Is Capitalism Evil?

Thanks to capitalism and free trade (not government aid), nearly 1 billion people have been taken out of extreme poverty in the last 20 years.

After years advocating for government aid to solve the problem of poverty, U2 frontman Bono was recently quoted as saying the following:

“Aid is just a stopgap,” he said. “Commerce [and] entrepreneurial capitalism take more people out of poverty than aid. We need Africa to become an economic powerhouse.”

capitalism

“The above chart is from Gapminder and shows China’s per capita income growth since 1800 vs. that of the US and the UK. What happened to China toward the end of the 20th century? Well, it started doing what America and Britain began doing some 200 years earlier. China started embracing what Bono calls entrepreneurial capitalism. “

– http://www.aei-ideas.org/2013/08/this-chart-shows-what-bono-is-talking-about/

Capitalism has gotten a bad reputation as of late, because people mistakenly attribute the economic calamity in the United States to a free-market, laissez-faire economic system. Deregulation, it is argued, leads to rampant corruption, greed, and evil, and that is why we need the state to intervene, and force those “evil corporations” to follow the rules. To say that we have a capitalistic, free-market system in the United States couldn’t be any further from the truth. To begin with, corporations are, in no way shape or form, a capitalistic idea. As Stefan Molyneux explains, “Corporations are legal fictions created by the State to shield executives from liability. It’s like if I had a little hand-puppet, and I went to rob a bank, and the hand-puppet held the little gun and told people to hand over all the money, and then the hand-puppet grabbed the money and ran out, and then I got caught and I handed the hand-puppet over the police and then the police tried the hand-puppet, put the hand-puppet in jail, and I get to keep all the money.”

Capitalism can be defined simply as an economic system in which private individuals create, own, and exchange property voluntarily among themselves. Individual preferences drive the market. If the individuals of society tolerate greed and evil, they will purchase from greedy, evil businesses, and greed and evil will flourish. If individuals do not tolerate greed and evil, but instead prefer purchasing from honest, generous, peaceful businesses, those businesses will compete for customers by being more generous, and peaceful than all the other businesses. Supply and demand are very basic concepts to understand. Whatever the individuals in society demand, other individuals in the marketplace will supply. What we need is to demand virtue, instead of relying on an immoral statist system to keep other immoral individuals in check.

The evil corporations that anti-capitalists always rail against are, in fact, a creation of the state, and cannot exist without the legal protections that the state grants them. It is entirely wrongheaded to assert that we need the state to protect us from corporations, as the state is responsible for creating and protecting corporate interests in the first place. We have an economic system that is a long ways away from capitalism, so it is fallacious to attribute our current economic conditions to the free market.

I would contend that the problems we are facing are almost exclusively due to the different schemes of economic intervention that the state has undertaken, and the fact that corporations and banks can have their CEO’s and lobbyists placed in high positions of government to pass legislation that favors them, and regulates their competition out of the market. The state is used by corporations as an enforcement agency against it’s competitors to force them out of the market through regulations, making it too expensive for them to remain profitable. The corporations that lobbied for those regulations are exempt, granting them a legal advantage over their competitors. This practice is commonly called ”regulatory capture”. In his book The Myth of the Robber Barons, Burton W. Folsom, Jr. calls the people and businesses that engage in this practice ”political entrepreneurs”, and those who compete in the marketplace without special legal protections as “market entrepreneurs” who succeed “by producing a quality product at a competitive price”. Instead of hiring a thug off the street to burn a competitor’s business to the ground, these “political entrepreneurs” hire the government’s regulatory thugs to achieve the same effect through regulations.

In his 2004 book Confessions of an Economic Hit Man, John Perkins labeled the collective of corporations, banks, and government as “Corporatocracy”, otherwise known as “crony capitalism”. According to the wikipedia definition, crony capitalism is “a term describing an economy in which success in business depends on close relationships between business people and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, or other forms of dirigisme. Crony capitalism is believed to arise when political cronyism spills over into the business world; self-serving friendships and family ties between businessmen and the government influence the economy and society to the extent that it corrupts public-serving economic and political ideals.”

In a true free market system, corporations wouldn’t exist, and neither would the current legal protections and favors they receive that enable them to commit the evil deeds they are notorious for. Our current economic system can be entirely attributed to statism, not capitalism. It’s not that voluntaryists believe that without the state, evil will cease to exist. Rather, evil, without the state, will be labeled for what it is. In a statist system, things like theft, fraud, insider trading, and pyramid/ponzi schemes are illegal, unless the state does it. The state grants itself a legal exception that gives criminals a legitimate organization in which to practice their evil deeds. We call these criminals “politicians”.

Voluntaryists/anarchists/libertarians are not naive enough to believe that the problems of greed and evil will be done away with without the state. Greed will always exist, as will evil, murder, theft, etc.

As Muray Rothbard writes in his famous article Society Without a State, “the anarchist society is one which maximizes the tendencies for the good and the cooperative, while it minimizes both the opportunity and the moral legitimacy of the evil and the criminal. If the anarchist view is correct and the state is indeed the great legalized and socially legitimated channel for all manner of antisocial crime – theft, oppression, mass murder – on a massive scale, then surely the abolition of such an engine of crime can do nothing but favor the good in man and discourage the bad. By eliminating the living example and the social legitimacy of the massive legalized crime of the state, anarchism will to a large extent promote peaceful values in the minds of the public.”

Another aspect that needs to be addressed when dealing with the subject of economic calamity is how the American government, banks, and the Federal Reserve have manipulated the economy, and how the economic meltdown of 2008, including the bubble that preceded it, is entirely the fault of the government and the Fed.

Matt Kibbe, President and CEO of FreedomWorks, writes for Forbes.com:

“The single greatest contributor to financial crises is the Federal Reserve manipulating interest rates in ways that distort the true price of capital.  As Friedrich Hayek, a Nobel-prize winning Austrian economist noted, prices play an important role in the economy, transmitting information that allows market participants to coordinate their plans. The Fed’s distortions create the boom and bust cycle by distorting the information that the price signal conveys to consumers and producers.  It may seem like businesses are overinvesting but they are simply responding to false economic signals sent by the Federal Reserve. An inevitable bust occurs due to all of the bad investments made.

Peter Schiff draws a perfect analogy between an artificial boom and a circus that comes to a small town for a couple weeks. During this time, the circus attracts a large crowd, which is a boom to local businesses. Now imagine that a local businessman mistakenly believes that the upturn in his business will endure permanently. He then responds by greatly expanding his business by hiring new workers or opening a second location. Ludwig von Mises called this malinvestment instead of overinvesting. All is well until the circus leaves town and the businessman is left with a large surplus of workers and capacity. He finds out he miscalculated when all the wasteful malinvestments are exposed. This is an example of the boom and bust cycle.

The last decade in America has been a textbook example of a boom and bust cycle. Between 2001 and 2004, the Federal Reserve injected new credit into the economy, pushing interest rates to their lowest level since the late 1970s. As a result, the economy was booming just a few short years ago. This sent out false economic signals to businesses with respect to demand for their products. These businesses responded by hiring more staff, buying more resources, investing in capital, and so forth.

The early 2000s marked the boom phase. We experienced a 52-month record streak of uninterrupted job growth from September 2003 to December 2007. Treasury Secretary Henry Paulson in March 2007 said that “the global economy is more than sound: it’s as strong as I’ve seen it in my business career.” The stock market was too good to be true. On October 9, 2007, the Dow Jones Industrial Average closed at a record level of 14,164.53. Federal Reserve chairman Ben Bernanke even stated in January 2008 that “the Federal Reserve is not currently forecasting a recession.” Most were too busy celebrating their supposed gains to realize that an inevitable economic bust was about to happen.

Just as the Austrian business cycle predicts, the boom was followed by a bust because booms created by monetary inflation are unsustainable. The stock market crashed in October 2008. Many were quick to wrongly blame free market capitalism for the economic crash. As economist Henry Hazlitt once said, “in a crisis and a slump, and…worse than the slump itself may be the public delusion that the slump has been caused, not by the previous inflation, but by the inherent defects of ‘capitalism.’” The free market has not failed since we’ve never had free market capitalism. Instead, government intervention in the economy failed.

Many Americans probably believe that continuous boom and bust cycles are natural occurrences. The truth is we would not experience such dramatic economic swings were it not for monetary policies that distort real prices and encourage improper investment decisions. Boom and bust cycles are inevitable when government interventions confuse market participant.”

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Is Capitalism Evil?

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