It is alleged that under capitalism, the self-realization and freedom of an individual is a privilege accessible only to those who have the economic resources. Unlike under socialism, everyone will have equal resources, and therefore everyone will enjoy equal liberty. Let us see how Ludwig von Mises answered this objection in chapter 4 sections 4 and 5 of his book, “The Anti-Capitalistic Mentality.”
Blaming the dead for the crimes of the living and blaming the victim for the misdeeds of the villain are uncommon themes even in film making and book writing. Basic morality would denounce such transgression as utterly corrupt and wicked. Unfortunately, a parallel scenario is allowed in current economic situation either due to ignorance or due to a collective ideology whose loyal advocates are willing to employ whatever means necessary to accomplish their heart’s desire.
Alleged Crimes of Capitalism
In July 9, 2002, Congressman Ron Paul discredited in his speech at the US Congress the alleged “crimes” of capitalism. In that year, blaming capitalism for economic problems was considered politically correct. If that was the case 10 years ago, it is not surprising to read that hatred against capitalism have continually increased most especially after the 2008 economic crisis.
The prevailing dominant social themes advanced by the mainstream media since that time are the failure of capitalism and the need for a greater government regulation. This is unfortunate for this would mean not a rosy future for the advocates of personal liberty and the free market.
The only way to reverse this erroneous trend is through genuine education. People need to know what is really going on in global economy. Listening to the message of the Tea Party Congressman and other Austrian economists is the path to this kind of education.
In his speech, Dr. Paul claims that there is nothing new with the erroneous identification of the source of economic woes. Similar story happened in the 1930s. The greed of capitalist and businessmen was blamed for economic depression. This erroneous mindset needs to be corrected to avoid further economic destruction. If not, wealth that the free market created in the first place will be finally destroyed.
Dr. Paul identified two primary causes for the present hatred against capitalism. One is ignorance. And two is the natural limitation imposed by sound economic principles inherent in capitalism. Government leaders do not want this limitation.
Dr. Paul argued that capitalism should not be blamed for present economic sufferings. Despite of mainstream propaganda that the excesses of capitalism are to be blamed, careful and closer analysis of economic situation leading to the crisis would lack sufficient basis to identify capitalism as the source of economic crisis. Instead, another political and economic system would emerge as primarily responsible for the crisis.
How could a non-existent capitalism cause economic destruction? The basic economic prerequisites for the existence of capitalism are largely missing in our existing economic condition. Honest money does not exist. Voluntary contracts and natural interest rates are also lacking. What we have are fiat money and credit expansion by a central bank. Capitalism does not exist.
Dr. Paul describes such absence of capitalism.
“It’s not capitalism when the system is plagued with incomprehensible rules regarding mergers, acquisitions, and stock sales, along with wage controls, price controls, protectionism, corporate subsidies, international management of trade, complex and punishing corporate taxes, privileged government contracts to the military-industrial complex, and a foreign policy controlled by corporate interests and overseas investments. Add to this centralized federal mismanagement of farming, education, medicine, insurance, banking and welfare. This is not capitalism!” (p. 43).
The economic system causing repeated economic crisis is appropriately identified as “interventionist-planned economy.” Its other designations are “Keynesian inflationism,” “interventionism,” and “corporatism.” After identifying the real culprit, Congressman Paul admonished the US Congress to investigate the process of wealth destruction caused by the existing monetary system. This investigation is critical to put a stop to popular economic solution and to apply genuine solution that will restore capitalism back with all its creative energies.
Popular economic solution coming from “interventionist-planned economy” will certainly aggravate the existing economic crisis. This includes the following measures:
- Increase spending
- Increase debt
- Increase easy credit
- Distortion of interest rates
- More government regulation, and
- More foreign intervention
On the other hand, genuine economic solution coming from free market capitalism consists of the subsequent concrete actions:
- A return to gold standard
- Cut spending
- Reduction of income taxes
- Removal of taxes from savings, dividends, and capital gains
- Decrease in government regulation
- Discontinuation of special-interest subsidies
- Cessation of protectionist measures
- Change in foreign policy, and
- Bringing the US soldiers back to their families
Free market capitalism cannot exist in an atmosphere of inflationism, interventionism, and corporatism. The alleged “crimes” of capitalism are baseless and a fabrication of the proponents of collectivist ideology to continually mislead the public about what is really going on. Your primary responsibility is to study the message of Austrian economists.
Almighty Father, Creator of heaven and earth, Lord of truth and justice, you know the hearts of men and women. There is so much fear reigning, so much anger, and so many are unsatisfied with what is going on in world economy. There is so much deception and so much lies.
Let the truth about what is really going on come out into the public. Expose the primary cause of world economic troubles resulting to social unrest. Enlighten the minds of the people. Grant us wisdom to see the message of truth and liberty. Let there be genuine solutions. “Let the nations know they are but men” (Psalm 9:20b).
Source: Paul, Ron. (2008). Pillars of Prosperity: Free Markets, Honest Money, Private Property. Auburn, Alabama: Ludwig von Mises Institute.
In November 2008, Scott Stephens wrote his piece in response to global economic crisis. Rev. Stephens is the minister of Forest Lake Uniting Church and teacher of theology and ethics at Trinity Theological College. His article, Dishonest money: What the financial crisis tells us about ourselves is a typical example of misunderstanding the real character of capitalism.
If a capitalist billionaire himself with the caliber of Warren Buffett could misunderstand capitalism, it is but natural to see typical misunderstanding of capitalism similar to Rev. Stephens’. This is where we need discernment to see beyond the appearances of things and also the ability to distinguish between dominant social themes and alternative story.
The influence of mainstream media is very powerful to shape public opinion. Add to it the popularity of both the external and internal critics of capitalism. From the outside, we have the Marxists; and from the inside, we have people like Scott Stephens who himself enjoyed the blessings of capitalism. Both camps agreed in their analysis of the inherent flaws of capitalism.
The fear of Peter Schiff is not at all baseless. He is worried that the worsening crisis would be blamed on capitalism. This is exactly what is happening. Only few are able to take a deeper look at capitalism and realize that the so-called “inherent flaws” are really not coming from the free market, but from another version of it.
A good place to start in this social discernment is to learn the distinction between the economic positions of Warren Buffett and George Reisman. But before we do that, allow me to identify first the misunderstanding in Scott Stephens’ article. After reading Stephen’s article, you can compare it with George Reisman’s open letter to Warren Buffett and see for yourself the discrepancy between two versions of capitalism.
Scott Stephens rightly identifies as “dishonest money” the modern economic phenomenon of monetary expansion. The 2008 crisis not only exposed its faulty foundation, but according to Stephen should also lead to self-examination as to our participation in this crisis due to greed and extravagant lifestyle. Furthermore, it ought to direct us to a realization working for common good and the need for alternative community with a different economic system. He looks to the Church to provide such a community with an economic system different from capitalism.
This is the point that disturbs me, his association of “dishonest money” with capitalism. He appeals to history as his basis. He identifies that monetary expansion has been in existence since 4th century B. C. Aristotle was actually “shocked to observe that the efficiency and simplicity of the market seemed to unleash something monstrous in the human heart.” He further narrates that as people perceived the potential of monetary expansion, they started to lust after unlimited profit. This seemingly unlimited increase in the quantity of money carried with it destructive moral vices like greed, dissatisfaction, and loss of self-control. Stephens then mourned that those destructive vices in time have been turned into “celebrated virtues” serving as the basic foundation of modern economy. He then concluded, “Capitalism thrives only through these vices.”
As we will see in Reisman’s open letter, it is not actually the free market that unleashed those destructive vices. It was something else. It was the government intervention appearing as “free market.” Stephens’ reading of capitalism is a typical example of misinterpretation of capitalism and an evidence of the success of intervention done by the state.
Stephens’ hope “that those in positions of influence will find a just and effective response to the current credit contraction,” is actually a resignation. Can we really expect that those in power would initiate genuine monetary reform apart from the initiative of an informed public? As Murray Rothbard rightly identifies that due to the combination of both evil and good in human nature, those in power could actually utilize their privilege position for legalized theft.
Stephens’ longing for an alternative community with a different economic system exemplified by the Church could only happen on the basis of a solid understanding of what is really going on. This requires education leading to concrete action. Here I think the Austrian school of economics could provide the necessary tool for us to re-examine the real nature and character of free market economy.
Do you really know what “free market” is? How about “capitalism”? Think again.
During the initial stage of my study of Austrian economists, I was repeatedly warned by several article writers in the use of terms. They keep on saying the need for distinction to avoid confusion. One example is the association between “Austrian thinkers” and “libertarians.” I commonly used these two terms interchangeably though I am aware that the former is originally a description referring to a group of thinkers whose primary concern is to establish a sound economic theory and the latter is more appropriate as a political description. Another example for need of distinction is between freedom and liberty. Someone said that liberty is inherent, while freedom is earned in the battlefield. This is somehow related to John Stuart Mill’s distinction claiming that liberty is “the freedom to act,” while liberty is “the absence of coercion.”At least in these examples, we have two separate terms. Personally, I have no problem using them synonymously provided that the distinct use of them is remembered especially when used in a specific context.
The task in clarifying terms turns difficult when similar terms are used, but with different meanings. An example of this that I recently encountered is the use of the words “bourgeois” and “proletariat.” The way Karl Marx employs these terms is different from the way an Austrian economist like Wilhelm Ropke uses the terms. But again, at least we have a clue to clarify the confusion for most people obviously know that the two men are coming from two separate intellectual camps. We cannot say this in the use of the terms “free market” and “capitalism.”
I happened to have an opportunity to exchange ideas with a proud Marxist in Facebook. The thread is about the evil of capitalism. And of course, associated with it, is the idea of free market. The Marxist dominates the discussion and it appears that no one could refute his argument. And then, I added my comment saying that as far as Wikipedia is concerned, there at least 15 variations of capitalism, and I made an argument that the kind of capitalism that Marx attacked was not the capitalism of the Austrian school. He replied and gave me an overview lecture of what Marxism is and mentioned a little bit about the Austrian school as a group who protests against central banking, but I think, he still maintains the idea that capitalism (and free market) is just one. And then I happened to read one “tweet” from Mises Institute about George Reisman’s open letter to Warren Buffet. I posted the link on the thread and made a comment that here is one example of a believer in capitalism rebuking a wayward capitalist.
Doesn’t Adam Smith believe in free market system and capitalism? How about John Maynard Keynes? How about Milton Friedman and the Chicago School of Economics? And finally, how about the Austrian school? Here the task of clarifying terms is not easy for the economists using them seem to be coming from one camp.
In Gary North’s The Monetization of Everything posted last July 28, 2012, he mentioned about the influence of Milton Friedman as the primary thinker that established the theoretical framework to justify the existence and operation of central banking. In this sense, we can say that his influence in the field of economics is either almost equal or perhaps surpassed the influence of John Maynard Keynes. To me, what is surprising about Friedman’s influence is that while he paved the way for the US government to gain advantage of central banking, he at the same time, opposed the expansion of government’s power. Richard M. Ebeling made this clear in his article, Milton Friedman and the Chicago School of Economics.
While searching for data about Friedman and the Chicago School of Economics, I am anticipating that I will encounter information about them identifying them as belonging to the Keynesian camp. But to my surprise, Friedman and CSE opposed Keynesian economics. So I do not know what to do with North’s analysis. Not until I found Robert Murphy’s article posted last June 20, 2011, The Chicago School versus the Austrian School.
I did not carefully read Ebeling’s article at first. But when I reread it again, I understand that he too made a clear distinction between the Chicago School and the Austrian School, and at the same time, he mentioned few commonalities. However, it is Robert Murphy who made it crystal clear the distinction between the two schools. Yes, in terms of opposition to Keynesian economics and basic free market ideas, the Chicago School shares them with the Austrian School. Moreover, the differences are too great that one wonders how these differences influence the actual economic practice. And the Chicago School is doing this in the name of free market and capitalism.
Reading Murphy’s article, he identifies that the areas of discrepancy between these two schools are in epistemology, methodology, interpretation of business cycle, application of Coase theorem, and above all, in policy about the supply of money. I will not elaborate on all these differences. I will just mention two.
Following Mises, the Austrian school in general (except Hayek and Kirzner), claims that a sound economic theory should not attempt to be scientific due to the absence of necessary empirical evidence and its very nature that can only be verified by reason alone. This unsound move to make economics a scientific enterprise that afflicts all schools of economics including the Chicago School is the bane of economics since the time of Leon Walras (1834-1910), the so-called “mathematical economist.” Erick D. Beinhocker (The Origin of Wealth, 2006) claims that the bringing of mathematics to economics is an attempt to create a scientific theory of economics to make the system predictable. Beinhocker further claims that many experts these days from various academic disciplines acknowledge that Walras’ importation of the concept of equilibrium from physics is a critical scientific misstep that resulted to serious consequences that plagued economics since early 19th century.
Finally, the difference in idea and policy surrounding money supply further results into different understanding about the role of the Fed, the nature of monetary crisis, and the proposed solution to it. This is the greatest discrepancy between Chicago School and the Austrian School, two schools of economics that advocate both free market economy and capitalism.