14A045 Capitalism, Real and Bogus by Jim Davies, 10/1/2014    

Capitalism gets a very bad press these days, especially from the Left; lurid attacks blame it for every ill in the world. But none of those many attacks that I've seen specify which kind of capitalism is being excoriated. I get the impression the writers suppose there's only one. They are wrong.

So this edition of the ZGBlog will try to sort out the good from the bad.

First let's define the term. I understand "capital" to mean the class of resource that is not in use for day to day needs like food, shelter etc., but which is saved and allowed to build up for the purpose of investment. "Investment" means, in essence, buying tools with which to produce more with the same amount of labor. A primitive man may fish, and spend most of the day catching enough food to live on, but if he can save some of his time and construct a net (investing time, ie his capital) he will catch more for the same labor. He's on the road to wealth. One of the wonders of the 18th Century was that inventions and investments in agricultural techniques and tools meant that less than 90% of society was tied to the farm; those no longer needed to grow food got busy in other enterprises and so began the Industrial Revolution in the 19th Century, which lifted scores of millions out of squalid poverty for the first time ever.

Enterprises made profits, some of which were retained and invested in yet more machinery to produce even more, and a virtuous cycle of productivity resulted. The last 200 years of history have transformed human society wherever that capitalist process has been followed; work, save, invest. Without a shadow of a doubt, such real capitalism has been and still is the greatest friend the poor have ever had. For as long as it continues to be followed, there is no known limit to the prosperity people can create and enjoy.

In a free society, one where no government exists to impose constraints and distortions, that process (work, save, invest) will be followed, for the simple reason that it's the one that succeeds. Absent constraint, humans labor to improve our lot. Call that "greed", if you like; in that sense, greed is good. Greed becomes morally bad only when someone takes a short cut through the "work" part of the formula and steals instead, often by the proxy of getting laws enacted that transfer to him the fruits of his neighbor's labor.

That leads us to the unhappy case of what is still perversely called "capitalism", but which is certainly bad capitalism, or rather not capitalism at all. What happens is that an outsider called "government" interferes with the process (work, save, invest) by over-ruling the decisions being made. Some of them actually direct labor, ruling who will work on what job and where, regardless of the person's own choice; that's Plank #8 of the Communist Manifesto. They also over-rule the amount that can be saved, by taxing away (Plank #2) most of it, and even direct how investment shall be placed, using the stolen or taxed funds for projects favored by themselves instead by those who earned the money by honest labor. This three-fold distortion destroys the capitalist process almost completely; and yet, in a wickedly Orwellian deception, it is still called "capitalism"!

One result of government interference is that enterprises of any size can no longer make their own decisions, about the use of capital or anything else. They must conform to the wishes of a self-appointed élite, none of whom made a living as entrepreneurs, ie by pleasing customers. This stimulates a reaction; the business owner is forced in his own interest to minimize the damage by playing along with government. So he lobbies and wines and dines those with power to enhance or destroy his enterprise, and finds a benefit; he can use the power of government to hobble his rivals.

This is especially true when he is big and they are small. He can lobby for a new regulation that imposes a fixed cost on all players; it will add perhaps 1% to his own costs (which he will pass along to customers as a price hike) but 10% to those of his smaller competitors. There is therefore a very ugly synergy between big business and government.

In some cases the ugliness goes further; for example a large company making weapons for the government has an obvious interest in seeing them used in warfare (so he can sell replacements), and so may donate most generously to funds that help re-elect "hawks" who will vote for more war. This is the kind of "capitalist imperialism" that enrages the Left, and it enrages me too. It leads some to conclude that the people really calling the shots are not the politicians (bad enough) but the companies funding them (even worse) and I examined that possibility in Dogs and Tails.

So that cozy relationship is the bad, or bogus capitalism; and I join any on the Left or anywhere else who deplore it. I ask only that it no longer be confused with the real thing, above; instead, call it by its proper name, "Fascism" - which Mussolini defined rightly as "everything in the state, nothing against the State, nothing outside the state." Communist socialists seize ownership of large companies (and ruin them) - fascist or national socialists leave their ownership nominally where it belongs, but control and milk them.

It remains just to point out the obvious: when government has imploded and there is no longer a state, the two that are always required for a tango will be down to one; so the only remaining kind of capitalism will be the genuine article. That's why that zero government society will progress to prosperity never yet imagined.