Capitalism, free markets and economic freedom, if these terms are treated as being synonymous, mean that all property and the means of production of goods and services are owned and controlled by individuals. It also means voluntary exchange between individuals free of third party intervention, in other words, individual self-ownership.
It is true that some people, who abhor the idea of being self-owned, believe that there has to be some form of centralised control and direction of activities, their own and those of everyone else, except that they tend to forget that there is then no practical means of controlling the controllers. As the ancient question of uncertain origin asks: Who will protect us against the protectors?
Socialism, of which communism and fascism are mere variants, all suffer from the evil of too much power in the hands of government. Socialism is based on the pretence of the caring state, which, to supposedly ensure equality for all, needs ever-increasing amounts of power and control. Aldous Huxley warned against this idea when he said, That all men are equal is a proposition to which, at ordinary times, no sane individual has given his consent. The Concise Oxford Dictionary
describes socialism as A political and economic theory of social organisation which advocates State ownership and control of production, distribution, and exchange.
This idea is also based on the illogical proposition that individuals are evil and should not be allowed to own and control property or the means of exchange; that, furthermore, they should be prevented by controllers from entering into voluntary exchanges with each other. But who is it that can be entrusted with the task of ensuring that everyone has an equal opportunity in life, no matter what differences there are in their skills, capabilities and will to work? These fictitious beings of sterling character, who have no aspirations of their own to acquire more, earn more, eat better, or live better in any way than the next person, supposedly, are the government; people who hold political office or are in the employ of government.
Public Choice economics, an entire new field of study, for which economist James Buchanan received a Nobel Prize, is devoted to analysing the behaviour of politicians and government officials to discover what motivates them. Predictably, it is found that they act like any other human being; they pursue their own self interest. They do not dutifully perform services to the communities that have elected and appointed them without ever thinking about utilising, for their own ends, the power that their fellow citizens have trustingly placed in their hands.
Adam Smiths well known statement that People of the same trade seldom meet together but the conversation ends in a conspiracy against the public, or in some diversion to raise prices is often quoted. Less often quoted is There is no art which one government sooner learns of another than that of draining money from the pockets of the people. Unfortunately, too many servants of the state spend too much of their time scheming about how to divert some of the money drained from the pockets of the people into their own pockets.
Blaming capitalism for the worlds current economic problems has become all the rage. Guess who is putting out that story? If you have guessed that it is the real culprits; the people who have in fact caused the problems, you are right; it is the politicians and the people they have hired to keep us and our property safe. A job at which they have failed miserably!
The crisis is a money crisis, and who is it that issues and monopolises money, prohibiting private banks from issuing currencies? It is governments who, worldwide, have taken it upon themselves to establish central banks, under their control, to issue national currencies. In other words, there is worldwide socialist-style control over the issue of currencies. And as Adam Smith warned in The Wealth of Nations
, published in 1776, governments have learned from each other the art of draining money from the pockets of the people. They have done it subtly, quietly, taking money from the people by debasing the currencies under their control, causing prices to rise as the purchasing power of those currencies declined. Milton Friedman persistently contended, Inflation is always and everywhere a monetary phenomenon, but few would listen to him.
A telling blow for a socialist America was struck by Richard Nixon when he closed the gold window on 15 August 1971, allowing the US Federal Reserve to print limitless quantities of dollars without there being any immediate repercussions. Closing the gold window was political speak for reneging on the undertaking to exchange gold for dollars, a mechanism the French and Swiss cannily utilised to exchange great wads of dollars for gold when they became aware that the US money supply had increased by 10 per cent in the first six months of 1971. Gold was leaving Fort Knox at an inconvenient pace for the continued political well-being of the Nixon Administration, which still wished to continue to print dollars without constraint.
The abandonment of gold as a means of disciplining politicians and central banks is now threatening to bring national economies to their knees. No economy can function efficiently without a reliable means of exchange.
Adam Smith was right, draining money from the people through currency debasement rather than taxation became all too politically popular. Governments and central banks quickly learnt from each other and steadily debased their currencies over a period of decades. For a time, the debasement can be hidden by artificially reducing interest rates, which necessitates an acceleration in the increase in the money supply (what in political speak is now called stimulus), but sooner or later persistent debasement will reduce the value of any currency, Zimbabwe-style, to zero.
Money manipulation by governments and central banks is the fundamental cause of the current economic woes of the world. Capitalism, as in voluntary exchange between individuals, has nothing to do with it. People who blame capitalism are either misinformed or are telling lies, damned lies.
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 / 22 November 2011
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