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Capitalism Vs. Free Enterprise - Mike Folkerth - King of Simple

Mike Folkerth - King of Simple

Western Colorado

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Capitalism Vs. Free Enterprise

Good Morning out there all of you hard working brain cells; your King of Simple News is on the air.

The following article appeared on this blog a little more than six months ago. Until I reread it, I didn’t realize just how appropriate it was to our ongoing conversation regarding our failing economic model. The following is unmodified from the original content:

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.

By Rick Martin

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 difference then, is this; capitalism requires accumulation while free enterprise does not. Capitalism also requires external inputs, often coming from Peter where Paul is the capitalist. “Those who rob Peter to pay Paul, can always count on Paul for support” ─ George Bernard Shaw

“Growth” must come from an expansion of the money supply, resulting in the dilution of the value of the currency (inflation). Capitalism and free enterprise are not mutually exclusive. In fact, capitalism usually rides on the back of free enterprise making them appear as one.

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 currently consuming our Middle Class.

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 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 difference. And that is our choice.

I thank Rick Martin once more for introducing this important thought provoking subject. Let me hear your opinions.

 
Comments
1.
On April 19th, 2010 at 8:33 am, Billyb said:

After reading the article by Rick Martin, there should be little to argue about. Funny thing though; Ron Paul is virtually the only politician out of the thousands roaming our country who openly supports free enterprise, the constitution and the concept of a republic. And Dr. Paul was soundly beaten in the last presidential election. That tells me that it is not the politicians who are strangling us, it is us; we the people, who are doing it to ourselves. We do not want freedom for the most part. We mostly just want free hand outs.

Our government and it’s inhabitants need to go back to the philosophy like that of, an old friend, Harry Vold; “If you’ve got more marbles comin’ out of the sack than comin’ in, you’ve got a problem.”

Sure beats arguing over the attributes of socialism and capitalism, neither having passed the test of time. Neither will ever pass the test of time, due to mathematical and physical contraints. So why do we persist in this wrong direction? Denial…..

Denial is a bad thing, in and of itself, but denial by the masses, as witnessed throughout the entire population of our country is a tradgedy. -bb

2.
On April 19th, 2010 at 5:49 pm, Greg said:

According to InvestorWords.com, free enterprise is defined as….”Business governed by the laws of supply and demand, not restrained by government interference, regulation or subsidy….also called free market.”

I don’t see textbook “free enterprise” working any better than Capitalism, Socialism or Communism. The reason being; by definition, it is a “free for all.” Since we humans do a very poor job of regulating our baser instincts and we are always in it for the short-term, I see nothing but grief here too. At least not without significant modification. However, since no one likes regulation, it probably won’t be regulated, and the outcomes will be predictably unfortunate.

We humans are greedy and don’t want to see any restraints placed on our actions (freedoms). Until we mature emotionally and intellectually and recognize that there is no such thing as freedom without restraint and responsibility, there will be no system, or combination of systems that will save us.

3.
On April 19th, 2010 at 6:36 pm, Tom Gaspick said:

I don’t have much to offer on this topic aside from this link to a long essay about the nature of money, credit (debt), interest and where it’s all taking us to in a hand basket:

http://www.realitysandwich.com/money_and_crisis_civilization

As I’m fond of saying with respect to poor design and engineering and manufacture that I run across in my work, “There has got to be a better way.”

4.
On April 19th, 2010 at 7:18 pm, wordherder said:

I’m not optimistic that any system or combination of systems will avert the coming strife. We can surmise, however, about which arrangements will be possible and feasible after economic collapse and the chaotic transitional period that follows.
Transitional communities are popping up across the country and world, embracing the practice of permaculture, re-localization, communitarian co-operation. When, not if, money becomes worthless, we will have to employ our skills, knowledge and resources to produce the things we need. Barter and free trade will slowly become re-established. Working folk will regain much deserved but often withheld respect.

While it is true the greed predominates in our present culture, there are many of us who are concerned with helping those who can’t help themselves, with commiting our time and talents where we find unmet needs. If we can learn to get along with each other and help each other get through the coming hard times, we may yet survive.
Best to all,
Michael in NC

5.
On April 19th, 2010 at 8:02 pm, Hotrod said:

Tom,

Thank you for sharing that article. I believe it is very accurate. TPTB have tried to commoditize and charge interest on anything they could possibly get away with. A few years ago, when Bolivia privatized its water system, it was made illegal to catch rainwater. The peasants finally erupted and took back some power. It’s past time we do the same.

6.
On April 19th, 2010 at 8:20 pm, Tom Gaspick said:

Wall Street’s Intellectual Underpinnings:

I don’t know what brought this to mind, but I just thought of Popeye’s freeloading buddy, Wimpy. Remember him?

“I’ll gladly pay you Tuesday for a hamburger today.”

There we have it! The foundation of the whole bleeping system!

7.
On April 20th, 2010 at 6:33 am, Tom Gaspick said:

Further to Wall Street’s Intellectual Underpinnings:

Here’s a real jaw-dropper to read:

http://www.oftwominds.com/blogapr10/gaming-system04-10.html

Three stunning quotes from it –

“Were Wall Street forced to cease its gaming of the system via misrepresentation, malfeasance, fraud, embezzlement and failure to disclose material facts, then profitability would collapse.”

“In essence, fraud, embezzlement and corruption of the political process are the only profitable businesses left on Wall Street.”

“The gaming mentality is now so deeply woven into the U.S. economy and culture that it is akin to a parasite so interconnected with its host that killing the parasite will also kill the host.”

8.
On April 20th, 2010 at 8:21 am, Mike Folkerth said:

I often make the statement that there are some problems that lack a palatable solution.

Such problems are more often than not the product of ignoring a little problem until such time as it becomes a large unsolvable monster.

One such problem is Wall Street, which requires a constant shearing of the flock in order to fund the massive overhead of a non-productive sector that must be funded by the productive sector.

The passive investors (sheep for shearing) on the other hand are willing participants as they too expect to pull off a daylight heist by doing nothing and getting something back in the way of phenomenal growth in their portfolios while they sleep.

In 1974, the passage of the Employee Retirement Income Security Act (ERISA) and the advent of the 401K pension plans, began funneling $Billions upon $Billions into the stock market as millions of hopeful future retiree’s with zero experience invested heavily in the markets for their golden year retirements.

The 401K was a gift from government to Wall Street that allowed the “Cat’s on Wall” to become much fatter and extended the mathematically impossible Wall Street Hustle for years to come.

So what happens when the economy stalls and at the same time the former investors reach retirement age and become with-drawers? Does Social Security Insolvency ring a bell? Hey, a pyramid scheme is pyramid scheme no matter how you dress them up.

9.
On April 20th, 2010 at 2:02 pm, Swiss Camper said:

Sometimes people can become just too successful and rich. In its wake arrive concentration of wealth and power. That in itself leads to corruption and inbalance. Harald Woznewski advocates a limit on wealth. You are not allowed to own more than - let’s say- 50 million dollars. IMO could work.

10.
On April 20th, 2010 at 3:45 pm, Country Lady said:

A better term than Capitalist or Socialist or Free Enterprise or Communist might be CONSUMER versus CONSERVER.

Either you are a consumer; that is you waste resources, or you are a conserver; you live a sustainable lifestyle that takes little in the way of raw materials and gives much back.

“Consumer culture institutionalizes and glorifies waste at many levels…Its ‘wealth’ is dependent on the ceaseless expansion of consumption. A consumer culture demands a continuous acceleration of ‘throughput’, which is the transformation of raw materials into waste and pollution. Consumerism depends on regular clearance of old good to make way for new. Resources are ever more quickly hurried from source to disposal.”

“Not long ago, we were all conservers. Just a few generations back most of our ancestors lived in traditional societies where resource use was close to sustainable. Our forebears didn’t live lives ‘nasty brutish and short.’ Their days were filled with mindful application of labor to honored tasks, and their artifacts were fewer, more durable, and cherished.”

These ideas and quotes are from Ianto Evans, author of “The Hand-Sculpted House”.

Every day we choose to be either a consumer or a conserver. One course is a dead-end road, the other leads to depths of joy, peace and freedom.

11.
On April 20th, 2010 at 7:59 pm, WmA said:

The article, and comments were all interesting..

I might comment on corruption.. I think corruption might be disguising as to whether any economic system might work, or not.. Without honest government, all will fail..

A big part of the problem, is whether the economic system is going to corrupt the government regulators, or government will honestly regulate the economic system..

I believe all systems need a proper amount of regulation.. Complete freedom will not work well.. For example, we all need proper regulation of weights, and measure.. And, more..

I also agree that there is excessive stupid regulation now.. But, that is a failing of our corrupt political system..

wma…

12.
On April 20th, 2010 at 8:08 pm, Mike Folkerth said:

Swiss Camper,

Nice to hear from you! The idea of maximum wealth flies in the face of the rich and powerful..but in reality, you are correct in that concentrations of wealth and power (one of the same) creates corruption.

We live in a time when the gap between rich and poor is widening at an alarming rate. How can that possibly work in nation that it is totally dependent on consumer spending?

13.
On April 20th, 2010 at 8:10 pm, Mike Folkerth said:

Country Lady,

Thank you for the thoughtful and rational comments.

Why is it so difficult to see that we are literally eating ourselves out of house and home?

Live simple, Live well.

14.
On April 20th, 2010 at 8:31 pm, Mike Folkerth said:

Wma,

In my opinion, there is no such thing as honest government and our forefathers knew that. That is why we are a Republic; a nation of laws, rather than a Democracy, a nation of mob rule.

“A Democracy is nothing more than mob rule where 51% of the people take away the rights of the other 49.” Thomas Jefferson

The trick is to get politicians to follow those laws that our founders put down to protect the people and to aid in minimizing government.

15.
On April 20th, 2010 at 9:21 pm, George45-70 said:

I want to share this short video of George Carlin talking about Corporatism and America.

Warning it’s George Carlin and there are F-Bombs being dropped from time to time. This being said he nails it in just a couple of minutes.

http://www.youtube.com/watch?v=hYIC0eZYEtI&feature=related

16.
On April 21st, 2010 at 8:32 am, Mike Folkerth said:

George,

Thanks for posting the language warning…but the content is dead on. As Carlin notes, no one seems to notice that our failing state.

17.
On April 24th, 2010 at 6:47 pm, jaypet said:

Mike, How about also doing a piece sometime about “free enterprise” versus “free market”. Or about “medical care” versus “health care”. Or “faith” versus “religion”. These are all hijacks of phrases, terms or “positions” following the marketing strategy of “Positioning” (Google “Ries and Trout”), wherein the big guys take over or obscure the “position” of the small guys. BTW, I like your definition of “capitalism”.

18.
On April 25th, 2010 at 7:01 am, Mike Folkerth said:

Jaypet,

No doubt, the positions taken by the wealthy are nearly always a means to a way; a way to fleece the general pubic.

We have been hammered with the ideals of growth capitalism for so long that we actually believe that it could work!

Thanks for the interest and for the suggestions; all great subjects.

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