"That's What I Think of When You Say 'Captialism' "

Like road signs, words are symbols.  They have general meanings that our minds share, direct us to act or react in a certain way, and allow us to know what everyone else is talking about.

So what is the common meaning of "capitalism"?  What has that symbol come to represent among every day people?

Last night after the Campaign for Liberty panel with Ron and Rand Paul I heard an unfavorable meaning of the word.  It is a variation I hear all too often.

Leaving the hotel, I stepped past a group of smokers just outside the doors.  "Watch this," a fellow said to the guy next to him, then made a bee line to one of the CPAC attendants standing a few feet away.  (CPAC attendants are readily recognizable in this huge hotel; our registration ID cards hang conspicuously around our necks on a blue ribbon with "CPAC.org" written all over them. )

I surmised the fellow making his way to the CPAC attendant was not an attendant and interested in a confrontation, so I decided to stick around.  I made a quick stop at the curb and acted like I was looking for a cab.

It was a one-sided conversation.  Here's a paraphrase of what the offended party said:

"Some jerk just came up to me with a dollar bill and wanted to tell me about capitalism.  You know what I think of when I hear 'capitalism'?  I think of my 401K.  You're a bunch of selfish jerks."

With that he stormed in the hotel.

From these pithy remarks, I am going to assume this fellow believes that the financial collapse of 2008 that precipitated a drastic fall in his 401 K was the fault of capitalism.  What he believe capitalism to be is central to this belief; the word has come to symbolize, in his mind, something it actually is not.

So many people believe that drastic downturns and booms and bubbles and busts occur in the market naturally and that government and federal bureaucracies have nothing to do with these market anomalies.  Somehow, amazingly, government boondoggles like Fannie and Freddie Mac and their whorish vote-catching politicians in Congress had nothing to do with the financial meltdown of 2008.  What's worse, the Federal Reserve, ostensibly there to avoid bubbles and bust and irregularities in the market, gets a free pass, too.

Basically, the market had become anything but capitalistic.  That is, it was so over manipulated, regulated, goaded and prodded for outside the market--government interference--that a meltdown became inevitable.

Sadly, blaming it all on free market capitalism was inevitable, too.

Educating more people on the fundamentals of capitalism, what it is and what it is not, would go far in coercing our politicians (who are ever-fearful of not being reelected) from continuing to put us on  the same old Keynesian boom and bust cycles then cower behind and manipulate the public's mis-education of basic economics.  That's getting very old.

It would have been wonderful to broach this discussion with the angry fellow, but he was intent on carrying on with his misapplies anger.  He should be angry--just for the right reasons and at the actual culprits, not at the capitalistic system that is responsible for his own high standard of living.

If he only knew better, if only more people knew better--but that's our job.

(Back to CPAC.)

President Names Monopolist to Competitiveness Board

"Anyone who has observed how aspiring monopolist regularly seek and frequently obtain the assistance of the power of the state to make their control effective can have little doubt that there is nothing inevitable about this development [of central economic planning].~~~F.A Hayek, The Road to Serfdom 

President Obama just named GE CEO Jeff Immelt to the "President's Council on Jobs and Competitiveness."  Competitiveness is italicized for a reason--it is ironic Immelt would be named to any advisory board with such a word in its title.   This is like naming Willie Nelson to chair a national advisory board on tax compliance.

Immelt displays little knowledge and even less affinity of competing openly in the market economy; to the contrary, he specializes in lobbying the federal government to legislate competitors out of his way and monopolizing the market by having government mandate the energy mechanisms and technologies that only his company, GE, can provide to consumers.

Not really competitive now, is it?

In his invaluable book, The Big Ripoff, Tim Carney documents Immelt's record of attempting to corner the energy market through the coercive regulatory power of the federal government, all the while building GE's public image up to one of a progressive, environmentally-conscious company.

Starting in 2005, GE launched its "ecomagination" public relations campaign wherein Immelt insisted GE was committed to providing cleaner, greener energy.  That's nice, but his method of doing so was anything but "competitive."  As Carney illustrates,

"Ecomagination involves investing in certain fuels and technologies, and then working with government to make those fuels or technologies mandatory."

And where did GE and Immelt decide to launch the bold new Ecomagination?  New York, the economic and financial center of the free world?  No.  Silicon Valley, that global symbol of technical innovation? Nope.  Ecomagination launched on Pennsylvania Avenue in Washington DC somewhere between Congress and the White House, the very belly of the regulatory, wealth-destroying Leviathan that has for decades stood in the way of competitive wealth creation.

Immelt, on that occasion:

"Industry cannot solve the problems of the world alone, we need to work in concert with government." [Emphasis added.]

Again, Immelt really does seem interested in "competitiveness" now, does he?

Then there is that little thing called Cap and Trade.  GE is an enthusiastic supporter of and lobbyist for the bill which would levy one of the largest tax hikes in history and completely cartelize the energy market with GE and the federal government in effect fixing all prices and controlling the entire market.

Yea, not too much "competitiveness" in Cap and Trade.

Perchance Immelt has since turned from his desire to collude with government and make competition illegal.  Let's see what he had to say as late as 2008 in a letter to shareholders?:

"The interaction between government and business will change forever. In a reset economy, the government will be a regulator; and also an industry policy champion, a financier, and a key partner." [Emphasis added.]

Well that's not good but wait a tick.  To be fair that was almost three years ago.  What did he have to say just yesterday about competitiveness after being named to the president's new board?:

"The president and I are committed to a candid and full dialogue among business, labor and government to help ensure that the United States has the most competitive and innovative economy in the world." [Emphasis on monopolistic anti-competition verbiage added]

ObamaCare and Model T Fords: Give Free Exchange a Chance

Who made more money and became a household name around the modern world: Henry Ford or the guy who started the Rolls Royce company?  (See, I have no clue who the latter is.) 

Now that Obamacare has been back in the news it is a good time to consider why Ford became so rich and renowned.  What's the connection?  When it comes to health care we reflexively assume it is a political problem and not an economic one.  Being that it is a heart an economic issue, what would be the best way to delivery affordable health care to 300+ million Americans who, presumably, actually want affordable health care?

Ford found a way to provide millions of Americans with something they wanted.  He dropped the price of an automobile from $850 in 1909 to $290 in the 1920s.  By "dropped the price" I mean he saw that  economy of scale and selling more cars to more people would make him more money so he decreased the cost of production through greater efficiency.  This profit mongering made the horseless carriage available to more and more people at a cheaper price.  

Ford operated in a vastly freer and broadly less government controlled environment.  Providing affordable automobiles to millions of Americans was also not a politically-charged endeavor wherein politicians demagogued the car industry at every turn and people assumed they had a "right" to not have to pay for one. There were no government subsidies, Motorcare, or Motorcaid getting in between Ford and his goal of delivering affordable and reliable Ts to his customers.   

In short, Ford did not have the government stopping him from providing Americans with what they want. 


For decades now the health care system has become increasingly entangled in cumbersome state and federal regulations and mandates.  Add to this efficiency-killer the insurance problem: for generations Americans have become accustomed to the third party model of paying for services.

Were Ford alive today and interested in turning his time, talents, energies, and capital towards providing Americans with more affordable health care he would have a much more difficult time delivering lower costs.  Actually given all the restrictions, regulations, government intervention, and insurance cartels provided by ObamaCare, he probably would not even give it a go.  Government is simply in the way.

The 2,700+ page health care law that will get piled onto all this mess (What could go wrong?!) will compound the very problems that have led to unnecessarily high prices in health care: increased bureaucratization, increased governmental command, and less consumer control.

So the Republicans have symbolically repealed Obamacare in the House.  That's nice, but how about publicly discussing that whole freedom in the market place thing that's worked somewhat well for us since the colonial days?  In every market that is unsubsidized and not controlled through the regulatory regimes in DC, Americans enjoy affordable and quality products and services. 

Milton Friedman makes the case:
   
Pro-freedom policies are a proactive, forward-looking approach to lowering the price of

health care.  Insisting on more central planning, corporatism, and government control of our lives is a turning back of the clock to the times that predate free markets and prosperity in modern society.   

We don't need to resurrect Henry Ford.  We need to resurrect the free market environment in which he made his millions by lowering the costs of a product Americans desired.  Now that's a progressive policy for health care. 

Ignorance is Bliss: Knowledge, Progress, and Freedom

"All political theories assume, of course, that most individuals are very ignorant.  Those who plead for liberty differ from the rest in that they include among the ignorant themselves as well as the wisest."  F.A. Hayek, The Constitution of Liberty

It seems counter-intuitive to suggest that the preservation and progress of civilization depends on a great amount of ignorance.

  Hayek points out in chapter two of Constitution, The Creative Powers of A Free Civilization, that societies should take seriously the Socratic admonition that ignorance is the beginning of wisdom.  Doing so leads to the practical conclusion that freedom in society is the genesis of the advances in civilization we've come to take for granted.  Freedom is also the best policy to ensure we preserve the progress already made and continue to progress and flourish.

For an individual to take the Socratic approach to wisdom, he or she recognizes they are ignorant about a great deal of life and do not presume to act upon knowledge they do not have. "I know what I do not know" is an excellent way to walk a path to greater understanding and avoid the trappings that await those less humbled by their ignorance. 

As a society, it would greatly behoove us to admit so much and recognize that civilization has not made advances through carefully planned strategies from   experts.  Believing so leads to the erroneous conclusion that there is a fixed amount of ignorance that can be conquered with the advance of science and that human activity can, and should, be efficiently arranged and ordered, and that society should be less free to go about in an uncoordinated (that is, free) way  pursing respective self-interests through competitive capitalism. 

"It is for this reason that those intoxicated by the advance of knowledge so often become the enemies of freedom." 

Even a cursory view of the brutal totalitarian regimes of the twentieth-century are chilling historical testaments to the lengths to which such intoxication can lead.

Individually we benefit a great deal from the workings and knowledge of countless other individuals in society.  I, for instance, am very much ignorant as to exactly how the bag of coffee beans I conveniently bought two miles from my home arrived there for me to purchase.  How were they harvested, roasted, packed, shipped, distributed, trucked, promoted, sold, bought, arranged, etc., etc., etc.?  And how does every business involved in this process operate, and how many other businesses and people are involved in how they respectively operate?

I don't know. 

But I ignorantly bought and enjoyed the beans anyway, all because many, many people in society are individually pursing their own self interests and utilizing the knowledge they have and I do not.  Multiply that one bag of coffee beans and the many people it required to deliver it to a shelf two miles from my house by the countless goods and services and countless more people and respective knowledge it requires to provide the current high standard of living for 300+ million Americans enjoy.

That is a lot of individual, respective knowledge spread out over a lot of people, and that equals a lot of collective ignorance as to how society has generated the advances we have come to take for granted.

What central board of experts could possibly command so much information?  What person could possibly control just coffee beans?

Hence embracing ignorance and allowing for a maximum amount of liberty in society is the only way to preserve and ensure progress:

"Humiliating to human pride as it may be, we must recognize that the advance and even the preservation of civilization are dependent upon a maximum of opportunity for accidents to happen."

As we face a future where our health care and personal property are headed for increased control by the federal government, it would be best to remind ourselves and Capital Hill there is a lot they do not know about our own health, lives, retirements, etc.  Greater restrictions on our freedom to maintain the health of our bodies and the fruits of our labors would be societal regress, not progress consistent with the preservation of civilization.

If government is limited according to how much it does not know, and we are free order the welfare of our lives we can confidently proclaim that ignorance, in this context, is a good thing.

You might even say it is bliss.

Think of Freedom of Religion and Speech, Then Keep Going

"Hence the familiar fact that the more the state 'plans,' the more difficult planning becomes for the individual."~~~F.A. Hayek  The Road to Serfdom
 
Most Americans dearly hold to their rights articulated in and protected by the First Amendment.  Put another way, few Americans would quietly abide the unwarranted government violation of the following:

• Not having a state-mandated religion
• Their right to freely worship or not worship God as they see fit without government intervention
• Speaking freely, with no state prevention or persecution thereof
• A free press, neither controlled nor manipulated by government
• The right to peacefully assemble
• The right to petition government for correction of government abuses

When it comes to our First Amendment "rights" we have little toleration for government meddling; this is a very good thing.  Our dogged adherence to these limitations on the power of government is almost like a political and cultural religion.  Here we are and there is government, and we correctly cry Thou Shall Not! at the appropriate times.

So why, then, don't we get all wrapped around the axle when government intrudes upon other very personal and private matters?  If we've so jealously fenced off our religion, speech, and press from the meddling of the state on the one hand, why are we so indifferent to state interference of our private, peaceful interactions on the other hand?

Every time government intervenes in "the market" it interferes and adversely affects you in an intimate way.  Why?  Because you are the market!  What else is "the market" but 300 million plus people making millions of decisions on a minute-by-minute basis and acting freely and cooperatively upon those decisions in pursuit of their respective self-interests?  This amazing process occurs successfully when people are free enough to make it all happen; conversely, every time government takes it upon itself to plan, manipulate, order, and coerce the market into prosperity the opposite of prosperity occurs---I give you the Soviet Union, Cuba, North Korea, and the United States during the Great Depression.

When government intervenes and places top-down decrees as to how goods are to be made, at what price transactions occur (like minimum wage laws), subsidies one producer and places other producers at a competitive disadvantage, bails out failing companies, and artificially affects the market forces and prices (which always go up--think of college tuition, health care services, and housing), the prices of goods and services have to match up to the actual costs involved and those costs go up.

And who pays for the increase in costs?  You, the consumer who is always on the receiving end of unnecessarily high costs reflected in prices and you, the taxpayer who has to fund the regulatory regime that continues to expand with the ever-expanding size of the federal government. 

If we were limited to the churches we could attend due to some government mandates would e sit by in quite acquiescence?  If government limited what we could say and when we could say it would we not be openly outraged?  If only we held all our liberties as dearly as we hold our right to free speech and freedom of religion. 

The federal government has the constitutional authority and responsibility to regulate interstate commerce but no authority, neither constitutional nor moral, to directly interfere with the workings of that commerce, that is, our free assembling cooperatively and freely in pursuit of our respective self-interests and---gasp!---profits.  Perhaps if such a restriction were included in the First Amendment and not Article 1 we'd jealously keep government out of our market affairs, too.

As they say in New Jersey, I'm not sayin,'  I'm just sayin'...

A Book Recommendation, and A Lesson

Below is a book written by Thomas DiLorenzo, one that will indeed go to Book Reports and be used in future Chalk Talk and In Real Time posts:

How Capitalism Saved America: The Untold History of Our Country, From the Pilgrims to the Present
This book is an excellent resource on the real economic history of America.  DiLorenzo communicates the basic principles of real free market capitalism--what it is and what it is not--and how it has unfolded in American history, from the Pilgrims to the Great Depression to the present.  He does a very good job of separating the real workings of capitalism and historical fact from the fables and myths that pollute the education system and common public discourse.

DiLorenzo writes crisply and persuasively, sparing those of us without PhDs in economics the graphs and jargon we often associate with economics.  Without reservation I recommend this book to elevate your appreciation of American history and to better understand the impact of today's government policies.

For this Chalk Talk we will pluck one lesson from DiLorenzo's book: Correctly remembering Herbert Hoover and the Great Depression.  (Chapter nine is titled, Did Capitalism Cause the Great Depression?)

This was the topic of a past Chalk Talk, quoted in part here:

"What is the standard public perception of President Herbert Hoover and the Great Depression? Is runs something like this:

'President Hoover deserves the blame for the Great Depression because he did
nothing while the country fell deeper into economic misery. He favored laissez-faire economics and refused to use the government to intervene in the economy, leading to higher unemployment and a deepening of the depression. It required the interventionalist policies of President FDR to recover the economy and save capitalism.'

None of the Hoover-was-doggedly-laissez-faire lore is true. The general script on Hoover is part of the fable that plagues the history of the Great Depression. Revisiting the historical record sheds truth on the matter and gives us deeper insight into what did actually cause the Depression to be so Great.

In truth Hoover deserves blame for the depression because he intervened too much and set the table fore the hyper interventionalism and meddling of the New Deal.

Hoover was a interventionalist across the board. He was anything but a proponent of "laissez-faire" economics. To that point in history (1929-1932) Hoover set all the records in relation to government intervention in the economy, only to be eclipsed by the dizzying manipulation of the market by his successor, FDR.

Here are some examples, from an excellent book on economic history, How Capitalism Saved America, by Thomas J. DiLorenzo. (When I finish reading the book I will submit it to Book Reports.)

• As Commerce Secretary under President Coolidge, Hoover disliked open competition in the market and favored government-sponsored competition, calling it "cooperative competition." This laid the groundwork for FDR's National Industrial Recovery Act and the National Recovery Association, a noxious system whereby businesses were forbidden from competing below price levels. Policies were set by business cartels supervised by government, and enforcement was provided by the government.

• As president he pushed for and signed the Smoot-Hartley tariff act. This high tariff cut off trade with consumers around the world, set off retaliatory tariffs from other countries, and greatly depressed domestic production of agricultural and manufacturing goods.

• Hoover was an enthusiastic proponent of public works. As DiLorenzo points out, by 1931 (FDR was not president until 1933) total government expenditures on public works was as high as any other year in the decade! This is astounding when we consider the millions FDR put on the public payroll with his myriad of works programs. Hoover also encouraged state governments to increase spending on public works.

• By 1931 Hoover's spending created a $2 billion deficit.

• He pushed through the largest tax increase in history, to that point in time. Income, corporate, surcharges, estate, and gift taxes all went up.

• Hoover created the Agricultural Marketing Act, creating another government-created cartel of large corporate interests in the form of the Federal Farm Board. This board colluded production interests that reduced production and drove up prices of agricultural goods. This was the predecessor of FDR's Agricultural Adjustment Act.

• He created the Reconstruction Finance Corporation (RFC). This board used tax payer funds to prop up uncreditworthy with credit, leading to the watering down of free market pressures and forces in lending and finance. This effectively steered capital investment away from productive ventures and job-creating businesses, skewing the market and depressing wealth creation and, therefore, job creation.

Decidedly not laissez-faire, all.

And all these gross interferences in the market occurred during the depression, paving the way for the Great Depression:

• When the market needed more freedom, not less, to create wealth and jobs, Hoover intervened.

• When people needed to save more of their own property in the form of savings, Hoover increased taxes.

• When entrepreneurs and businesses needed more certainty in the market in order to invest and plan for the future, Hoover rocked the boat with interventionalism.

• And when the country could least afford deficit spending, Hoover piled it on.

Setting the record straight on Hoover sheds much light on the actual causes of the Great Depression.  Capitalism---true, free market capitalism free from government collusion and manipulation---did not cause the Depression.  Excessive government meddling did.  That is, making the market less free, not more free, during the Hoover administration kept the economy down and set the table for more than a decade of economic misery during the New Deal.

Freedom works.  Government central planning does not.  Hoover proved so much.

And Thomas DiLorenzo reminds us so much.

D is for "Drive"?

President Obama is fond of using (and abusing) an analogy for Democrat economic policy as opposed to Republican economic policy. In his recent trip to Texas, he repeated the analogy again::

“If you have a car and you want to go forward, what do you do? You put it in 'D,'” Obama said. “When you want to go backwards, what do you do? You put it in 'R.' I'm just saying -- that’s no coincidence. We are not going to give them the keys back."  (Click here for full article.)

That line gets a hearty chuckle from politically-empathetic crowds, but the larger historical record of leftist economic policy tells a different story.

In the introduction to his book, Capitalism and Freedom (click here for Book Reports), Milton Friedman explains how the modern-day "liberal" has come to favor a resurrection of the paternalistic state policies of seventeenth-century mercantilism 

against which proponents of classical liberalism---free market capitalism, that is---fought:

"In the very act of turning the clock back to seventeenth-century mercantilism, he is fond of casting true liberals as reactionary!"

Free market capitalism was a tremendous leap forward out of the economic doldrums of the past.  The more people were free to exchange goods and services, the faster the standard of living rose for untold millions of people.  When societies fostered freedom in their markets, they set the course of their lives and the lives of their posterity forward into greater prosperity.

As Ludwig von Mises noted in chapter one of The Anticapitalistic Mentality (click here for Book Reports):

"Capitalism deproletarianized the 'common man' and elevated him to the rank of 'bourgeois'...Those underlings who in all the preceding ages of history had formed the herds of slaves and serfs, of paupers and beggars, became the buying public, for whose favor the businessmen canvass." 

 Increasing government intervention and influence in our lives and liberties in not setting the car that is our society in "Drive."  With every increase in the central control of our market and therefore economic lives, the government currently controlled by the Ds are heading in Reverse, turning the clock back to the mercantilistic policies that stalled societal adavance and the elevation of millions from hand-to-mouth existences.   Fannie and Freddie control of home mortgages, taking over GM, bank bailouts, and centralizing our health care into the hands of a bureaucratic Leviathan is most certainly putting the car in reverse.

In so far as any of the Rs agree to go along with these backward, regressive economic policies, the president is correct, they are putting the car in reverse.  But the ones putting the car in Reverse are hopping along for a ride with you, Mr. President.