Hey diddle diddle,
The cat and the fiddle,
The cow jumped over the moon,
The little dog laughed,
To see such sport,
And the dish ran away with the spoon.
Children know instinctively that fables and nursery rhymes, such as this one from Mother Gooses Melody, are not intended to be taken seriously. There are adults, however, who go on unthinkingly reciting fables about the failure of capitalism. All adults would do well to heed the warnings of the proverb, Believe nothing of what you hear, and only half of what you see. When I say that the cow did not jump over the moon and that capitalism, as I define it, has not failed, I do not expect you to believe my statement without thorough investigation.
Ask anyone who tells you that capitalism has failed to define capitalism. They will not be able to. They will fail. Even the Oxford dictionary is confused. It goes from giving meanings of the word capital to include excellent, first-rate, original, principal and accumulated wealth used in producing more, to describing capitalism to mean possession or influence or system and dominance of private capitalists, none of which define what the term actually means, especially when it does not inform us who it is that dominates private capitalists. But if we listen to another proverb, Many a true word is spoken in jest, is it not true that private owners of capital are controlled, taxed, harassed, regulated, and prescribed to, and therefore dominated, by governments everywhere?
I treat the terms capitalism, free markets, and economic freedom as being synonymous because when the enemies of freedom attack capitalism they are, in fact, attacking the economic conditions that are variously described by those terms. My preferred term is economic freedom. To define the term, I borrow from economist, Walter Williams, this simple and clear definition: Voluntary exchange between individuals free of third party intervention. Another apt definition is: Private ownership and control of all capital and the means of production.
So what is it that fable-believing adults claim has failed? Is it voluntary exchange between individuals that has failed? Does all voluntary exchange between individuals occur free of third party intervention, and is that the reason for failure? Is all property and the means of production privately owned and has that led to failure? Is all property and the means of production privately controlled, and has that failed and plunged the world into economic turmoil? The answers to these questions are, no, no, no and no. If you believe that the answer to any of them is yes, you will also probably believe that the cat did fiddle and that the cow did jump over the moon.
Defenders of capitalism who do not first define what they are talking about, are inclined to say, With all its faults, capitalism is the best system that has ever been devised for creation of wealth and the reduction of poverty. According to the definitions I have provided, capitalism is not a system; it is a state of individual freedom in which the initiation of force and the perpetration of fraud form no part. Anyone who prefaces their defence with the acknowledgement of unnamed faults supports, by default, the critics of capitalism, free markets and economic freedom. When pressed to describe the faults, both defenders and critics invariably describe the consequences of ill-advised government interventions, from so-called crony capitalism, to monopolies, to the current world-wide financial crisis, all of which are the result of government failures.
If we examine the activities of governments, we begin to realise how far we are from living in a capitalist world; that economies of most countries are subject to substantial government intervention. The Economic Freedom of the World annual reports produced by Canadas Fraser Institute and co-published by the FMF in SA, measure, according to the 2011 report, the levels of economic freedom in 141 countries and territories. In that report, Hong Kong was found to be the freest, SA was 87th in the ranking and Zimbabwe 141st. The difference in government policies between the freest to the least free is enormous.
One of the greatest divergences from economic freedom worldwide is the fact that governments have monopolised the issue of currencies, brooking no competition from private providers of money. And it is in this anti-capitalist monopoly that we find the source of the current financial turmoil. If money had been privately provided and controlled, we would not be facing the current crisis.
Monopolisation of money by government and subsequent debasement to the point of destruction has been going on for centuries. In China, in the 13th century, there was persistent inflation of paper money. In the first century AD, Roman emperor Nero reduced the silver content of the denarius to 90 per cent. Debasement of the currency continued under subsequent emperors until the silver content of the denarius had been reduced to 5 per cent in the 3rd century AD. Currency debasement then, and currency debasement now, is a surreptitious method used by its issuers to extract money from current holders without openly stealing it. Currency debasement destroyed the Roman Empire and threatens to destroy our current level of civilisation.
Governments have been borrowing, spending with profligacy, buying votes with welfare payments, and debasing national currencies in attempts to hide what they are doing. Some governments in the EU borrowed from private banks with gay abandon on the assumption that the European Central Bank would be forced to bail them out, which it has by reluctantly printing euros. Debasing currencies, the process which the US Federal Reserve Board (the Fed) describes as quantitative easing (QE) when done in huge amounts, is aimed at keeping down interest rates. The Fed intends to continue to lend to banks at ¼ per cent per annum or similar low rates until 2014. Who knows how many QEs and trillions of dollars of paper money it will take to keep interest rates at that level? If they keep doing this they will eventually make the Zimbabwe hyper-inflation look modest.
Does this sound like a crisis of capitalism/free markets/economic freedom? No. It is a crisis of profligate government.
I am convinced that as a child you did not believe that the cat fiddled, the cow jumped over the moon, the little dog laughed, or the dish ran away with the spoon. Why then believe the myth that the Hey diddle diddle on the financial markets is the result of capitalism, free markets, or economic freedom?
AUTHOR Eustace Davie is a director of the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the authors and are not necessarily shared by the members of the Foundation.
FMF Feature Article / 31 January 2012
Eustace Davie is a director of the Free Market Foundation.
Publish date: 02 February 2012
The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation. This article may be republished without prior consent but with acknowledgement to the author.