WHAT IS CAPITALISM?
By Marilyn MacGruder
July 1, 2014
Why should you care about understanding
the economic philosophy of capitalism?
The biggest reason is because our current situation of debt is
rapidly leading America and Americans to bankruptcy. If American voters (and
Pope Francis) understood capitalism, it is very probable we would not have had
a negative GDP the first quarter of 2014. We wouldn’t have 50 million people
out of work. Had people understood how capitalism is supposed to work, the
corruption that is so effectively leading our nation into third world status
would have been stopped in its tracks long ago.
Whether people like the idea of
understanding capitalism or not, every American has an obligation to know how
the system that is supposed to fuel the economy of our nation works. With
citizenship comes responsibility.
It’s not hard and it won’t bore you too much. It might even give
you the ammunition you need to ask intelligent questions of candidates running
for office to represent you and your interests next November. And that is what
real capitalism is all about: You and your interests.
Basically, capitalism is an economic system where private
individuals control the means of production and provide the capital to fund
production. In a capitalist economy, parties to a transaction, not government,
control and determine prices of assets, goods and services.
We’ve had many attempts to implement stable economic and social
systems throughout the history of the world. We’ve had monarchies – there are
many different forms of them. Some are absolute monarchies which dictate that
when a king or queen says something is the law, it becomes the law – a lot of
people say that sounds a bit like what we have in the United States today.
Some monarchies are democratic – a system of government in which a
monarch is guided by a constitution overseen by a legislative body elected by
the people to represent their interests. There are also Commonwealths and
Principalities and other monarchic forms of government.
Monarchies were preceded by feudalism which also lasted for
hundreds of years. Feudalism was a system in which society was structured on
the basis of holding land in exchange for service or labor… most people were
serfs or peasants who had no rights other than those granted them by the owner
of the land they farmed and to which they belonged. They were part of the land.
If it was sold, the serfs were sold with the land.
A “Federal” government is usually referred to as a “Federation” –
as the Russian Federation is known today. In a Federation, sovereign power is
formally divided between a central authority and numerous regions (states,
colonies, or provinces). In that way, each region keeps some form of control
over its internal affairs. The central government has influence on both
individuals and the regions within the Federation.
A Constitutional form of government functions under a constitution
which provides the system with basic laws and principles under which society
and the government will function.
A Republic is where the people elect members from the public to
represent them and vote on legislation.
Thus, a Constitutional Republic like the United States of America
functions under a Constitution from which the rule of law flows telling society
and government what the rules are – especially restrictions that are placed on
government – and the people elect members from the public to represent them in
upholding the law of the land as stated by the Constitution and to pass legislation
in compliance with it.
In essence, the poverty class moved from being slaves to being
serfs (with ties to the land under feudalism) to being servants (with no ties
to the land on which they lived) and from servants they became labor. The
industrial revolution ushered in large companies who hired not servants, but
employees (and later, unions, of course).
Capitalism is based on individualism – it still is to those who
understand how it is really supposed to work. Only an individual is capable of
making decisions about what best suits his or her desires of self-interest –
and self-interest is the basis of capitalism according to the guy who created
Just as communism is about the state owning property and the means
of production – and socialism mimics it pretty closely in that regard –
capitalism is about individual ownership of property and the means of
production. Capitalism puts the private sector in charge of financing property
and production, not the public/government sector. Had We the People understood
that, perhaps we could have prevented the unlawful foreclosure on the homes of
millions of Americans which have occurred since the 2007 financial “crisis.”
Though government has an obligation to enforce the law (which it does not do today),
We the People have an obligation to understand the laws (which most do not) so
we can stop abuses when they occur. If we don’t take care of our obligation, we
do not have the means to force politicians to take care of theirs.
The father of capitalism is Adam Smith. In 1776, Smith published a
book called Wealth of Nations. In that book, Smith pointed out that individuals
who serve their own self-interest rather than serving the interests of someone
else will productively seek economic activities that give them the greatest
personal rather than the smallest reward. Adam Smith believed that if people
worked for themselves – chose their own careers and endeavors – their
self-interests would benefit everyone. When given the freedom to invest their
labor so it benefitted them rather than just enriching wealthy others, it would
maximize the wealth of the labor class and because huge numbers of people would
be involved in the process it would also benefit the wealth of the entire
nation. Such people, Smith said, would create a “wealth of nations” – and
that’s why the title of his book is Wealth of
Nations. It is this concept that built the Middle Class which is under
attack – as are the economic rules of capitalism. They are using a prostituted
concept of capitalism to destroy the Middle Class and independent business.
That’s why it’s important for you to know these things!
The year 1776 will sound familiar to most Americans who have
studied our history. It was during this time we began, fought and won the Revolutionary
War and freed America – theoretically, at least – from the slavery associated
with royalty. No longer would what the English viewed as a benevolent dictator
– a king or queen who ruled the lands Britain perceived it had the right to own
– no longer would a king or queen in a foreign land tell American citizens how
much they would have to pay for tea or for stamps for their letters. No longer
would British royalty tell Americans how much they owed in taxes of every kind.
We now elect our own government to make these demands on us. We no longer have
slavery associated with royalty. Rather, we have slavery associated with debt –
a debt placed upon our backs by those we elected to serve us.
The Constitution was signed on September 17, 1787 – and the Founding
Fathers immediately had a problem. How were they going to pay for the things
people need – roads, modes of transportation, bridges, sanitation, etc.?
The Founders studied what Adam Smith said in Wealth of Nations – and they studied another of his books
which preceded it, called The Theory of Moral Sentiments. In this book, Smith
considered man’s ability to make moral judgments. It was from this base, he
believed, that humans have a natural tendency that makes them seek their own
well-being. The ideas of Adam Smith were radical when compared to the economic
philosophies of the time – primarily mercantilism. Wealth of Nations is yet today considered the most
important economic work written – yes, even more important than the works of
Karl Marx (my apologies to the liberal communists reading this). Smith’s
philosophy encompassed the values of individualism; Marx’s philosophies
encompassed the values of the collective.
What needed to be done to stimulate the economy of the new nation
Roads had to be built, canals had to be dug – why? So commerce
could grow and expand and so the economy could thrive. The fight between
government subsidies versus private capital began with George Washington when
Alexander Hamilton, Washington’s Treasury Secretary, told the first President
of the United States of America that government subsidies would be needed if
commerce was going to expand.
Some things never change, do they? We hear precisely the same
thing today. Yet, most of the markets which made capital – money – available to
build thousands of miles of private roads without government came from the
private, not the public, sector and they thrived. When government got involved
in building the roads, the same thing happened then as happens now… it was a financial
Government involvement in the private sector (where it does not
belong) has today morphed into what we call “crony capitalism.” What does it
mean when that term, crony capitalism, is used?
Let’s use a recent example of it – ObamaCare. What is the most
provable and the best-known failure of ObamaCare? The failure of the enrollment
Website. It’s a perfect example of crony capitalism.
Were any American companies considered for the contract to build
the ObamaCare Website? No one has been able to find one. In fact, no one has
been able to find anyone who was seriously considered other than CGI Federal
who was given a no-bid contract for $93 million of software and Web site
development. A top executive at CGI Federal was Michelle Obama’s crony – oops,
I mean classmate at Princeton.
Prior to being given this plum no-bid contract by the Obama
Administration to build the ObamaCare Website, what experience did CGI have to
qualify it for the confidence a no bid contract places in any vendor? It had
built a gun registry for the Canadian government – and was fired by the
government for cost overruns exceeding $100 million. CGI leaned on its
experience – cost overruns. The original $93 million contract ended up costing
U.S. taxpayers $678 million (plus – we still don’t have the final bill and to
undo the mess made by CGI and to get a workable enrollment Web site up and
running, another company had to be hired to do that, so more wasted money).
There is crony capitalism, there is social capitalism, welfare capitalism
(both are better called socialism), state capitalism (better called crony
capitalism), and laissez-faire capitalism. Laissez-faire capitalism is
dependent upon transactions between individuals free from government
restrictions, tariffs, subsidies, and minimum regulations. The term is French
and (very) broadly means “let it be.” Based on comments about capitalism made
by Pope Francis, it seems his South American background makes him think
capitalism is what I would term state or crony capitalism. That, Your Holiness,
is not capitalism.
Another example: Federal Reserve Chairman Janet Yellen said she
doesn’t see a bubble in the immediate future. Hmmm… Last year, the market rose
35% and had 20 all-time highs. Our first quarter GDP was a negative (certainly
not performance designed for a 35% increase and 20 all-time highs) and somehow
in Yellen’s mind there isn’t a bubble? If this isn’t an example of market
manipulation by a group of crooks, I don’t know what is. Anyone who doesn’t see
a manufactured result in those numbers just isn’t looking. Get ready for real
time inflation, folks, because that’s what’s coming. Though the Federal Reserve
System is not a government entity, it does determine economic policy for the
America is no longer a manufacturing nation. When President
Clinton signed the NAFTA agreement in 1994, he cost the manufacturing sector
1,500 jobs – that’s the official number but it is much higher than that. And
government’s fixation on no oil, no coal and pushing green energy is not only
costing jobs, it is costing the economy dearly. It is part of the reason our
Gross Domestic Product (GDP) fell 1 percent during first quarter 2014
registering a minus growth factor. Benghazi cost American lives (as did the
Iraq war with territory now being re-taken by terrorists… so much wasted
blood). The IRS and immigration scandals result in perhaps the worst cost – a
cost so dear that once lost it will take generations to regain the people’s
trust. All of these scandals are the result of crony capitalism – or state
Capitalism is a system dependent for its success on free markets
(which we have not enjoyed in this nation for many years). The reason
capitalism no longer works as the driving force of the American economy is
because private sector competition, capital and creativity have been replaced
by political cronyism.
As a concept, capitalism is still alive and quite well. What has
failed is the character of our politicians and the people they were elected to
serve. If we “let it be” as laissez-faire suggests – if we have a laissez-faire
attitude towards our political system – we will lose our Republic and we may
never get it back again.
Politicians serve themselves, not us. To re-elect to office any
serving politician is to fulfill Einstein’s theory that to do the same thing
repetitively and expect a different outcome defines insanity.
How sane are you? How you vote this year will tell that story.
© 2014 Marilyn M. Barnewall - All Rights Reserved