Crony Capitalism Attacked from the Right

Crony capitalism is not capitalism at all. That should be the cry from the right.

And that is my complaint in last week's Worldmag.com column, "Crony Capitalism vs American Liberty." I quote GOP presidential candidate Jon Huntsman saying, “Capitalism without failure is not capitalism.

I draw attention to conservative former Louisiana Gov. Buddy Roemer, another GOP presidential contender, who has aligned himself with the Occupy Wall Street concerns. On MSNBC’s Morning Joe last week, Roemer spoke in defense of liberty when he said that “somewhere between Wall Street and K Street the system is corrupt. Here’s why. A big check gets first in line; everybody else is out of sight. This country is not fair at the top.”

Here is Andrew Klavan in a Manhattan Institute comedy video arguing that the socialist left is actually plucked from the same government-sucking ideological sty.

Does the Free Market Corrode Moral Character?

Each year in April, The King's College takes a break from regular classes and focuses as an academic community on some fertile topic for exploration and reflection through a common reading, student debates, dramatized great speeches, an art exhibit, student lectures, and a formal address by a prominent academic. This year the theme (in keeping with the times) is "avarice." We had two readings: Marlowe's Doctor Faustus and Shakespeare's Macbeth. Our honored speaker will be Stanley Hauerwas from Duke Divinity School tomorrow night.


I most appreciate the student lectures, however. (Forgive me my weaknesses.) One student from each of the nine "houses" by which we organize the student community at King's delivers a ten minute lecture on a commonly assigned question. Following the avarice theme, and wishing to challenge our liberty oriented Christian community, the student lead Interregnum Committee posed the question, "Does the Free Market Corrode Moral Character." I was only able to hear six of the addresses, and, while they were all impressive, sophomore Tim Wainwright's stood out, in my opinion. He graciously consented to allow me to reproduce it here at Principalities and Powers.

"Does the Free Market Corrode Moral Character?"

Tim Wainwright

House of C.S. Lewis, The King's College, class of 2013

The question I address today, “Does the free market corrode moral character?”, is not a new one, but it is a complex one, and because of this I feel I should start by defining my terms and my interpretation of the questions. First of all, I define “free market” not as a lawless Wild-West kind of gold nugget anarchy, but as an economic system of capitalism with minimal interference, with rule of law and clear rights of private property, and a system where people can freely exchange goods and services. Secondly, the way I interpret this question posed is “how does the free market impact people’s morality?”, as in, does the free market on average cause individual people to behave in an immoral way? Therefore, I will not be trying to persuade you of the various material benefits of free market policy and economics. Also, minimum wage laws, regulation, dead weight loss and the harm caused by nationalization of industry and other nuances will be left for another discussion. I will be trying to leave out these topics unless they pertain directly to people’s moral character.

I lay this out to you because it’s important. It means that this lecture will be more of a subjective approach than an objective one. And because I have to focus on morality rather than math, and because this is such a deep question and I only have ten minutes with which to talk about it, I will not be able to go into as much detail as I would like. Keeping those challenges in mind, I’ll now talk about some way how best to serve others by providing a superior product or making a process more efficient and seeking to market that. This creativity cannot be mandated by central economic planning. Also, do not let it seem like free-markets use a reductive definition of creativity, as simply a means to turn something of worth into cash. From a Judeo-Christian vantage point, the capacity to create is something, in the words of Austin Hill, “distinctly human, something God-given, and something indicative of the unique nature of the human person, having been “made in the image of God”. Creativity is a gift that separates man from the beasts. Birds and other animals create, but with repetition, not ingenuity. Capitalism is the economic system which allows creativity to thrive most because it provides incentives, more so than any earthly alternative.

Speaking of incentives, that brings me into my third ethical point in favor of free-market capitalism. It is the only economic system that relies upon persuasion rather than coercion. Communism, fascism, and socialism rely upon coercion: trying to get people to do what you want by threatening to reduce their options. And by “reducing options”, I mean state-sponsored murders. 65 million in China, 20 million in the USSR, the list goes on. Free-market capitalism, presupposing the freedom of exchange, that the rule of law prevents anyone from being physically forced to make a purchase, means that no trade will occur without the blessing of all parties involved, which means that by definition it is a win-win situation. That means that in order to get others to do what you want, you have to use persuasion rather than coercion. It is an environment where people have an incentive to serve others in order to serve themselves, thus actually tempering the human desire to conquer and domineer. It takes those in the economy whose motives are pure greed (and they do exist) and forces them to channel that greed into doing something useful for their fellow men, for that is the only way they can sate it. So not only does free-market capitalism sponsor certain virtues, it also channels certain vices and, while not eliminating that vice, at least preventing it, when the rule of law is upheld, from becoming something that harms the rest of society as it would under another system.

I could go on. I could say how capitalism creates responsibility, civility, cooperation, and responsibility. That it furthers knowledge, and that it helped give us modern theology in that it allowed people to take a break from farming and spend some time thinking about God. Unfortunately, I don’t have time to really unpack those topics. Instead, I will use the time I have left to answer common arguments from those who disagree with my view of the market.

I’ll begin with the most common complaint against free-market capitalism: that it is a system that rewards and fundamentally relies upon greed and selfishness. Critics who make this point are foolishly confusing selfish behavior with self interested behavior. A market system does run on self-interested behavior, but that is not necessarily greedy. What I'm doing right now, giving this lecture, is engaging in self-interested behavior. I accepted the chance to speak in front of you because I am interested in the subject matter and how it gets communicated. But it's not selfish. Selfishness can be defined as “exclusively concentrating on one’s own advantage, pleasure, or well-being without regard for others”. I’m certainly not exclusively focused on my own pleasure being here. If I were, I wouldn’t be here; I would be asleep!

And that is why it is important for us to distinguish between selfishness and self-interest. Self-interest, as defined by Paul Heyne, is “individuals in control of property using that property to pursue projects that interest them”. There is nothing inherently wrong with self-interest. Not all desire to better oneself is greed. Indeed, the Book of Proverbs says, “Lazy hands make a man poor, but diligent hands bring wealth”. There is clear biblical support for a pursuit of self-interest through hard work, and it is on this that the free market runs, not greed.

And this is where critics of capitalism get it all wrong! They make glaring assumptions about the true motives of people in the business world. What is it that business execs are thinking about in their work? When they devise a campaign or have meetings, are they only thinking about getting more money? Sometimes, but a whole lot less than we are given to think. And I would stress that the greed that does exist is a matter resulting from the human heart, not from the way the economic system is set up.

This point about the human heart is closely related to the second common argument I will refute, so I will expand it in relation to this: that the free market creates a materialistic and spiritually bankrupt consumer culture. You all know the common caricatures: of obese Americans who love nothing more than a McDonald’s and a Starbucks on every corner, who only care about getting the latest Steve Jobs toy. Or, as a Preacher named Jim Wallis put it, “The tree of the American economy is rooted in the toxic soil of unbridled materialism”. Unfortunately, this dramatic stance distorts consumption into gluttony. Gluttony involves our hearts, it is something created by human nature and not from circumstances created by private property.

St. Augustine talks about this problem of material goods, the “beautiful form of material things”. He says that “Sin can gain entrance through these and similar good things when we turn to them with immoderate desire, since they are the lowest kind of goods and we thereby turn away from the better and higher: from you yourself, O Lord our God, and your truth and your law. These lowest goods hold delights for us indeed, but no such delights as does my God, who made all things; for in him the just man finds delight, and for upright souls he himself is joy”. Isn’t that beautiful? If we unpack what Augustine says here, we learn that materialism comes from putting earthly desires before God. Sound familiar? Oh yeah, its that thing humanity has been struggling with for the last few thousand years, way before The Wealth of Nations was written. Materialism can be found in any culture, and it is something that stems from the imperfection of human hearts, not from any imperfection of the free-market. I'll summarize this point by using the words of economist and author Jay Richards, “don’t confuse the free market with the bad choices free people make”.

To sum up, far from being a system that actively corrodes people's moral character, the free-market enterprise system actually encourages virtues. Remember charity and creativity and all the rest? It also uses persuasion over coercion. And as I have shown, most of the moral arguments against capitalism come from misguided people. And this is where we get to the root of the matter, what I think is the one single most harmful false presupposition in this debate. Underpinning anti-capitalist views are, I believe, a Utopian view that society can somehow be perfected. People who criticize capitalism compare it with a perfect universe, a Nirvana. Against a perfect world, against the Kingdom of God, of course free market capitalism looks bad. So does anything else you care to name. But when you hold capitalism up against any other earthly alternative, then it stops looking so bad. As Martin Wolf said, “Those who condemn the immorality of liberal capitalism do so in comparison with a society of saints that has never existed--and never will”. Remember that the free market is only one of several imperfect, earthly ways to run an economy….but hold no doubts that it is by far the most moral, the most humane, and the most efficient of all the imperfect options available to us.



Bibliography

Scott Rae and Austin Hill, The Virtues of Capitalism: The Moral Case for Free Markets (Northfield Publishing, 2010).

Paul Heyne, "Are Economists Basically Immoral?" and Other Essays on Economics, Ethics, and Religion (Liberty Fund, 2008).

Paul Heyne, The Student's Guide to Economics (ISI, 2000).

Jim Wallis, Rediscovering Values: On Wall Street, Main Street, and Your Street (Howard Books, 2010).

Susan B. Varenne, ed. Late Have I Loved Thee: Selected Writings of St. Augustine on Love (Knopf Doubleday, 2006).

Jay Richards, Money, Greed, and God: Why Capitalism Is the Solution and Not the Problem (HarperOne, 2009).

TKC Grads Hit the Presses

Two recent graduates from The King's College in New York City have shown up in prominent print this week.

Anthony Randazzo (Class of 2008) published "The Myth of Financial Deregulation: Government action caused the economic crisis, not the free market" in Reason Online: Free Minds and Free Markets (June 19).

For the past nine months, Wall Street critics have painted a damning picture of the housing bubble as the product of deregulation and reduced governmental oversight. To read the Obama administration's new financial sector regulation overhaul proposal, the government didn't have anything to do with the current crisis. According to this view, our economy wouldn't be facing a recession with almost 10 percent unemployment if the government had been more involved with the market. This picture is about as historically accurate as the famous portrait Washington Crossing the Delaware. ...

The core problem of the regulatory proposal is its view of the causes of the crisis. Everything is built on a belief that the market failed and that deregulation created a system of excessive risk and irresponsibility. Ironically, it was government action that created incentives for financial firms to be less risk adverse, not a lack of regulation. As Washington prepares to debate regulatory overhaul this summer, it is more important than ever to wrestle the myth of deregulation to the ground.

Given all the talk of deregulation, you would expect to find dozens of deregulating laws put in place over the past few years. Surprisingly, there have only been three major deregulatory actions in the past 30 years. Ultimately, the data points to bad regulation as complicit in the creation of the financial crisis, not deregulation.

Those three major deregulatory actions were the Depository Institutions Deregulation and Monetary Control Act of 1980, the Garn-St. Germain Depository Institutions Act of 1982 (co-sponsored by then-Rep. Charles Schumer, as Randazzo nicely observes), and of course the 1999 Glass-Steagall Act.

Anthony Randazzo is a policy analyst for Reason Foundation. Read his Reason archive here.

David Lapp (Class of 2009) gives us "For Better or for Worse: When Marriage Vows Get Creative" on the Houses of Worship page of the Wall Street Journal (June 19). (I have previously cited Mr. Lapp in my obituary for Richard John Neuhaus for his words introducing Rev. Neuhaus at his King's College Interregnum address.)

In this custom-made vows market there is plenty of opportunity for mockery, although it is also easy to dismiss the writing of one's own wedding vows -- or farming them out to professionals -- as a harmless exercise, just another way for a couple to personalize their love for each other....

But let's imagine for a moment that, instead of reciting the oath that his 43 predecessors have taken, President Barack Obama had insisted at his inauguration on personalizing it, perhaps replacing "I will faithfully execute the office of president of the United States" with the more flexible "I will try as hard as possible to do the job of president of the United States." That sounds a little more natural and honest, he might have argued: How does he know if he'll always be able to live up to his word? Besides, he might have stated, "The traditional oath is what every other president has said. I want mine to be original."

We, the people, would have been outraged -- and rightly so. The very specific words our Constitution requires the president to recite demonstrate the gravity of the obligations he assumes. They can't be reduced to the whims of one person.

Lapp draws attention to the place of marriage within a larger community, and, in a Christian context, within a covenant community. Also, he points out, he vows people write for themselves often reflect their own immaturity. The vows certainly express who they are as a couple, but they do not express who they should aspire to be, drawing on the wisdom of those who have preceded them in marriage, some of whom are present at the ceremony. "The more casual attitudes toward the vows are probably a symptom of our more casual attitude toward marriage."

I"m glad he was able to give Dietrich Bonhoeffer some spotlight, who told one couple, "it is not your love that sustains the marriage, but from now on, the marriage that sustains your love." Words to the wise.

Lapp presents this practice of writing your own vows as something new. But I seem to recall that it was featured on an episode of All In The Family in the early 1970s when it became faddish. Certainly the practice of shopping for vows on the Internet is new. That reduces wedding vows to the level of a greeting card sentiment. Do people even know what a "vow" is?

So there you have it: two Christian philosophico opinion shapers for the twenty-first century.

Capitalism and Its Fruits

There are times when I am at home when I am too tired to do all the stuff I should be doing, and so like many another American, I repair to the cheap passivity of slouching in the leather chair in front of the flat screen TV that lurks like some kind of pagan altar in my home. But even at my most mind-numbed, the tube still resembles the business end of a 103 channel sewer pipe, pumping cultural detritus into living rooms across the land. Yet one program that I came across while flipping through the channels is a program called "How It's Made" on the Science Channel, a part of the Discover Network, and it allows me to loaf without self-inflicting too much psychic damage. Short segments show the basic processes involved in thousands of the products and devices that our huge, flourishing, modern economy has, Adam Smith-like, made available to households and businesses all over the world.

I have always been fascinated and impressed by the genius and creativity of manufacturing engineers, and the coordination of inputs and outputs by the free market that make possible the cornflakes and tennis shoes of life. Adam Smith's paean to the lead pencil comes to mind, following Locke's similar analysis in chapter Five of his Second Treatise of Government. Which government commissar, looking down from the commanding heights, could coordinate the millions of decisions made every day by free entrepreneurs and managers across this economy?

Among the many items showcased by the program are Binoculars, Sparklers, Rubber Boots, Circular Saw Blades, Anatomical Models, Jukeboxes, Tortilla Chips, Spark Plugs, Pencils, Coffee, Javelins, Cuckoo Clocks, Hearts of Palm, Windshield Wipers, Technical Glass, Washing Machines, Playing Cards, Crossbows, Cine Cameras, Glass Christmas Ornaments, Giant Tires, Microphones, Hot Tubs, Artificial Turf, and Beer Steins.

What do all these products and the industrial processes that make them possible have in common? CAPITAL. When you watch this program you are struck with the scale of the undertaking, and the discrepancy between the size of the production machinery compared to the product being manufactured. Even the least consequential product--the pencil, say--requires a huge industrial array of production facilities and processes to deliver that product into your hands as a consumer. It is the freedom we enjoy under the rule of law, and a constitution that specifically favors commercial activity, that allows the capital formation that makes possible even the simplest items we depend on and take for granted. How much would a handmade pencil cost? $5? $10? Instead, pencils are so cheap you hardly bend over to pick one up that has fallen. The vast array of manufactured items that make your life possible at a price that you hardly even notice is brought to you by CAPITALISM. The private interest of free men, free to make a profit, brings to your door every item in your house, including your house, at a price point that you can afford. Can't afford a $120 trash can for the kitchen? You can buy one for $10.

Take a look at this program sometime, and consider how much of our industrial manufacturing would have been possible under a less free political economy--say, like the one we are steering into now, where grandstanding Congressmen compete with faceless bureaucrats to antagonize with regulation as many aspects of the economy as they can get to.

I grew up hearing about "American ingenuity", about the can-do spirit that made America not only the envy of the world, but its economic engine. We are witnessing the systematic destruction, by way of the tax code, of the system of capital formation that makes it a rational economic decision to build a huge factory full of machine tools and production lines for the manufacture of even the humblest of products that we rely on every day. Without the growth that freedom allows, we will from this day forward begin to live off the capital already in place in the form of plant and equipment, and whatever new enterprises that might seem possible under this new regime will groan under a much heavier burden of taxation and regulation, and now it seems, even open intervention by the Congress in things like executive pay and union affiliation. Obama keeps saying he is laying the groundwork for future economic growth by loading us up with the gargantuan spending he and Pelosi are planning, but they are making the mistake all collectivists make concerning the producers. They assume that regulation and taxation have no essential effect on the level of production. But the increased rate of taxation being contemplated will remove the economic rationale for a huge number of projects on the books right now. There are untold thousands of projects, plans, and dreams that are back on the shelf now under the aspect of the mere threat of increased taxation.

If the Democrats have their way--and it looks like they will--our flourishing economy will begin to decay into the sort of rusting hulks seen all over the collectivist world. It needn't be.

UPDATE:

After reflecting on the blessings conferred by free markets and free minds, consider the "Anti Industrial Coup" being pulled off under our noses by faceless and remorseless bureaucratic fanatics across the spectrum of executive branch agencies. Today, (Mar 26) Robert Tracinski warns that it may already be too late to save our industrial civilization from these radicals.

Where Have All The Cowboys Gone?

Dan Henninger makes clear the economic implications of the imminent transition we face: American Cowboy Capitalism is going on the shelf, and under Democrat hegemony, we're going to wheel out a Euro style hammock, put our feet up, and retire from our status as world leader of anything. Hans Morganthau, dean of the "realism" school in international relations knew that power consists, only and always, in all three of its expressions: political, economic, and military. No nation can be a world power without excelling in all three, and this is why America has been the world hegemon--much to the discomfiture of the Left--for almost a century, despite the aggressive rise of totalitarian governments throughout the 20th century. We are now set to kiss it all goodbye, and as Henniger ruefully points out, once it's done, it's done. We're done.

Several other commentators have put together their parade of Barackian horribles, some listed by David below, and here is Henninger's partial list:

Obama's federalized medical insurance system starts the transition away from private medical care and toward Obama's endlessly promised "universal health care." This has always been the sine qua non of planting a true, managed-market economy in the U.S.
Obama's refundable tax credits are direct cash transfers from the federal government. This would place some 48% of Americans, nearly half, out of the income tax system. More than a tax proposal, this is a deep philosophical shift, an American version of being "on the dole."

His stated intent to renegotiate free-trade agreements such as Nafta is a philosophical shift. It abandons the tradition of a hyper-competitive America dating back to the Industrial Revolution, toward a protected, domestic workforce, as in Western Europe. The Democratic proposal to eliminate private union votes -- "card check" -- ensures the spread of a static, Euro-style workforce.

Eliminating the ceiling on payroll taxes changes Social Security from an insurance to a welfare program. Obama's tax credits requires performing government-identified activities, the essence of a "directed economy."

All this would transform the animating American idea -- away from creation and toward protection.

This and the other scenarios predicted is what it looks like when a democratic people choose equality over liberty. The tragic thing is, we will end up with neither equality nor liberty, since we will have made ourselves into just another flabby and useless Euro welfare state unable and unwilling to lead, follow, or get out of the way.

But what an elegant class of mandarins we will have lording it over us!

In Times of Crisis, Trust Capitalism

Joseph Calhoun, an investment officer at an investment management firm, speaks for a lot of people whose principles are still grounded in the American understanding of the seamless nature of freedom, encompassing the political, economic, religious, social, and cultural arenas. Socialism kills freedom in all its forms, like a wet blanket on a fire.

The US government is executing a coup d’etat of capitalism and I fear that we will pay the price for many years to come. Hank Paulson, Ben Bernanke and a host of others tell us the credit market is not working and the only way to get it working again is for the government to intervene. They claim this intervention is urgently needed and if we don’t act, the consequences are dire. Dire, as in New Depression dire. Have these supposed experts on capitalism forgotten how it really works?

If this bailout goes ahead in its current form and the Treasury pays a high enough price to recapitalize the troubled banks, what has been accomplished? The plan may be enough to induce the banking sector to start lending again, although frankly, I don’t know why we would want institutions who have shown such poor judgment in the past to stay in that business. This plan short circuits the capitalist model which would allow the stronger, well-run institutions to gain market share and/or expand profit margins. The long-term effect will be to lower the overall return on capital in the financial services industry. The government apparently believes that the key to economic recovery is to allocate limited resources in an inefficient manner. Does that make sense?

Read the whole thing here. It will cleanse your mind.