We're all Marxists now!

The fifth plank of the Communist Manifesto reads:

Centralization of credit in the hands of the State, by means of a national bank with State capital and an exclusive monopoly.

For those of you unfamiliar with the Manifesto, it outlines a plan to overthrow the Bourgeois and bring about the full "blessings" of Communism. The 10 planks are the conditions that must exist before a transition to Communism is possible. So far, we've already met planks 2 (A heavy progressive or graduated income tax) and 10 (Free education for all children in public schools), and were brought closer to 4 (Confiscation of the property of all emigrants and rebels) with the passage of The Patriot Act and various other abominations under the Bush administration. The impending purchase of ownership stakes by the Treasury Department in private U.S. banks gets us closer to plank number 5.

WASHINGTON - The Bush administration is considering taking ownership stakes in certain U.S. banks as an option for dealing with a severe global credit crisis.

An administration official, who spoke on condition of anonymity because no decision has been made, said the $700 billion rescue package passed by Congress last week allows the Treasury Department to inject fresh capital into financial institutions and get ownership shares in return.

Democracy is a Big Fat Failure

I'm one of those people who gives his Congresscritters hell about everything. I email them and call their offices anytime a piece of crap legislation comes down the pipe, and I often get their canned responses telling me they're going to do this or that, regardless of what I say. The recent bailout bill was no exception. I emailed both Senators and my Congressman about that steaming pile of destructive garbage several times, and I called their offices and had protracted discussions with their lackeys about it. Without exception, each of them told me that public opposition had been overwhelming, quoting numbers of calls and emails received in ratios anywhere from 25:1 to 300:1 against the bailout. I was encouraged that the public had finally mobilized and made clear its wishes to our representatives in Congress, and I thought that such indisputable public outcry might mean the bailout bill would meet an appropriate end as bedding in some kid's hamster cage. Unfortunately, my optimism was unfounded, and Congress took us further down the road to economic ruin by passing the $700 billion bailout. What a great day for democracy, huh?

I now know, beyond any doubt, that representative democracy is a complete and total sham. In one stroke, Congress has shown complete and utter contempt for those they are elected to serve. By voting against the wishes of the public they have illustrated that they don't give a damn what we think, and that they believe we're all far too stupid to know what's good for us. It's not that I had any great faith in democracy to begin with, but this just puts the final nail in the coffin.

So what happened? Put simply, members of Congress do not have your interests at heart when they go to vote on a piece of legislation. There are a few exceptions, but by and large they are all working to further their own agendas and pet projects. In some cases, their intentions are good, but because government really has no way of knowing whether or not it's doing the right thing (because it neither profits nor suffers loss as a result of its actions), the policies undertaken are nearly always disastrous.

Really, it's not even a problem with the people in government. On the one hand, they're just people like you and me...no smarter than us, no less fallible, no more immune to the trappings of vice and greed...yet they are somehow expected to be immune to normal human failings simply because they've been elected. Even the most noble-minded individuals, once elected to seats of power, are soon swallowed up by the machinery of bureaucracy...the plethora of perverse incentives, the focus on procedure over outcomes, the complete lack of meaningful feedback, the near total insulation from the possibility of being replaced during the next election. Then of course there are the malevolent, power-hungry, career politicians, who will do or say anything to get elected, then focus completely on their own enrichment at the expense of taxpayers. Either way, we (the public) lose.

It can be no other way. These flaws are built into the machinery of government, and as romantic an idea of a Constitution that limits the power of government may be, it is obviously powerless to constrain the desires of Leviathan. Those who seek power will use it to gain more power. Those who can get away with doing whatever they damn well please despite the wishes of those who elected them will do so without fear of retribution. It is a grave error to believe otherwise.

How, then, can we expect government to protect us, to work toward the betterment of society, or to make anything better? The fact is that we can't, and we shouldn't. Government can defend us no better than we can defend ourselves. Government can provide for us no better than we can provide for ourselves. Government can do nothing good for society when it institutionalizes all the worst things of that society...violence, fraud, coercion, theft, you name it. Government is the manifestation of all these things, and as if that weren't enough, it wields the power of force to bend us all to its will.

I'm done. I refuse to participate any longer. I won't get out of bed any earlier on November 4th than on any other day. I will still grudgingly pay my taxes simply because my refusal to do so would impose costs on others who don't share my views. This great democratic experiment has been a colossal failure, and I only hope that someday others wake up to this reality and decide not to participate anymore as well.

Couldn't Have Said It Better Myself

A recent book review on Mises.org sparked a debate on the legitimacy of the State. Various posters commented on everything from the establishment of government to the workability of anarchy. One post in particular stood out so much that I felt it bore repeating.

"According to the Declaration of Independence, if the government is not serving your best interests, you are entitled to overthrow it. Given the costs of overthrowing any government, it is apparent why most people prefer paying their taxes and taking their chances with the depredations and destructions heaped on them.

Nevertheless, history is also replete with cases where governments were violently overthrown and the rulers liquidated when oppression became so severe that opposing became more palatable to remaining in subjugation. I have confidence that America will suffer the same fate since we see the sign posts on the same road that all nations have traveled.

Empires rise and fall, but human nature never changes. Every generation starts fresh and repeats the same mistakes because people cannot believe that they are like their ancestors. And so all the world cycles through the phases of civilization and destruction. Alas, we are caught in the decline."

This reminds me to keep a few things in perspective: First is that there will always be those who seek power. Likewise, there will always be those who believe that someone must be in charge of everything. And finally, that ideas change the world.

I don't know if it will happen in my lifetime, but eventually the masses will tire of the incremental destruction of liberty, the constant theft of our earnings, and the endless lip service paid by politicians to the principles Americans once embraced, and they will take action to end it. Until then, I will remain a champion of freedom within my own sphere of influence, and I will take heart in knowing that one day the cycle will start again. Perhaps next time they'll get it right.

Non-Coercive Environmentalism

Now, this is the way it should be...partnerships between businesses and environmental groups, instead of heavy-handed, destructive government edicts.

Think of what a "market" is comprised...individuals and businesses exchanging value for value. Each player participates in the exchange because they both believe they will be better off for it. This is exactly the same principle that is at work here. Businesses exchange what environmentalists value for what businesses value. In the end, both are better off than they were before. Environmental groups make progress toward their goals, while businesses receive the "green" seal of approval and improve their reputation with consumers. It's win-win...value is created for both parties.

On the other hand, government edicts destroy value by forcing businesses to exchange something of more value to the business, for something of lower value. Businesses expend resources reducing pollution, with nothing to show for it. As if that weren't enough, the cost of enforcing the edicts takes money from the hands of consumers that could be put toward more environment-friendly products. It's a lose-lose. As in nearly every other case, government inaction has been a good thing. It has allowed the market to respond by creating value, which is what markets are good at.

The holdouts who claim that environmental groups are "compromising too much" will forever be unable to come to grips with this reality. Markets are all about compromise. Any time you spend money on something you compromise whatever else may have been bought with those funds. By giving up one thing, you have gained something of greater value. The Sierra Club may not have gotten its hearts' desire of a complete ban on pollution of any kind, but rather than spending resources lobbying for this or that legislation, perhaps fruitlessly, they have actually accomplished something through compromise. Let's hope they keep it up.

Isn't MORE Recycling the Whole Point?

Yes, ladies and gentlemen, it's a crime to recycle in some major U.S. cities. Or it soon will be. With the market prices for recycled goods actually reaching a level that makes recycling profitable, bands of entrepreneurs have rushed onto the scene to make a buck by "stealing" recyclable materials from trash cans. A few major cities are cracking down on these trash thieves, in a bid to ensure that recycling remains a government monopoly.

"California lawmakers are also considering legislation that would make large-scale, anonymous recycling more difficult by forcing scrap and paper recyclers to require picture identification for anyone bringing in more than $50 worth of cans, bottles or newspapers and to pay such individuals with checks rather than cash."

So, let me get this straight...state and city governments supposedly want people to recycle, right? Most people believe that recycling is a good thing, which is not untrue. The problem with recycling to date has been that it wasn't profitable, so the only way it could be sustained was if it was subsidized by taxes. Now, suddenly it's profitable to recycle, so more people are doing it. You would think this is a good thing, right?

Well, the government obviously doesn't think so, and neither do their monopoly contract holders. Why not? You might think that a waste collection company could care less, and may even be thrilled that private individuals are doing a portion of their work for them. After all, refuse theft means less they have to pick up and less they have to dump into a landfill. It would save space, time, and money. So why would they condemn the practice and lobby for laws prohibiting it? Because it threatens their monopoly on recycling...plain and simple. If private recycling becomes a profitable enterprise, the subsidized government bureaucracy loses its raison d'etre, since its only reason to exist is to provide a service that supposedly couldn't or wouldn't be provided by a free market.

Now, I certainly am not one to advocate theft, and you could make the argument that refuse left by the curb to be picked up by a collection company belongs to either the producer (the resident disposing of the refuse) or the company. And, of course, stealing newspapers out of the rack in order to recycle them would rightly be considered theft...except that we're talking about "free" newspapers.

"The free weekly The East Bay Express, which covers Oakland, Berkeley and other Bay Area cities, hired an ex-police detective to stake out thieves and began retrofitting curbside newspaper racks to make them theft-resistant because thousands of fresh copies go missing some weeks.

"We don't want to be spending all our energy printing papers that people take directly to the recyclers," said Hal Brody, the paper's president.

Mike Costello, vice president of circulation at the free San Francisco daily, The Examiner, has taken to doing stakeouts of his own." (emphasis added)

These newspapers are probably free because they're paid for by advertisers, so the argument could definitely be made that the recyclers are stealing from the advertisers themselves. However, the fact that they're being stolen specifically for recycling would seem to indicate that they're more valuable as recycled material than as actual newspapers, which should probably inspire the advertisers to rethink that particular marketing choice.

But why should a homeowner care who takes possession of his or her trash once they place it next to the curb for pick-up?

"Every Wednesday night, Bruce Johnson dutifully puts his garbage and recycling on the curb for pickup, and every week he fumes as small trucks idle in front of his home and strangers dig through his bins stealing trash they aim to turn into treasure."

In most cases, residents don't pay for their trash pick-up directly. Rather, it's paid for via taxes or homeowners' dues. The same is often true of recycling (although in some rural areas homeowners must actually pay to have recyclables picked up separately). One would think that if someone was willing to pick up a portion of a homeowners' garbage for free it would spur competition among waste collection companies for contracts. This is, of course, precisely what the government monopolists don't want.

So here we are, at a point where one can actually turn an honest profit while "saving the planet", but rather than embracing the benefits that this newfound profitably would bring in a free market, bureaucracy is fighting it tooth and nail, as it threatens its very existence. Surely we all see the irony herein. Government wants you to recycle, but only so long as you use government to do it. All else is verboten. Honestly, were I a homeowner who witnessed my garbage being ransacked for recyclables I would probably feel more inclined to sort the recyclable items into a separate container to speed up the process of undermining the government monopoly on recycling, thereby doing my part to save the planet by encouraging the free recycling market to flourish.

Rants on Corporate Culture - Treatment of Rule Breakers

Let's face it...unless I strike out on my own and start my own business, I'll probably always be a corporate employee. It's just the nature of my job. What I do isn't cheap, and lots of resources are required to attract and keep people like me. So, the best pay, benefits, and growth opportunity for DBAs can generally be had only in a larger corporate environment. I accept this willingly, particularly since my understanding of economics and free exchange provide me with the appropriate perspective to be able to appreciate the benefits that working for larger corporations provides. This is my bed, and I'm happy to lie in it.

Every now and then, though, some things about corporate life get under my skin. The one recent example is something I'll call "Group Remediation". It occurs when one person makes a mistake or abuses some privilege, but rather than discipline that particular person for his or her infraction, the corporate mindset inevitably requires that EVERYONE be trained, counseled, or otherwise made to suffer for it. It's as if, unless something is done quickly, the irresponsible person will infect everyone around him or her with some vile disease, and so we must ALL be inoculated immediately with mandatory group training sessions, policy awareness surveys, and other such corporate vaccines.

It would be one thing if we were talking about a new policy, in which case it makes sense that human resources (HR) would want to make everyone aware of it. Too often, though, it is a knee-jerk reaction to the violation of an existing policy. They call it "proactive prevention", but it's really just a spreading around of punishment, although any HR department member will deny that this is the case even unto their deathbed.

So whence does this mindset originate, and what are the effects thereof? I suspect that the origin of the mindset has something to do with the general tendency to ignore individual responsibility, for which bureaucracy is well-known. Rather than view a policy infraction as a lapse in individual judgment, it is seen as some sort of systemic problem, and must be treated as such. That is not to say systemic problems don't exist, but these are typically a case of twisted incentives directing individual behavior, such as the way a system of government inevitably rewards departmental failure.

The effect of Group Remediation is to alert individuals in no way associated with the infraction that someone in their midst is a rule-breaker. The identity of the irresponsible person is almost never revealed, leaving the responsible individuals to wonder who has caused them all to suffer through this particular instance of corporate hell. The rule-breaker, however, has the pleasure of knowing he or she has cost coworkers time that could have otherwise been spent productively, and wondering who knows it was them. Perhaps this is exactly the point...to drive home the consequences of individual actions by dragging everyone around the individual through the mud, hoping that doing so will spur responsible individuals to "police their own". What a shitty way to treat people.

New Tax Aims to Soak Greedy Oil Companies

House OKs $18B in taxes on Big Oil - USA Today

Hooray! Now those greedy oil companies, who have made record profits by gouging consumers at the pump over the past couple of years will finally have to give something back to the people!

Give me a break. This is yet another example of government idiots talking out of both sides of their mouths. On the one hand, they're shrieking about all the families who have been hurt by high prices for gasoline and heating oil. However, if you can figure out a way this bill won't raise prices even further I'd love to hear it. What are they smoking?

For once, I actually agree with a Republican:

"It punishes the oil and gas industry. This is wrongheaded. It will result in higher prices at the gasoline pump. It's spiteful and wrong," said Rep. Jim McCrery, R-La.

More Consequences of Ethanol Subsidies

This article, in Newsweek, talks about the pressure being placed on water supplies in the midwest due to increased corn growing, for use in the production of ethanol. While this is indeed a boon for corn growers, it can't last forever, and not just because the money runs out. The water is running out as well.

By now we all know that using ethanol as a replacement or additive for gasoline is a losing proposition. Ethanol requires more energy to produce than you get back when you burn it, which means it costs more money to produce than it can be sold for. In a free market, such a product would have limited uses, but thanks to the environmentalist lobby, along with a great deal of misinformation about the benefits of ethanol versus its cost, the public is stuck with it. The only way to make such a product feasible is to use taxpayer dollars to subsidize its production, which the federal government does with glee, and which grants to corn farmers a windfall of potential profit.

The unintended consequences of the subsidy are many. First, the price for corn has skyrocketed, as mentioned in the article. This applies primarily to feed corns, which aren't consumed by humans directly, but which are used to feed cattle and other livestock. With more of the feed corn going toward the production of ethanol, there is less left for feed, meaning that food prices will increase as well. Also, since feed corn is suddenly more profitable than other types of corn, farmland that was previously used to grow human-consumable corn has been re-allocated to the growth of feed corn, so the prices of corn products directly consumed by humans will increase. In fact, the effects have been so far-reaching that in Mexico the price of corn tortillas, formerly an affordable staple food item, has more than doubled. The tequila industry has suffered as well, as former tequila producers torch hundreds of acres of yucca fields in preparation for planting ethanol corn.

Now, we throw in the fact that the additional growing in the midwest is threatening the region's water supplies. In a free market, an increase in the demand for water would be countered by an increase in its price, which would in turn act to discourage its profligate use. In areas where water is a public utility, however, its price is usually fixed, regulated, or subsidized, effectively preventing the natural equalization between supply and demand. Likewise, if the water is obtained by some other means, such as diversion of streams or rivers, or by pumping directly from a lake or reservoir, any or all of which may be "public property", there is little incentive for farmers to curb their water use, as there is no additional cost for using ever more water. Instead, other users of the streams, rivers, and lakes bear the costs of overuse of the water supplies...a classic example of the tragedy of the commons.

Ethanol is all hype and no substance. It has its uses, but that of a general gasoline replacement is not one of them. The continued subsidization of its production will continue to have far-reaching consequences, and the majority of the costs will be born by taxpayers, and by those in society who can least afford it in the form of increased food prices. How does the environmentalist conscience square with foisting the costs of its preferences upon those with the least ability to pay, and how long will we continue to perpetuate the ethanol scam?

I Want to be a Consumer

The following poem, by Patrick Barrington, was published in April, 1934, a couple of years before John Maynard Keynes published his General Theory of Money and Credit, which forever changed mainstream economic thought. In over-simplified terms, Keynes' underlying premise was that the primary cause of recession was "underconsumption". The theory was that production follows consumption, so if consumers decide to save more of their money rather than spend it, the result is overproduction and wasted resources. So all the government needs to do to prevent a recession is to get more money into the hands of consumers so they can spend, spend, spend, and thereby save the economy!

It is true that production and consumption cannot exist without one another, but Austrian economists understand that wealth is built on the accumulation of capital, which is a direct result of savings. The more money is saved (or invested), the more capital there is to lend, thereby lowering interest rates. This serves as an indicator to entrepreneurs of what is known as "time preference", which simply means that consumers (in the aggregate) have shown a preference for spending more money later rather than less money now. This alerts the entrepreneur (or established firm) that the time is ripe to undertake larger projects that will yield higher profits in the future, when consumers will once again be ready to spend the money they have saved.

I Want to be a Consumer

"And what do you mean to be?"
The kind old Bishop said
As he took the boy on his ample knee
And patted his curly head.
"We should all of us choose a calling
To help Society's plan;
Then what to you mean to be, my boy,
When you grow to be a man?"

"I want to be a Consumer,"
The bright-haired lad replied
As he gazed into the Bishop's face
In innocence open-eyed.
"I've never had aims of a selfish sort,
For that, as I know, is wrong.
I want to be a Consumer, Sir,
And help the world along."

"I want to be a Consumer
And work both night and day,
For that is the thing that's needed most,
I've heard Economists say,
I won't just be a Producer,
Like Bobby and James and John;
I want to be a Consumer, Sir,
And help the nation on."

"But what do you want to be?"
The Bishop said again,
"For we all of us have to work," said he,
"As must, I think, be plain.
Are you thinking of studying medicine
Or taking a Bar exam?"
"Why, no!" the bright-haired lad replied
As he helped himself to jam.

"I want to be a Consumer
And live in a useful way;
For that is the thing that is needed most,
I've heard Economists say.
There are too many people working
And too many things are made.
I want to be a Consumer, Sir,
And help to further trade."

"I want to be a Consumer
And do my duty well;
For that is the thing that is needed most,
I've heard Economists tell.
I've made up my mind," the lad was heard,
As he lit a cigar, to say;
"I want to be a Consumer, Sir,
And I want to begin today."

The poem's brilliance is that it illustrates how ludicrous the concept of "underconsumption" really is. Carried to its logical conclusion, it would stand to reason that all we really need is for government to print money as fast as possible, so that people can spend it as fast as possible, thereby stimulating production like never before! It makes one wonder why they don't just go ahead and run the printing press 24/7.

What Can We Really Predict?

My sister sent me the following list of predictions, made by some very notable figures. It certainly makes one question the feasibility of all the doom-and-gloom predictions used in defense of the State these days...global warming and peak oil come readily to mind.

"Man will never reach the moon regardless of all future scientific advances."

-- Dr. Lee DeForest, "Father of Radio & Grandfather of Television."

"The bomb will never go off. I speak as an expert in explosives."

- - Admiral William Leahy, US Atomic Bomb Project

"There is no likelihood man can ever tap the power of the atom."

-- Robert Millikan, Nobel Prize in Physics, 1923

"Computers in the future may weigh no more than 1.5 tons."

-- Popular Mechanics, forecasting the relentless march of science, 1949

"I think there is a world market for maybe five computers "

-- Thomas Watson, chairman of IBM, 1943

"I have traveled the length and breadth of this country and talked with the best people, and I can assure you that data processing is a fad that won't last out the year."

-- The editor in charge of business books for Prentice Hall, 1957

"But what .. is it good for?"

-- Engineer at the Advanced Computing Systems Division of IBM, 1968, commenting on the microchip.

"640K ought to be enough for anybody."

-- Bill Gates, 1981

" This 'telephone' has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us."

-- Western Union internal memo, 1876.

"The wireless music box has no imaginable commercial value. Who would pay for a message sent to nobody in particular?"

-- David Sarnoff's associates, in response to his urgings for investment in the radio in the 1920s.

"The concept is interesting and well-formed, but in order to earn better than a 'C,' the idea must be feasible."

-- A Yale University management professor in response to Fred Smith's paper proposing reliable overnight delivery service. (Smith went on to found Federal Express Corp.)

"I'm just glad it'll be Clark Gable who's falling on his face and not Gary Cooper,"

-- Gary Cooper on his decision not to take the leading role in "Gone With The Wind."

"A cookie store is a bad idea. Besides, the market research reports say America likes crispy cookies, not soft and chewy cookies like you make."

-- Response to Debbi Fields' idea of starting Mrs. Fields' Cookies.

"We don't like their sound, and guitar music is on the way out."

-- Decca Recording Co. rejecting the Beatles, 1962.

"Heavier-than-air flying machines are impossible."

-- Lord Kelvin, president, Royal Society, 1895.

"If I had thought about it, I wouldn't have done the experiment. The literature was full of examples that said you can't do this."

- - Spencer Silver on the work that led to the unique adhesives for 3-M "Post-It" Notepads.

"Drill for oil? You mean drill into the ground to try and find oil? You're crazy."

-- Drillers who Edwin L. Drake tried to enlist in his project to drill for oil in 1859.

"Stocks have reached what looks like a permanently high plateau."

- - Irving Fisher, Professor of Economics, Yale University, 1929.

"Airplanes are interesting toys but of no military value."

-- Marechal Ferdinand Foch, Professor of Strategy, Ecole Superieure de Guerre, France.

"Everything that can be invented has been invented."

-- Charles H. Duell, Commissioner, US Office of Patents, 1899.

"The super computer is technologically impossible. It would take all of the water that flows over Niagara Falls to cool the heat generated by the number of vacuum tubes required."

-- Professor of Electrical Engineering, New York University

"I don't know what use any one could find for a machine that would make copies of documents. It certainly couldn't be a feasible business by itself."

-- the head of IBM, refusing to back the idea, forcing the inventor to found Xerox.

"Louis Pasteur's theory of germs is ridiculous fiction."

-- Pierre Pachet, Professor of Physiology at Toulouse, 1872

"The abdomen, the chest, and the brain will forever be shut from the intrusion of the wise and humane surgeon."

-- Sir John Eric Ericksen, British surgeon, appointed Surgeon-Extraordinary to Queen Victoria 1873.

And last but not least...

"There is no reason anyone would want a computer in their home."

-- Ken Olson, president, chairman and founder of Digital Equipment Corp., 1977

Capitalism vs. the Free Market

I've posted here an article, written by one of my fellow commentators on one of my favorite economics/politics blogs, that beautifully illustrates the differences between the American economy (known by many as "crony capitalism") and a free market. I'm shamelessly thieving this piece because it's so well-written. Enjoy.

Viva Co-operation!
Or, why 20th century ideological discourse missed the point.
By David Chaplin

During the 20th century, the term ‘capitalism’ became a crude synonym for the ‘free market’, even by enthusiastic proponents of liberty and free choice. This is a pity, because the term was originally coined by Karl Marx as a pejorative. Rightly so, but not for the reasons he would have had in mind.

Capitalism and free markets are not the same thing.

The fundamental characteristic of a free market is that participants are free to engage in transactions willingly, without coercion or impediment by the State, and without the interference of any other parties who are not involved in or affected by that transaction. Capitalism is something different (except when it suits any individual capitalist to present himself as a free market proponent): where Capital, as one of the factors of production, engages the legal and coercive powers of the State to advance its particular interests at the expense of any other factor of production, or at the expense of consumers. Or where it engages with the State to capture tax revenues(1) .That’s Capitalism, and it is in ideological terms no different to the labourist Marxist prescription, which seeks to advance the narrow interests of Labour at the expense of the other factors of production, for example landowners or investors.

This crucial distinction is rather subtle, not at all obvious to either the Left or the Right – thus both sides of the bipolar debate have happily come to conflate free markets with capitalism. This is probably because most capitalists rhetorically endorse the broad principles of the free market, having recognised that their earnings and profit generation are at root dependent on the willingness of consumers to buy their products ( which I suppose puts them one step closer to enlightenment than socialists). However, it is a rare capitalist who will pass up an opportunity to boost his earnings through rent-seeking (2) , whether through protectionist tariffs, or restrictions on imports, or monopoly licensing, and this tendency is utterly at odds with the very idea of a free market.

The United States of America is widely regarded as the poster-child of Capitalism, and this is popularly equated to it being the prime example of the Free Market - by its detractors and supporters alike. However, like many others, the US is not a free market. Its tax code, body of Law, and the very way its political system is structured, is characterised by a thickly entangled complex of regulations, interventions, restrictions, and other forms of government interference, each strand calculated to protect and entrench the narrow interests of one or another special interest grouping – thousands, millions of them. Many of which, incidentally, are fundamentally incompatible with one another, generating wasted costs while mutually negating the very benefits they are aimed to secure. Thus, America may indeed be the home of modern Capitalism, but it is hardly more than an insult to the pure concept of the free market. Granted, the American market might be relatively free, and arguably freer than those in many other countries, but ‘free market’ is no longer its defining characteristic – how could it be with a Federal government share of GDP of some one-third?

In short, Capitalism in practice makes no distinction between profits gleaned from rent-seeking and those earned from the productive exchange of value, and it actively develops political institutions which entrench that vice. The Free Market, properly constituted, has no room for rent-seeking at all and naturally disincentivises it. The misunderstanding of this distinction is the central flaw which invalidates the broad socialist thesis: By and large, all of the Western social ills the Left has blamed on the ‘unfettered’ free market ever since Marx, arose out of the rent-seeking behaviour that inevitably follows Capitalists getting into bed with the State.

It’s not competition, it’s co-operation.

There is another, deeper, misconception associated with the free market. This is partly due to the way elementary (neoclassical) economics is taught in schools and universities, and Capitalists simply love it: the Doctrine of the Virtue of Competition. Companies everywhere regard their mission as some sort of sports match against their perceived competitors, some treating it as all-out war. (And some even extend the concept of competition to their trading partners, customer or supplier alike, regarding them as opponents to be beaten down as much as possible, stopping just short of the deal-breaker). The free market is defined by competition, they say, it’s dog eat dog out there, you gotta be the toughest, the biggest, meanest, leanest fighting machines to get your slice of the pie, ‘cos if you don’t, somebody else will steal your lunch. And that’s Good! Equally, and citing more or less the same words, communists and other pink-tinted ideologues bemoan the implicit violence in this view of competition , regarding it as a sad loss of compassionate human values, once again erroneously conflating the ugly elements of capitalistic rent-seeking with the purity of the free market.

Both sides of this view of competition missed the point completely. This misconception arguably does more to entrench economic illiteracy across the spectrum than any other factor, (except perhaps the undead labour theory of value which I won’t go into here). And it makes companies, CEOs and entrepreneurs everywhere lose their way in optimising the performance of their enterprises in their quest to generate value in the hands of their customers where none existed before. Furthermore, it has, in Western, capitalist economies, given rise to the most absurd forms of legislative State intervention to somehow enforce competition through the barrel of a subpoena, backed by the threat of jail or other violence against person and property. Whatever that is, it is not a free market.

Granted, competition in a free market does indeed have a structural role in assuring the productive and allocative efficiency of a market. But it is a subtle and indirect form of competition, completely unlike a sporting match, or a war, where the competitors square off and battle it out directly until a winner emerges and the losers fade behind a cloud of disgrace. Let me let you in on a little secret: The defining characteristic of a free market is not competition, but co-operation. All economic activity, however or wherever it takes place, is defined by the fact that each participant in any given transaction does so willingly, because each expects to gain from having done the transaction. Absent the jackboot force of compulsion from the State or any other party with guns, any party to a transaction is free to choose not to do it if he believes he’ll be worse off for having done it. That’s freedom. You do the same every time you pick up an item in the supermarket and then put it back on the shelf because you have better things to buy with your earnings. In a free market, the interaction between any buyer and seller, in every transaction, represents a friendly, voluntary, mutually-beneficial act of co-operation, with millions upon millions of them every single day making up an economy that accumulates wealth among its participants, each gaining in direct proportion to the value he places in the hands of others. That’s a free market, and it works.

The competition in the free market economy is of an indirect, second-order nature, a residue. If I and my customer are co-operating between ourselves to mutual benefit, that means other suppliers in the same line as I am have lost the opportunity to sell him something similar to what I am selling him. But I need never meet this competitor directly, still less fight with him. That’s neither a war nor a sports match. If I rip my customer off by charging him too much or by supplying shoddy goods, he is more likely to do business with someone else next time. The customer chooses where he gets the best value, and its up to me to offer better value than what others do. Modern corporates and CEOs would do well to remember this: If your mission is focussed on beating your competitors at all costs, what does this say about the importance of your customers? Focus your attention on your customer, your partner in co-operation, keep him happy with your product, service and pricing. And likewise, keep your supplier happy with his co-operative relationship with you. Do this, and everything else falls into place naturally.

Strange bedfellows.

We have seen that the ideological debate that characterised the 20th century, simplistically polarised into capitalism vs communism, free market vs socialism, or simply Left and Right, was based on several economic misconceptions. Indeed, the simplistic bipolar nature of the debate led to some very strange bedfellows: Conservatives on the right, who by and large supported economic freedom, also tended to support the regulation of private moral choices through State force, and of course censorious suppression of dissent. And yet on the Left, those who favoured State intervention in markets also tended to support personal liberties, free moral choices, and free speech ( But only in so far as they didn’t get to actually run a country, when the tune inevitably changes to despotism overnight). It is ironic that either side of this polarity contained half of the Libertarian prescription, strapped to a fundamentally incompatible other half. It seems hardly more than an accident of history that Libertarianism found itself popularly lumped in with the conservative Right. This despite Murray Rothbard’s brief attempt to align the Libertarian movement with the New Left of the 60s. It seems this failed because it proved too difficult to get the Left to understand economic fundamentals and see Marx’s Big Mistake for what it was.

Conclusion – what a waste of ink.

That observation aside, there is rich irony in the observation that the ideology of the Left, while full of the rhetoric of mutual co-operation, egalitarianism, freedom, and compassion for the less fortunate, required nothing less than totalitarian coercion, and the wholesale removal of freedom from all citizens, to advance its aims, simply because the ideology required human beings to behave in fundamentally non-human ways, and of course, it has failed fairly rapidly in every known case.

Likewise, on the ‘right’, the mainstream capitalist ideology of the West based its ideological case on the rhetoric of competition and self-sufficiency, both of which narrow values are completely at odds with the co-operation and mutual benefit that characterises free market trade. Indeed, co-operation and mutual benefit are the defining features of reciprocal altruism, itself deeply embedded in human society: it comprises the very essence of what it means to be human. And yet, behind the rhetoric of ‘life, liberty and the pursuit of happiness’, or ‘freedom and democracy’, the capitalist State has stealthily and relentlessly increased its activity in regulating and constraining just about all areas of human activity and individual choice. Regrettably, this capitalist despotism takes longer to fail than socialist despotism, because within its framework, there is a larger scope for citizens to engage in free, voluntary economic activity among themselves, and this permits them to build value, which blunts their outrage, even as their State confiscates some of that value to fund the perpetuation and entrenchment of its coercive powers.

Thus it was that the polarised 20th century debate between left and right turned out to be a colossal waste of breath – the real issue wasn’t collectivism vs individualism, or communism vs capitalism, or even workers vs bosses. It was always State vs liberty, coercion vs free choice. Barring a few marginalised visionaries who kept the spark of classical liberalism (3) alive, hardly anyone in the 20th century even noticed.

(1) Consider Halliburton, whose core competency is hoovering up tax dollars. That company could not exist without the State as its primary customer.

(2)‘Rent-seeking’: the use of political power or force to capture value from other people without yielding value in return. Not to be confused with mutually-agreed hiring of property between the owner and the user.

(3) ‘Classical liberalism’ as distinct from ‘liberalism’. The distinction is important, because the term ‘liberal’ had been hijacked by the Left by the 1960s, by which time it had come to label the mildly pink part of the ideological spectrum. This forced the successors to the classical liberal tradition find another name – libertarian