Corporatism really isn’t Capitalism

Every so often, on websites like In These Times, arguments are made that appear to be against Capitalism. The problem is, ever time, the detail of the argument isn’t against Capitalism but is instead against Corporatism. The difference between the two should be immediately evident. Yet no matter how often it is explained, those making the argument insist on conflating the two.

It should be easy to differentiate between the two. Although what follows are not the textbook definitions of various economic systems, they serve as a good way to differentiate the various economic systems.

Capitalism – no government interference in the economy
Monetarism – government interference in the economy through manipulation of the money supply
Keynesianism – government interference in the economy through manipulation of fiscal budgetary policy
Corporatism – government interference in the economy through benefits to the wealthy
Welfarism – government interference in the economy through benefits to the poor
Supply Side – government interference in the economy through stimulating aggregate supply
Demand Side – government interference in the economy through stimulating aggregate demand

Of the seven economic systems listed, one of the stands out as starkly different from the rest. Yet it is often inexplicably lumped with various others, most often Corporatism. There is an actual relationship between Corporatism and Capitalism. It is akin to the relationship between a parasite and a host. A host does not need a parasite, and Capitalism does not need Corporatism. But those making the argument are trying to insist that the host and the parasite are the same thing.

There is an attempt to justify such a conflation by saying that one is the natural outcome of the other, that Capitalism eventually evolves into Corporatism. But that does not justify the attack.
Interestingly, those making that argument seldom argue against freedom in other areas. If their argument on Capitalism is to be believed and extended, then tyranny is late stage liberty. Those making the argument are keen to support other areas of liberty, but to reject it in the case of economics. They could be consistent and say that since they believe liberty to be hopeless they do not support it in any area. Instead they support it in all other areas except economics, and say that since liberty is hopeless in economics they choose a tyranny different from Corporatism to replace the liberty of Capitalism.

Rejecting Capitalism on the grounds that it eventually becomes Corporatism should lead the person making that argument to reject free speech on the grounds that it eventually becomes censorship, reject freedom of religion on the grounds that it eventually becomes a state church, reject the fourth amendment on the grounds that it eventually becomes warrantless searches, reject the sixth amendment on the grounds that it eventually becomes secret courts, etc.

The argument is horribly inconsistent. And, after all these years of people pointing out the difference between Corporatism and Capitalism, there is no excuse for making the argument in the first place.

Only Capitalism can work for Mary

This is a fable adapted from a child's storybook. It involves three people living on an island, Jack, Tom, and Mary. Jack is industrious: he likes to work hard, to be industrious, to make things, to have a nice house, and to have excess reserves stored in the case of an emergency. Tom, on the other hand, is unlucky: his ventures fail more often than they succeed, and he is also afflicted by poor health and has no money. Mary is a free spirit: while she has the skill and intelligence to earn more than Jack ever could, she prefers leisure to labor and only earns enough to sustain herself and her love of camping, hiking, and artistry. Natural resources are abundant, and they all have equal amounts of time.

This is of course a very constructed setup designed to get to weed out as many extraneous elements as possible. If there really were only three people on one island then the three would all be working hard at basic survival, and there would be no money to speak of. The question of who the medicine for Tom is purchased from is also glossed over for the sake of setting up a simplified system to analyze basic roles. Jack spends his time acquiring wealth while Mary spends her time acquiring leisure.

Most economic systems concern themselves only with the question of how to take some "excess" wealth from Jack and give it to Tom on the basis that he needs it so badly. It has to be Jack on the basis that he is the only one with wealth enough to have some transferred to other people.

This scenario, when presented to progressives, presents a riddle to them, because at first they are only concerned with the relationship between Jack and Tom. That will be their first answer, that of course some wealth must be transferred from one to the other and anything else is unfair. So it has to be pointed out that they missed the most important part - how their system deals with Mary.

At first, the answer is that progressives accuse Mary of "going Galt," that her failure to work up to her potential was some sort of political protest. Mary is accused of failing to pay taxes and leeching off the system by using the roads that taxes are supposed to pay for.

But once it is pointed out that Mary doesn't work hard because she liked leisure and not for political reasons, the answer is that she obviously must come from an upper class white background in order to be able to choose to not work. Except that was also not in the original description, which failed to list her race or class but did mention she had only enough money to get by because of her greater desire for leisure.

Once all the distractions are dispensed with, and it is very clear that Mary is nothing more and nothing less than someone who simply prefers leisure to labor in spite of a greater potential if she applied herself, a very different picture of how progressives would handle her emerged.

The more progressive a person is, the more they feel it is proper to take from Jack and give to Tom. Interestingly, they also feel it is more proper to require Mary to work hard in spite of her desire not to in order to produce enough to give to Tom. It is seen as unfair that Jack alone is made miserable, in that his pleasure is enjoying the fruits of his labor and that is taken away from him. Mary must also be made miserable in that her leisure is also taken away from her and given to Tom.

When it is pointed out that this basically makes Mary a slave, because unlike Jack she actually desires to not work, rationalizations are offered that her freedom is not restricted because "what is forced in one sense may be freed in another; what is restricted in one place may be relieved elsewhere." The argument was actually offered that she is not made a slave. "Yes Mary must work. Liberty and freedom simply shift their point of emphasis." Ironically, the person arguing Arbeit macht frei was actually arguing in favor of socialism replacing capitalism, and not arguing in favor of fascism. Jack also allegedly benefits because his "mind is freed from material pursuits."

Socialists and Communists have no problem with forcing Mary to work, as her labor choices do not belong to her but belong to the people. Fascists have no problem either, as her labor choices do not belong to her but belong to the state. Corporatists would force Mary to work through debt slavery, forcing her to labor far more than she would otherwise choose to in order to pay off an impossible debt. Keynesians and Monetarists would shrink back from using force, but would instead use fiscal or monetary policy in order to "guide" her decisions into a more "productive" direction.

Only Capitalism, the economic system which is often accused of dehumanizing people and reducing them to nothing more than commodities, can recognize that Mary’s choice is valid. Only in Capitalism is it recognized that people work to their level of satisfaction, and that people have different levels of satisfaction. Only in a free market is Mary able to work enough to get by because of her greater desire for leisure. And that is why only Capitalism is the only moral economic system.

Why Monetarism?

Although Monetarism, as an interventionist economic policy, clearly isn’t libertarian, people continue to consider it as such. The basic difference between Keynesian Economics and Monetarist Economics is that one favors fiscal policy while the other favors monetary policy as a way for the government to manage the economy through the manipulation of aggregate demand.

And yet many people do consider Monetarism to be more libertarian, to the point where if a spectrum is arranged Monetarism is listed as basically a midpoint between Keynesian and Capitalism.

Considering Keynesian Economics, a reason to consider it as such is because all Keynesians are both Monetarists and Progressives, they believe in both monetary policy and in regulation as ways to manage the economy. A textbook Keynesian is no closer and no farther from libertarian than any Monetarist.

So there is reason to make a spectrum. But why go so far as to insist that instead of being a midpoint between real Keynesian and libertarian Capitalism, Monetarism is so often wrongly lumped with Monetarism?

It would best be described by Rothbard’s Law. "people tend to specialize in what they are worst at. Henry George, for example, is great on everything but land, so therefore he writes about land 90% of the time. Friedman is great except on money, so he concentrates on money." Rothbard went farther to describe Friedman in even harsher terms, saying "And so, as we examine Milton Friedman’s credentials to be the leader of free-market economics, we arrive at the chilling conclusion that it is difficult to consider him a free-market economist at all."

Then perhaps there is one reason left why people would consider Monetarism to be libertarian in any respect. It is because the current center of United States politics is so far devolved towards the regulatory state, with the government enmeshed in so many aspects of the American economy that to embrace textbook Monetarism is to embrace a reduction in the government's role in the economy.

Unfortunately there is a lot of room between slightly decreasing the role of government and actual libertarianism. Being in favor of slightly less regulation, slightly less control, slightly less taxing and spending, does not make one a libertarian.

Freedom is Slavery

The United States is, of course, a free country.

There is evidence that the law serves the government instead of serving the people, that those who irritate authority will be punished without regards to law, and that when police misconduct becomes so blatant that it cannot be ignored the offenders will not be punished. But the United States is still a free country.

We have freedom of movement in this country. True, the screening standards by the TSA are secret so those who travel cannot make an informed decision before entering the airport about whether or not they wish to submit to the intensive physical search. The intensive search, compared often to molestation or rape, is the alternative for those who do not wish to submit to a nude screening. Those who, upon finding out what the search entails decide to not be searched, instead of merely being denied entry to their flight, are threatened with a fine of approximately $10,000 and sometimes arrested. When someone is giving the choice of submitting to sexual advances or being hurt for failing to do so, it is considered sexual assault. But the United States is still a free country.

Of course, there are choices other than flying. One can avoid the TSA by taking the bus, or one can drive. Soon all methods of transportation will be under TSA control and all citizens will need TSA permission to go anywhere. But the United States is still a free country.

Originally the Interstate Commerce Clause was interpreted to only apply to actual interstate commerce. In the 1930s the Supreme Court found an interpretation whereby any activity that impacts interstate commerce can be regulated under that clause. Any item grown for personal consumption is something that would otherwise be purchased, and if purchased might possibly be purchased from someone out of state. That is one of the alleged constitutional supports for the drug war. Now, with the healthcare reform passed by President Obama, even even inactivity is considered activity with regards to the commerce clause. The government has the power to dictate both what we purchase AND what we do not purchase. But the United States is still a free country.

Since the United States is a capitalist country, people are still free to engage in many business opportunities in spite of the restrictions of the Interstate Commerce Clause. Of course there are many licensing requirements that prevent people from entering many fields that would allow people to rise out of poverty. There are still more fields than can ever be covered by piecemeal regulations, so sweeping legislation has been enacted to cover all fields and limit or prevent the ability of the people to conduct business. But the United States is still a free country.

The Third Amendment to the Constitution was written to secure people from being compelled to act as agents of the government. When it was written there were few ways in which that could happen, the most common was forcing people to quarter troops. Today there are many more ways in which a person can be forced to act on behalf of the government. There is no proof that Joseph Nacchio of Qwest was indicted for refusing to be a government spy. Anyone who thinks so is a conspiracy theorist. And there is no proof that the women who accused Julian Assange had political motivations. It is true that due to the proliferation of laws, anyone can be accused at any time for unknown and obscure crimes, and that the government could use that power to punish those whose actions are otherwise untouchable. But the United States is still a free country.

When those issues are brought up, people insist that they are all necessary to maintain freedom in the United States, because otherwise there would be anarchy. Someone, somewhere, will describe each of those intrusions as a necessary price to pay for freedom. People are required to submit because of the social contract which is the price people pay for living in society. Johann Wolfgang von Goethe wrote "None are more enslaved than those who falsely believe they are free." With all these freedoms, because the United States is still a free country, it certainly is true that Freedom is Slavery.

Against Milton Friedman

Upon seeing "Fear the Boom and Bust”, the Keynes versus Hayek rap video, the following email was sent to the producers of that video:

On Thu, Apr 22, 2010 at 11:39 AM, Ayn R. Key wrote:

Having Keynes versus Hayek was great. Loved the imagery of alcohol and hangover, and the reference to Tim and Ben.

Next, Hayek (or Rothbard or Mises) versus Friedman (or Fisher, where Friedman got all his ideas from) please.

I'm tired of people thinking that Chicago School Monetarists are some sort of libertarians.

The following response was forthcoming:

On Thu, Apr22, 2010 at 9:16 AM, John Papola wrote:

Thanks for the note! Explaining the differences of the two schools of thought is useful and we'll be getting to it in our extended content via interviews. It's a little too nuanced for a rap song.

Have you read Roger Garrison's "Time and Money”? There is much more in common between the Austrian theory of the business cycle and Milton's monetarism than meets the eye. If we can't call Milton a libertarian, we're doomed. I'm not big on libertarian factionalism. Compared with our opponents on the Keynes/Marx statist side, the differences between Hayek and Friedman are inconsequential in my opinion. Friedman was also very successful in moving public opinion and the profession away from Keynes. For that we should all be grateful.

Friedman, Hayek, Mises and Rothbard are all awesome in different ways.

For reasons unknown, Milton Friedman is considered to be a libertarian thinker, especially in matters economic. He is often used as an example of libertarian thinking by those who are not libertarians but wish to reference libertarians to support a point.

The problem is, Milton Friedman was a Monetarist. As pointed out, Monetarism is not the same thing as Capitalism. When compared to Keynesianism then of course it appears to be more libertarian, but that is an awfully low bar to measure against.

There are many critiques libertarians can make against Friedman, such as his relationship to Pinochet or how he instituted income tax withholding, but the most fundamental one is that he, like Irving Fisher, advocated central banking.

If Keynesians are to be considered as saying that two and two make eight, and Austrians are to be considered as saying that two and two make four, then Monetarists try to position themselves as moderates by saying that two and two make six. They may be closer than Keynesians, but they are still quite wrong. Central banking, the defining position of Monetarists, is causing yet another catastrophic collapse, and people actually are calling it libertarian? Calling it so is a gift to the statists that they couldn't even hope for.

Capitalism

There appears to be a debate in some libertarian circles on whether or not libertarians should embrace or reject the word "capitalism."

Those who would reject the word do so on the basis of the baggage that comes with the word. It was first popularized by Marx to describe not just the free market but also economies in which the government interferes in favor of businesses.

Those who would keep the word do so on the basis of there being no better single word. Other terms are less widely known or are more cumbersome. The word itself, they argue, actually describes best the economic system advocated by libertarians in spite of its baggage.

It really is a simple choice, and capitalism is the best word for a free market economic system, but if it is to be used it must be fought for. A simple pronouncement is far insufficient.

People are doing that. Garry Reed, the Libertarian News Examiner, did so recently with the article Corpratism – equally loved by left and right.

Those who would disparage Capitalism are always confusing it with other ideologies, including but not limited to Corporatism, Keynesianism, and Monetarism. Some go so far as to say Monetarism, the economic ideology of Friedman and the Chicago School, is a libertarian economic ideology.

A few moments of honest thought would dispel any confusion over whether or not these other ideologies are included in Capitalism as is meant by libertarians. Monetarism has a central bank. Corporatism has protective tariffs and bailouts. It's not even necessary to describe the many differences between Capitalism and Keynesianism. And yet the myths persist.

That is because detractors want to lay at the feet of Capitalism the faults of the other systems. In Corporatism, failing businesses get bailouts, in Capitalism they do not. Yet if the two are the same then bailouts are a feature of Capitalism. In Monetarism the dollar loses value every year to the point where a 2010 dollar is worth a few cents compared to a 1910 dollar. Yet if the two are the same then an inflationary monetary policy is a feature of Capitalism.

Every fault that detractors name in the real world, as opposed to pure theory, comes from departures from the free market and government interference in the free market. Therefore it is not the fault of the free market. The only way to blame Capitalism is if other ideologies are lumped together with it.

Those who wish to preserve the word "Capitalism" have the right idea, but they must remember that they must fight for it. It's a good word but it has to be defended. The attempts to add baggage to the word are continuous.

Update: It was pointed out that Marx only popularized the term "capitalism", he didn't coin the term. Correction noted.