Capitalism is Not the Problem

by Oct 15, 2012Liberty & Economy1 comment

The solution is not to throw the baby out with the bath water. It is to allow capitalism, to stop the government intervention in the markets that creates all these problems in the first place.

There is an article in the New York Times called “The Self-Destruction of the 1 Percent” that is interesting for its cognitive dissonance. It hypothesizes:

That was the future predicted by Karl Marx, who wrote that capitalism contained the seeds of its own destruction. And it is the danger America faces today, as the 1 percent pulls away from everyone else and pursues an economic, political and social agenda that will increase that gap even further — ultimately destroying the open system that made America rich and allowed its 1 percent to thrive in the first place.

So the fallacy of the article is that the U.S. practices capitalism, and that this is the cause of the increasing gap between the rich and the poor. But this disparity of wealth is not caused by free market capitalism. On the contrary, it is primarily a consequence of the Federal Reserve monetary system, a government-legislated monopoly over the supply of currency and credit. Under this system, money is created out of thin air, loaned into existence at interest to the American people. Not only is it a great way for bankers to profit without doing anything productive, but those who receive the new money first, i.e. the government and favored sectors of the economy, also benefit by being able to spend it and purchase assets and such before the resultant rise in prices that hurt the middle class and poor by robbing their dollars of their purchasing power. Ironically, central banking is one of the ten planks in the Communist Manifesto. So you see the fallacy above.

It goes on to say,

Even as the winner-take-all economy has enriched those at the very top, their tax burden has lightened…. In the 1950s, the marginal income tax rate for those at the top of the distribution soared above 90 percent, a figure that today makes even Democrats flinch. Meanwhile, of the 400 richest taxpayers in 2009, 6 paid no federal income tax at all, and 27 paid 10 percent or less. None paid more than 35 percent.

Is the author suggesting that 90% of the income of the wealthiest individuals should be taken from them in order to be spent by the government? Isn’t that the corollary here? If the lightening of the tax burden of the rich is a part of the problem, doesn’t that follow? Is that sane? And is the assumption that the rich not paying enough in taxes is part of the problem correct? Notice that most of the richest taxpayers paid between 27% and 35% in income taxes (and those who paid less, it’s safe to assume, paid capital gains taxes on the returns from their investments at the 15% rate). That’s not enough taxation? When the government plunders a third or more of an individual’s income, the fruits of his labor, it’s not enough? Why do we need a government so big, that spends so much, that it is necessary to confiscate such enormous amounts of wealth from the private sector? Shouldn’t taxes be much lower on everybody? Why do we even have an income tax? Do you think it is just a coincidence that the income tax was instituted in 1913, the same year the Federal Reserve Act was passed? Hmm… Is there a reason why a tax on individual income was forbidden under the Constitution written by the Founding Fathers, such that an amendment was required to make its institutionalization in 1913 legal? Hmm…

What are we, a bunch of serfs, that we do not have the rights to the fruits of our own labor? Implicit in the laying of the income tax is the assumption that you do not own your own labor or the fruits thereof, but the state does, and it, in all its great benevolence and generosity, permits you to keep a share of it. But many Americans, instead of rejecting this system of indentured servitude, willingly submit to it and even argue that the government should plunder more wealth from the private sector to be spent by the government, even when the national debt stands at $17.5 trillion (the figure the Treasury department gives for end of fiscal year 2011), not including the unfunded liabilities of the entitlement programs, which increase it past $100 trillion. That’s right, trillion, with a “t”.

The article makes an argument for why the even more wealth should be plundered by government from the private sector:

Educational attainment, which created the American middle class, is no longer rising. The super-elite lavishes unlimited resources on its children, while public schools are starved of funding.

State control over the education system and hence over the vulnerable minds of our children, incidentally, is also one of the ten planks of Communism. Do we really need our kids going through government schools, to be “educated” to believe that the government is right and good, that we need big government to save us all from ourselves and to take and spend our money for us, because those wise bureaucrats know better than we do how to use it, know better than the free market how to efficiently direct scarce resources to the most productive ends? Do we really need our kids to be brought up in a state propaganda system, such that they are taught, like I was, to believe that Lincoln fought the Civil War to free the slaves and all kinds of other nonsense, and where they are never taught about the history of central banking in the U.S., never taught about the First and Second Banks of the United States, never taught about how the Federal Reserve works, never taught about fractional-reserve banking, never taught about how the U.S. has repeatedly overthrown democratically-elected governments in other countries so as to be better able to plunder resources in those countries, too, etc., etc., etc.?

An anecdote on this point: I had a run-in online the other day with a college student. The context of the conversation was that I had observed that President Obama has repeatedly violated his oath of office. He didn’t know what the president’s oath of office was. I don’t mean he couldn’t recite it, I mean he didn’t know what it was. And after I explained it to him, he admitted to me that he didn’t know the U.S. was killing innocent civilians with its drones, that the Executive had launched a war in Libya in violation of the Constitution and international law, and a long list of other things I would like to think (obviously mistakenly) you must be living in a cave not to know about. So much for our educational system.

Anyhow, that’s the first point I wish to make. Point two: What the hell is the government doing with all of its plunder, that we need to raise taxes even more in order to be able to fund public schools? Where the hell has that $17.5 trillion gone? Isn’t that the elephant in the room we need to be talking about and dealing with? Isn’t the solution to just cut wasteful spending elsewhere, rather than feeding the government’s gluttonous habits even more, including its spending on illegal and immoral wars fought on pretexts of lies (which history of wars fought for lies you tend not to learn in public schools, for some inexplicable reason)? I wanted to know how much the government spends on education, so I Googled it and this Nation article came up. It points out that the government’s budget calls for military spending to the tune of $931 billion in 2013, while $64 billion is slated for education. Well, gosh, how about we just end one or two of these wars and use that money on education rather than on bombing people? (Speaking even within the framework that it is the role of government to educate our children, of course.) Why are we even talking about raising taxes to feed the government’s murderous habits? Shouldn’t rational, moral Americans be talking about starving this beast instead of bickering over how we are going to pay for all of this insanity?

Then the cognitive dissonance gets really thick:

The reality is that it is those at the top, particularly the tippy-top, of the economic pyramid who have been most effective at capturing government support — and at getting others to pay for it.

An astute observation as to one of the causes of the disparity of wealth. Too bad the author equates such welfare for the rich with “capitalism”.

Exhibit A is the bipartisan, $700 billion rescue of Wall Street in 2008. Exhibit B is the crony recovery.

Right. So somebody please explain to me how bailing out insolvent banks is “capitalism”. If we had free market capitalism in the U.S., these banks would have been allowed to fail. It goes on:

The second manifestation of crony capitalism is more direct: the tax perks, trade protections and government subsidies that companies and sectors secure for themselves. Corporate pork is a truly bipartisan dish: green energy companies and the health insurers have been winners in this administration, as oil and steel companies were under George W. Bush’s.

So the author here describes this is “crony capitalism”. The adjective helps, but is that author aware of the distinction between “crony capitalism” and free market capitalism? Is she aware the “crony capitalism” she describes is anathema to capitalism, despite the phrase sharing the noun (pretty much an oxymoron, like inventing a phrase like “free-market socialism” or some such absurdity)? And if the author recognizes that this is not free market capitalism, why did she obfuscate that point at the beginning but suggesting our woes were caused by “capitalism”, knowing that everyone would equate the so-called “capitalism” she discusses with free markets?

The article says:

The impulse of the powerful to make themselves even more so should come as no surprise.

You might think here she was going to say something about how the government is too powerful and how we need to shrink it, to stop all the wasteful spending and use that money saved on education, to stop the government politicians from abusing their powers to help out their friends on Wall Street, etc. But you’d be wrong. Next sentence:

Competition and a level playing field are good for us collectively, but they are a hardship for individual businesses.

She goes on to explain what she means, that giant corporations will seek to become a monopoly power, which is only checked by the government which steps in to prevent this from occurring. She cites two examples:

Microsoft attempted to dig its own moat by simply shutting out its competitors, until it was stopped by the courts. Even Apple, a huge beneficiary of the open-platform economy, couldn’t resist trying to impose its own inferior map app on buyers of the iPhone 5.

Where to begin? First of all, competition and a level playing field are what allow good businesses to thrive, and by good businesses, I mean those that are able to provide the best quality goods or services at the lowest cost to meet consumer demand. If one business does that better than another, such that the other goes out of business, should the government step in and break up the good business so that the bad ones who can’t compete on a level playing field don’t disappear? What did Microsoft do to “shut out” its competitors, other than to provide better products for more affordable prices to meet consumer demand? Was Microsoft sending out its thugs to go around and shake down or beat up anyone who dared to try to put a competing product on the market or something? Look at her language about the iPhone 5: Apple “imposed” its map app on consumers. So, what, should the government step in and dictate to Apple that it must use only use Google map apps on its phones? What is she getting at? If people don’t like Apples map app, they don’t have to buy the iPhone 5. It’s not like there aren’t any other choices on the market today. And if Apple’s map app is really so bad that it hurts their sales, they’ll scrap it or fix it.

The truth is that monopolies aren’t a product of the free market. They only ever occur when the government abuses its powers to create them. What examples of monopolies can you think of today? The Federal Reserve is the most obvious example. That’s not a product of the free market, as already noted. What else? How about the credit ratings agencies that were giving subprime mortgage-backed securities AAA ratings right up until the housing bubble burst, precipitating the 2008 financial crisis? Nope, not a product of the free market. They’re a government-created oligopoly. Try to name a single monopoly or oligopoly that gained that status as a result of operating in a free market, as opposed to government intervention in the market to favor one sector of the economy over another or one business over another. If you are of the same mind as the author here, watch the lecture “Monopoly, Competition, and Antitrust” by Thomas J. Dilorenzo. And notice that the corollary of what she is saying is that we need to have an un-level playing field to help businesses, that the government must step in to help this or that business to make it in a competitive market. But wasn’t that precisely the problem with the bailouts she just rightly criticized a moment before? You see what I mean about the cognitive dissonance.

Then there’s this:

Businessmen like to style themselves as the defenders of the free market economy, but as Luigi Zingales, an economist at the University of Chicago Booth School of Business, argued, “Most lobbying is pro-business, in the sense that it promotes the interests of existing businesses, not pro-market in the sense of fostering truly free and open competition.”

That’s exactly right. I was having a conversation with someone just the other day who expressed a view that corporations want to influence government to deregulate so as to allow a free market because it suits their interests and allows the greedy to get rich at the expense of everyone else. I pointed out that corporations don’t like free markets, where they have to compete and offer ever-better products at ever-lower costs to meet consumer demand; they like the government to use its power to intervene in the market, such as to grant them monopoly or oligopoly status, or to subsidize them with taxpayer money, or to bail them out, etc. So, again, why equate our problems with “capitalism” and offer up even more government intervention into the market as the solution? That is insane. Then there is this:

IN the early 19th century, the United States was one of the most egalitarian societies on the planet…. That all changed with industrialization.

Is she kidding? Is she seriously trying to argue that the laboring classes were better off before the industrial revolution? The conclusion of the article is:

It is no accident that in America today the gap between the very rich and everyone else is wider than at any time since the Gilded Age. Now, as then, the titans are seeking an even greater political voice to match their economic power. Now, as then, the inevitable danger is that they will confuse their own self-interest with the common good. The irony of the political rise of the plutocrats is that, like Venice’s oligarchs, they threaten the system that created them.

Remember the premise of this article is that “capitalism contained the seeds of its own destruction”, so she is arguing here that the 1% got rich through capitalism, but now, because of capitalism, there is such an enormous disparity of wealth, with the rich getting richer but the poor getting poorer and the middle class getting wiped out, such that this supposedly capitalist system is coming to an end, to be replaced, presumably, if we follow the bit about Marxism through to its logical conclusion, with socialism. Again, the fallacy is that this situation exists because of capitalism when precisely the opposite is true. It was capitalism that gave rise to the middle class in the U.S. and to remarkable increases in society’s standard of living. That these gains are now being destroyed is not the consequence of having free markets, but of destroying free market capitalism and replacing it with this “crony capitalism”, which isn’t capitalism at all, but is a system of big government intervention in the markets that is essentially of system of socialism for the rich.

The solution is not to throw the baby out with the bath water. It is not to end capitalism by giving the government even more power and taxing Americans to feed this beast even more. It is to allow capitalism, to stop the government intervention in the markets that creates all these problems in the first place.

A few quotes from Frederic Bastiat seem appropriate to end.

“Socialism, like the ancient ideas from which it springs, confuses the distinction between government and society. As a result of this, every time we object to a thing being done by government, the socialists conclude that we object to its being done at all. We disapprove of state education. Then the socialists say that we are opposed to any education. We object to a state religion. Then the socialists say that we want no religion at all. We object to a state-enforced equality. Then they say that we are against equality. And so on, and so on. It is as if the socialists were to accuse us of not wanting persons to eat because we do not want the state to raise grain.”

“But how is this legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.”

“Everyone wants to live at the expense of the state. They forget that the state lives at the expense of everyone.”

“The state is that great fiction by which everyone tries to live at the expense of everyone else.”

If you haven’t yet, read Bastiat’s The Law and The Economics of Freedom. 

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About Jeremy R. Hammond

About Jeremy R. Hammond

I am an independent journalist, political analyst, publisher and editor of Foreign Policy Journal, book author, and writing coach.

My writings empower readers with the knowledge they need to see through state propaganda intended to manufacture their consent for criminal government policies.

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1 Comment

  1. Free Market Capitalist

    I believe that the trouble with today’s capitalism is that there is little honest capital left in it. It has been drained away by quackery, debt and fraud. Real capitalism requires solid capital – money you can trust. But real money disappeared nearly 40 years ago.

    Free Market Capitalist


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