A new legislative session is around the corner. It will be tumultuous,
featuring two levels of conflict: 1) disagreement between lawmakers who
have genuine divergent economic points of view regarding the role of government,
and 2) disagreement between informed lawmakers and the rest of their colleagues
who naively swim in pools of economic ignorance. The first type of conflict
spawns healthy debate; the second cheapens the whole decision-making process.
Lawmakers make decisions on our behalf, but what do they really know about
the economic system we Americans depend on? The next two issues of Living
Liberty will discuss democratic capitalism and what we can do to ensure
its survival.
A gaggle of anti-capitalists noisily marched on Washington D.C. last month.
They marched in Seattle last year and they will march in other high-profile
places before year’s end. Most of the participants are young, well-fed,
and warmly clothed; that is, until the oppressive constraints of capitalism
(and the presence of television cameras) compel them to shed their covering.
How have the marchers obtained the sustenance of life, which they clearly
enjoy? What part has capitalism played? If we got rid of it, would the rest
of the world be better off? Is capitalism merely a feel-good deal with the
devil?
On at least one point, most of us agree with the anti-capitalists: Too many
of our fellow human beings around the globe suffer poverty.
Capitalism defined
Blaming capitalism for poverty displays ignorance about capitalism’s
definition and its incontrovertible link to human nature. Humans naturally
engage in rational self-interest. No matter where we live on this planet,
we are driven to find food, shelter, safety and freedom. Our efforts to
accomplish this ultimately establish an economic system of some kind. Most
people want to better their lot in life and respond favorably to opportunities
to do so.
Why do some people succeed in these endeavors, while others fail?
Success depends on the answers to a few questions such as: How do we get
the things we need or want? Who decides? Under what circumstances will we
take risks or postpone immediate satisfaction to obtain those things? What
will keep others from plundering the fruits of our labor?
In this country, we have chosen democratic capitalism to answer those questions.
Successful capitalism does not depend on who has the most natural resources.
(Look at Hong Kong, built on a pile of rocks, with only a seaport to recommend
it.)
Capitalism depends on individuals, rather than government, owning and managing
the factors of production (see factors of production on diagram). It depends
on a political system that provides freedom and opportunity.
Capitalism rewards us for providing goods and services to our fellow human
beings; in fact, we succeed financially only when we provide something consumers
want or need. Cooperation and service are two of capitalism’s cornerstones.
Another cornerstone is integrity. Businesses that take unfair or unjust
advantage of customers or shareholders eventually fail, or are forced to
make changes. The importance of integrity in business can be felt today
by the effect of our lack of confidence in our national economy.
Wealth redistribution and economic opportunity take place naturally under
capitalism. Government entities are not needed to redistribute wealth when
free people can negotiate prices and opportunity. Furthermore, capitalists
are the most generous people in the world.
What happens to people who live in countries that have chosen socialism
(under communist or totalitarianism regimes) instead of capitalism? Unless
they have big guns and/or are members of the ruling elite, they suffer poverty.
This is because the root of economic oppression is disdain for the doctrine
that all men are created equal before the law. Economic justice requires
political justice, and neither can survive without freedom based on the
rule of law, not the rule of might. Over time, people are more prosperous
in countries whose political systems are based on maximum human freedom
and minimum government ownership and regulation.
Anti-capitalists believe governments are more enlightened, less selfish,
and can better organize work and redistribute the wealth work creates. Their
theory is called radical socialism, and it has been a dismal failure in
every corner of the world where it has been practiced.
Why has socialism failed? In simple terms, it ignores the best and worst
of human nature. Governments are not benign: They are designed and run by
flawed human beings. When we have power over others, we are fully capable
of rationalizing running roughshod over the personal, political and economic
interests of others.
Governing systems that exchange equal opportunity for equal outcomes deprive
people of the necessary motivation to do better. Why bother, if the extra
income you produce will be taken away and given to someone else?
But shouldn’t we be more generous because we capitalists already have
so much? I think so, but who am I to say? Do you really want me, or some
elected official, making this decision for you? What is too much?
Is it fair that some people are wealthy, while others suffer in poverty?
Of course not. Lots of things in life aren’t fair, but capitalism provides
better opportunities for those who are struggling than any other economic
system.
Anti-capitalists, therefore, are raging against the wrong enemy. To remedy
global poverty, they should demonstrate against the obstacles to capitalism
–obstacles like political oppression and government interference in
the marketplace.
The great debate
Less radical than socialism, but still deeply troubling, is the statist
view that, while government shouldn’t outright own most of the factors
of production (see diagram), it has a duty to regulate business, redistribute
wealth and to use tax policy to shape social policy. It redistributes wealth
by taking money from some, in the form of taxes, and giving it to others
through what is called “transfer payments,” like welfare, social
security and unemployment. Through regulation and tax policy, government
indirectly answers the questions of who will produce what goods and services;
how those goods and services will be produced and who will get them. This
is called “managed capitalism.”
Only a certain amount of money circulates in our economy, as the chart illustrates.
Since government has no money of its own (a startling revelation to many),
whatever money it possesses has been taken away from businesses and households.
In making the decision to take the money, government officials have decided
that the benefits associated with them spending the money outweigh the benefits
that would have occurred if households and businesses invested or consumed
the money they earned.
Most of our current legislators believe managed capitalism is necessary
to curb the excesses of the free market. The legislator who wrote most of
last year’s budget, Senator Lisa Brown (D), teaches college economics,
and she believes managed capitalism is necessary. Her budget and legislative
track record sum up her economic beliefs: Government exists to meet people’s
needs and to curb the excesses of the market.
So what’s wrong with Senator Brown’s notions? What good is a government
that can’t meet people’s needs? And what would happen if government
didn’t intervene during times of excess or dysfunction? What really
happens in the national and state economy when government takes money from
households and businesses? We will answer those questions in the next issue
of Living Liberty.
In the meantime, anti-capitalists can be assured that democratic capitalism
is not a deal with the devil; rather, it is a voluntary and conscious exchange
between people who live under a governing system that guarantees them equal
opportunity. The next time they put on their boots and Birkenstocks, it
oughtn’t be to kill capitalism, but to export it.
Living Liberty is the Evergreen Freedom Foundation's monthly
newsletter. It provides updates on the issues and projects EFF is currently
working on. You will also find commentary on state and sometimes federal
government issues.
Living Liberty is available for our members only. Please click here if you would like to become a member.
At a March 23, 2005, House Appropriations hearing on a bill to gut the voter-approved I-601 spending limit, Rep. Jim McIntire (D) asked a supporter of I-601’s two-third supermajority requirement for the legislature to raise taxes the following question:
"Can you name a time when we [legislators] have actually not just set it [supermajority requirement] aside by majority vote? I mean, this is in many respects a procedural motion that has no bearing. It’s a statutory constraint that cannot constrain any legislature that chooses as a majority to set it aside . . . have we ever used a supermajority [to raise taxes]?"
Receive Updates · 
