exists in socialistic thought that societies can have political freedom with limited economic freedom. More precisely, this dangerous idea is that political and economic freedom are separate and distinct freedoms and that one can survive without the other.
Furthermore, in democratic socialism the theory is that wealth can be forcefully redistributed through the government, or in other words that society has a right to the economic labor of all individuals. At the heart of this destructive ideology is that economic freedom is unnecessary and that a society can still be free without it. Europe has embraced this ideology to a large extent, and America is not that far behind.
However, there is an inseparable connection between liberty and property, a connection that, if severed, leads to the loss of both liberty and private property.
Why It Matters
It is your unalienable right to work, to labor, and to enjoy the fruits of your labor. Freedom means the ability to control your destiny through your own effort–if the government takes the fruit of your labor (your property) for anything other than taxes to support its proper role, it reduces your ability to create the life of your choice.
“The moment the idea is admitted into society that property is not as sacred as the laws of God, and that there is no force of law and public justice to protect it, anarchy and tyranny commence. Property must be secured or liberty cannot exist.” -John Adams
Furthermore, property is a tool to express your unique contribution to the world. Bill Gates shares his vision and business skills by creating computers. Ray Kroc shared his drive and innovation through real estate and hamburgers. Without private property rights, these men and others like them would have no outlet to express their individuality. If a person wishes to pursue their happiness by creating a business, that happiness will be deterred if they do not have access to create a physical manifestation of the business through property.
John Locke wrote extensively about this topic in his Second Treatise on Government. He wrote, “[E]very man has a property in his own person. This nobody has any right to but himself. The labour of his body and the work of his hands, we may say, are properly his. Whatsoever then he removes out of the state that nature hath provided, and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property. It being by him removed from the common state nature placed it in, it hath by this labour something annexed to it that excludes the common right of other men. For this labour being the unquestionable property of the labourer; no man but he can have a right to what that is once joined to….
“He that is nourished by the acorns he picked up under an oak, or the apples he gathered from the trees in the wood, has certainly appropriated them to himself. Nobody can deny but the nourishment is his. I ask then when did they begin to be his? And ’tis plain, if the first gathering made them not his, nothing else could. That labour put a distinction between them and common. That added something to them more than nature, the common mother of all, had done: and so they become his private right. And will any one say he had no right to those acorns or apples he thus appropriated, because he had not the consent of all mankind to make them his? … If such a consent as that was necessary man had starved, notwithstanding the plenty God had given him. We see in commons, which remain so by compact, that ’tis the taking part of what is common, and removing it out of the state Nature leaves it in, which begins the property; without which the common is of no use.”
Without economic freedom all other freedoms are obsolete. With freedom comes the responsibility to use your hands, your mind, and your strength to care for yourself, to provide you and your family with economic necessities and desires. With responsibility comes opportunity to create your own destiny. Unless your private property rights are protected your ability to determine your life is severely limited.
Recommended Reading:
The Mainspring of Human Progress by H.G. Weaver
The Virginian by Owen Wister
Economics in One Lesson by Henry Hazlitt
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.
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