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Source link: http://archive.mises.org/9225/does-capitalism-need-adjustment/

Does Capitalism Need Adjustment?

January 13, 2009 by

One of the worst things that has happened during this economic crisis is that capitalism itself has been attacked without mercy — even by some who generally support the free market. Calls for more regulations, more bailouts, more Fed action, more stimulus packages, more recovery programs, and more government intervention in general can be heard from every quarter. FULL ARTICLE


fundamentalist January 13, 2009 at 8:45 am

Great article!

It amazes me that so-called conservatives don’t see the contradiction in “limited but active government.” Limited and active are mutually exclusive when it comes to the state. You can’t have both.

Lisa January 13, 2009 at 9:38 am

Great article. We have come to rely much on the government and this should not be. Limited government intervention is key to sustaining a society that will ensure their own course.

DD January 13, 2009 at 9:48 am

Israelis are inclined towards “Socialism” and “welfare” out of their ignorance (likewise here in the US), and the Palestinians are not thinking about “free markets” when they talk about “liberating” Palestine. The “looting” nature of governmnet is not really accepted in that region at all. We might be living on the moon before anyone there even takes such a proposal seriously.

Joe January 13, 2009 at 10:05 am

What caught my eye were these three words: “redistribution of wealth”. To me that sounds like it came right out of Karl Marx’s mouth. How anyone could even claim to be a Conservative and say such things in addition to more bailouts, etc. is beyond me.

Alex Fabijanic January 13, 2009 at 11:21 am

Regarding this portion:

“This anticapitalism bias is so pervasive — in the entertainment industry, universities, private foundations, the media, and among government regulators and agencies, environmentalists, ministers … ”

It would be instructive to add a link to Hayek’s “The Intellectuals and Socialism” ( http://mises.org/daily/2984 ) – it explains clearly how and why is this the case.

AJM January 13, 2009 at 11:45 am

First, thank you for putting your thoughts in word to share with the world. While others may have defended free market capitalism, it is essential to stay engaged on this intellectual battle.

Any business that claims on one hand to support free market capitalism then lobbies politicians to vote on legislation that benefits their interest is acting in a manner that perpetuates the system of favors and graft that plagues this country. The businessman who aligns themselves with the political class is using the threat of force to engage in commerce. As we know from history, the interests of the powerful and elite are opposed to individual property rights and liberties. Import tax is one such unjust tool of the ‘special interest’. In fact, most of our tax code is simply a way to grant favors to these interests, protect ‘jobs’ and ‘children’, promote the ‘common welfare’. There are companies (thrown in government sanctioned unions) whose very existence relies on the State. So, a truly unfettered free market economy will never be achieved unless interventionism is ended.

mark January 13, 2009 at 1:01 pm

This is off the subject at hand. Can anyone tell me how much combined money the central banks of the world have created and infused their economies with since this crises? Or where to obtain this information?

Mashuri January 13, 2009 at 2:55 pm

Here you go. More data than you can throw a stick at:


mark January 13, 2009 at 4:41 pm

Thank you Mashuri. I will sort through…

Robert A. Meyer January 13, 2009 at 4:52 pm

Great article—excellent recommendations. The question we must ask, “Is anyone besides other libertarians and free market advocates reading these 2 books from Murphy and DiLorenzo?” We are doing a great job of convincing ourselves that unhampered capitalism is the only social system that results in liberty, freedom, wealth, prosperity and happiness for all. Are we convincing the apathetic, non-libertarians and anti-capitalists that only unhampered capitalism can save us from total economic collapse?

I believe another problem is that altruists, liberty violators and socialists are quite adept at attaching other labels to capitalism such as consumer capitalism, state capitalism, Christian capitalism, corporate capitalism, etc. They transform the meaning of capitalism into something that is anti-capitalism—and convince the masses that capitalism has failed miserably.

You demonstrated this with your rousing conclusion “Real capitalism — that is, capitalism based on secure private-property rights, sound money, the division of labor, social cooperation, freedom of contract, freedom of association, voluntary exchange, and the absence of government control, oversight, and regulation — is the answer to the current economic crisis.

Not state capitalism, not crony capitalism, not mixed-market capitalism, not fascism and interventionism under the guise of capitalism, but unfettered, laissez-faire, free-market capitalism.”

Maybe if we connect the joys of unhampered capitalism with something the masses find exciting and entertaining and show that we agree—we might very well get through to them. Here’s an idea. Let’s appeal to their emotions.

One of the legendary pioneers of Rock ‘n’ Roll Chuck Berry wrote and sang the song “School Days.” In a famous, exciting verse he sings “Hail, Hail rock and roll. Deliver me from days of old. Long live rock and roll.” My sentiments exactly.

I say “Hail! Hail! unhampered capitalism.” You know, it was capitalism that delivered the masses from the days of old—from poverty and destitution—and filled their horn of plenty with goods and services that were previously unheard of. Unfortunately we have never experienced the marvels of unhampered capitalism. Governments and special interests have been sabotaging it from the start with destructive schemes of government interventionism and anti-life systems of socialism.

How about a Rock ‘n’ Roll singer who writes and sings songs about the blessings of unhampered capitalism, Objectivism, spiritual awareness and all the physical thrills of life. That might grab them.

Jim Stewart January 13, 2009 at 5:57 pm

Laurence concluded that Capitalism needs no adjustment. It needs to be understood and put into practice. While I agree, there is evidence of a serious fault in modern capitalism that has nothing to do with the role of the state.

One thing this economic crisis is doing is draw attention to credit as distinct from money. Before reading on, I invite others to find a dictionary which shows the noun “money” as a synonym for the noun “credit” or vice versa. I can’t! To grasp the significance of confusing money and credit, consider the following example – in which I’ll try to defraud you of money by giving you credit!

If I give you credit, I am trusting you to fulfil a commitment within a specified time. If I lend you money, I may trust you to fulfil a commitment to “repay” me (perhaps with interest). I may trust you only because I have, or you give me, “security”. So! Would you give me a commitment to pay me some money in future, if all I did was trust you to pay me (& keep a record of your commitment to pay me some money as a “debt” owed – with interest!)?

If you would give me a commitment to pay me money on such terms, then I accept!

If you give me a written commitment to pay me (or someone authorised by me) say $100,000 in 2 years, I am sure I could find a buyer to exchange say $90,000 now, for your written commitment to pay me later. The buyer would be “giving credit” – trusting you to fulfil your commitment to me – and I would immediately be 90,000 $richer!

The first obvious question is why would you give me a commitment to pay me – or anyone – some money in future? Did you believe I did, or would, “lend money” to you? Why? Did I say so? Or did I trick you into giving me a commitment to pay me, by misleading you (with terms like interest & repayments) to believe I was lending “money” to you?

Bankers know the difference between when they “give credit” and “lend money”, but do they tell customers? Less obvious questions concern how bankers get away with the fraud – grossing billions of dollars, pounds etc, year after year for hundreds of years?

Has a banker even been prosecuted for committing the fraud? Has no reporter ever told the story? Will the Mises Institute tries to publicly debate the above explanation of a serious fault in modern capitalism that has nothing to do with the role of the state?

Bennet Cecil January 13, 2009 at 9:24 pm

We are not going to have unrestricted capitalism in America because Americans do not want it. They want big government; they just don’t want to pay for it.

They want government subsidized home financing with Fannie and Freddie. They want social security and Medicare, Medicaid and all of the rest. In fact, they want more. They want to borrow money from China and Japan to buy toxic financial assets that no one else in the world wants to purchase. They are also requesting that China and Japan finance new roads and bridges in the US. Americans want the Saudis to finance our military machine in the Middle East. Maybe the Saudis will finance our proposed new green energy projects too?

Americans do not resent being deceived by their political leaders. In November, we reelected the politicians who voted for TARP. Americans are not worried about deficit spending; 10 or 20 trillion dollars of federal debt is not their concern. Print more paper money or raise taxes on the top 5% of income earners.

Americans are going to expand the government until it hurts them too much to continue. You cannot persuade Americans to choose free market capitalism until the US government fails. That is not likely to happen until foreign investors refuse to buy treasury debt. This will take several more years to come to its logical conclusion.

Russell January 13, 2009 at 9:29 pm

Jim Stewart: I can’t quite grasp what point you’re trying to make…

Regarding the article, my favorite quote was this one from the socialist:

“Roger Olson advocates “a highly graduated income tax combined with redistribution of wealth to the poor through education…”

Man, where’s he been the past 50 years…during which time that’s exactly what we’ve had!

Russell January 13, 2009 at 9:34 pm

Bennet Cecil: Your post reminded me of this Bastiat quote:

“The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else.”

joebhed January 13, 2009 at 10:03 pm


Mr. Stewart.
Too very well said.

Regarding prosecution, not exactly, only through to the invalidity of credit in contract law.
In the ironic Credit River Decision case involving the First National Bank of Montgomery, MN v. Jerome Daly.
I find this the best and most complete connection:

The current version of credit capitalism is dead, though obviously still kicking butt.
Ahead will be our greatest experience of true free enterprise.
And the banks will lend real money.

Stanley Pinchak January 13, 2009 at 10:39 pm

I think that Jim Stewart and joebhed are talking about the difference between fully backed money (think physical dollar bills in our present situation as they come closest to real money while maintaining legal tender status and not suffering from under legal tender valuation as specie coins do) and the fractional reserve checkbook money which is created when the banks extend loans (credit) based on excess reserves. The banks demand payment in money which is equivalent to fully backed money, while the money that they lend is worth ~10% chance of book value (in the event of a bank run).

The only ways that credit can get back into line with real money is to monetize the credit, that is to begin to draw physical dollars out of the banking system on net, or by the banks increasing their reserve ratios. The latter happens during financial crises as entrepreneurs scale back their borrowing and banks voluntarily increase their lending standards. Since the banks create the credit ex nihilo and use it as a claim on money, or real goods (see real estate in joebhed’s link), they benefit as con artists at the expense of the productive class. Their position and protection is paid for by lending to the state for its insatiable spending needs and fueling its inexorable growth. Essentially, with the advent of legal tender laws, the only way to protect oneself in such a system is to totally embrace the system and engage in reckless indebtedness and leveraging, or to abstain from the system and resort to barter. There is no legally protected third alternative.

If people all at once knew how they were fleeced by the bankers, there would be a revolution by the morning.

I highly recommend Huerta de Soto’s book on money and banking as well as the recent book by Hulsmann for a better understanding of banking and money and credit production.

Robert A. Meyer January 14, 2009 at 11:36 am

Bennet Cecil,

Your conclusions are irrefutable. It appears that Americans are like the Queen in “Alice in Wonderland.”

“Alice laughed: “There’s no use trying,” she said; “one can’t believe impossible things.”

“I daresay you haven’t had much practice,” said the Queen. “When I was younger, I always did it for half an hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.”

Tragically, most Americans haven’t grown up.

N. Joseph Potts January 15, 2009 at 12:07 pm

“Not only is capitalism never the cause of a financial crisis, it is always the cure. ”

That’s one for the book. “Free markets” can be substituted for “capitalism” just as well.

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