What is Capitalism? – PART 1

Why should you care about understanding the economic philosophy of capitalism?

 By Marilyn MacGruder Barnewall – NewsWithViews.com

(July 1, 2014) – The biggest reason is because our current situation of debt is rapidly leading America and Americans to bankruptcy. If American voters (and Pope Francis) understood capitalism, it is very probable we would not have had a negative GDP the first quarter of 2014. We wouldn’t have 50 million people out of work. Had people understood how capitalism is supposed to work, the corruption that is so effectively leading our nation into third world status would have been stopped in its tracks long ago. Whether people like the idea of understanding capitalism or not, every American has an obligation to know how the system that is supposed to fuel the economy of our nation works. With citizenship comes responsibility.

It’s not hard and it won’t bore you too much. It might even give you the ammunition you need to ask intelligent questions of candidates running for office to represent you and your interests next November. And that is what real capitalism is all about: You and your interests.

Basically, capitalism is an economic system where private individuals control the means of production and provide the capital to fund production. In a capitalist economy, parties to a transaction, not government, control and determine prices of assets, goods and services.

We’ve had many attempts to implement stable economic and social systems throughout the history of the world. We’ve had monarchies – there are many different forms of them. Some are absolute monarchies which dictate that when a king or queen says something is the law, it becomes the law – a lot of people say that sounds a bit like what we have in the United States today.

Some monarchies are democratic – a system of government in which a monarch is guided by a constitution overseen by a legislative body elected by the people to represent their interests. There are also Commonwealths and Principalities and other monarchic forms of government.

Monarchies were preceded by feudalism which also lasted for hundreds of years. Feudalism was a system in which society was structured on the basis of holding land in exchange for service or labor… most people were serfs or peasants who had no rights other than those granted them by the owner of the land they farmed and to which they belonged. They were part of the land. If it was sold, the serfs were sold with the land.

A “Federal” government is usually referred to as a “Federation” – as the Russian Federation is known today. In a Federation, sovereign power is formally divided between a central authority and numerous regions (states, colonies, or provinces). In that way, each region keeps some form of control over its internal affairs. The central government has influence on both individuals and the regions within the Federation.

A Constitutional form of government functions under a constitution which provides the system with basic laws and principles under which society and the government will function.

A Republic is where the people elect members from the public to represent them and vote on legislation.

Thus, a Constitutional Republic like the United States of America functions under a Constitution from which the rule of law flows telling society and government what the rules are – especially restrictions that are placed on government – and the people elect members from the public to represent them in upholding the law of the land as stated by the Constitution and to pass legislation in compliance with it.

In essence, the poverty class moved from being slaves to being serfs (with ties to the land under feudalism) to being servants (with no ties to the land on which they lived) and from servants they became labor. The industrial revolution ushered in large companies who hired not servants, but employees (and later, unions, of course).

Capitalism is based on individualism – it still is to those who understand how it is really supposed to work. Only an individual is capable of making decisions about what best suits his or her desires of self-interest – and self-interest is the basis of capitalism according to the guy who created the concept.

Just as communism is about the state owning property and the means of production – and socialism mimics it pretty closely in that regard – capitalism is about individual ownership of property and the means of production. Capitalism puts the private sector in charge of financing property and production, not the public/government sector. Had We the People understood that, perhaps we could have prevented the unlawful foreclosure on the homes of millions of Americans which have occurred since the 2007 financial “crisis.” Though government has an obligation to enforce the law (which it does not do today), We the People have an obligation to understand the laws (which most do not) so we can stop abuses when they occur. If we don’t take care of our obligation, we do not have the means to force politicians to take care of theirs.

The father of capitalism is Adam Smith. In 1776, Smith published a book called Wealth of Nations. In that book, Smith pointed out that individuals who serve their own self-interest rather than serving the interests of someone else will productively seek economic activities that give them the greatest personal rather than the smallest reward. Adam Smith believed that if people worked for themselves – chose their own careers and endeavors – their self-interests would benefit everyone. When given the freedom to invest their labor so it benefitted them rather than just enriching wealthy others, it would maximize the wealth of the labor class and because huge numbers of people would be involved in the process it would also benefit the wealth of the entire nation. Such people, Smith said, would create a “wealth of nations” – and that’s why the title of his book is Wealth of Nations. It is this concept that built the Middle Class which is under attack – as are the economic rules of capitalism. They are using a prostituted concept of capitalism to destroy the Middle Class and independent business. That’s why it’s important for you to know these things!

The year 1776 will sound familiar to most Americans who have studied our history. It was during this time we began, fought and won the Revolutionary War and freed America – theoretically, at least – from the slavery associated with royalty. No longer would what the English viewed as a benevolent dictator – a king or queen who ruled the lands Britain perceived it had the right to own – no longer would a king or queen in a foreign land tell American citizens how much they would have to pay for tea or for stamps for their letters. No longer would British royalty tell Americans how much they owed in taxes of every kind. We now elect our own government to make these demands on us. We no longer have slavery associated with royalty. Rather, we have slavery associated with debt – a debt placed upon our backs by those we elected to serve us.

The Constitution was signed on September 17, 1787 – and the Founding Fathers immediately had a problem. How were they going to pay for the things people need – roads, modes of transportation, bridges, sanitation, etc.?

The Founders studied what Adam Smith said in Wealth of Nations – and they studied another of his books which preceded it, called The Theory of Moral Sentiments. In this book, Smith considered man’s ability to make moral judgments. It was from this base, he believed, that humans have a natural tendency that makes them seek their own well-being. The ideas of Adam Smith were radical when compared to the economic philosophies of the time – primarily mercantilism. Wealth of Nations is yet today considered the most important economic work written – yes, even more important than the works of Karl Marx (my apologies to the liberal communists reading this). Smith’s philosophy encompassed the values of individualism; Marx’s philosophies encompassed the values of the collective.

What needed to be done to stimulate the economy of the new nation called America?

Roads had to be built, canals had to be dug – why? So commerce could grow and expand and so the economy could thrive. The fight between government subsidies versus private capital began with George Washington when Alexander Hamilton, Washington’s Treasury Secretary, told the first President of the United States of America that government subsidies would be needed if commerce was going to expand.

Some things never change, do they? We hear precisely the same thing today. Yet, most of the markets which made capital – money – available to build thousands of miles of private roads without government came from the private, not the public, sector and they thrived. When government got involved in building the roads, the same thing happened then as happens now… it was a financial disaster.

Government involvement in the private sector (where it does not belong) has today morphed into what we call “crony capitalism.” What does it mean when that term, crony capitalism, is used?

Let’s use a recent example of it – ObamaCare. What is the most provable and the best-known failure of ObamaCare? The failure of the enrollment Website. It’s a perfect example of crony capitalism.

Were any American companies considered for the contract to build the ObamaCare Website? No one has been able to find one. In fact, no one has been able to find anyone who was seriously considered other than CGI Federal who was given a no-bid contract for $93 million of software and Web site development. A top executive at CGI Federal was Michelle Obama’s crony – oops, I mean classmate at Princeton.

Prior to being given this plum no-bid contract by the Obama Administration to build the ObamaCare Website, what experience did CGI have to qualify it for the confidence a no bid contract places in any vendor? It had built a gun registry for the Canadian government – and was fired by the government for cost overruns exceeding $100 million. CGI leaned on its experience – cost overruns. The original $93 million contract ended up costing U.S. taxpayers $678 million (plus – we still don’t have the final bill and to undo the mess made by CGI and to get a workable enrollment Web site up and running, another company had to be hired to do that, so more wasted money).

There is crony capitalism, there is social capitalism, welfare capitalism (both are better called socialism), state capitalism (better called crony capitalism), and laissez-faire capitalism. Laissez-faire capitalism is dependent upon transactions between individuals free from government restrictions, tariffs, subsidies, and minimum regulations. The term is French and (very) broadly means “let it be.” Based on comments about capitalism made by Pope Francis, it seems his South American background makes him think capitalism is what I would term state or crony capitalism. That, Your Holiness, is not capitalism.

Another example: Federal Reserve Chairman Janet Yellen said she doesn’t see a bubble in the immediate future. Hmmm… Last year, the market rose 35% and had 20 all-time highs. Our first quarter GDP was a negative (certainly not performance designed for a 35% increase and 20 all-time highs) and somehow in Yellen’s mind there isn’t a bubble? If this isn’t an example of market manipulation by a group of crooks, I don’t know what is. Anyone who doesn’t see a manufactured result in those numbers just isn’t looking. Get ready for real time inflation, folks, because that’s what’s coming. Though the Federal Reserve System is not a government entity, it does determine economic policy for the federal government.

America is no longer a manufacturing nation. When President Clinton signed the NAFTA agreement in 1994, he cost the manufacturing sector 1,500 jobs – that’s the official number but it is much higher than that. And government’s fixation on no oil, no coal and pushing green energy is not only costing jobs, it is costing the economy dearly. It is part of the reason our Gross Domestic Product (GDP) fell 1 percent during first quarter 2014 registering a minus growth factor. Benghazi cost American lives (as did the Iraq war with territory now being re-taken by terrorists… so much wasted blood). The IRS and immigration scandals result in perhaps the worst cost – a cost so dear that once lost it will take generations to regain the people’s trust. All of these scandals are the result of crony capitalism – or state capitalism.

Capitalism is a system dependent for its success on free markets (which we have not enjoyed in this nation for many years). The reason capitalism no longer works as the driving force of the American economy is because private sector competition, capital and creativity have been replaced by political cronyism.

As a concept, capitalism is still alive and quite well. What has failed is the character of our politicians and the people they were elected to serve. If we “let it be” as laissez-faire suggests – if we have a laissez-faire attitude towards our political system – we will lose our Republic and we may never get it back again.

Politicians serve themselves, not us. To re-elect to office any serving politician is to fulfill Einstein’s theory that to do the same thing repetitively and expect a different outcome defines insanity.

How sane are you? How you vote this year will tell that story.

© 2014 Marilyn M. Barnewall – All Rights Reserved

Marilyn MacGruder Barnewall

Marilyn MacGruder Barnewall began her career in 1956 as a journalist with the Wyoming Eagle in Cheyenne. During her 20 years (plus) as a banker and bank consultant, she wrote extensively for The American Banker, Bank Marketing Magazine, Trust Marketing Magazine, was U.S. Consulting Editor for Private Banker International (London/Dublin), and other major banking industry publications. She has given speeches to bankers worldwide.

She has written seven non-fiction books about banking and taught private banking in Singapore; also at Colorado University for the American Bankers Association. She has authored seven banking books, one dog book, a biography, and two works of fiction (about banking, of course). She has served on numerous Boards in her community.

Barnewall is the former editor of The National Peace Officer Magazine and as a journalist has written guest editorials for the Denver Post, Rocky Mountain News, and Newsweek, among others. On the Internet, she has written for News With Views, World Net Daily, Canada Free Press, Christian Business Daily, Business Reform, the Post & Email, and others.

She has been quoted in Time, Forbes, Wall Street Journal, and other national and international publications. She can be found in Who’s Who in America, Who’s Who of American Women, Who’s Who in Finance and Business, and Who’s Who in the World.