We do not have a capitalist economy. While some markets are freer than others, there is virtually no market that is free from government interference–not even the black market.

The existence of a central bank that controls the money supply and influences interest rates allows government to reach into every aspect of the economy and attack the invisible hand with an iron fist. In such a political economy, the rise and fall of many lines of industry and commerce (e.g., real estate) are to a large extent determined by Fed-manipulated interest rates–over which (taking real estate as an example) realtors, construction companies, house-buyers, renters, and landlords have little to no control. Yet these people are very much affected by the decisions made by the Fed chairman, who is very much insulated from democratic accountability to the same people most affected by his decisions (not to mention the presidents who appoint him). He operates from a position of invulnerability. He and the Fed board of governors are the epitome of what C. Wright Mills calls the Power Elite.

Yet, in this excerpt, Hazlitt seems to pretend that the shifts in the fortunes of certain sectors of the economy and the fortunes of those most heavily invested in them–from owners to managers to workers and their families–correlate with certain psychological attributes. Quoting approvingly from the book The Unheavenly City, Hazlitt entertains the elitist idea that the rich are somehow morally and intellectually superior to the poor. As a result of this alleged superiority, the rich are more future-oriented, and this psychological trait accounts for their prosperity–even though with a flick of a pen the Fed chairman can alter the course of the economy and send millions out of work.

Now, this conservative argument is certainly plausible and may in fact be true in some cases; however, it could only be valid as an explanation of economic inequality (as it is) in a system of truly free competitive enterprise–which we clearly do not have.

Power, central planning, interventionism, cronyism, and nepotism have corrupted the merit-based system that would otherwise have prevailed under a “truly” capitalist economy. (On the face of it, the argument that the poor are much more sex-crazed, morally compromised, and licentious than the rich is preposterous. How about Tiger Woods, Bill Clinton, Paris Hilton, Italian Prime Minister and media mogul Silvio Berlusconi? Oh, and there was a book called The Prince, in which a rich courtier offers advice on how to acquire and maintain an empire. How does one do it? One does it by lying to people and by “appearing” to be guided by moral principles. In reality, however, self-preservation trumps morality and one adopts an “ends-justify-the means” approach to maintaining and extending one’s power and privileges.)

But one would never suspect (in this excerpt at least) that Hazlitt has made this distinction between “what is” and “what isn’t.” And so he seems to defend the status quo by resorting to the crudest form of conservatism.

Now this line of argument is warmly embraced on the Right while certainly provocative to those on the mainstream Left. This kind of analytical carelessness causes needless division between those on the Left and liberatrians, who, because of this apologist rhetoric, appear to be allied with the conservative Right.

But, as Murray Rothbard shows in his brilliant essay “Left and Right: The Prospects of Liberty,” Libertarians are really “classic liberals” in the tradition of Thomas Jefferson, Thomas Paine, and Henry David Thoreau. Libertarians are actually left of the mainstream Left: They “out-Left” the Left (which, according to Rothbard, is actually middle-of-the-road on the political spectrum).

So in order to bring those on the Left to the Libertarian cause, libertarians must stress their emphatic disgust with the status quo as morally unacceptable and demonstrate that true capitalism has nothing to do with the present order. Libertarians have to show the “radicals” that they aren’t being radical enough. The mainstream Left has been falsely led to believe that bigger government is a desirable remedy to monopolies, power consolidation, and corporate misconduct under an increasingly centralized political economy.

But that’s not the case. Government has been the primary instrument by which elites have achieved this monopoly and centralization of power. It wasn’t the result of some inherent tendency of capitalism towards monopoly and cartelization. In fact, leftist historians such as Gabriel Kolko have long pointed out that free markets are very effective in breaking up cartels and monopolies.

So the best thing to do, if you value freedom, democracy, and a sound economy, is to begin dismantling the instruments of centralized, regulatory power: the state itself. With a limited government that is not allowed by the people to intervene in the economy on behalf of special interests, we may progress toward a true prosperity based on the ideals of the Founding Fathers (self-determination, self-government, self-development), with more opportunities for employment and self-employment for everyone.

I applaud the author for his attempt to depict the reality of human conditions as is. I agree with Dr. Hazlitt, that essentially there is no fair way of determining who deserves a better lot… The only “fair” way is to let the Nature run its course, and let market forces balance it out…

On the same note though, the blogger named “Paul Stephens” is also right in his assertion that certain European countries enjoy higher standard of living. Although he makes a common mistake by attributing it to more social governing style:

The reason why certain European countries enjoy higher standard of living than the others, is mainly related to several historical and geographical factors, such as abundance of natural resources, ability to import advanced technology and export hard labor, coupled with relatively small, monolithic demographic, with almost no expenditures on defense or other, not immediately productive activities, such as Space Exploration or Fundamental Science on grand scale…

Let’s take Sweden, for example. They have natural resources, they have relatively small population (relative to the size of the country), they have homogeneous demographic, they import the technology from other European Union countries, and they export the hard labor to the less-fortunate neighbors, such as Eastern European countries… In other words, if you have natural riches, you import the good stuff and export the hard and dirty work – you’ll do just fine (not to say probably zero expenses on defense and such)…

Yes, sometimes not only individuals get lucky, but whole countries, too…

Stephens: You point out government controlled areas as your reason against capitalism…or are emergent results of what the government has done. Monopolies in many fields only stay around because government imposes barriers to entry in the form of regulations and the general wage laws. I see nothing about the free choice needed for capitalism in your arguments. Just a bunch of organizations that rule by force.

Here is the truth, at last.

First, your macroeconomic analysis in no way rebuts (or even addresses) the points made very clearly in the 3 articles on Sweden’s welfare cancer.

Second, your statement that “we obviously produce and consume far more than we should” is patently ridiculous.

Also, you clearly have a whole slew of unresolved feelings that lay behind this statement. It is obvious that your entire Marxist philosophy, such as it is, is motivated entirely by the sentiment that “we obviously produce and consume far more than we should.” It’s not rational. It’s not logical. It’s not scientific. It’s not based on evidence and reason.

Your economic philosophy is based entirely on the fact that you are filled with hate and envy, and it has metastasized into a hard, black lump of resentment inside you.

This article describes you in a nutshell: http://blog.mises.org/archives/011113.asp

See, a sane, stable, rational person would not care what other people produce or consume.

If you want to sit in your colorless hovel, scribbling your anti-bourgeois screeds, wearing potato sacks and pining for the days of Lenin, go ahead. The glorious benefits of economic liberty allow you to choose to live that way, if you choose.

Just leave the rest of us alone to enjoy life and the economic bounty that springs from property and the division of labor that property enables.

How The Welfare State Corrupted Sweden: http://mises.org/daily/2190

and The Sweden Myth:
http://mises.org/daily/2259

Without going into all the macroeconomic statistics (which I didn’t think Libertarians paid attention to or supported, anyway), I am not dissuaded from my original statements.
For one thing, Sweden (like Germany, Switzerland, and the other Scandinavian countries) are very much more dependent on trade (and thus macroeconomic policies) than we are. Even now, when very few consumer goods (such as Wal-Mart sells) are actually produced in the United States, we still have a much lower ratio of imports to domestic goods than these countries do. And much fewer exports, as well. Whatever leads in new technologies we might have had are soon overcome by production in countries whose wage levels are a small fraction of our own.
So, we import more every year, simply because we don’t balance our current accounts – now running at a nearly $1 trillion/year deficit. We have been the largest “debtor nation” since the “Reagan Revolution” in the 1980′s. How much “free trade” would Americans be benefiting from if we had to balance our accounts?
When the Chinese or Japanese want to spend their dollars here buying real estate or companies like Texaco or Union Oil, we tell them, “No thanks.” Just buy our worthless Federal paper debt. They are about to quit accepting dollars altogether, and oil exporters are shifting to Euros wherever possible. The only things we have to sell them is wars and weapons, and they are very tired of that, as well.
But now, China and Russia are being compelled to see their national interest as requiring armed forces which can resist or stand up to American aggression. Military Keynesianism is the result. We’ve doubled our military budgets in recent years, at the expense of health care, education, and investments in infrastructure, public transportation, renewable energy, and other pressing needs.
NAFTA was an attempt to integrate the North American (and later, Western Hemisphere) economies to mimic the Common Market and European Union (which are themselves an attempt to emulate the “United States” of America) – a free-trade zone with optimal specialization and division of labor and manufacturing – much as the Nazis tried to do during WWII and Japan attempted with the Far East Co-prosperity Sphere, both of which have now been largely realized.
The success of the EU in recent decades, though, is due to the inclusion of many low-wage areas and massive capital transfers making such countries as Spain and Ireland (and now the former Comecon countries of Eastern Europe) nearly as wealthy as Sweden (or Germany and France.)
But of course, many problems are occurring as a consequence of this, including the recent financial crises which have bankrupted such “bubble economies” as Iceland. It’s all a house of cards, which seems ever closer to a total collapse. I’ll blame it on “monopoly capitalism” or “finance capitalism” – thoroughly Marxist concepts. You can blame it on “socialism” if you like.
As a Green, I don’t believe in “economic growth” as an end in itself – especially if it requires depletion of non-renewable resources and environmental degradation. Quality of Life is what we need to be concerned about, not “Standard of Living” or some arbitrary and ill-defined GDP. Norway, Sweden, Denmark, and New Zealand are perennial leaders by this standard, with the U.S. well down the list behind even such densely-populated and cartelized economies as Japan and S. Korea.
We obviously produce and consume far more than we should, most of it junk which is threatening to smother us (along with sea life and other natural systems) in our own non-bio-degradable garbage. Our houses are twice as big, our cars half as efficient, and our diet atrocious, making us the most obese and unhealthy people in the world. This is not “progress”, and it certainly has nothing to do with liberty or “social welfare” in any meaningful sense.
Add to this, the lack of any open, free and democratic political structures, or a diverse and free press, TV, and other information networks, and it’s easy to come to the conclusion that if this is “capitalism,” then the sooner it is gone, the better. It’s “Capitalism OR Freedom,” not the identity between them which Rand and Friedman tried to elaborate and defend.

I think another powerful factor working in favor of socialism is the fact that most humans basically prefer security to freedom. I know that is an unpopular view to express here, but I think it is true. People feel spiritually uplifted by idealistic statements like “give me liberty, or give me death” etc. In the end, though, they will readily give away a million liberties if it means they don’t have to experience “worry” about the basics of physical life. Its sad. This one fact of the largest segment of human beings contributes powerfully to the “socialism cycle”.

Thats the tina school theory of the socialism cycle, btw.

The fact that Europeans are happy with socialism is the main argument for it among many Americans. But they main the most common mistake in economics–focusing on the short run. Someone writing on this web site recently said that at any time in Rome’s decline, you would find the citizens happy with their situation, but they couldn’t see the long term decline. And as an aside, happiness is not a good measure of anything. Happiness depends upon expectations. If you expect things to be miserable, you can be fairly happy that things aren’t worse.

As Mises wrote many times, everyone focuses on the short run, so there is no need for economists to waste time doing what everyone else is doing. The only thing economics has to offer people is the long run perspective. No critic of socialism ever claimed that people would suddenly fall down writhing in excruciating pain when they realized they were living under socialism. Socialism’s effects aren’t felt for a long time, that’s why it’s so hard to fight.

In the long run, socialism destroys wealth and impoverishes everyone but those in power. But it doesn’t happen overnight. And the decline is slower in mixed economies, but it is inevitable. Two generations from now someone will survey US citizens and find them very happy with life in socialist America, even though the standard of living has fallen by 2/3. They will be happy because they won’t remember a time when Americans were richer and freer and they will assume that because they occupy a later point in history that they have achieved the pinnacle of human existence.

That’s because it’s a lie.

That means you are a thief, or at best an aspiring moocher.

But the State is the oppressing class.

“Anyone who is doing anything constructive and useful is supported in their endeavors.”

Except you forgot one thing.

Anyone who is NOT doing anything constructive and useful is supported in their endeavors.

Here is some reading material on Mises.org regarding the myth of Swedish “prosperity”:

Sweden: Poorer Than You Think: http://mises.org/daily/955

How The Welfare State Corrupted Sweden: http://mises.org/daily/2190

The Sweden Myth:
http://mises.org/daily/2259

As the old adage goes, if it’s too good to be true then it probably is. Since when can everything in life be free? I guess only in the fairytale world of Sweden…

Having said that interventionist policies by the government distort a merit based distribution of goods and services leading to unproductive uses of capital and corruption.

I would classify the current government as being on a looting and pillaging rampage of America. This is what happens when the lower educated and lower IQ members of society align themselves with political thieves.

The point of the article is not to define poverty but to point out that the aims of conventional assistance programs are largely mutually exclusive. The poor would be best served by increasing their productivity. However, as Hazlitt points out, discerning the reasons why they are not productive is an intractable problem, and therefore not readily solved by central planning. It is best solved by the free market, which provides general increased productivity.

“Also those countries that have the lowest level of poverty and income inequalities are not capitalists.”

It’s a bit ironic to complain that Hazlitt offers no objective definition of poverty (which was not his goal), provide no such definition yourself, and then follow with this quote. I hope you see the problem here.

Income inequality is natural to the extent that it is a result of varying levels of productivity among the population. However, much of the inequality you cite is the result of the distortions of interventionist and inflationary policies (think Goldman Sachs bankers). Free-market capitalism is not represented by the United States, and the only redeeming qualities of the US market are the few remaining capitalist aspects.