Is Warren Buffett a Communist?

Many would laugh at the idea implied by the above question. How could a person in his right mind ask such a question referring to the most successful capitalist investor of our time? But such a question was asked by an informed economics professor to the great billionaire. His name is George Reisman.

George Reisman

In November 26, 2006, Ben Stein of the New York Times reported his interview with Warren Buffet. The billionaire admitted the reality of on-going class warfare initiated by the rich class and claimed that they are winning. George Reisman was worried about the social implications of the billionaire’s statement that prompted him to write an open letter after six years. In the middle of the letter, Reisman asked Warren Buffet, “You’re not a communist, are you?” And in the concluding advice, Reisman stated referring to Warren Buffet and his capitalist friends:

“And, of course, even you and most capitalists are not in fact advocates of capitalism, because you and they have accepted the essentials of Marxism along with almost everyone else.”

Our goal in this article is to introduce the real character of capitalism by presenting the main ideas in the open letter. We hope that this summary would provide an overview of capitalism and clarify common misconception about capitalism as exemplified by Scott Stephens.

The open letter is very educational. The major obstacle reading it is its length. It has 20 pages with 9,206 words. So I doubt if anyone would spend time reading such a long open letter.

Reisman started the letter with direct questions addressed to the billionaire implying that the latter was not really aware about the implication of his statement on class warfare. He then explained class warfare coming from Marx’s exploitation theory where capitalists are perceived as enemies of majority of humanity.

After giving that brief “lecture,” Reisman clearly identified that Warren Buffet’s understanding of capitalism has nothing to do with the real nature of true capitalism. He blatantly said that the billionaire was in fact ignorant about the actual character of capitalism and in terms of understanding “the most fundamental matters of economic theory and economic policy” the economics professor described Warren Buffett as much an “ignoramus” as he is “a ‘genius’ in the field of securities trading.” The professor then admonished the billionaire to correct his misconceptions and to withdraw his statement on class warfare.Warren Buffett

After stating his admonition, George Reisman mentioned that despite of the billionaire’s misunderstanding of capitalism, the latter has actually blessed humanity with better standard of living due to his capitalistic endeavors. Seeing from this perspective, capitalists therefore are not exploiters and enemies of humanity as Marx’s exploitation theory emphasized, but innovators and benefactors. Self-inflicted guilt therefore among Warren Buffett and his friends is unnecessary. If Marx’s theory is correct, no amount of philanthropist acts could atone for the alleged crimes of the capitalists.

By “philanthropist acts,” I refer to the giving pledge signed by Buffet and his fellow billionaires and to his idea of raising taxes for highest earners and heaviest investors. According to the professor, these acts would finally result into the reduction of general standard of living due to its impact on production capital. In short, instead of helping society, such measures would actually lead into further economic destruction.

George Reisman then proceeded to explain the role of inflation (increase in money supply) in connection to capital gains. He believes that capital gains should not be taxed for they are not real gains. He then claimed: “The combination of inflation and capital gains taxation is a racket that puts money into the government’s hands at the expense of its citizens.”

The professor believes that the right way “to reduce the burden of taxation in the economic system is to start with the reduction of the taxes that land most heavily on saving and investment.” He further affirms that this type of tax reduction if complemented with similar reduction in government spending and regulations would result to better economy and higher standard of living.

George Reisman is against Warren Buffett’s idea of raising taxes for investors for the funds that would be collected could be utilized to finance more regulations hampering free market. Instead of increasing taxes, the professor advised Mr. Buffett to invest all the more in business capital for that would provide employment and the necessary products and services for the people.

The economics professor sees that socialism is the greatest threat to economic freedom. He mourned that the US Supreme Court has already abandoned its duty to protect people’s economic freedom for the last 75 years. Congressmen have passed laws under the influence of Marxist ideology. The real culprit for the economic woes of our time is the government’s growing intervention to prevent people from exercising their freedom to act concerning their basic economic rights and property. If this growing intervention of the government over the economic freedom of individuals would not be corrected, the future of humanity would be slavery and genocide as history clearly demonstrated to us in the experiences of Nazi Germany, Soviet Russia, and Communist China.

Capitalism

The only way to reverse the widespread influence of Marxism in the academe, the increasing restriction of people’s liberty, and the worsening economic tide is through an intellectual movement. The professor is calling Warren Buffett and his fellow billionaires to educate themselves in the economic theory and political philosophy of capitalism. He then introduced a list of free market thinkers and their books with specific emphasis on Ludwig von Mises and his works. He summoned Warren Buffett to finance this intellectual movement by helping spread those books in colleges and universities. He dreams to see of intellectuals to have deeper exposure in the ideas of best defenders of capitalism. He believes that the success of this intellectual movement would serve as the basis “for a peaceful and ever more prosperous world.” He describes that future dream as follows:

“…a world of respect for property rights and all other actual individual rights. This would mean a world of free trade, freedom of investment, and ultimately the free movement of people from everywhere to everywhere. Such a world would be a world in which no motive would exist for territorial aggrandizement on the part of any country, since its citizens would already be able to gain everything they might wish from the territory of any other country simply by buying its products, investing in it, or living in it.”

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Typical Misunderstanding of Capitalism

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.

Free Market

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. 

Part 2