And what is the evidence of this failure? It is everywhere. Household income continues to fall all over the developed world. Unemployment is persistent, and to the extent that it is being fixed, it is by dramatic reductions in living standards, one paycheck at a time. Debt is egregious. Young people face terrible prospects. Complaints about inequality resonate in this environment not because the financial sector has bred such paper wealth, but because life is such a struggle for everyone else.

All of this begs the question: What exactly is this “system”? Our times are constantly being compared with the Great Depression, and plenty of people are hoping for an analogous ideological shift toward ever more state control of economic life. J.M. Keynes urged the destruction of the gold standard and the “end of laissez-faire.” Strongmen all over the world complied.

But back then, it was easier to bamboozle the public into believing that capitalism was the source of the problem and that the new scientific managers of the state machinery would restore prosperity. The Jazz Age was surely a time of free markets, was it not? Not entirely — there was the important matter of Prohibition as well as the central bank and its capacity to blow bubbles, such as the one that burst in 1929. That message did not stick, because only a handful of people truly understood, and they didn’t have the microphone. So the strongmen had a field day.

But today? The state machinery is the lumbering leviathan that leaves no part of life untouched. It taxes and regulates all things and uses the central bank as its unlimited credit card to pass out welfare to all classes and maintain a worldwide empire rooted in military violence and executive privilege. It takes chutzpah to claim that this has anything to do with a capitalist crisis. This is a crisis of a system of state-based social and economic management

This might explain why the socialist left has yet to gain much traction in the post-2008 environment. Does any living soul doubt the role of the government and its friends in generating the housing and financial bubble? It has been demonstrated 10,000 times, and this information is available to one and all in a world of digital information delivery. We are no longer hunkered down by the radio, waiting on a homily from the high priest in Washington. This guy no longer controls what we are allowed to read and think.

Writing as part of the series, former Clinton Treasury Secretary Lawrence Summers points out that a recent survey demonstrated that “among the U.S. population as a whole, 50% had a positive opinion of capitalism while 40% did not.” I’m not sure what the take-away from that survey really is, however, because it presumes a shared understanding of what “capitalism” really is. Is it a system of privileged protection for the financial elite at the expense of everyone else or it is a synonym for the free economy? These are two very different things.

What is especially striking about Summers’ article is his admission that Keynesian-style solutions seem pointless in this environment. He writes that, concerning the crisis, “there is no obvious solution at hand.” He further points out that some of the largest existing social anxieties are focused on three sectors in particular: education, health care and old-age provision. All three are run or lorded over by the state. He concludes with an honest admission: “It is not so much the most-capitalist parts of the contemporary economy but the least…that are in most need of reinvention.”

Another contribution to the series comes from Gideon Rachman. He presents a fascinating typology of the four ideological divides of our time. He says that public and intellectual opinion can be divided as follows: 1) right-wing populist, 2) social democrat, 3) Hayekian libertarian and 4) anti-capitalist socialist. This sounds right to me.

The right-wing populist camp (alive in the U.S. and Europe) is the warmongering contingent that opposes immigration, wants war on Islam, favors restrictions on civil liberties, obsesses over demographics, clamors for its own kind of income distribution and longs for a strongman to arrive to impose some kind of order. This penchant has a long history in politics, probably dating to the ancient world.

The social-democratic tendency is found in the Obama constituency, and it wants more of the same that got us into this mess: Keynesian fiscal management, union privileges, an ever-larger public sector, piecemeal planning and regulation, central bank-backed stimulus, democracy-spreading imperialism or some random combination of this list. This is the party in power here, there and nearly everywhere.

The anti-capitalist/socialist element is obvious enough. It consists of a strange coalition of intellectuals and down-and-out young people leading the Occupy movement, together with media idiots always looking for a splashy and simple story to tell. It is a ridiculously simple-minded view of the world that all would be well if we could just take the income from the tiny group at the top and spread it around the population. To them, the market-based social order is little more than a scam to rob and loot the iPhone-carrying workers and peasants and benefit the financial elites.

What’s most interesting is the emergence of what Rachman calls the Hayekian-libertarian tendency, represented most conspicuously by Ron Paul but actually encompassing a global intellectual and popular movement that sees through the fog of propaganda. Here we find total coherence: both realistic explanations of our current plight and clear answers for what to do about it.

Of the four groups, this is the only group that sees the importance of the issue of monetary reform. Keynes saw back in the 1930s that the most-important step to modifying the market system in favor of state management was the destruction of the gold standard. He hated it and dedicated himself to convincing all governments to give it up in favor of paper money. Without this step, there was no hope for Keynesian policies.

In a similar way, the libertarians recognize that the most-important step toward restoring economic vitality and a free market is to repair the quality of money. The gold standard would be wonderful but unlikely, since its reinstitution requires enlightened statesman and bankers who do the right thing. A more-viable path toward the restoration of sound money is through total monetary freedom: Let the market reinvent sound money in our time through the free use of any and all monetary instruments.

What’s critical is that the libertarians have put the money issue on the map. We are living under a form of monetary prohibitionism today, forbidden to use any means of payment other than that maintained by the state. And it is not unlike the alcohol prohibition of old. It redistributes wealth, steers gains to the unscrupulous, strengthens the state and promotes various forms of criminality.

In introducing this series, John Plender writes, “F. Scott Fitzgerald chronicled the moral vacuity of Jazz Age capitalism in The Great Gatsby.” Nonsense. Fitzgerald nowhere slams capitalism in his great novel. Jay Gatsby made his fortune as a bootlegger, a profession that would not have existed in absence of state Prohibition.

Our own age is filled with Gatsbys, people who have done well for themselves by manipulating a failed system. It is the system that must change, not the right to do well.

Regards,

Jeffrey Tucker

Capitalism or Money in Crisis? was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Both Marx and Mises agree that what we call the middle class was a new creation in the history of the world, and it was brought about by capitalism. The caste chasms that once persisted between the peasants and the lords, those privileged by title and land grants and those fated to serve them, were melted away by the advent of commercial society. Universal possession of property and money replaced servitude and barter, and exchange relationships of people’s own choosing gradually replaced the required lifetime associations of birth and happenstance. The distinguishing mark of this new middle class was the prospect of social advance through rising prosperity. Fluid classes replaced fixed castes.

This was the world that serves as the backdrop to the tales of the Brothers Grimm.

A great example of this is the very short story called “The Elves and the Shoemaker.” A cobbler and his wife worked very hard at their craft, making shoes all day. But leather was expensive, and no matter how hard they worked, they could not put their business in the black. They were selling some shoes, but they couldn’t make enough fast enough. They were getting poorer, rather than richer.

One night, the shoemaker left his cut leather out on a table and went to bed. The next morning, a fantastic pair of shoes made out of that leather awaited him. The craftsmanship was impeccable. They were of the finest style. He was able to charge a very high price to a customer who was very impressed by them. This same series of events repeated themselves again the next day and the next. Some months later, the shoemaker and his wife were financially secure and part of the rising middle class. All their financial worries were gone, and they were comfortable and happy.

At this point, the shoemaker said to his wife: “I should like to sit up and watch tonight, that we may see who it is that comes and does my work for me.” The wife agreed, and they stayed up to watch what was happening in the night.

Now, to be sure, this turn of events strikes me as rather strange. One might think that curiosity would have caused them to examine this long before. Why didn’t they stay up after the second or third time that leather had become shoes? Why did they wait so long to investigate the cause of their prosperity?

In any case, they did stay up and look, and they found two naked elves there working away, turning scraps of leather into fine shoes. The wife thoughtfully decided to return the favor and make them tiny little clothes. When the elves found the clothes, they put them on and ran away with great delight. They never returned, but the story assures us that this was just fine because the shoe business stayed in the black. The shoemaker and his wife lived a long and prosperous life.

We can see in this one story an archetype of what was then a new type of middle-class success story in the framework of a commercial society. The couple went from poverty to wealth in relatively short order. This came about not because of favors from the king or the discovery of gold, much less from stealing or piracy, but purely by virtue of work and commerce, combined with the assistance of some benefactors in the night whose favors they never sought, but nonetheless came to deeply appreciate.

Apply this story in our times: We are all in the position of poor shoemakers with benefactors. In a state of nature, we would be struggling for survival as most all of humanity did from the beginning of recorded history until the late Middle Ages, when the first lights of capitalism as we know it began to appear on the horizon. Over the next several hundred years, and especially during the 19th century, life itself was transformed. The state of nature was vanquished, and the world completely re-made in the service of human well-being.

As William Bernstein summarizes the situation: “Beginning about A.D. 100, there had been improvement in human well-being, but it was so slow and unreliable that it was not noticeable during the average person’s 25-year life span. Then, not long after 1820, prosperity began flowing in an ever-increasing torrent; with each successive generation, the life of the son became observably more comfortable, informed and predictable than that of the father.”

We were born into a world of amazing prosperity that our generation did not create. We have the expectation of living to old age, but this is completely new in the sweep of history, an expectation we can only have had since about 1950. The shift in population reflects that dramatic change, too. There were most probably 250 million people alive 2,000 years ago, and it took until 1800 for the 1 billion mark to be reached. One hundred and twenty years later, that was doubled. Three billion people lived on the planet by 1960, and there are 7 billion today. Charting this out, you gain a picture of a world of stagnation and stasis from the beginning of recorded history until the Industrial Revolution, when life as we know it today was first experienced by humankind.

If we are shoemakers in this story, the prosperous world in which we live — the world that grants us smartphones, health care, gasoline to power our cars and the ability to communicate in real-time video with any living soul on the planet with the click of a button — might be regarded as the elves that came in the night to turn our leather into a marketable product. Most of us never did anything of our own merit to cause us to benefit from this amazing world. At our birth, we woke up in the morning and found a finished and beautiful pair of shoes given unto us.

Earlier, I said that it strikes me as strange that the shoemaker and his wife waited so long to become curious about who or what was nocturnally turning their leather into shoes. How could they have gone for months without wanting to know what was causing their poverty to turn to riches? How could they have treated the magic in their shop as something helpful but rather normal, and only decided to look into the cause as an afterthought?

Yet this is how most everyone behaves in the world today. We are surrounded by bounty in this man-made world, a world completely unlike anything that has existed in 99.9% of the rest of the history of the world. And how very few bother to investigate the causes! We take it all for granted.

We use our technology, eat foods from all over the world available for sale a few blocks from our home, hop on planes that sweep us through the air to any destination on the planet, instantly communicate with anyone anywhere and have the expectation of living to the age of 80 and beyond, yet we are remarkably indifferent and incurious about what forces operate within this world to have turned the cruel state of nature into an earthy paradise.

Actually, the situation is worse than that. Many are openly hostile to the institutions and ideas that have given rise to our age of plenty. We’ve all seen the protests on television in which mobs of iPhone-carrying young people are raising their fists in anger against commercial society, capitalism and capital accumulation and demand just the type of controls, expropriation and regimentation that are guaranteed to drive us back in time to the restoration of castes, poverty and shortened lives. They are plotting to kill the elves.

In the fairy tale, there are only two elves. In the real world, scholars have discerned that there are actually six, and they go by the following names…

First, there is private property, without which there can be no control of the world around us. It would not be necessary if there were a superabundance of all things, but the reality of scarcity means that exclusive ownership is the first condition that permits us to improve the world. Collective ownership is a meaningless phrase as it pertains to scarce resources.

Second, there is exchange. So long as it is voluntary, all exchange takes place with the expectation of mutual benefit. Exchange is a step beyond gift giving because the lives of both parties are made better off by the acquisition of something new. Exchange is what makes possible the formation of exchange ratios and, in a money economy, the development of the balance sheet for calculation profit and loss. The is the foundation of economic rationality.

Third, there is the division of labor that permits us all to benefit from cooperating with one another toward mutual enrichment. This is about more than dividing up productive tasks. It is about integrating everyone into the great project of building civilization. Even the master of all talents and skills can benefit by cooperating with the least skilled among us. The discovery of this reality is the beginning of true enlightenment. It means the replacement of war with trade and the replacement of exploitation with cooperation.

Fourth, there is risk-taking entrepreneurship that bravely pulls back the veil of uncertainty that hides the future from us and takes a step into the future to bring us every manner of material progress. Uncertainty over the future is a reality that binds all of humanity; entrepreneurs are those who do not fear this condition, but rather see this as an opportunity for improving the lives of others at a profit.

Fifth, there is capital accumulation, the amassing of goods that are produced not for consumption, but for the production of other goods. Capital is what makes possible what F.A. Hayek calls the “extended order,” that intertemporal machinery that stabilizes the events of life over time. Capital is what makes planning possible. It makes the hiring of large workforces possible. It allows investors to plan for and build a bright future.

The sixth elf is not an institution, but a state of mind. It is the desire for a better life and the belief that it can happen if we take the right steps. It is the belief in the possibility of progress. If we lose this, we lose everything. Even if all the other conditions are in place, without the intellectual and spiritual commitment to climb higher and higher out of the state of nature, we will slip further and further into the abyss. This state of mind is the essence of what came to define the Western mind, and which has now spread to the entire world.

Together, these elves constitute a team with a name, and that name is capitalism. If you don’t like that name, you can call it something else: the free market, free enterprise, the free society, liberalism or you can make up your own. What matters is not the team name but the constituent parts that make up that team.

The study of economics is much like the decision of the shoemaking couple that stayed up overnight to find out the cause of their good fortune. They discovered these elves and found that they had no clothes. They decided to make clothes for them as a reward for their service. So too should we clothe the institutions that made our world beautiful in order to protect them against the elements and their enemies. And even after they scurry off into the night, we must never lose consciousness of what they have done for us.

Regards,

Jeffrey Tucker

The Elves of Capitalism was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

For this reason, the news that American Airlines has filed for bankruptcy — an actual large company that is finally throwing in the towel — comes like a blast from the past of the way things used to work (remember the failure of Lehman?). The tide receded, and nothing could stop it.

Not that the company didn’t try. But its capacity to adapt to new realities was hindered by its own hectoring unions, rising fuel prices, mounting debt and a blizzard of mandates and restrictions imposed by federal regulators. Whatever the reason, the company could no longer deny reality, as much its stockholders, managers and even paid-for politicians would like it to be otherwise.

The blessed power of economic law! It operates without anyone pulling levers. It imposes itself, even against the determined will of the world’s princes and potentates. It is what keeps the world honest and truthful about what is and is not possible. It keeps the material world on track, so that fallible people cannot do stupid things forever. It’s no wonder the political class hates it.

As goes American Airlines, so goes the whole of Europe. A credit crunch not unlike what the U.S. faced in 2008 is now threatening the Continent. Banks are looking at their own portfolios of toxic government debt, and they are concerned about their own liquidity going forward. They have begun calling in loans and cutting credit lines, even from big players. This is starting to send the first signs of panic through the land. Given the U.S. precedent here, all stemming from the housing crisis, the problems can only get worse.

Think back to those days of 2008, when the reality began to surface, housing prices went into tailspin and Lehman fell. We had not seen a financial hysteria, on this level, in our lifetimes. The political class, the banking class and the financial pundit class all seemed to agree that if we let the credit crunch continue, the next step could be mass starvation.

Just look at the boats filled with goods that can’t even leave harbor because of cut credit lines! Look at Iceland, with its empty grocery-store shelves! Imagine a future in which people might have to actually save money to buy things, rather than relying on the fictitious prosperity as created by the fiat-money machine!

We could have gone one of two directions. We could have recognized that the failure of Lehman represented a reassertion of reality. We could have let the deleveraging continue, so that the signs of false prosperity could be washed from the system. We could have let housing prices fall to their market level, and let the same market have its way with banks and financial institutions that had built their houses on the sand of bad debt, rather than the hard rock of real savings.

But that is not what we did. The addiction to credit had been permitted to permeate too deeply, and hardly anyone could even imagine a world in detox. One in prosperity was rebuilt on real things and not illusions. So while even President Obama admitted the sheer size and scale of the financial bubble, no one in power had the guts to sit back and let the deleveraging take its toll. Had we done that, say many economists, we would already be back on the road to building a reality-based civilization.

Instead, what did we see? Many trillions in real resources were sucked out of the the private economy and dumped onto companies that should have but did not enter bankruptcy. Interest rates were driven down to zero and negative levels, a move designed to inspire borrowing but which only ended up punishing savings and guaranteeing that banks could no longer make a profit from its lending operations. (The grim details are all reported here.)

Three years later, what good did it do? The latest news on housing is rather devastating. Prices are still falling. Year-to-year unadjusted September prices declined 3.3% for the 10 major markets. The 20-city index dropped 3.6%, to levels not seen since 2003. Some commentators tried to find a silver lining, noting that the pace of falling prices has actually slowed.

Let’s just admit something: This is one of the most gigantic failures of Keynesian-style economic policy in human history. The central planners started with the theory that the whole mess was caused by falling housing prices, so clearly the fix was to bring them back up again. They pulled out every contraption in the grab bag of tricks but nothing worked. And why? It turns out that prices are determined by agreement between buyer and seller. The planners have a lot of power but not yet the ability to tap into our brains and force us to do stupid things like buy and sell at a loss.

Every new report on housing prices is like a stern rebuke to the Fed, the Treasury Department, to Congress and to two successive presidential administrations. There is nothing wrong with protesting their policies and lobbying against them, but in the end, nothing speaks as loudly and plainly to their failure than the dazzling and bracing forces of the price system and the balance sheet. This is where we find the undisputed speaker of truth in a world of lies.

If they had to do it again, would the establishment react differently? Probably not, because in the end, it really isn’t about creating or protecting the conditions of prosperity for the rest of us. It is about protecting their own power and the profits of their friends. We will soon see the whole scenario repeated against throughout Europe: hysteria followed by folly followed by failure.

This is why the bankruptcy of American is really an occasion to celebrate, not because a once-great company was taken down by stultifying regulations, union demands or poor management; rather, it is a victory for the forces of supply and demand, which, contrary to the claims of dictators from time immemorial, are the best friends that the common man ever had. It’s proof that the politicians only pretend to rule the world.

Regards,

Jeffrey Tucker

Deleverage the World was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Let’s just start with the obvious thing: the food. It is, of course, wonderful and full of varied textures: crunchy shells, robust meat, cold and fresh lettuce, stringy cheese, and all the fatty stuff that we love because it both satisfies and gives us energy. It arrives quickly, and its ready to eat, mostly with your hands, which is really how we all want to eat.

The menu itself is an absolute blast. Should we get a dozen tacos, mix in a few steak burritos, throw in an enchirito or two, or just fill up on nachos? And what’s the deal with these prices? For $2 I can get just about any standard menu item. For $10 I can walk away with a case full for great stuff to share, or, better yet, munch on from breakfast through to the midnight snack.

But there’s more going on than just fun food. The company obviously puts a great deal of thought into the ethos of the restaurants themselves. The decor gives us things to look at that we don’t see anywhere else. The colors are all those we associate with the Southwest, but not in a conventional way. The shapes are geometric and modern, with a daring flare that delights the eye and fires up the imagination.

The details around the place add to the sense of adventure, but you don’t take note of them individually unless you are looking closely. The backs of the chairs all have a bell shape cut out in the steel. The lighting is not mainly in the ceiling but rather comes from orange hanging glass lamps in the shape of cones, and I was trying to think where I had seen this before. Is it like the knave of a chapel in a monastery in a Spanish mission territory? Maybe that’s it. I’m unsure but it conjures up something different.

Hold on here. Perhaps you have already realized this and I’m slow on the take, but the whole Taco Bell experience is suggestive of that Spanish mission sensibility. That’s why the buildings are shaped the way they are. And, obviously, that’s the whole meaning behind the bell, and why it adorns the front entrance of the place. It’s a church bell! It taps into something deep and lasting in our cultural sensibilities, something that shaped our ancestors and their communities, and presents it all anew in our times.

Have you seen the paintings on the wall? They are very peculiar and aggressive in their use of color and shape, kind of like the iconography of Latin America. Most seem to have some walking man or robot, abstractly designed but with sharp edges, and the words “Taco” and “Bell” appear somewhere on them. They are unframed, such as you might see in a gallery. I want to meet the person who put these together. He or she has talent, for sure, and I want to congratulate this person for using that talent in the service of the public good.

Next time you are there, take a close look at the gorgeous photography of the dishes themselves. There’s never been a prettier taco, never been a burrito that looks more exciting, much less a plate of nachos that seems as if every chip is practically dancing with joy at the prospect of being eaten.

Each image features a splashy use of color, depth, and action. How do you make food look this way? It’s must be a rare skill. I could take pictures of tacos with my iPhone all day and never get one to look presentable by comparison.

Now, the usual response is to point out that the food doesn’t actually look this way once it arrives on your plate. No kidding! But does anyone really care? Not really. The point of the images is to get you in the mood to eat the thing, rev you up into the spirit of the moment, create that deep sense of longing for the real deal.

You don’t feel a bit of disappointment when the food doesn’t look like the picture, and why? Because you can’t eat a picture. And the food is right there in front of you ready to be eaten. Part of Taco Bell’s secret must be that it makes its images so ridiculously unrealistic that you sound like an idiot to point it out.

This restaurant came into existence in 1946 and really caught its stride in the 1990s. It’s another reason we are all fortunate to live in our times, right now.

Go ahead and dismiss that statement as hyperbole if you want to. But I seriously submit to you if you had dropped this restaurant on any spot on the planet before about 1940, to say nothing of 1200 or 1000BC, all the people would have been in profound awe and regarded it as a sector of heaven that had somehow dropped from the sky. There weren’t enough travelers and traders alive to make it possible much less affordable.

This is the free market at work. It has gathered corn, flour, beans, tomatoes, meat, and fresh lettuce from all the ends of the earth, combined it with advanced kitchen technology, added experienced management, brilliant entrepreneurship, and a service ethic to give us something more wonderful than that the teller of tales of yesteryear could have ever dreamed up in his wildest imaginings.

It’s inconceivable to me that a small group of parasitic activists could have targeted this place for destruction. But that’s what they did a few year’s ago with the lawsuit against Taco Bell. They claimed that Taco Bell was not serving 100% beef in its tacos. Of course the organized left rallied around this lawsuit, a fact which confuses me because you would think that they would be glad that the company doesn’t serve 100% beef. They hate the cow for its demand for vast pasture land on which to graze and even its biological functioning which alleges adds to the “problem” of climate change.

The whole hysteria was like a joke. Of course Taco Bell adds stuff to its beef to make the final product. So do you when you make tacos at home. At least I hope so. You drain the fat and add spices and flour and other things to turn it into the right texture for eating. I don’t see the big deal. But the activists were so desperate to destroy this place that they acted like this company, which is all about service, was somehow guilty of mass fraud.

The news media jumped on the campaign in hopes of giving Taco Bell a bad name. The response by the company was brilliant. It added a whole new series of menu items not based on hamburger but on sliced up steak. These are the most expensive items on the menu. So now you go in with the intention of spending $3 and instead spend $7 or more! Good for Taco Bell.

Even better, after the dopes withdrew their silly lawsuit, Taco Bell launched a nationwide advertising campaign with the slogan: “Would it kill you to say you’re sorry?”

Fantastic!

The genius of capitalism is that it always ends up outwitting its opponents, whether they are central planners and regulators or crazed activists armed with lawsuits. But capitalism is not just an anonymous, nameless, faceless force operating in the universe. It is flesh, blood, and brains dedicated to serving humanity at a profit and always through voluntary means. The owners and workers at every one of its 5,800 restaurants deserve our admiration and thanks.

Regards,

Jeffrey Tucker

How We Adore Taco Bell was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

The television monitors are inescapable these days. We’re not sure when it happened, but there’s hardly a corner of the waiting area to hide from them. At the airports, they’re all tuned to the same station. We believe it’s called the Talking Head Channel (THC). We can’t be sure. It’s been years since we’ve owned a television, and we haven’t kept up on the offerings.

What caught our attention, however, was footage of Peter Schiff among the Occupy Wall Street protesters. He was holding a microphone and a sign that said, “I’m the 1%. Let’s talk.”

And talk they did. There was a lot of shouting from the people on the street about “paying fair shares.” Mr. Schiff held up admirably, making his case for the entrepreneur.

After that, we were treated to a debate between Schiff and Dr. Cornel West, moderated (sort of) by Anderson Cooper. The folks at The Daily Bell summed it up nicely:

“Libertarian financial tycoon Peter Schiff has done the free market yet another service by blasting socialist/communist Princeton professor Cornel West virtually into the stratosphere with a brief debate moderated by CNN’s Anderson Cooper on his ’360′ program.

“Dr. West, a leading light of the progressive movement — someone who has worked for the most prestigious universities in the world — proved on-air that he didn’t know the first thing about economic history and that his much-vaunted beliefs (endlessly quoted by the media) are based not on faulty analysis, but simply on ignorance.

“This cannot be denied. It is on video for anyone to see. One example is West’s astoundingly ignorant claim that 1930s depression in America was, basically, the result of the 1920s rampant capitalist speculation and greed.

“Schiff immediately attempts to rectify Dr. West’s misunderstanding by informing him that the 1929 stock market crash was caused by the newly formed Federal Reserve’s expansion of the money supply in the 1920s. He doesn’t bother to tell West that this expansion was, in fact, both stealthy and criminal, and that FDR ended up shutting down the banks in the 1930s to ensure that people didn’t try to exchange their phony, overprinted dollars for the Fed’s nonexistent gold.

“West denies it, of course. He, apparently, musters the most cogent argument he can; it goes something like this: ‘No, no, no…Brother Peter. No, no, no…’

“West’s ignorance is breathtaking and further evidence that the Internet Reformation is beginning to penetrate the last bastion of the Anglosphere power elite’s defenses — its brainwashed progressive allies who call for yet more government, more regulations, more taxes, without knowing even the rudimentary elements of real economics, let alone economic history.”

It also sounded very familiar, like the debates I’d had with my own father (who wore an Afro for two decades and resembled Dr. West, to boot)…and one that we carry on here at the Whiskey Bar.

Mr. Schiff, of course, championed free-market capitalism. Dr. West went on about necessary government protections and the failure of a completely free market. Bank accounts, for example.

To this, Schiff replied that legislation like Glass-Steagall was only “necessary” after the government got into the business of guaranteeing bank accounts. After FDIC insurance, banks were free to take more risks with the money on deposit. One extra-market protection led to distortions that required yet another extra-market fix.

Every nonmarket action — every application of political force or coercion — has a knockoff effect somewhere down the line. Often, it’s the opposite of the intended consequence.

A guarantee not provided by market mechanisms tends to create a moral hazard. Just as government-funded welfare, government-funded money for unwed mothers and their children and unemployment benefits, actually, all create more poverty, fatherless households and people willing to stay out of work longer. This is why we often accuse government of propagating the problems it purports to solve.

We don’t dare compare ourselves to the impressive Mr. Schiff, but today, we stand like a pygmy against our own intellectual, market-blaming giant…

In a recent article, Nouriel Roubini writes:

“The result is that free markets don’t generate enough final demand. In the U.S., for example, slashing labor costs has sharply reduced the share of labor income in GDP. With credit exhausted, the effects on aggregate demand of decades of redistribution of income and wealth — – from labor to capital, from wages to profits, from poor to rich and from households to corporate firms — – have become severe, owing to the lower marginal propensity of firms/capital owners/rich households to spend.

“The problem is not new. Karl Marx oversold socialism, but he was right in claiming that globalization, unfettered financial capitalism and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct. As he argued, unregulated capitalism can lead to regular bouts of overcapacity, underconsumption and the recurrence of destructive financial crises, fueled by credit bubbles and asset-price booms and busts.

“Even before the Great Depression, Europe’s enlightened ‘bourgeois’ classes recognized that, to avoid revolution, workers’ rights needed to be protected, wage and labor conditions improved and a welfare state created to redistribute wealth and finance public goods — education, health care and a social safety net. The push toward a modern welfare state accelerated after the Great Depression, when the state took on the responsibility for macroeconomic stabilization — a role that required the maintenance of a large middle class, by widening the provision of public goods through progressive taxation of incomes and wealth and fostering economic opportunity for all.

“Thus, the rise of the social-welfare state was a response (often of market-oriented liberal democracies) to the threat of popular revolutions, socialism and communism as the frequency and severity of economic and financial crises increased. Three decades of relative social and economic stability then ensued, from the late 1940s until the mid-1970s, a period when inequality fell sharply and median incomes grew rapidly.

“Some of the lessons about the need for prudential regulation of the financial system were lost in the Reagan-Thatcher era, when the appetite for massive deregulation was created, in part, by the flaws in Europe’s social-welfare model. Those flaws were reflected in yawning fiscal deficits, regulatory overkill and a lack of economic dynamism that led to sclerotic growth then and the eurozone’s sovereign debt crisis now.

“But the laissez-faire Anglo-Saxon model has also now failed miserably. To stabilize market-oriented economies requires a return to the right balance between markets and provision of public goods. That means moving away from both the Anglo-Saxon model of unregulated markets and the continental European model of deficit-driven welfare states. Even an alternative ‘Asian’ growth model — if there really is one — has not prevented a rise in inequality in China, India and elsewhere.

“Any economic model that does not properly address inequality will, eventually, face a crisis of legitimacy. Unless the relative economic roles of the market and the state are rebalanced, the protests of 2011 will become more severe, with social and political instability, eventually, harming long-term economic growth and welfare.

“Nouriel Roubini”

Roubini seems to be arguing that the welfare state, as funded by progressive taxation, was a necessary gift to quell the middle class against the “natural” widening of wealth disparity that results from laissez-faire free markets.

Oh, where to begin…

If we’re to tackle an intellectual giant such as Dr. Roubini, we ought to aim low. We’ll start at the foundations.

Like many ready to expound on the failures of the free market, Roubini lists the free market’s shortcomings, while failing to mention that the most basic element of the market isn’t free at all…

We point out, yet again, that monopolization of currency issue by a government-backed entity (whether a “private cartel”) lays the seeds for the destruction of the free market. We speak, again, of the central bank.

But legal tender laws and an inflationary issuance of fiat currency aren’t the only problems, even if they are the problems that lie at the root of all economic malaise. Besides nonmarket interference with the supply and cost of money, there are direct state interventions into the market itself.

These interventions are especially destructive when they are done at the behest of powerful companies in order to protect their own interests…when state power is used as a cudgel to damage competition and protect profits. Even more distressing is when this type of corporate purchase of the state is called “capitalism”…as if capitalism can exist once political force is used.

And even when industry is injurious to the worker or the consumer, it’s generally because that industry has sought some extra-market legal protection from the state (this includes patent protections, by the way).

Left to themselves, markets address imbalances before they become world-destroying. Much has been made of the market’s failure to correct itself, but how can self-correction occur when central banks make borrowing to cheaply, disastrously skew demand and the resulting production, while the state restricts competition and bail out losers deemed “too big to fail”?

We agree that the roles of the market and state need to be rebalanced. We’d suggest that the states reverse their intrusion into the markets. A full retreat would be nice. After all, it was these intrusions in the form of currency monopoly, legislation bought by the powerful and ill-thought regulation, that caused the imbalances that eventually lead to protest.

The common man no longer seems to have any idea how wealth is really generated. Or what keeps it growing. He just suspects that everyone with lots of money got it unjustly, that those with “too much” ought to be forced to share. The problem, he thinks isn’t the government. It’s greed.

Granted, there are some who did get their riches unjustly. But their accomplice in that thievery was the state itself, either through inflation or legislation.

So the common man is up in arms, taking to the streets. Asking for redress and rebalancing…by the same state that caused the imbalance in the first place.

We admire Mr. Schiff bringing his alien message about liberty and the world-improving power of free markets to the masses. But we’re not sure it’s going to do much good. We couldn’t help but smile as we sat in the airport and watched him.

We expect that the majority will call for more of what made them poor and miserable in the first place.

Regards,

Gary Gibson

Peter Schiff Takes on Cornell West and the 99% was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

In a way it’s not surprising that protesters involved in Occupy Wall Street have been, as far as I can tell, silent about Steve Jobs because his death was so recent. At the same time, it’s a little surprising to me that Occupiers haven’t used the opportunity to condemn someone who has been one of the leading members of the “1%” — corporate billionaires — against whom they have expressed such disgust. From the perspective of most (though not all) of them, Jobs should have been Exhibit A in the case against capitalist exploitation. Even though his personal wealth is said to have exceeded $8 billion, I haven’t been able to find very much in the way of outrage against him or his company.

Instead, young and old around the world have mourned his passing and displayed heartfelt gratitude, even reverence, for a man who in one generation changed for the better the lives of nearly everyone on the planet. California Gov. Jerry Brown declared Oct. 16 Steve Jobs Day. Far from being vilified, his life has been celebrated internationally almost like that of a secular saint.

Is it because, like Bill Gates and Warren Buffett, Jobs has given billions away through a well-endowed charitable foundation? Turns out there isn’t anything like a “Steve Jobs Foundation,” nor does Apple today even have a philanthropic arm, at least not since Jobs dismantled it in 1997.

No, I believe it’s because in Jobs’ case, it’s so painfully obvious, especially to the generational and cultural demographic to which most of the Occupiers appear to belong, that his business acumen and the massive profits it has earned him and his company have improved the quality of life for a large chunk of humanity to a level few could have imagined in 1976 when he and Steve Wozniak founded Apple. The convenience, profitability,and sheer coolness that Apple and its host of competitors and providers in the high-tech industry have made possible is simply undeniable. Where would we be without the iPhone, iPad, iPod or the Mac — and their imitators at Google, Amazon and elsewhere?

What Has Steven Jobs Given Back to Society?

But no large-scale philanthropy? Where’s the outrage? Or as some might put it, “What has Steve Jobs given back to society?” Most of us, though I suppose not everyone, recognize at a gut level the sheer absurdity of such a question.

The charities of Gates, Buffett, Soros, Bloomberg and Turner are certainly praiseworthy. At the same time, they really didn’t have to do this to elevate our material standard of living; their businesses did it just by buying and selling stuff. But what about Jobs? Didn’t he get rich off our backs?

Well, could it be that when I paid $140 for my iPod that, in fact, I valued it more than the $140? Could it be that Apple valued my $140 more than the iPod? And could it be that people who work for and supply Apple value the incomes and payments more than the services and goods they sell to Apple. And that Apple values what they offer more than what it pays them? Could it be, in short, that these voluntary exchanges take place because the parties expect to gain more than they give up?

If so, would it make much sense for me to ask Apple to “give back” to me the profits it earned from my $140? Well, that would make about as much sense as it would for Apple to demand that I “give back” whatever value I get from my iPod over and above the $140 I paid for it.

What About Sam?

And how is Steve Jobs different from the late Sam Walton, whose Wal-Mart discount stores have made life more comfortable, convenient and less costly for the demographic they serve — lower- and middle-income working families in the suburbs? Perhaps Wal-Mart’s products don’t appeal to the tastes of those occupying Wall Street, either in Zuccotti Park or in the office buildings that tower over them. But like Jobs, the competition he brought to the retail business has benefited them all.

Jobs is just an extreme example of businessmen and -women and entrepreneurs who make their living not by government intervention, but mostly by voluntary exchange. From the pushcart vendor to the trucking company to the mall developers to the big Wall Street financial concern, insofar as they make their profits without resorting to political power, all do their part, though in a smaller way, to benefit those with whom they buy and sell.

Did Walton and Jobs ever take a government handout or gain from government regulation? I’m told that Wal-Mart benefited from eminent domain and Apple from patent enforcement. So while they were probably not “pure” in that sense, they were more so than the car manufacturers, financial companies, labor unions and others that would have disappeared long ago without government privileges and bailouts. From my perspective, of course, those are the crony capitalists the Occupiers should mainly be targeting, and to some extent have been.

An Aha! Moment?

It’s hard to live pure in a mixed economy. So I’m not criticizing the Occupiers for using iPhones or Twitter or the cheap bottled water produced by the capitalism most of them hate. I work for the State University of New York and my salary comes from taxpayers, even though I’m committed to the principle of voluntary exchange. I might well lose in a contest of libertarian lifestyle purity (as would U.S. Rep. Ron Paul). What I’m after isn’t purity of ideological lifestyle, but simply intellectual consistency… and honesty.

Either Steve Jobs is among the worst of profit-seeking capitalists (even if he got rich largely without government privileges) — the worst 1% of the repugnant 1% — or he’s not. And if Steve Jobs is honored for the way his corporate juggernaut made life better for most of us, then so should Sam Walton be and for the same reason. Some might respond to this by saying, “Right, we should despise Steve Jobs!” but I’m pretty sure few would. Maybe I have too much faith in common sense.

Let’s honor the Steve Jobses (and Sam Waltons) of the world; but let’s also recognize that it’s the market (however hampered today) that makes them and their contributions to humanity possible.

Regards,

Sandy Ikeda

Steve Jobs and Occupy Wall Street was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Many regard it a dirty word and it is tarnished most of all by its supposed guardians. Wall Street giants fancy themselves capitalists even as they live off the taxpayer and thrive on the state’s gifts of privilege, inflation, and barriers to entry. In the military-industrial complex they champion it by name as they produce devices of murder for the state. In the Republican Party and every conservative institution they talk it up while making such vast exceptions to the principle as to swallow it whole. When many think of capitalism, they think of the corporatist status quo, leading even some who favor economic freedom to abandon the term.

But we should not abandon it. For one thing, most opponents of capitalism do not merely oppose Goldman Sachs or Halliburton or even McDonalds. Rather, they oppose free enterprise as a matter of principle. They object to employers’ liberty to hire and fire whom they want, at whatever wage is mutually arranged. They protest the right of entrepreneurs to enter the market without restriction. They disapprove businesses designing infrastructure; providing energy, food, water and other necessary commodities; and running transportation without government meddling. They lament the rich getting richer, even through purely peaceful means. They oppose the freedom to engage in short selling, insider trading, hostile takeovers, and corporate mergers without the central state’s blessing. They begrudge the worker who dissents from the labor establishment. It is exactly the anarchy of the free market they despise, not the consolidated state-big business nexus they most want to smash. For every liberal who hates monopoly capitalism for anything approaching the right reasons, there are ten who deplore the capitalism part of it more than the monopoly.

It is simply a fact that capitalism, even hampered by the state, has dragged most of the world out of the pitiful poverty that characterized all of human existence for millennia. It was industrialization that saved the common worker from the constant tedium of primitive agriculture. It was the commodification of labor that doomed slavery, serfdom, and feudalism. Capitalism is the liberator of women, the benefactor of all children who enjoy time for study and play rather than endure uninterrupted toil on the farm. Capitalism is the great mediator between tribes and nations, which first put aside their weapons and hatreds in the prospect of benefiting from mutual exchange.

A century ago the Marxists acknowledged the productivity of capitalism and its preference to the feudalism it replaced, but predicted that the market would impoverish workers and lead to greater material scarcity. The opposite has happened and now the leftists attack capitalism mostly for other reasons: it produces too much and is wasteful, hurts the environment, exacerbates social divisions, isolates people from a spiritual awareness of their community, nation, or planet, and so on.

Yet all the higher, more noble, less materialistic aspirations of humankind rest on material security. Even those who hate the market, whether they work in it or not, thrive on the wealth it generates. If Marx’s buddy Engels hadn’t been a factory manager, he would have lacked the leisure time needed to help concoct their destructive philosophy. Every social sciences grad student, every Hollywood limousine liberal, every Christian-left do-gooder, and everyone for whom socialism itself is the one religion; every anti-market artist, scholar, philosopher, teacher and theologian screams atop a soapbox produced by the very capitalist system he disparages. Everything we do in our lives – materialistic or of a nobler nature – we do in the comfort provided by the market. Meanwhile, the very poorest in a modern capitalist system, even one as corrupted by statism as the United States, have it much better than all but the wealthiest people a century ago. These blessings are owed to capitalism, and unleashing it further would finally erase poverty as we know it.

There is a myth that capitalism is the dominating doctrine. It seems almost everyone believes this, most finding it at least somewhat unfortunate, which itself should tell you there’s a problem with assuming capitalism’s unchallenged popularity. In fact, capitalism has few authentic defenders. Conservatives pretend to support it, but make exceptions for education, energy, agriculture, labor, central banking, borders, intellectual property, and drugs, to say nothing of national defense and criminal justice. Even worse, many conservatives of the anti-corporatist, localist variety are more protectionist and economically nationalistic than the establishment right. They will sacrifice property rights for their cultural preferences on guns, religion, so-called family values, and certainly patriotism. With friends like these, capitalism needs truer allies.

Progressives and socialists are downright hostile. They claim to have made their peace with the market but have a new scheme every day to restrain it, punish it, manipulate it, and beat it into submission. Liberals insist they don’t want to rid of it, only refine it, only save it from itself. But if capitalism needs saving, it is not from itself, but only from liberals and conservatives.

Libertarians will speak up for capitalism, but often with some reticence. It has gotten such a bad name, and it is so despised by the liberal culture, that many do not wish to defend it outright. It is indeed crucial to be clear and precise in explaining what we mean by capitalism. But this great force for progress deserves our bold support, not our qualified testimony. It has given us everything we have. The least we can do is not pretend we’re embarrassed of it.

For the last century, capitalism’s most ardent defenders – the school of Mises, Hayek and Rothbard, and even the less radical followers of Rand and Friedman – have been clear that they mean the individual’s freedom in property rights and exchange, and almost everyone understands this. The enemies have mostly meant the same thing, when they weren’t disingenuously conflating free enterprise with state-sanctioned privilege.

Mises said “a society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society.” Hayek believed “the preservation of what is known as the capitalist system, of the system of free markets and the private ownership of the means of production, as an essential condition of the very survival of mankind.” While always careful to critique state capitalism for its interventionism and violence, Rothbard espoused “free-market capitalism [as] a network of free and voluntary exchanges in which producers work, produce, and exchange their products for the products of others through prices voluntarily arrived at.” Capitalism and freedom go hand in hand, and it is no wonder that the enemies of the market target libertarians as the most extreme proponents of what they loathe, rather than mostly focus on the corporatists and social democrats that dominate the modern left and right.

Some libertarians worry that “capitalism” puts too much focus on capital, but this is in truth no problem. Only through deferred consumption can we build civilization, by the amassing of higher order goods and the lowering of our orientation toward the present. This is the essence of the capitalist emphasis. Maybe it takes longer to explain ourselves when we adopt the battle cry of capitalism – it also takes longer to be a capitalist than only a consumer. In the long run, however, it is worth it. Libertarianism is a long-term struggle, and so why not take the long-term view of capitalism, both as a term worth embracing and a label for the economy we envision? Anarchism, too, is a hard pill to swallow, a tradition with a mixed history where a plausible case can be made that its conventional meaning does not always encompass the values we hold dear, but rather a lack of social order. Yet libertarian anarchists embrace the term, as we should the term capitalism.

Rothbard was particularly sensitive to the fact that the term was coined by its enemies, and many today believe that defenders of free markets should not allow the opposition to define the debate. Yet this point leads me to a very different conclusion. First, even insofar as the word has negative connotations in popular culture, we might still want to adopt it. The anti-Federalists were initially opposed to the label affixed to them by the Hamiltonian statists. But now I would uphold that descriptor with pride. This is an area where we can take a cue from the gay rights activists who were smeared as “queer,” only to proudly appropriate the term for their own uses.

Second and more important, if Marx and his ilk – whose ideas, to the extent they have been implemented, have yielded unparalleled human misery, starvation, and slavery – position themselves as the adversaries of capitalism, we should be so lucky to have these be the terms of the debate. The socialists of all stripes argue that real socialism has never been tried, and some say we market radicals are stuck with no better a response than to say that real capitalism has never been tried, either. However, unlike “real socialism,” which Mises demonstrated was impossible on a large scale, capitalism simply exists wherever it is left unmolested. It is the part of the market that is free. But regardless of how we define it, in terms of feeding the masses and sustaining society, I will take flawed capitalism over flawed socialism any day. I will take state capitalism, crony capitalism, or corporate capitalism over state socialism, democratic socialism, or national socialism.

Yet we need not make that choice, since opposing state capitalism is part of the capitalist cause, as should opposing state religion be the calling of every religious anti-statist, opposing state schools be the goal of every libertarian who loves education, and opposing state law and order be the creed of those who endorse the natural law and peaceful social order.

The capitalist portion of state capitalism is the part that works. The fruits of capitalism can be used for evil, and they are surely used this way by the state. For instance, the military-industrial complex’s evil is due to the socialist state military feeding off the production of semi-capitalist businesses. The one downside to capitalism is that the state becomes richer in absolute terms than with any other system. If the military were fully socialist it would be less effective – this is true. But this is merely a practical and moral indictment of the state, not the concept of capitalism.

If this is the only real confusion that confounds capitalism’s detractors we should simply ask them: Are you for a complete separation of capitalism and state, then? Of course they are almost to a person violently opposed to such a prospect. For them the problem is not the state having weapons and law enforcers and soldiers and national boundaries. Instead, the problem is unfettered entrepreneurism and the inequality of profit. Anti-capitalism is best defined, to paraphrase Mencken, by the fear that someone, somewhere, is getting rich. Looking at the warfare state, the anti-capitalists object to someone making money off the militarism, and indeed they should be embarrassed that the state institutions they favor can only successfully mount a military machine by exploiting the profit system. Yet, tellingly, their primary objection is often not with the profiteers’ war; it is with the war’s profiteers.

Some words are harsh and the concepts they embody seem harsher. Some notions seem too idealistic for many cynics. Peace, love, and freedom are all words that get a bad rap as head-in-the-cloud concepts that don’t describe reality as it actually exists. But we do know that in a world where not all is peaceful, love is sometimes hard to find, and freedom is always in peril, all of these ideals, insofar as they are allowed to flourish, point the way to a future of harmony and plenty. The same is true of capitalism. Don’t let its enemies spoil a good word for the greatest economic system in the history of the human race.

Regards,

Anthony Gregory

Why Capitalism Is Worth Defending was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

The self-interest of labor unions in this anti-capitalist crusade has always been transparent: Unions cannot exist without somehow prohibiting competition from non-union labor, whether that labor is at home or abroad. Thus, they wage campaigns of propaganda, intimidation, or violence against non-union workers, whether they are in Indiana or Indonesia. They are not in the least concerned about the well-being of the Third World poor. If the labor unions have their way, the poor whose lives are improved by their employment by multinational corporations would all be thrown out of work, many of whom would be forced to resort to crime, prostitution, or starvation. That is the “moral high ground” that has been staked out on college campuses all over America where unions have been successful in instigating “anti-sweatshop” campaigns, seminars, and protests.

That the anti-factory movement has always been motivated by either the socialists’ desire to destroy industrial civilization, or by the inherently non-competitive nature of organized labor, is further evidenced by the fact that there was never an “anti-sweat-farm movement.” Farm labor is still as rigorous as any physical labor, as it was 150 years ago. Indeed, in the early days of the industrial revolution — and in Third World countries today — one reason why families had so many more children than they do in wealthier countries today is that they were viewed as potential farm hands. Abraham Lincoln had less than one year of formal education because his parents, like most others on the early nineteenth-century American frontier, needed him as a farm hand. But since agriculture was not considered to be a form of capitalism, and did not pose any real threat to unionized labor, there was never any significant social protest over it.

In a forthcoming article in the Journal of Labor Research Ben Powell and David Skarbek present the results of a survey of “sweatshops” in eleven Third World countries. In nine of the eleven countries, “sweatshop” wages in foreign factories located there were higher than the average. In Honduras, where almost half the working population lives on $2/day, “sweatshops” pay $13.10/day. “Sweatshop” wages are more than double the national average in Cambodia, Haiti, Nicaragua, and Honduras. The implication of this for all those naïve college students (and faculty) who have been duped into becoming anti-sweatshop protesters is that they should support and encourage more direct foreign investment in the Third World if they are at all concerned about the economic wellbeing of the people there.

It is never the workers in countries like Honduras who protest the existence of a new factory there built by a Nike or a General Motors. The people there benefit as consumers as well as workers, since there are more (and cheaper) consumer goods manufactured and sold in their country (as well as in other parts of the world). Capital investment of this sort is infinitely superior to the alternative — foreign aid — which always empowers the governmental recipients of the “aid,” making things even worse for the private economies of “aid” recipients. Market-based capital investment is always far superior to politicized capital allocation. Moreover, if the foreign investment fails, the economic burden falls on the investors and stockholders, not the poor Third World country.

During the socialist calculation debate of the early twentieth century, one of the responses that Ludwig von Mises made to the “market socialists” was that it could never be sufficient to simply read the Wall Street Journal and use the prices for inputs and other goods as revealed in the capitalist countries in order to make socialism work, as they contended. As important as private property and market-driven prices are to capitalism, another necessary ingredient for capitalist success is a culture of entrepreneurship, management, risk taking, marketing, financial know-how, and other skills that have developed over several hundred years in the capitalist countries. Without this, the market socialists could only play at pretend-capitalism.

Another virtue of foreign investment in the Third World is that it has the potential of transferring such knowledge to countries where it previously did not exist — or at least was not very prevalent. It is not only technology that the poor countries need, but the culture of capitalism. Without it they will never dig their way out of poverty.

The existence of foreign factories in poor countries also creates what economists call “agglomeration economies.” The location of a factory will cause many businesses of all types to sprout all around the factory to serve the factory itself as well as all of the employees. Thus, it is not just the factory jobs that are created. Furthermore, a successful investment in a poor country will send a signal to other potential investors that there is a stable environment for investment there, which can lead to even more investment, job creation and prosperity.

Capital investment in poor countries will cause wages to rise over time by increasing the marginal productivity of labor. This is what has occurred since the dawn of the industrial revolution and it is occurring today all around the world. Discouraging such investment, which is the objective of the anti-sweatshop movement, will do the opposite and cause wages to stagnate.

Finally, perhaps one of the strongest virtues of foreign “sweatshops” is that they weaken the hand of American labor unions. With few exceptions, American unions have long been at the forefront of anti-capitalist ideology and have supported virtually all the destructive tax and regulatory policies that have been so poisonous to American capitalism. Unions believe that they cannot exist unless workers can be convinced that employers are the enemies of the working class, if not society, and that they (the workers) need unions to protect them from these exploiters.

If you want to support the Third World poor, purchase more of the products that they labor to make in the capitalist enterprises that have located there.

Regards,
Thomas DiLorenzo
Whiskey & Gunpowder

May 2, 2011

How So-Called Sweatshops Help the Poor was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Unfortunately, the quality of this adaptation is representative of its low budget and brief production time. The film meticulously retains the original plot of Rand’s opus, going so far as to lift much of the dialogue directly out of the novel. However, due to the large amount of material being covered, the result leaps through the original plot line in a somewhat disjointed portrayal, which can be difficult to follow. While Johansson is to be commended for finally bringing Atlas Shrugged to cinema after almost 40 years of negotiations, delays, and difficulties, it is disappointing that the end result is not more impressive.

Despite the film’s mediocre quality, its end was met by a surprising response in Reno on Saturday. As the main character, Dagny Taggart, climbs a flame-engulfed hill to be confronted with the destruction of petroleum magnate Ellis Wyatt’s oil fields — the lifeblood of what little remained of the American economy — she screams in terror. The camera pulls away, revealing Wyatt’s parting farewell: “I am leaving it as I found it. Take over. It’s yours.”

The crowded theater began to applaud.

While some people of all ideological persuasions, including libertarians, find Ayn Rand’s rather idiosyncratic beliefs and obscure moral code distasteful, the theater’s reaction captures the hidden resonance of her greatest work on grounds she would not have completely anticipated. Indeed, many of the film’s difficulties are less the fault of the director, and more of Rand herself. The primary protagonists of the book are emotionless industrialists, stilted and one-dimensional in their behaviors, thinking only of metal, railroads, and factories.

Atlas Shrugged is compelling, not for its heroes, but for its villains. Published in 1957, Rand’s description of politicians and lobbyists in a time of economic crisis is almost prophetic. These Washington insiders scheme behind closed doors to retain and expand their power. In elaborate press conferences, they attempt to convince the unsuspecting populace of their legislation’s necessity by vilifying productive companies and portraying their own destructive, self-serving designs as being in the interests of the advancement of equality, stability, and progress.

For instance, in Atlas Shrugged, the lobbyist Wesley Mouch decries the capitalist Hank Rearden’s invention of a wonderful alloy that is stronger than steel. And last week, in the real world, Rep. Jesse Jackson Jr. took to the house floor to declare that Steve Jobs’s iPad was killing jobs. Congress must, according to Jackson, recognize that Apple is driving companies such as Barnes & Noble and Borders out of business, and the company should be stopped in the interests of fairness.

Jackson decried Congress for failing to foster “protection for jobs here in America to ensure that the American people are being put to work.” It’s as if he wanted us to believe the printing press was harmful to the economy because it decreased the demand for scribes. Such a condemnation of a successful business and a demand for protection of failing industries could easily have been lifted directly from Rand’s novel.

However, the similarities are not restricted to a lone Democratic congressman. Similar absurd arguments were bountiful on both sides of the aisle in debates about policies ranging from Obamacare to the bailouts. Americans are directed to believe that if they would just allow the federal government to act in order to prevent further change in the economy, then stability could be restored.

It is this paltry masquerade of politicians feigning action and granting themselves greater power in the name of equality and economic stability that leads Americans to Rand’s story. Indeed, Republicans and Democrats both put on a charade of activity last week, claiming to remedy our nation’s budget woes. Both parties threatened to shut down the government over a series of austerity measures amounting to a final savings of $352 million this fiscal year. That’s $352 million out of budget deficit of approximately $1.6 trillion, or .02 percent of what would be required to actually balance the budget. Politicians bickered over funding for relatively low-cost line items like NPR and Planned Parenthood, all the while ignoring the harsh reality that our public debt is on track to surpass our GDP.

In other words, Republicans and Democrats have managed to mortgage the entire household worth of the United States. Their remedy for this self-imposed tragedy? Grant themselves greater power through increased regulations and rising taxes.

With each repeated failure of federal action to remedy our economic situation, politicians reveal themselves more fully to the American people as nothing but self-serving villains. Their strategy relies on the appearance of action coupled with soaring rhetoric to convince Americans of their good deeds. Meanwhile, these politicians are gambling with our lives and prosperity, risking the well-being of hard-working individuals in thoughtless policies designed merely to secure reelection.

It is due to her apt depiction of these self-serving villains that Ayn Rand’s novel has climbed to number four on the top-sellers list on Amazon and that the film is likely to do far better than its mediocre quality would merit. Americans are growing tired of politicians gambling away their prosperity to preserve their own power. The crowd in Reno applauded as Ellis Wyatt walked away, not because he was some great hero, but because they understood the pain of working tirelessly while a reckless and unproductive government needlessly spends away the results of your labor and rewards your hard work with mounting regulations.

The idea of walking away has become attractive — and indeed, Americans are increasingly leaving the United States for opportunities abroad, with record numbers emigrating to Australia and East Asia.

So long as Ayn Rand’s villains continue to resemble the reality in Washington, the story of Atlas Shrugged will remain popular. The average American may not be a powerful railroad executive or steel magnate, but most believe they are entitled to the fruits of their labor. Many are beginning to realize that their future is being gambled away by politicians whose only risk is losing the votes of the individuals who have lost everything.

Regards,
J. Patrick Rhamey, Jr.
Whiskey & Gunpowder

April 22, 2011

The Continued Relevance of Ayn Rand’s Villains was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

But have you ever wondered if, in the earnest attempt to eliminate risk in our society (financial, physical, emotional), we’re actually make people less safe and society more inherently risky?

Wear your seat belt. Don’t binge drink. Don’t drive too fast. Be politically correct. Be tolerant. Be diverse. Be multi-cultural. All these commandments coming down from the Nanny State on high are given to us presumably because we are too stupid or unthinking to look out for ourselves, or too unsensitive to the feelings of self-worth held by others.

We won’t eat right unless told what to eat…or invest enough to provide for our retirement unless compelled to. And the world would be better, in the words of Principal Skinner, “If nobody was better than anybody else and everybody was the best.”

But what if all this bullying, nonsense, nannying, and government coercion is eroding the very healthy and natural ability to identify and manage risk? We’d argue that in nature, the ability to identify risk promotes survival. The amygdala — that tiny part of our brain that controls the fight or flight instinct — is evolution’s way of keeping us on our toes. It reminds us that in the tens of thousands of years human history, the margin between life and death has been pretty small.

Over most of human history, people haven’t had surplus time or energy to think about what to do with surplus, quantitatively or qualitatively. You spent most of your time surviving and finding food. And this pursuit, knowing what to fear was probably your most important survival skill.

But we live in a world of profound and seemingly endless abundance and surplus today. It’s a product of the division of labour (which has been so successful most people don’t even know what it is), cheap energy, and cheap credit. We’d argue that all of these things have dangerously dulled our sense of risk and exaggerated our expectations of what to expect from life, each other, and our public institutions.

Wealth, material wealth anyway, is a product of surplus. And surplus is another way of saying profit. It means combining raw materials, labour, and your talent to make the whole worth more than the sum of the parts.

In this respect — by communicating accurate prices so people can make informed decisions about what to buy and sell — the free market delivers extraordinary outcomes. It unleashes the sheer productive capacities of millions of people who do completely unpredictable and unplannable things with their life that no central committee could possibly organise.

The trade off for such an open system that produces so much surplus, choice, and income mobility is instability and relative inequality. Unless you are in a rocking chair, you can’t really be moving and staying put at the same time.  But for some reason, some people find this instability — a natural feature of a dynamic system — threatening. They want to freeze things and give up growth and change for the sake of predictability and security, which they would choose as personal goals.

To be fair, change freaks some people out. To be ideological, the people (usually in government) opposed to the instability of the free market just don’t like what other people choose to do with their economic liberty. They find prosperity morally vulgar and are offended by obvious inequality — failing to see that free markets have elevated all people everywhere to standards of living that would have been unimaginable even 100 years ago.

One possible explanation is that the meddling central planners of the world are just egomaniacs who get off on telling other people how to live. More worrying is that these people actually believe they are right and that someone should have the role of regulating, with the power of the State to coerce, how people behave in the minutest detail.

That’s not to say that you can’t have good government. But we’d say it would be much smaller and less morally ambitious than today’s institution. Today’s big government exists for the sake of perpetuating itself. It’s finding that harder and harder to do as it sucks up — and eventually kills — the lifeblood of the productive economy, taxes in the form of suplus on personal and corporate incomes.

Mind you, none of this is in defense of the predatory financial capitalism run by Washington and Wall Street oligarchs that’s been masquerading as the free market. As Ron Paul correctly pointed out last week, the current system is more accurately described as “corporatist” in which the banks, the defense contractors and corporations of size (to use a PC term) lobby, cajole, and generally purchase favourable laws from legislators (on the right and left) that are themselves bought and paid for.

Frankly, the whole thing could use a little creative destruction. And no matter how badly its defenders (like Bernanke) fight for it, the system is inherently fraudulent and wasteful of resources and capital.

And in addition to that, it’s just ethically offensive. We won’t miss it or mourn it when it’s gone. As we mentioned last week, we don’t encourage people to get involved with that political system at all. It’s like snogging with a vampire. We’d urge you to deprive that system of your time, talents, and creative energies.

The best defense of liberty begins with financial independence. And taking care of your own money and your own life is something you don’t need to go to the ballot box to do. And you don’t have to take anyone else’s money either. It also puts you in the position of helping people you really can help — your friends, family, and neighbours.

So why isn’t financial independence the highest calling in public life? Hmmn. Granted, a high material standard of living is not the same thing as a high quality of life. And we’d even say that spiritually, there are more important things. But it’s something to think about.

Regards,
Dan Denning
The Daily Reckoning Australia
Whiskey & Gunpowder

April 20, 2010

The Role of Government was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.