Commenter Big S notes:
It may be an overreach in your opinion, but don’t forget that it was the private companies that asked for it. You guys spend your time extolling the wisdom of the private sector, but they’re the ones who asked for the same bailouts you’re now condemning. Which is it?
And with this, I should shoot down a common misconception amongst non-capitalists. That is to say: most of America. When most people say that they support ‘capitalism,’ including President Obama, what they really mean is that they support a mixed economy: a bit of government here, a bit of corporate welfare there, a bit of “trust-busting” here, a little bailout there…
So what is true capitalism, really? At the risk of Doug Forrester accusing me of being a secret Objectivist, Ayn Rand brilliantly described capitalism in one sentence: it is a system in which men act as traders, rather than as masters and servants. Capitalists are not “pro-big business” in their government policy. They are completely and utterly neutral toward big business. They support businesses succeeding or failing on their merits, without the intervention of the government. No subsidies, no corporate welfare, no protectionism, no bailouts, no “trust-busting,” no censorship, no excessive taxation: the market should be free, not shaped to the interests of one group or another.
To channel Milton Friedman: capitalism and freedom are inexorably linked. One cannot exist without the other. Capitalism is an inherent aspect of freedom: what is freedom, if not the ability to do as you please with your private property? And the reduction of capitalism only leads to more state power, which does not exist in a vacuum.
At the bottom of it all, Karl Marx and capitalists can agree — the word capitalism was coined by Marx, after all — that capitalism is a system in which private property is held as the highest standard. Who owns property? The state, the collective, the tribe? Or free individuals acting as they please with their own abilities and their own property?
Capitalism is not corporatism, it is not “pro-big business” in any broader sense than wanting to allow entrepreneurs to succeed or fail on their own merits, and it is not what gave us the bailouts. Capitalism has very few true defenders left in this country. And we’re not about to be able to defend it unless we can identify what exactly it is that we’re defending. It would help if the proponents of a mixed economy got out of the way and allowed the capitalists to speak with one voice.
—
Alex Knepper can be contacted at apkkib@aol.com
April 9th, 2009 at 11:20 pm
Since I’m singled out in this post, I have to ask the follow up questions. Even though capitalism is not the same as corporatism, aren’t there significant driving forces towards corporatism in a purely capitalist economy, as you define it? How do you prevent the formation of a corporatist system without significant regulatory intervention? What happens when your capitalist system is intertwined with a corporatist one (as it is in this country) – which one takes precedence? I’d really like to hear your views on “trust-busting” (the inverse problem of the bailouts, in many ways), since that’s where a lot of this gets really sticky.
April 9th, 2009 at 11:43 pm
I honestly think anyone who considers themselves a fierce advocate for an unrestrained free market economics ought to read a few chemistry textbooks. The basic principles of the two fields are astoundingly similar, although the equations are different (we chemists actually have equations in a lot of cases!). Now, what you’re doing here is the chemistry equivalent of marveling at the power of the laws of thermodynamics to return the best possible result in your system, in a general sense … which would get you laughed out of any chemistry department at any school. In the lab, we intervene because we know that the final state achieved by our “price mechanism” is not desirable in many cases. Sometimes we must intervene in economies as well to produce the desired result. Now if only we could agree on what that is…
April 9th, 2009 at 11:49 pm
Capitalism is a very broad term.
Prior to the Calvinist faith we had little example of what we now consider capitalism among Europeans. Karl Marx argues that capitalism created the conditions for Protestantism.
I find Max Weber’s thesis a bit more convincing. Calvinism unleashed new culture and then habits that brought what we often consider capitalism.
Max Weber considered Ben Franklin’s writings the culmination of the Protestant ethic, which ethic created the social conditions necessary for the birth of capitalism. Of course Franklin was raised in Calvinist home and grew up in the Calvinist-influenced culture of New England.
Capitalism I believe has to refer to values that allow it just as much as the government policies consistent with it.
April 10th, 2009 at 12:02 am
1) I cannot think of anything in the system I described driving a country toward corporatism. Capitalism is all about voluntarism. We don’t want anything intertwined.
2) We’re not trying to get “the best result,” since free men differ on what that is.
The best result, then, is individual freedom. We don’t want intervention, as capitalists, because we support freedom.
3) Trust-busting is both immoral and impractical.
April 10th, 2009 at 12:41 am
#4
I see you’re making the same mistake that a lot of capitalists make, which is to subscribe to the barrier-free theory of markets. I don’t have the time to go into it tonight, but the efficiency gained via compartmentalization has negative effects on freedom, even if the system is nominally free. Your assumptions include an implicit “altruistic” correction to prevent poisoning of the system, but which is not really there in a totally free market. Thinking about this in a different way, I’ll ask you as question as further food for thought: what
April 10th, 2009 at 12:42 am
That should be: What is the price of freedom?
April 10th, 2009 at 12:45 am
Well, obviously, if you don’t hold freedom as the highest virtue — maybe you hold community as the highest virtue, instead — then you won’t end up being a capitalist. Yes, there are alternatives to freedom.
However, all it does is open up a Pandora’s Box: whose alternative?
Freedom is the only escape hatch.
April 10th, 2009 at 1:24 am
#7
But in a purely capitalist economy, freedom is not the highest virtue – by definition. In fact, “community” (broadly defined) is as important in capitalist systems as individual freedom is, although not in the way you might think.
April 10th, 2009 at 1:30 am
Does that mean that union-busting is also immoral and impractical? Same thing, really.
April 10th, 2009 at 1:36 am
8 – Explain?
9 – Union-busting by the government? Absolutely, if the union operates freely and independently. The government shouldn’t be involved in unions. The status of unions should come about from the status of terms of employment. But yes, it should be up to corporations whether they allow unions to operate. It’s their company: they’re allowed to set their own terms of employment for their workers.
April 10th, 2009 at 1:37 am
If you want to call capitalism as absolutely no government intervention, than capitalism only exists in people’s heads.
April 10th, 2009 at 1:47 am
Referencing Weber and the “elect”, Weber argued that the elect showed their preordained position in Heaven through their hard work and sober lifestyle. Ironically, the “elect” could in theory also develop a sense of being special and that things are preordained to turn out correct and thereby indulge in professionally risky behavior. Of course that is only risky to them if the losses are borne by those who take the risk.
April 10th, 2009 at 1:47 am
Referencing Weber and the “elect”, Weber argued that the elect showed their preordained position in Heaven through their hard work and sober lifestyle. Ironically, the “elect” could in theory also develop a sense of being special (reinforced by a community that shares this viewpoint) and that things are preordained to turn out correct and thereby indulge in professionally risky behavior. Of course that is only risky to them if the losses are borne by those who take the risk.
April 10th, 2009 at 1:49 am
11 – Capitalism is the ideal; we go into political battle with our principles in tact and work for whatever we can get. You always ask for more than what you really want so when the bargaining is driven downwards you end up higher than what you really may have otherwise gotten: it’s a simple rule of business.
April 10th, 2009 at 1:51 am
2, 13 – Yeah, I’m familiar with Weber. I just don’t know enough about that period of history to make any solid judgments on the validity of his thesis.
April 10th, 2009 at 2:01 am
#10
Think about my question in #6. The explanation may be found in the answer to that. I have to call it a night, but I’ll be happy to chime in again when I have more time.
April 10th, 2009 at 2:34 am
Alex,
Seems to me that your concept of capitalism- sans trust busting- can quickly come into conflict with free markets.
So you have no problems with price fixing?
April 10th, 2009 at 2:43 am
17 – Given that all that price fixing does is invite competition into the picture, there’s no reason to think of it as a problem in the first place, but to rephrase your question: do I support the right of free men to sell their products at whatever prices that they choose to? Yes.
April 10th, 2009 at 2:56 am
Alex,
This is where theory breaks down in the real world. A price fixing cartel can EASILY smother any competition in the cradle, particularly if there is any kind of barrier to entry. It would be almost impossible for a startup in a mature industry where the existing providers have created a price fixing cartel, or have divided the market among themselves so as not to compete.
I take it you think there should still effective me one oil company? One telephone company? Somehow I don’t we could get unlimited local and long distance if AT&T hadn’t been broken up.
April 10th, 2009 at 2:57 am
…..should read “Somehow I don’t we could get unlimited local and long distance for $19.95 a month if AT&T hadn’t been broken up.
April 10th, 2009 at 3:04 am
Oligopolies can be just as inefficient and damaging to free markets as socialism.
April 10th, 2009 at 4:11 am
I assume you’re referring to OPEC, which is not an example of capitalism, due to the heavy influence that despotic governments have over it.
The telephone monopoly was propped up the government, so I’m not sure what you’re talking about there.
Look time and time again and you’ll see that lasting monopolies have come from one source: government.
April 10th, 2009 at 6:39 am
I would probably rather refer to capitalism as free markets. People should be reminded that you vote everyday. You vote with your dollars.
If you like something, and want to see it reproduced you vote to have more made by buying it. If you don’t like it, you don’t vote for it. When you start getting the gov’t involved in the decision of what to produce (like it sounds like they will with GM and hybrids), then it is no longer the people deciding what will be produced, but some gov’t employee. Then it is no longer freedom.
I will say, there need to be laws/ethics in place in the markets to promote freedom (I agreed with #3), just as there need to be laws/ethics in place to allow for a truly free society.
April 10th, 2009 at 6:58 am
Great post Alex!!!
April 10th, 2009 at 7:39 am
The government acts as an umpire within true capitalism, preventing force and fraud. Coercion. But anything that is clearly voluntary should exist outside of the bounds of the federal government.
April 10th, 2009 at 7:39 am
Good posting, Alex! I wish more people understood these points. With the passing of Milton Friedman and Ronald Reagan, among others, there is no one on the scene today who can explain the relationship between capitalism, freedom, free markets and freedom of enterprise in a way that is easily understood by the layman.
April 10th, 2009 at 8:03 am
10. Actuallly, whether workers want to join a union should be up to
the employees, not management. The union busting in the 1980s more than
anything else led to the illegal immigration of the 1990s and 2000s.
If every construction site were a closed shop you would not have the shoddy
houses you are now seeing (with molded or chemically toxic drywall).
Capitalism is not about the freedom of the market, but on the control of the
enterprise and how profits are distributed. It need not be corporatist, since sole
proprietorships are be capitalist as well, as are partnerships with non-partner
employees.
Capitalism is managed on a principal agent model, where management is based
on a hierarchical model where conformity and discipline are rewarded. Entrepeneurship
is only encouraged in small doses and is usually confined to top management.
While there may be a free market for recruiting workers, the actual wage
structure is not based on a free market – since the inability to immediately
quit and find a new job functions as a barrier to entry. It is not cost
free to quit ones job. Consequently, workes are usually undercompensated, and
are certainly not compensated for what could be regarded as their share
of the profits. Consequently, the owners of the firm can be said to own
not only the equipment but also the employees – at least to some extent.
Employee-ownership of firms is an attempt to get beyond this problem, however
most such firms do not go the extra step of changing their management structures
to inaugurate workplace democracy while flattening their wage structures, while
linking innovation to higher bonuses rather than higher salaries.
April 10th, 2009 at 8:15 am
27 – Setting aside the dubious illegal immigration connection, do you think that employees should be able to form unions even if their employers don’t want them to?
April 10th, 2009 at 10:40 am
Report: Ethanol raises cost of nutrition programs
http://news.yahoo.com/s/ap/20090410/ap_on_go_ca_st_pe/food_costs_ethanol;_ylt=Ar5vXMKXprAcuTkVJD1Emvp34T0D
April 10th, 2009 at 10:47 am
28 – Alex, that is the point of unions. Employees form them and join them because they feel the company is not taking care of the employee enough. Now the employer has an option…they can sign a contract with the union or they can temporarily close shop and move to another area where the union does not have a stranglehold on the workforce. Are unions good for employees…yes, are they good for profit margin…no. Which is more important? Depends on who you ask…I would guess.
27 – “Employee ownership of firms…” could you explain a little further? Are you saying you are for businesses, small or otherwise, to offer partial employee ownership? If they receive the rewards, do they also receive the risks? Are they going to have to reinvest some of their own money back into the company, if it needs it, to remain viable, are they going to cosign loans or take second mortgages out on their houses to help with weekly payroll? Are they going to contribute to the costs of insurance and legal fees? A person or people who start businesses open themselves up to a plethora of personal risks in the hopes that they can be successful and have a slice of the American dream. Part of this process involves hiring employees to perform a task for pay. Sometimes other benefits may be offered…sometimes not…but most of the time there is an explanation as to which benefits will be given to the employees before the employment is accepted…terms of employment. I apologize if I seem condescending, perhaps I am misunderstanding your post?
I personally believe that a business should be able to operate freely without Government intervention. I subscribe to the basic notion that the Government’s only job is to provide basic necessities for the people, which the people are already paying for via taxes. In the business arena, the Government’s role would be to ensure that workers are working in a safe environment and that consumers aren’t being ripped off.
April 10th, 2009 at 12:04 pm
Unions are not good for the majority of employees either.
April 10th, 2009 at 4:44 pm
Depends on the union and the trade, many unions guarantee a high quality of benefits and a good wage…if that’s not good for the employees then I guess I’m not so sure what is.
April 10th, 2009 at 7:10 pm
Unions improve conditions for some of their members at the expense of others.
And unions are not responsible for the increases in wages in America. They actually hurt it.
April 11th, 2009 at 8:54 am
30. If someone is working for a firm for 15 years and plans to retire there, are they not “fully invested”. While the vast majority of firms are small businesses, the vast majority of people are employed by large firms which are owned by stockholders who do NOT put themselves at risk except for the value of their investment.
Frankly, many firms nowadays have only two assets – their reputation and their employees. They may not even have any patents. They also likely rent their space. It would seem that such firms would be ideal for employee-ownership.
Most sole proprietorships have only one employee – they are most likely one man consulting shops who are actually employed elsewhere and the arrangement is made to shield the hiring firm from liability or to allow retirees to come back to work and still collec a pension.
Employee-ownership is the way to privatize Social Security, with 2/3rds of the investment voting stock in the firm and 1/3 owned by a trust fund of similar firms (with employees having a share in this fund). If an employee-owned firm goes belly up, the employees and retirees are made whole with a payment from the trust fund. The way to privatize the retirement/retired survivors portion of FICA is to direct a percentage of contributions to this scheme. If a firm wishes to make all of its past employees ,retirees and their survivors whole, meaning they give them stock as if the were in the plan their entire tenure – with appreciation for reinvestment – less expected pay-down in retirement – then the employer can opt out of FICA.