Capitalism Vs. Free Enterprise;
Good Morning out there all of you hard working brain cells; your King of Simple News is on the air.
I played hooky from writing yesterday as Cathy and I were returning from visiting old friends in Southwestern Colorado. We drove through a blizzard with snow packed icy roads coming back over the high passes of the famous Million Dollar Highway. We saw one rollover and another California speedster spin off into the trees. I’m getting too old for that kind of excitement.
As we listen and read the roaring debates over healthcare, I want to say that a “public option,” is one area where the Democrats have this thing right. “But that will drive the for-profit health insurance companies out of business,” cries the devout capitalist. And, that ain’t all bad.
I have stated over and over that pure unadulterated, unbridled capitalism has no place in healthcare. So does that make me a devout Socialist? Not one teeny weensy little bit. There are simply some things that I can’t abide. Attempting to extract the last dime out of a person dying of cancer in order to produce profits for an insurance company is high on my list of intolerable behavior.
We need a hybrid system. The choice is not between pure Socialism, Communism, or Capitalism. It’s not an “all or nothing” alternative as many would have us believe. And that brings me to the subject of the day…free enterprise.
In May of 2008, King of Simple Friend, Rick Martin, wrote the following outstanding article and it is more than worthy of another hard look.
When I tell people that capitalism and free enterprise are not the same thing, I typically get a deer-in-the-headlights look, followed by a clearly articulated “Huh?” But they are not the same thing, and that is the subject of this piece.
Capitalism requires growth. Free enterprise does not. Capitalism can only be satisfied by “more.” Free enterprise can be satisfied by “enough.” Free enterprise can go on forever. Capitalism cannot.
Free enterprise means that I am free to set up my own enterprise, say a general store, and the Federal Agents will not come knocking at midnight. As long as my expenses do not exceed my revenues, my enterprise can continue indefinitely without the need to increase my net worth.
Free enterprise requires freedom, but it does not require accumulation, or growth.
Capitalism, on the other hand, requires a return on investment (ROI). It requires me to accumulate ever more capital. If I invest $100, by the end of the year, I had better realize a minimum of $106. If I don’t, then my investment became negative, as the very roots of capitalism are planted in inflation.
If I reinvest my $106, I must receive $113 the next year. This must continue forever, or else the capitalist system will fail. This is closely related to the concept of compound interest. This also requires an exponential increase in the money supply, which eventually becomes impossible to balance with the physical system of available resources.
The real diffe
“Growth” must come from an expansion of the money supply, resulting in the dilution of the value of the cur
Capitalism thus requires infinite growth. Since we live on a finite planet, this is clearly impossible. Eventually something has to give. It is not a matter of if, but only a matter of when. To believe otherwise is to believe in magic. When I was a child, compound interest seemed like magic to me. Yet any professional magician will tell you that magic is not really magic, but merely an illusion. Similar to capitalism.
The characteristics of capitalism are the characteristics of the weed: overshoot and die-off. Before the weed dies it shoots out consumerism, imperialism, and planned obsolescence. These are meant to delay the demise of the weed but in the end, when it has exhausted its resources, the weed dies anyway. Capitalism must, in the end, consume its own host society. The result of practicing unchecked capitalism in the U.S. is cur
We have all seen those movies where the crew of a steamship, when the coal is gone, rips up the decks to feed the boilers. It is clear to everyone that this can only go on for so long as there are decks to rip up. A steadily increasing return on investment, which is the very essence of capitalism, can only have a similar result. The poor people on the steamship may be hopeful of rescue by another ship. On Spaceship Earth, I do not think we can count on being rescued by, or making landfall on another planet.
So it comes back to my initial comparison of capitalism and free enterprise. Free enterprise means, quite literally, freedom. Freedom to try, freedom to succeed, and freedom to fail.
Capitalism (sorry, Dr. Friedman) does not mean freedom. It means slavery to the demands of return on investment; of never ending growth. Carried to its logical conclusion, in our present time it probably means turning into a society that might be characterized as high-tech feudalism.
Free enterprise is a shopkeeper, capitalism is a banker. With free enterprise, we can own our wealth. With capitalism, our wealth will wind up owning us. That is the real diffe
I thank Rick once more for introducing this important thought provoking subject. Let me hear your opinions.
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Wow.
George, WOW, is right! Rick included several of my Show-Stoppers in his excellent article, not the least of which were compounding interest and exponential growth.
I hope that this article will help to open up our minds to accept that it’s not an “all or nothing” proposition.
Free enterprise rarely allows anyone to get super rich, which is why it is often perverted into what we know as Capitalism. People don’t want to make an honest living, they want to be rich.
There is no big money in running a successful business, there is only money in starting one and then selling it to the highest bidder. Naked Capitalism is a scam invented to make smart/sneaky people fortunes on the backs of the truly productive.
whenry,
Your comment, is in my opinion, quite accurate.
I often remind myself that America did not start off with our current system, but rather started with free enterprise. The Fed and IRS arrived in the year of 1913 and changed the landscape forever.
You said, “Naked Capitalism is a scam invented to make smart/sneaky people fortunes on the backs of the truly productive.”
In other words, it allows several legal means for becoming rich without producing anything other than misery for the multitudes. It also explains the basis of the old adage, “The rich get richer.”
I’m looking though a few history books this morning. I’m trying to identify a pivot point where the free market was hijacked by capitalism. I think I’ve found it. It’s the American Civil War or as it was know in the South, The War of Northern Aggression. Just look at the build up of of Northern Industrial Might put into motion between 1861 and 1865 to bring the Southern States to their knees. Look at the expansion West after the war was over thinks to the Iron Horse and the control the Robber Barons had gained over the Federal Government.
the Northern States use emancipation as an excuse to expand their Robber Baron ways. It was not the noble reason they sold to the public to free the slave. How can I say this? Look at how we rounded up the American Indians and tossed them on to reservations and created one group after another group dependent on the federal government. How is it today a majority of African Americans buy into bigger and bigger government to take care of needs that we all have the ability to take care of ourselves? Are the oppressed comfortable in their oppression?
Ask a Robber Baron and I believe the answer you will get is “Yes”
Sorry to sound like a Luddite, but the end of free enterprise and the beginning of Capitalism came with the beginning of the Industrial Revolution…
Notice the difference in the character of our Founding Fathers and their peers vs. the captains of politics and industry that have followed…
I think we are on the same page whenry912. It was the Civil War that provided the crisis required to really fuel the Industrial Revolution / Robber Barons in to expand, expand, expand, consume, consume, consume, exponential growth for the sake of making a small minority extremely wealthy and powerful, to hell with the long term consequences.
As usual, this article hits the nail right on the head. It is possible within the existing political/ economic system to practice free enterprise, but requires some deft maneuvering as well as ignoring some rules.
The government at the federal level is bought and paid for by capitalists, and almost always does their bidding. Witness the bailouts of the financial sector. Even those few times they instituted policies or created legislation that benefitted the poor and middle class, I suspect, the efforts focused on mitigating discontent and avoiding torches and pitchforks.
At the state and local level things are not much better. The tax code is largely indecipherable, licensing and other regulatory requirements consume large blocks of what would otherwise be productive time, and sometimes make business impossible. In this contracting economy you can’t pass the costs these regulations require onto the customers.
As the coming unraveling proceeds, more and more people will, out of necessity, become” free enterprisers”, and the government at all levels will step up regulation, taxation and obstructionism in a futile effort to keep the con game going.
Interesting time to be alive and awake.
Best to all,
Michael in NC
I don’t believe that there is an exact time that we can point to where the monetary capitalist’s hijacked the free enterprise system, but around the time of the Civil War and the industrial revolution it was certainly picking up speed.
The greatest point in Rick Martin’s article is that unchecked Capitalism requires never ending growth which is impossible and always was impossible. Therefore, it was never a matter of if the system would fail, but only when.
Our system of unchecked capitalism also introduces the “something for nothing” aspect for the rich and famous.
M. King Hubbert stated; “Aside from the fact that only by means of the sophistries of lawyers and economists can it be explained how, on this basis, those who do nothing at all frequently receive the largest shares of the national income, the simple fact is that it is impossible for any man to contribute to the social system the physical equivalent of what it costs the system to maintain him form birth till death–and the higher the physical standard of living the greater is this discrepancy.”
Wordherder,
You said, “As the coming unraveling proceeds, more and more people will, out of necessity, become” free enterprisers”, and the government at all levels will step up regulation, taxation and obstructionism in a futile effort to keep the con game going.”
I agree. As unemployment continues at high levels and as people lose confidence in the government to correct the employment situation, necessity combined with desperation will once again rule the day.
We will see people at all levels become “free enterprisers” in an effort to earn money in any way possible. The rules and laws of our once prosperous and pompous society will fall by the wayside as desperation has no time for following the complex rules of today’s licensing and regulatory guidelines.
Government (as you suggested), will in a futile effort attempt to police these new free enterprisers to maintain the good ol’ boys system that provided purposeful barriers to entry for small business.
Just sharing a news story that just hit the wires.
300 Hotels in California are in foreclosure. Including the St. Regis Monarch Beach in Dana Point, the downtown Los Angeles Marriott, the Sheraton Universal and the W hotel in San Diego.
These are high dollar properties, not your average Motel 6, or Super 8. This is a five fold increase in foreclosures over the same time last year.
http://www.latimes.com/business/la-fi-hotels-foreclosure7-2009oct07,0,744154.story
I also saw an article the other day but I can’t seem to find it today stating that the number of billionaires in 2009 is less than half the number of billionaires in 2008. If I find that article I’ll post the link.
Somebody has lots of money.. Uncle Sugar has been putting it out there.. Somebody has it..
I might note, that I do not have it..
WmA
Wma,
And here I was counting on you to have all the loot and sharing it with your friends!
The note that George posted above will fit in nicely with my article that will be posted later this morning. Are we reaching the proverbial bitter end?
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Experience tells you what to do; confidence allows you to do it.
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