I have to tell you all how disappointed I was to not have time to participate in the discussions around the “Capitalism vs. Communism” article last week. Work intervened and I have failed over the last few weeks to maintain that work/life balance thing they way I should. But today I offer article number two around the idea of capitalism and do so with a caveat. I promised a short article that explained where I think capitalism falls short. And that is what I will offer. At the same time, in the comments below, I will try to offer some answers and replies to the comments from the previous article. There were some good points made, and there were also some ridiculous points made. I will attempt to offer what I can to both. So first, A few thoughts from me around where capitalism is falling short.
As we stated last week, and despite some of the folks from the left offering weak arguments against it, the fact remains that capitalism is the best economic system available for growing an economy, increasing wealth, and maintaining as much freedom as possible. That I desire a free market does not in some way detract from that fact. Perhaps a truly entirely free market would not work on the grand scale of a national economy, perhaps it would. But that was not the crux of the argument. The debate was whether capitalism was a better system when compared to communism/socialism/fascism.
So where does capitalism go wrong? After all, it is primarily the system that has gotten us where we are today, despite the fact that the government has interfered massively. And by “where we are today” I am talking about the great position of power and tremendous prosperity of Americans in general as well as the massive corruption, power, and control that exist in the modern American structure. If capitalism is so great, why are we “here”? The answer to that, in my opinion, is that we lost our moral base. We stepped away from liberty and freedom, allowing emotion of the moment and the manipulation of people to erode a sound moral base.
The first aspect of where capitalism went wrong is that we accepted the concept that the pursuit of money trumps all else. That is an awfully broad statement, I know. But we moved completely away from demanding that our economic system be used in the proper way, for the proper reasons, and with the proper results. Let me offer some thoughts to clarify.
Charlie loves to bring up the $2.4 million an hour guy (forgetting that some freakish anomaly is not a reason to punish the other 300 million Americans). While he is absolutely wrong to use it as an impetus for change, he is right that it points to a problem in our moral structure to accept this type of thinking. Wall Street as it exists today is a perversion of the concept of a morally based capitalistic society. I use Wall Street loosely because there are some aspects of it that this does not apply to. The underlying thought I am pursuing here is this: The question for me is not whether someone has the “right” to make $2.4 million an hour. I most assuredly believe that they do. However, the means that are used to gain that wealth are subject to intense scrutiny.
What a major part of Wall Street has become is little more than the manipulation of money and capital. A vast amount of “government allowed” transactions are meant to do little else other than manipulate wealth. A man who does little more than “play the market” in order to create wealth from nothing more than transaction trickery is not contributing to society in some way and most assuredly is pursuing money rather than pursuing growth or advancement. This should not be accepted in a moral society. It goes against, or undermines, the spirit of what capitalism is intended to accomplish. Much like the blatantly destructive activities of the Federal Reserve, the man who manipulates the market in this way is creating money from nothing.
The wealth was not generated by the production of a good. It was not generated as a result of the work of someone at all. It was generated by manipulating the system, trading this piece of paper for that one. It is, essentially, false productivity. The wealth appeared out of thin air, and thus is fragile and fleeting. Where Charlie falls down in using this example is that this wasn’t done on the back of the worker. It wasn’t done on the back of anyone. It was done through the manipulation of pieces of paper to show wealth that is not backed up by anything other than promises on a different piece of paper. This is not beneficial for society, not beneficial for the market, and not beneficial for any other man than the one who did the manipulating.
Where Charlie and I differ in this situation (and you can correct me if I am wrong CS, I am not trying to misrepresent you), is that Charlie is focused on the action taken by the man after he earns it, while I am focused on HOW he earned it. I believe that Charlie would be absolutely fine with a man making $2.4 Million an hour if that man turned around and gave all of it to feeding the poor. I, on the other hand, am not OK with it because it isn’t real wealth. It goes against the concepts of supply, demand, productivity, and price that are fundamental to making the market work. Meanwhile, BF supports it because it is in the interest of freedom to allow a free man to earn whatever another free man wants to pay him (you can also correct me if I am wrong BF, I don’t want to misrepresent you). But in this case I don’t think the free men argument applies.
Why does this type of activity cause capitalism to fail? Because by its very nature the activity defies the laws of the market. Smarter economists than I have attempted to help people understand that the forces of the market are immutable. You can attempt to “control” them if you like, but you will fail. Demand will still increase when prices are low. Prices will rise when supply is low. There is no way around these irrevocable truths. Capitalism at its heart is meant to use these market forces in the right way. When we allow people to manipulate them, it distorts the market. And this is a key: Regardless of what economic or political system you deem as correct or moral or best serving, the market will correct for whatever distortions you cause whether you like it or not.
Yes, a government, especially a powerful one like ours, can manipulate the market effectively for a very long time. But the only possible result from doing so is that the distortion becomes greater, and thus the resulting correction will also become greater. This is a simple fact that BF has been trying to get people to understand for as long as he has been here. It isn’t about what is moral, what is right, or what is desirable. It is about what simply “is”, whether we like it or we don’t. There is nothing that can stop this from being true. I think that BF sometimes turns people away from this truth because he refers to it as “the universe,” and that makes some of you think he is crazy. But his point should still stand. Call it the universe, call it the big guy in the sky, call it the invisible hand, call it whatever you like. The point is that there are ways that things WILL occur in the world, laws if you will. You can’t stop gravity from naturally being gravity no matter what you believe. And you cannot stop market forces from behaving like market forces.
Politicians today continue to strip rights from the people because each generation desperately attempts to make sure that it is the next generation that has to deal with the correction rather than their own. The pace of this demise of our country quickens over time because the more required to avoid the correction, the more desperate the people become and the more willing they are to sacrifice freedom for security. But I digress…
The point that I think needs to be understood as we relate the actions of these men taking these actions is that they would not be accepted by “the people” as legitimate manipulation if it weren’t for the fact that government has deemed it legitimate. I think this gets lost on a lot of people. BF’s point is often that you cannot stop bad men from being bad men. But you can stop making their bad actions legitimate and legal by the decree of government. And for the record, Charlie, this doesn’t make me a “BF sycophant.” It merely is me attempting to better explain what I believe his position is. Because in this arena, I do believe that he is dead on, not because I worship him, but because he is right. Use agreement with him as a belittlement tool all you like, but I would prefer you instead made some attempt to prove his point wrong.
Capitalism began to falter in practice when we lost our moral way and began accepting that it is OK to crave wealth just for the sake of creating wealth. It was a small step in the sequence, but it was by far the most critical one. One day we accepted that it was OK to create wealth to further industry or to grow the economy. Then we took the fatal step of accepting that it was OK to create wealth simply to create wealth. And that led us to the point where we are today. Wall Street out of control, banks operating on the fractional reserve system, the destruction of the gold standard (or any actual value based standard).
We no longer, as a society, remain steadfast in the belief that wealth must have value to back it up, which is why we see the collapse of the US dollar as possible. When it stopped being back by anything of value, we stopped having the ability for it to retain its value no matter what. When you create wealth via magic, you also create the ability for that wealth to disappear just as magically.
So let’s have at it. Between this article and my comments below I am sure it will be interesting. There will be no article published tomorrow morning so this thread gets a two day stint.