Re-run: There is no such thing as Capitalism

Back in November we wrote this article and got a good response from readers.  We thought it would be a good time to re-run the piece as the global economic rhetoric heats up and more and more commentators pronounce the ‘death of capitalism’.  As 2010 gets rolling we are about to see the onset of a major and, for a time, irrepressible push by governments to wrestle control of their economies away from the dynamic sectors and people – to their eventual downfall and ultimate restoration of freedom. 

Unfortunately, before angry societies restore prosperity and freedom they wallow in the complacency of state reliance until the mess is almost total.  The average citizen still thinks government a) can and b) must fix our economic problems, and all governments agree.  Until that stiff paradigm is shattered (Massachusetts might have been an early crack in the wall), it looks likely that it will be more of the same – more stimulus, more debt, more excess, more bubbles, more mal-investment,  more volatility, more fake jobs instead of real ones, more hangers on instead of productive folk, more inflation, more theft, and more upside for gold.  

President Obama has already declared war on the banks, taxes are going to rise across the G7 and even beyond, and regulatory burdens will increase.  Governments will engage in a race-to-the-bottom strategy with their currencies, calls for protectionism will grow louder, and state-led healthcare will be a global drive in an attempt to increase dependency and shift the battle-ground decidedly toward coercive rather than freedom-loving politics.

At the same time, freedom will try flourish at every turn with an ever-crazed state trying to play catch-up.  The internet and social networking will have its biggest year yet.  Better ideas are going to flourish and abound and stale orthodoxies are going to bite the dust.  Government propaganda will get increasingly stifled and the mainstream print media will sink deeper into financial and effectual oblivion. 

Coercion is pitted against freedom.  Freedom will win, but the road to victory will be messy, no more so perhaps than in this 2010-2012 period.

Enjoy the article.

Freeman

The word ‘Capital’ has been around for centuries.  According to Wikipedia,

Capital evolved from Capitale, a late Latin word based on proto-Indo-European kaput, meaning “head”—also the origin of chattel and cattle in the sense of movable property (only much later to refer only to livestock). Capitale emerged in the 12th to 13th centuries in the sense of funds, stock of merchandise, sum of money, or money carrying interest.[8][18][19] By 1283 it was used in the sense of the capital assets of a trading firm. It was frequently interchanged with a number of other words—wealth, money, funds, goods, principal, assets, property, patrimony.[8]

The use of the word ‘Capitalism‘ however has been a far more recent development. 

The term capitalist started appearing around the late 18th Century and became more prominent in the 19th Century.  But it was Marx and Engels who shot the terms capitalist and Capitalism to fame in the work Das Kapital and the Communist Manifesto in the latter half of the 19th Century.  The Soviets then set about entrenching the terms deep in our collective understanding of the economic and social world as they proceeded on an imperial-ideological expansion across half the northern hemisphere for 70 years of last century.

The term Capitalism has since come to totally dominate the terms and rhetoric of the global political-economic debate.  And it has been pitted as the polar opposite of something called Communism.

The truth is there is no such thing in reality as Capitalism or Communism.  Both terms are nothing more than arbitrary theoretical constructs that bear no relation to the real world.

Marx pictured the human race going through various stages of economic progress within which classes developed, defined by their ability to access resources and wealth.  After creating simple economic systems humans developed a more structured feudal system in which the wealthy owners of land and other assets were able to exact power over the poor who did not own land or other assets (Marx was influenced in this by feudal Europe of the Middle Ages).  The industrial progress of the 18th and 19th Centuries led Marx to define what he termed capitalism, where the owners of capital (productive assets) held the economic power and by employing their capital as they saw fit were able to undermine what he saw as the freedom of individuals to employ their ‘labour power’ as they saw fit.  This created an inherent antagonism and tension between classes that would eventually lead to the downfall of capitalism.

This view of history led Marx to believe that the human race would progress to yet a higher stage of economic organisation - communism.  Marx believed that capitalism held the seeds of its own destruction and that the collapse of the capitalist system would be the step needed to achieve a state of socialism and then finally utopian communism.

In Marx’s world, communism was the utopian ideal that the human race was inexorably heading toward.  Marx suggested that to proceed to this utopia faster required a socialist/communist revolution to overthrow the capitalist system.

As crazy as this all sounds, this is the core of the very theory that has thrown societies into chaos ever since, and arguably created more hardship for human beings than perhaps any other set of ideas in history. 

Marx’s view of history was delusional to say the least.  There has never been any ‘evolution’ or ‘progression’ in the fundamental structure of economic action.  There is (and has always been) simply scarce resources upon which work and human action needs to be bought to bear in order to satisfy the needs and desires of human beings.
 

Some Things Never Change

This basic structure of the so-called ’economic problem’ never changes and never will change.  What changes over time is ownership, power, systems of coercive allocation, methods, technology and government, but there is no logical, intellectually sound, or even proven basis for the view that the fundamental economic structure is changing or ‘evolving’.

So what we’re really doing when we talk about capitalism vs. socialism/communism is playing into Marx’s own arbitrary intellectual constructs and his false framing of the debate.

In reality, employing capital in the form of productive assets to achieve desired economic ends is an integral part of any path to wealth and prosperity.  But it is no more important in that process than the other factors of production, namely labour, land and possibly technological innovation.  All factors of production are important in creating goods and services that people actually want, and all are bought to bear on the ‘economic problem’ in an infinite variety of ways and with widely varying degrees of relative importance and productivity depending on the desired end. 

Put simply, the various factors that enable us to produce can be organised in a multitude of ways to achieve desired ends. 

They can be organised in a coercive way to achieve a centrally determined end, such as when states martial resources through legislative fiat to build weapons for war, or they can be organised in a non-coercive way for decentralised and multiple ends, such as when individuals and companies of individuals, using the resources they own or borrow, enter into mutually beneficial and co-operative relationships to organise those productive factors.

The main ideological dispute in economics is how we most justly and efficiently organise the factors of production to satisfy most justly and efficiently the practically unlimited ends of human needs and wants.  There are those who advocate the coercive social-economic structure, and there are those who advocate the non-coercive social-economic structure.

If there is any kind of pattern to economic history, it is a world that constantly shuffles back-and-forth between these two ’states’.  If they had names, one might be called economic coercion and the other economic freedom.
 

So, does any of this even really matter?

Absolutely.  Once you understand the world of economics through this prism, the traditional Capitalism-Communism, Right-Left continuum begins to become largely irrelevant.  Instead of seeing a world defined in terms of capitalists and labourers, entrepreneurs and workers, rich and poor, bourgeois and proletarian, owner and owned, you can see it in terms of freedom and coercion, justice and injustice, productivity and idleness, responsibilities and rights, choice and orders, and decentralisation and centralisation.

History has been a tale of societies that achieved prosperity in a state of economic freedom, and then lost that prosperity when economic coercion took over.  Where true justice abounded in the affairs of property and money, injustice came to appropriate property and debauch money.  Where individuals were productive in their freedom, they were made unproductive by coercion, excessive taxes and burdensome laws.  Where people understood the personal responsibility of liberty, the centralisation of resources and economic power made them dependant and in search of ‘rights’.  Where creative economic solutions flourished amid freedom of choice, economic stagnation became mired in regulations that stifled that choice.

Every time in the many examples of history that states and governments (or coercive and corrupt corporate-state alliances) have moved their societies toward this state of economic coercion, injustice and over-regulation, it is then that prosperity has wilted.  However, every time, people’s desire for freedom, individual spontaneity and economic creativity eventually forces the system of centralised power to collapse.  It has happened in every great nation and empire from Babylon under its decadent kings, to ancient Israel’s corrupt monarchy, from the Roman Empire that toppled under the weight of its own centralised power and political greed, to the Soviet Empire that buckled as its people demanded to be free of the bondage of economic coercion.
 

The Good, the Bad, and the Wilting of Freedom…

Here’s the exciting part.  The collapse of these major centralised and economically coercive systems has always heralded a new wave of creativity, spontaneously brilliant economic solutions, leaps in productivity, higher standards of living, greater social co-operation, more peace and prosperity, more justice and more stability.

Here’s the interesting part.  This very pattern – freedom and prosperity, leading to coercion and wealth destruction, leading to societal upheaval and revolt, leading to decentralisation and freedom, leading to justice and prosperity, and then repeated - is found in the very business cycle that dominates our economic world of today.  Prosperity and wealth created by free and productive people is used by governments, central banks and even commercial banks as leverage to create excessive debt and artificially boost the money supply and enact burdensome taxes and regulations on productivity to allocate the centralised resources according to centralised ends.  This creates a boom cycle in which productive capital is misallocated according to the real needs of the economy and a series of mal-investments follow.  Real productivity falls, real wealth-creation activity dwindles, and inflation eats away at the value of money, distributing wealth back to the core government-central banking system.  The economy eventually gets to the point when it can no longer stand under the weight of the dislocation and misallocation of the factors of production.  Returns on the factors of production have ceased to make financial sense, debts need to be called in but new income is not there to pay them, and asset, goods and services prices have risen beyond the means of the average person to buy them.  The whole edifice collapses with the magnitude of the bust in proportion to the size of the preceding boom.  The bust, just like the angry people, is the free market’s revolt against the coercive economic structure, and repositions the economy back to a normal state from which real wealth can justly be created again.

Here’s the not so exciting part.  Instead of letting the market correct, which is the essence of a recession, governments are increasing economic coercion in the hope of restoring the factors of production to their allocated structure during the boom.  This policy, as the market has repeatedly proven, is doomed to failure, and must only set the economy up for an even bigger bust down the line.

Here’s the disturbing part.  Socially we are in the equivalent part of the cycle.  That is, people by and large believe that more economic coercion is required to fix our broken and wilting prosperity and are therefore not yet opposed to seeing power becoming even more centralised, underlying injustices increase, and coercive regulation proliferate.  As long as this remains the case, wealth will diminish not increase, freedom deteriorate not abound, creativity and spontaneous economic solutions will stagnate not flourish, and productivity will be stifled not set free to grow.  How long will this have to go on for and how economically coercive will the state become before people realise they have given up the very freedom that makes them prosperous?  Probably quite a lot longer yet.
 

However a time will come, as it eventually always does, when the people reclaim their freedom and break the edifice that has suffocated them.  And when that time comes, it will, as with every other such time in history, be a beautiful sight to behold.

There is no such thing as Capitalism.  There is only economic freedom and those who wish to restrain it.