Corporatism is Capitalism, You Morons
What makes the An-cap and Paulbot crowd so laughably pathetic is not the fact that they are economically illiterate buffoons, but the fact that they think that they are not. Apparently reading some Rothbard and a view articles from the von Mises institute makes you a fucking economist in these circles. They will try to lecture people on why they should throw away their money investing in gold and Bitcoin, or why Central Banks are evil, all the while displaying their ignorance in such matters.
This laughable cluelessness is no more apparent than in the common argument I hear that America is somehow “Corporatist” and not Capitalist. I constantly hear comparisons between “true capitalism” and “corporatism” and how in a “true free market” we would not see the powerful corporations that seem to exist in our present economy. They try to say that corporations as legal entities are the product of legislation, thus if you removed the government corporations would go away as well. This of course is nonsense, Corporations exist for a reason, they are found in every economic model on earth from laissez faire to Stalinist Communism. These clowns need an economics lesson to understand why corporations exist, and why they would most certainly be found in anarcho-capitalism and laissez faire.
Corporations exist for the purpose of pooling risk and pooling resources. The first modern corporations emerged in the Netherlands in early modern era. As the Age of Discovery unfolded, entrepreneurs saw opportunity in the vast trade networks that opened up in places like the Americas, Africa and Asia. Demand for fur, tobacco, guns, spices and slaves created an international trade by sea. Merchants tried tapping into markets far away from home. However, it became apparent that there was risk involved as well. One bad day at sea could sink a ship, and destroy the fortune of a merchant. So, to hedge this risk, merchants got together and created joint stock corporations which allows them pool the risk and uncertainty that came from operating an enterprise that spanned across vast distances and risked stormy seas, pirates and the ups and downs of the market. Thus a joint stock corporation could own 30 ships, if a few of them sank (the happening of which was all but inevitable) it would not bankrupt the company as they still owned many others that would be able to make up for the costs.
Let me put it a different way. Say I want to drill for oil, it costs a few hundred grand to set up an oil well, if I strike oil I stand to make 10 times the investment I put into it. However, there is a 70% chance that my oil well will strike nothing and all that money I invested in it will be for naught. Say I am only worth a few hundred grand, should I risk my entire life savings on a venture that carries a 70% chance of failure? But I have a plan, I find 9 of my friends and we decide to form a corporation, instead of one oil well we drill 10 different oil wells in 10 separate places. As the potential return for striking oil is 10 times the capital investment, only one of the 10 wells has to strike oil for us to make a return on our investment. But statistically our chances are that at least three of the wells will strike oil, which means we will triple our investment, we may even get lucky and have 4 or 5 strike oil, in which case we get a windfall. Thus the opportunity cost per well has decreased. What my friends and I have created is called an economy of scale, which occurs when the cost per unit decreases as the scale of a business increases and evenly spreads the fixed costs over more units.
By pooling our resources, we have decreased the opportunity cost of drilling for oil. Instead of risking lots of money on a single well where my chances of failure are 70%, I have instead entered into a venture where my chances of tripling my investment, or at least doubling it are closer to 90%. As we get bigger and drill more wells, the cost per well continues to decrease, we grow richer and the company grows larger. Thus the opportunity cost of drilling for oil has decreased substantially; it’s cheaper and smarter for me to join my friends in a venture than to go out on my own.
Now I know it may hurt their little anarchist brains to envision such scenarios, but the fact is that envisioning scenarios like this is what economists do every day. Real world opportunity costs such as the ones mentioned exist, incorporating lowers risk, and thus lowers the real costs of engaging in such ventures. Over time the economy of scale grows and the real costs continue to decrease, to the point where it becomes far more efficient and cheaper than a one man operation. It makes perfect economic sense to form a corporation. This is why corporations exist in all kinds of economic models, from communism to laissez faire. There are many products, services and industries that simply wouldn’t exist if it hadn’t been for corporatism, the opportunity costs would make such ventures impracticable without Now it’s true that these corporations can become extremely powerful and influential, but that is to be expected when you have large economic institutions, it doesn’t mean that you can’t have some kinds of regulatory constraint to keep them from being overwhelming.
So when they say that “corporatism” won’t exist in “true capitalism”, I really have to scratch my head. What do they possibly mean? Would there not be things like oil drilling and overseas shipping in a “true free market”? Would people willfully forgo the advantages of risk pooling and economies of scale and engage in high risk and inefficient activities? Would the fundamental laws of economics somehow change?
No, the laws of economics wouldn’t change, that is why this anti-corporatism talk is such nonsense. If you have the means of production privatized with a market economy the incentives for incorporating would still be there. In fact, if you were to have an anarcho-capitalist society such an economy would have an even greater reliance on corporatism. By removing the certainty and security of government and the services it provides, you would be shifting even more risk and uncertainty onto private individuals which will create even more incentives to incorporate and pool risk. Anarcho-capitalism may be better described as anarcho-corporatism.
Now it’s true that corporations exist as legal entities recognized by the law and endowed with certain rights created by legislation. But this does not mean corporations are products of government regulation, in fact it’s just the opposite. Governments realize the advantages of corporatism, and how they would exist either way in a capitalist or socialist society, and that if one were to not recognize corporations they would be seriously harming their economies and thus the welfare of the people. Corporations existed via contracts between private individuals before governments ever made any laws about them. Governments are simply accommodating something that already exists, because they know it would be stupid to ban or inhibit them.
So there you have it, corporations form because of the law of economics, not because of the laws of governments. They provide advantages and allow people to engage in industries that would be too risky or costly to engage in otherwise. They provide many benefits to us and are the engines of our economy. Even the communists were smart enough to realize that. So if you go around saying that in a “true free market” there wouldn’t be corporations, or that capitalism and corporatism are two mutually exclusive things, you are an idiot. Of course it could be the case that you oppose corporatism on moral grounds, perhaps you don’t think people should have the right to engage in joint enterprises or that they should be prohibited from such ventures. That’s ok if you believe that, but if that’s truly what you believe you should rethink your political positions because you are certainly not a capitalist or a libertarian, or even a socialist for that matter. So the next time you hear some self-proclaimed “capitalist” lecturing about how corporatism is not true capitalism, make sure to smack that idiot upside the head and say “corporatism is capitalism, you moron”.
Addendum: It appears that I have to insert an addendum here to clear some things up. Some people are complaining that by “corporatism” they are really complaining against the influence corporations have on government and crony capitalism, rather than the idea of corporations in and of themselves. First of all, the correct term for that kind of behavior is called corporatocracy, not corporatism. But regardless, this logic is still faulty. Corporations by their nature will be powerful and influential, they will seek to influence local authorities and have laws passed which benefit them and enable them to do business. This is part of the package of having a large enterprise that has more wealth and resources than any individual could possess. The government does not create this influence, the size of the corporation and its interests do. Even if government were removed they would find alternative means to gain influence and stifle competition. Even if government chose to back off from passing any economic legislation whatsoever corporations would still be influencing local authorities and using paid security to get their way. Such behaviors are inevitable to a degree. The worst abuses of this kind can be tampered by proper laws, but we shouldn’t expect corporations to become tame little sheep just because government refuses to listen to them or government goes away. In fact having a government which acts with no regard to their effect on existing firms is probably a bad thing as it could pass loss that ruin business opportunities. Shouldn’t a business have a right to speak up if a proposed law will hurt their enterprise? And of course if you had no government at all then there really is no way to stop a powerful corporation from doing what it wants. The point of this article is to illuminate what a corporation is and why they would form in a free market and to show that this is how capitalism is intended to work. The power and influence of the corporation are a part of that. And laissez faire and anarcho-capitalism would only increase the power and influence of corporations as government, law and lobbying are not where corporations get their power from. Unsurprisingly many people are still in denial about these basic facts.
77 responses to “Corporatism is Capitalism, You Morons”
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- June 20, 2013 -
- December 20, 2013 -
Racism is not about the existence of races and corporatism is not about the existence of corporations. Corporatism is about the control of government by big business.
Actually racism is about the existence of races. Racists try to rationalize why they are bigoted by mentioning behavior, culture, attitudes, etc. But at the end of the day the underlying rationale is simply that the other race exists and it is different from them.
You just claimed that racism is about the existence of race. Then you proceeded to explain why that isn’t true. You confess yourself that it’s not purely about the existence of multiple races, but some factor within the racist person. Dan was saying that the existence of corporations is not corporatism. I’m sure even your logical skills, which seems to be limited to ad hominem and straw-man, can follow that. If there were no governmental over reach, there could be no corporatism. In other words, corporations would have no avenue to run the nation if the government didn’t offer it to them. Humans are selfish and will take what they can get any way they can get it most of the time. That’s why our constitution is written the way it is. You can’t see the forest for the trees brother. Step back. I know it’s tempting to put all of your energy in a purely emotional, illogical response to a cherry-picked issue in our economic landscape, but be better than that. Research, read, and think logically. The truth is usually a simple idea behind a curtain of complexities. The more of the complexities you understand, the more simple the truth seems. What we have now is corporatism because our beloved government cannot get enough power to satiate their egos and people don’t care enough to stop them. America has really never had a truly free market, and it has become less free exponentially. 1750-1915: We went from a near free market to a clearly mixed economy. 1915-1940: The rate of the loss of a free market sky rocketed with Hoover and FDR, prolonging the Depression. 1940-1970: Short step back towards freedom but still very mixed economy. 1970-Today: Another soaring raise in the rate that freedom was being destroyed. If you examine these time periods, it is clear that our rate of economic growth, technological advancement, and general freedom had decreased right along with the destruction of the nearly free market that we had. I’m not saying that things aren’t better, but there’s no doubt that the rate that things improved was severely hampered by government intervention. That intervention brought corporatism. Corporatism is the marriage of the corporations and the state. The state should have nothing to offer a corporation. That if freedom and justice.
You seem to lack the ability to read. Although racism itself spawns from the flawed minds of racists, it is the existence of multiple races which enables it. And given the human condition, it should be expected that as long as we have different colors of people, we will have some psychopathic ingrates who use that as an excuse to terrorize others in the name of racism. Now perhaps this concept is too complex for you to realize. But to tie it in with my point about corporations, what I am arguing is that given the nature of corporations, certain conditions will inevitably emerge where they become tied in with the ruling authorities. Even if the government tried to go out of its way to avoid making economic regulations, it would still be passing laws which would incidentally affect business operations. This means that a corporation has a very real reason to lobby the government to protect its industry. Because everything is ultimately tied back in to economics, even laws like murder have effects in economics, you simply cannot separate governance from the economy. And given the vast benefits of economies of scale and having corporations, it is something that will inevitably occur. Libertarians live in a la la land where they think that if it weren’t for the big bad government we could have our cake and eat it too. The Ron Paul crowd thinks that we can have free trade but not be involved in foreign affairs, when in reality having globalized trade means that we become dependent on world markets, so when a war on the other side of the globe affects food prices or oil prices, we ultimately have an interest in what happens because it will affect our wellbeing, which means that we will be more likely to send troops over. You can’t have isolationism and free trade, isolationism will only work with autarky and protectionism. And just like in foreign affairs, libertarians think that we can have an isolation of government from markets, which is also a fallacy. When you allow corporations to exist, you are creating entities which given their size and scope, will INEVITABLY conflict with state authorities from time to time, on various issues. There is simply no way around it, it is not because they are evil, or because the government is “stepping out of line”, it is a simple fact of nature. Stop trying to find boogeymen to explain why your worldview doesn’t pan out. You should know better than that. So if we want to have a functioning economic system with corporations, we will have to tolerate some corporatocracy where corporations and the state come together to mesh out certain policies. Either you are smart enough to realize that or you are not. But judging by your emotionally charged response I would venture to say that you are either too economically naïve to realize this, or too fair in denial to admit it.
The arrangement that you describe, as the OP has already asserted, is corporatocracy, or “rule by the corporations”.
The word “corporatism” on the other hand refers (in economics) to a tripartite system of economic organisation in which state officials preside over negotiations between professional corporations of employers and employees.
You can take this with a grain of salt, since I’m going to admit I haven’t read the whole post. But I think it’s fair on my part to stop reading after this paragraph:
“This laughable cluelessness is no more apparent than in the common argument I hear that America is somehow “Corporatist” and not Capitalist. I constantly hear comparisons between “true capitalism” and “corporatism” and how in a “true free market” we would not see the powerful corporations that seem to exist in our present economy. They try to say that corporations as legal entities are the product of legislation, thus if you removed the government corporations would go away as well. This of course is nonsense, Corporations exist for a reason, they are found in every economic model on earth from laissez faire to Stalinist Communism. These clowns need an economics lesson to understand why corporations exist, and why they would most certainly be found in anarcho-capitalism and laissez faire.”
As a libertarian, I use the corporatism v. capitalism distinction not because corporatism has corporations per se, but rather because corporatism refers to cronyism. In other words, corporatism is just a name used to identify a system where many companies are in bed with government, and a truly free market would not allow this.
When anarchocapitalists go further and say “you likely wouldn’t see many of these gigantic corporations in an actual capitalist economy,” all they’re saying is that many big corporations would not exist if it were not for the special government privileges they receive. Of course, there would still be some big corporations and of course there would still be corporations. Either you have misunderstood the anarchocapitalist argument or some anarchocapitalist have misunderstood their own argument.
You’re kidding, right? The core difference between corporatism and capitalism isn’t even mentioned in your blog. Ridiculous. 1. You never mention the reality of central banking in the corporatist equation, an anathema to true grass roots capitalism. 2. You never mention political protectionism/regulation which defines the fascist aspects of corporatism, something any good capitalist knows to avoid if they believe in the power of competition and the market. 3. You don’t distinguish between equity financing in private placements vs. debt based big bank financing that defines most corporatist business transactions. 4. And you fail to mention that the biggest reason for multi-national corps to become such bloated, slow to act players in creating new business ventures is that all of the above PREVENT spin-offs and new venture seed planting, the vast recycling that occurs in grass roots capitalism that encourages true wealth building and taps into the vast energies of individuals in the marketplace. I’d say the Paulists got it right and you are the clueless one.
So what you are saying is that I shouldn’t talk about corporatism without linking in the fractional reserve banking system and central banks? Why? It looks to me like corporatism and the economic principles which underlie it is something that is entirely separate from monetary policy and the banking system. But your inability to separate those things is rather telling. The Paulists are certainly obsessed with central banks and want to ban fractional reserve activities (which is rather strange and ironic since they advocate laissez faire in all other aspects except for that one). I disagree that our finance system is the reason for large scale corporatism, except maybe for the fact that the efficiency and stability that a central bank brings allows the economy to grow and thrive to the point that such ventures are even possible. You seem to see the economy as one giant Ponzi scheme that comes from the big bad government and the central bank, that’s sad because its not true.
I concur. Great reply to this manipulative post!
Rothbardian here. I’m not sure where some Austrians get the idea that corporations would not exist. Rothbard affirmed that they would. He also explained that diseconomies of scale, the same problems which plague centralized states, would ultimately limit their growth (also, Bastiat explained how downsizing is a natural trend in a free market economy). Not sure about Rothbard himself, but Rothbardian Stephan Kinsella, an attorney, has explained how corporations would be able to contractually establish limited liability for debts.
Well I am glad that you at least acknowledge that this phenomenon exists (that is the ancaps who hate corporations). Most of the commentators here seem to be in complete denial.
Plenty others do. See this Daily Paul post: http://www.dailypaul.com/111379/murray-rothbard-corporations-are-free-market
To your addendum, I also agree with you on the terminology (corporatocracy, rather than corporatism), and I think that, perhaps, a free market economy would then be well-described as a “consumerocracy” (maybe a bit clunky, though), since the consumption determine the profits and losses of the corporations.
There IS a HUGE difference between corporatism & capitalism.
Contractually (i.e., VOLUNTARILY) establishing limited liability for debts is QUITE different from affording that limited liability status to entities at the taxpayers’ expense. As far as I’m concerned, the ONLY difference between true capitalism and corporatism (and thereby, the MOST important, which is responsible for the bloated nature and power of the corporate sector as an arm of the state) is that of LIMITED LIABILITY, and from where such status is derived. Pure capitalists (like myself) do not believe that the taxpayer should effectively subsidize comparatively paltry “insurance premiums” which, on a de facto basis, are paid by the corporation to the state in the form of trivial incorporation fees. I wouldn’t even argue that corporate income taxes should be considered as having defrayed those costs, since most (or all) states undoubtedly aggregate those revenues into their general fund anyway, thereby rendering the true costing of those premiums impossible. Also, those corporate income taxes are in no way tied to the risk of the organization’s insolvency.
Let each association of shareholders self-insure through private insurance trusts, and let a network of private insurers and reinsurers privately negotiate with those associations through the trusts to afford them limited liability protections, and regularly renegotiate the premiums charged to retain such coverage. Basically, let them privately negotiate it all out like auto insurance, and keep the state’s nose out if it.
NOW tell me there’s no difference between capitalism & corporatism. Even if you argue against the VIABILITY of such a system (which I don’t), I hardly think you can really argue against its VALIDITY as a plausible economic theory of distinguishing between them. I would also go so far as to say that anyone who argues against the VIABILITY of the arrangements is still clutching on their implied DEPENDENCE on the Wal-Marts of the world, because we have all become so accustomed to a world where mega-corps rule, and are too lazy to fathom a society where companies do NOT use the status quo assumptions of corporate privilege granted by the STATE to grow larger than their britches. State sponsorship of corporate limited liability is the LYNCHPIN that distorts all prices, and rolls out the regulatory red carpet for all other regulatory policies that follow and distort them more.
Smh…….Corporatism is most certainly NOT capitalism. True free market capitalism means a complete separation of state and economy.
Let me explain: In a truly free market economy, the state grants NO special benefits for a select few companies, and there are NO handicaps granted to their competitors in an effort to squash competition.
The system we have today is not capitalism, and is sometimes called corporatism. It allows a specific few companies to be granted EXCLUSIVE legal powers protected by the coercion of the state – state protected patents, copyrights, bailouts, etc.
In a Lassez-Faire Free Market economy, there would be no bailouts for some companies while high-taxes for others. No freshly printed money printed for big banks at virtually zero interest while others have to assume responsibility for their own risks. There would be NO laws in place allowing one pharmaceutical company to produce a certain drug, while others are imprisoned for doing the same. No company or companies would have ANY advantage or disadvantage bestowed upon them by the state.
The state sets rules for any free market. This includes having any laws period.
Excellent well laid out synopsis to rebuttal this hogwash blog post 🙂
“The point of this article is to illuminate what a corporation is and why they would form in a free market and to show that this is how capitalism is intended to work. ”
the difference being that they won’t be able to claim state protection if they fail, which they will most likely. Your article shows your utter ignorance of economics and government
They will most certainly fail if ridiculous an-cap schemes are put into place since they will inevitably cause disruption because of the madness that is Austrian monetary and economic policy. Just like how the de-regulation of the financial sector helped to fuel a gigantic crisis.
“Just like how the de-regulation of the financial sector helped to fuel a gigantic crisis.”
Which one? Mae/Mac? The Fed? HUD? Fair Lending Act? CRA?
EVERY SINGLE economic crisis in history can be linked to government intervention
Every single economic boom in history can be linked to government intervention as well. The position against government becomes un-falsifiable because in virtually any economy on earth one can find some government entity that they can try to blame. By blaming government for your problems people like you have found a convenient way to avoid actually answering tough questions.
“Every single economic boom in history can be linked to government intervention as well”
of course. It causes the booms by changing the incentives, and then there is an over accumulation of bad incentives and the crash comes
That’s assuming that incentives absent a government would not be misled or altered in any way. I reject that idea, signal distortions can come from all kinds of sources and need not be limited to government, furthermore much of what government does can actually correct those distortions and create signals in and of itself. What you are promoting is simply classic equilibrium nonsense. Markets are naturally lopsided in that distortions of signals or simply lack of information allows for imperfect investment to occur, it happens all the time. There is nothing to indicate that lack of government(and the services it provides) would not cause just as many bad incentives to pop up as there would have been beforehand.
” signal distortions can come from all kinds of sources and need not be limited to government”
government controls the most influential ones, namely money and interest rates through central banks.
“There is nothing to indicate that lack of government(and the services it provides) would not cause just as many bad incentives to pop up as there would have been beforehand.”
Certainly not on such a large scale. Companies are being created and are failing all the time. But everyone ate the same time is unlikely on a genuinely free market
I’m assuming you’re a what? Freshman, sophomore, maybe with a couple econ classes under your belt? As an actual economist with an actual degree in economics I must reject this essay for the sophomoric simplicity, the fact it doesn’t even address the issues it pretends to address, or the fact that someone would deign to bore the reader with a high school level explanation of pooled resources and shared risk to explain, well, nothing. But kudos to you, you nailed the concept of scale.
I’ll ignore your strawman argument for the sake of brevity, but I don’t know a single ancap who believes a corporate form of ownership wouldn’t exist without government.
An actual economist with an actual degree in economics? I hope by that you mean actual graduate degree because any average joe with a Bachelor’s is not an economist in my book. If you don’t know a single ancap who doesn’t actually think that then I would venture to say that you probably don’t know very many actual ancaps. And perhaps I should have clarified this in the original article ( I added an addendum to address this) but the general point is that the size and influence of corporations come as a package. Tell me Mr. Economist, do you actually believe that we could have large, incredibly rich institutions that wouldn’t use their obvious size and power to try to stifle competition and gain unfair advantages? That would horribly naïve to suggest that the absence of government would change that. They look at things like bribery and duress as simple costs of doing business. The only way to curb that is to have a state authority to which they would be subordinate. The Ancaps seek to abolish that state authority, which would only increase corporate political power. As long as we have large corporations we will always have institutions which wield extraordinary influence over the markets and can easily use it in unfair ways. That is the true “corporatism” these an-caps talk about. They actually think that an absence of government would reduce corporate abuses of power.
“do you actually believe that we could have large, incredibly rich institutions that wouldn’t use their obvious size and power to try to stifle competition and gain unfair advantages?”
it might, but it wouldn’t last long if it didn’t answer demand
What makes you think that the current economic scheme isn’t “answering demand”. Who is to say that the corporatist economy doesn’t provide the best products and services to customers? What if even more brutal corporatist schemes would be even better for consumers and our current laws regarding things like business ethics are merely holding the market back? This is the strange flaw in an-cap, if you are so convinced that “consumer sovereignty” will be strong enough to bend powerful institutions (rather than it being the other way around) then what makes you think that the current model isn’t the one chosen by consumers? The mixed market corporatist economy is overwhelmingly the economic structure of choice all around the world, if it really was so inconsistent with the demands of the people you would think it would have been rejected somewhere along the way. But no, the demand for this kind of economy is incredibly strong. Which leads me to believe that any attempt at “shaking things up” like laissez faire will lead us to a structure not unlike the one we have now. That of course is what this article was meant to illuminate. Corporatism, Capitalism, who is to say which is which? All we know is that the markets like this model and will in all likelihood continue to like it.
And one more thing. In case you are wonder what my credentials are, I have a dual degree bachelors in the social sciences, I have a law degree with a focus on corporate and personal finance. I have practiced in both of these areas. I am an active investor with over 30% gains on the year so far. I read most financial news sources on a daily basis and keep track on the markets. I actively read economic journals and blogs as well as books on the subject. I come from 3 generations of businessmen, my father grandfather and great-grandfather all managed to turn start-ups into multi-million dollar operations and I was taught about business from an early age. I am every bit qualified to speak on subject matters such as this one as anyone claiming to be an economist. If you think I am somehow intimidated by a your claiming to be an “actual” economist with an “actual” degree you are mistaken.
The definition of Corporation as “body of people” is extremely vague, and leaves the door open for critique from many differing opinions. This is what leads to these arguments such as the one in this article.
So when our side argues that a corporation would not exist in an Anarcho-cap market, what we mean to say is the properties, connotations, and actions of what we know today to be true about corporations would simply not exist, and would play out entirely differently. Anyone who says we are against a “body of people” getting together for mutual benefit, without violating the Non-Agression Principals has clearly never heard of Voluntarism.
Our greatest battle is not one of morality or logic, but one of language and misinterpretation. (Thank you public schooling)
So since pooling resources makes economic sense, which according to you leads to corporatism, would you say that if tariffs were removed everywhere in the world, all oil companies everywhere in the entire world would collude? LOL
Umm, no. I’m not sure how you got to that conclusion. Economies of scale don’t mean that every industry is going to morph into a monopoly.
“…much of what government does can actually correct those distortions and create signals in and of itself.”
Yes there are externalities that can affect the market in a detrimental manner, such as drought, war, natural disasters etc, but when government “correct” these distortions with monetary policies, they do so through credit creation, manipulated interest rates and inflation. What you need to neutralize the damage in a crisis is savings, not the illusion of savings. Of course new money is going to distort the signals. There is no question about this.
So in a system without a central bank savings and insurance would be incentivize and since real savings deal with existing money, credit crunches will not occur.
No I highly doubt that, much what central bank critics attribute to central bank actions is actually just a natural trait of money itself. The money supply is always going to go through inflationary expansion and deflationary (“credit crunch”) contractions with the ebbs and flows of the market. In fact, if we didn’t have a central bank it would be more severe, as seen by the fact that the credit cycle itself was more severe in the “free banking era” of the US. We had over 7 banking crises before the Fed ever came around and we have only seen 2 since then. You see, in a monetized economy all costs are converted to money and all capital becomes represented by money at some point. The creation of real wealth creates a demand for more money that must be met with a supply. If you don’t have a central bank where does the money come from? Well it either comes from a treasury which is going to release money in a politically favorable way, or you have a gold standard which makes credit crunches even worse because you hit a supply wall whenever a boom happens that creates a demand for money. A central bank keeps the money supply stable and allows it to grow to meet demand without it being arbitrarily limited. If you don’t have a central bank you still will have fractional reserve banking, and an overall fractional reserve economy where people are lending and investing, this is exactly what we saw in countries without a central bank. So your entire premise is flawed because you seem to blame the central bank for something that is an inherent quality of capitalism and a monetary market based, fractional reserve economy. In
You also seem to have a misunderstanding of savings and believe that absent a central bank there will be some kind of “real savings” as compared to an “illusion of savings”. This of course is an age old fallacy based on intrinsic theory of value. If I were to ask you how much you were worth, what would you do to calculate it? You’d probably list your car, house, bank account, any investments you own, any assets. All of those things are not intrinsically valuable, if you say your car is worth $10k that’s really just based on the expectation that someone would pay your $10k for it, the same with your house, your bank account is just the expectation that the money will be there is you need it. If you own gold or silver the value you assign is the just the expectation that you could sell it to someone for that price. But none of these things are guaranteed, they are, as you would say, still an “illusion”. Subjective value is not going to be changed by killing the central bank, the fundamental rules of economics don’t change from that. Humans naturally create a fractional reserve economy in which real wealth is actually just future expectations. Depending on what those expectations are can be the difference between a bull market and a bear market, or a credit boom or a credit crunch. And without a central bank investment would be un-incentivized and hoarding would be incentivized, which would actually worsen credit crunches or just prevent any real growth from occurring. The government of course can help to improve these expectations by creating stability and predictability where there was none, for example, with things like drought, war, natural disasters, etc. This helps to allow growth to occur. And yes, there is a risk of a credit crunch, but that is what a central bank is there to prevent, and so far they have done a good job the past 100 years. And sorry, but you can’t have real growth without it being based on expectations and investment. Asking for the prosperity of a fractional reserve economy without the inherent traits and risks of a fractional reserve economy is the equivalent of asking for a free lunch.
Central banks are a good thing, a very good thing. But nevertheless, the monetary policy of central banks has very little to do with this blog.
(This is actually a reply to your comment below, but it did not have a “reply” button.)
If by “free banking era”, you mean the entire independent treasury period (1846 to 1913, minus Civil War years), then you would be correct. However, Tom Woods has repeatedly explained the government interventions that caused the business cycles during this period. During much of this time, banks were granted the privilege of not being liable when they failed to redeem specie to bearers of their notes. What Dr. Woods has cited as the freest banking period in U.S. history was the period between 1846 and 1861, during which time there was only one recession, a very brief and minor one in 1857.
With hard money, there may or may not be fractional reserve lending. The modern Austrian School is divided on this issue. I don’t understand your reasoning when you say that hard money “arbitrarily” limiting the supply of money is a problem. Prices fluctuate according to supply and demand and according to the amount of money. With hard money, the latter variable becomes less influential, so prices become more heavily influenced by supply and demand. In a growing economy, prices trend downward, people save more, the interest rate falls, factor prices fall, and businesses begin to shift more resources to early stages of production. Expanding the money supply during growth causes the interest rate to fall and businesses to shift to early stages even if factor prices are not falling and consumers aren’t saving. This leads to a bust.
We all know that value is subjective and that it is possible for any money, including gold, to lose much of its market value in the future. However, the chance of this happening with gold anytime in the future is believed to be very slim (people like shiny stuff, and it’s used in electronics), justifying the expectations of those who save gold.
You say that investment would be unincentivized and hoarding incentivized. Tom Woods and Guido Hülsmann, among others, have written extensively on this (called apoplithorismosphobia). Yes, increased saving, which you might call hoarding, would be incentivized, but this would not necessarily unincentivize investment. Over time, a person’s preference for a good or service grows and will come to outweigh their preference for saving. Eventually, you get hungry, you decide you’ve saved enough that you can now buy your dream car/home, you decide that your phone and computer are outdated, etc. Sure, in an economy with deflationary prices, people will generally be willing to wait longer for these things, but they will want them sooner or later, and the longer they wait, the more they will want to buy them. Eventually, they will say “Alright! I’m done waiting! I’m buying that Porsche today even if I know it will be 15% cheaper if I wait another five years.”
You may say, then, that businesses would not be willing to invest in long-term production because they will fear that the price deflation will cause their selling prices to be lower than their input costs. Perhaps this is not your argument, but it is a popular one. Dr. Hülsmann’s response to this argument was that if producers expected this, then the input prices would fall to a price that the producers are willing to pay, overcoming this problem.
Credit crunches might be more painful, but the recoveries would be shorter and smoother. The way the recovery would work in a hard money economy is that the interest rate would initially rise during the crunch, businesses would shift resources into late stages and liquidate some assets, people would begin saving more, the interest rate would begin to fall, and the businesses would gradually begin shifting resources back into early stages. In recessions and depressions where this process has been allowed to happen this way, the recoveries have generally taken no more than two years. In depressions with government or central bank stimulus, they have sometimes lasted much longer and resulted in stagflation.
“In a growing economy, prices trend downward, people save more, the interest rate falls, factor prices fall, and businesses begin to shift more resources to early stages of production. ”
That is empirically false, economies which are in growth tend to actually experience more price inflation because the purchasing power of the lower classes increase and they naturally spend more via a wealth effect. It is true that technological innovations and increases in efficiency should cause the real costs of certain goods to decrease, but in terms of overall price deflation this simply doesn’t add up, the nominal prices of most items will tend to increase even if the real values are falling. The greater trend in growing economies is an inflationary one. Deflation is not a good thing.
“I don’t understand your reasoning when you say that hard money “arbitrarily” limiting the supply of money is a problem.”
If you truly can’t see where that is a problem you need to read some sources on economics outside of the Tom Woods variety. Wealth is not created by money, wealth is created by productive enterprise. The real value is in the goods themselves, money only holds value out of its ability to purchase real goods and real services. Simply put, in an economy which is expanding, there are more productive enterprises popping up, more goods being created and more real wealth being created. And lets not forget population expansion, the more people on this earth the more human capital there is, the more demand there is, the more growth there is. This in turn creates a demand for more money, think of it this way, money is the lubricant for our modern society, it is used for almost all economic activities. When you have economic activities expanding and growing larger, the machine itself is getting larger, and the demand for more lubricant goes up. It you don’t have a money supply which is slowly increasing to keep up with this growth, you will eventually hit a wall where a credit crunch occurs, the demand for cash outpaces its supply, and this in turn causes deflationary feedback loops and debt deflation. This is why its important to have fiat currency, and its important to have a currency supply which is slowly growing over time. And a central bank is the best vehicle for allowing this, which is why we’ve only had 2 major setbacks the past 100 years since our bank’s creation. The population explosion at the turn of the 20th century meant that the growth of economies quickly outgrew any supply of precious metals, there is a reason why nearly exactly a generation after Haber’s fixed nitrogen process (which greatly improved crop yields and thus population) the world had to abandon the gold standard.
“Over time, a person’s preference for a good or service grows and will come to outweigh their preference for saving. Eventually, you get hungry, you decide you’ve saved enough that you can now buy your dream car/home, you decide that your phone and computer are outdated, etc. Sure, in an economy with deflationary prices, people will generally be willing to wait longer for these things, but they will want them sooner or later, and the longer they wait, the more they will want to buy them. Eventually, they will say “Alright! I’m done waiting! I’m buying that Porsche today even if I know it will be 15% cheaper if I wait another five years.””
I think you are underestimating just how long people are able to hold out. When prices are currently in decline, your money is actually becoming more valuable. A dollar today could have twice its purchasing power in 10 years. So yes, people would still buy their bare essentials like food, shelter, etc. But when it comes to major investments, people would have great incentive to hold out and keep holding out. Why would you start up a business if you knew that the cash flow coming in would not outweigh the initial cost? Why buy your dream home if you know that it would ultimately be a losing investment? Sure eventually you will save up enough to buy those things, but we humans are a greedy bunch, and we are always thinking about the future, for many people, the time to buy in will never seem right, overall consumption and activity goes down. Not to mention that when people are hoarding more cash, this in fact worsens the deflation even more as the money supply becomes increasingly constricted. The people with money can sit on their hoards and be fine, but the poor find themselves increasingly constricted and unable to life themselves out of poverty. And because deflation means that long term investments are actually made more expensive by future drops in prices, it INCREASES the costs of lifting yourself out of poverty. The costs of getting an education or starting a business go up rather than down, and the poor will always be behind the curve, unable to life themselves out. It is a horribly austere economy. Again, there is a reason why humans have rejected this model and instead prefer an inflationary fiat based economy. Just think about it.
“Credit crunches might be more painful, but the recoveries would be shorter and smoother. The way the recovery would work in a hard money economy is that the interest rate would initially rise during the crunch, businesses would shift resources into late stages and liquidate some assets, people would begin saving more, the interest rate would begin to fall, and the businesses would gradually begin shifting resources back into early stages. In recessions and depressions where this process has been allowed to happen this way, the recoveries have generally taken no more than two years. In depressions with government or central bank stimulus, they have sometimes lasted much longer and resulted in stagflation.”
Again, that is empirically false. There were numerous multi-year long depressions in the pre-central bank era. The deflationary process can depress demand and growth for years on end, we saw it numerous times in the 19th century. When the expectation is a deflationary one, banks will hold out on lending, and people will hold out on taking out loans or expanding an enterprise. Why would you take out a loan if you knew that deflation meant you would be paying back substantially more than what you took out? And when an economy is in contraction, why would you lend when you knew that there is a good chance that many of your loans wouldn’t get paid back? Businesses consolidate and don’t risk expansion, hiring goes down, the economy as a whole contracts. People sit on cash waiting to ride it out, and this effect of sitting on cash actually increases the downturn and makes it last longer. These cycles can and do last for years, and we’ve seen it happen plenty of times before. They only snap out of it once an inflationary growth period emerges again. In general, recessions have been shorter and less severe in the era of modern central banks. Tom Woods is wrong. Stagflation has only really occurred once and that was due to oil constraints in the 1970s that caused demand push inflation simply from higher prices for transportation.
“We all know that value is subjective and that it is possible for any money, including gold, to lose much of its market value in the future. However, the chance of this happening with gold anytime in the future is believed to be very slim (people like shiny stuff, and it’s used in electronics), justifying the expectations of those who save gold.”
Really? Have you seen a chart of gold lately, it could easily fall to half of what it was 2 years ago. I don’t know what planet you live one, but for the average person, a 50% loss in investment is a bad deal. Like I said, please look to sources outside Tom Woods for once, the man is kind of an idiot. I also think that you are kidding yourself about how stable commodities really are. A true gold standard did not, and would not, simply deflate over time. It spikes up and down. Even if your theory of deflationary growth were true (its not true though), you would still be incorrect in believing that a gold standard would be stable. In reality there would be spikes of inflation followed by deflationary shocks, just like what we saw with commodity currencies. This makes for a more severe business cycle, rather than slow inflation or slow deflation you have periods of severity with both. The short term stability of goal is highly volatile, and ultimately its short term stability in the money supply that matters the most.
“Our wealth cannot outgrow our money supply”
Yes it can. Consumer goods are used up by consumers; capital goods and natural resources are used up in the process of producing consumer goods. But money is not used up; its function is to act as a medium of exchanges—to enable goods and services to travel more expeditiously from one person to another. So the total amount of money-stuff is not relevant the same way the total amount of consumer goods and capital goods. Machine lubrication is also a consumer good, so a more proper analogy would be shares in a company. A person may own 5% of a company year one, but if the company is twice is big in two years and the person doesn’t touch his shares he doesn’t all of a sudden own 10 % of the company…
“economies which are in growth tend to actually experience more price inflation”
Yes, a car does in fact cost more today (adjusted for inflation) than 50 years ago, but this is because the cars are that much better. They hold components that are more expensive, technology that is more advanced and billions of dollars of research packed in the vehicle. However if you were to produce a 1950 thunderbird today using the capital goods we have at our disposal, that car would be less expensive than when it first came out. When you measure the cost of stuff you cannot look at each unit of a consumer good – cars back then are simpler than cars of today. With the average industrial wage of today you’d need to work about 14 minutes to afford a 4 lb chicken. With the average industrial wage of 1910 you’d have to work about two and a half hours. That is a testament to the deflationary nature of prices.
“In a deflationary economy people will hoard”
There are several markets in which there is deflationary pricing trends. TVs, computers, phones, iPods, etc are continuously getting cheaper but people still buy them. But aside from that, hoarding, or as people normally call it “saving” has an important function. In the first place, when the hoarder stops spending his money what has simply happened is an increased demand for money on the part of the hoarder. As a result, prices of goods fall, and the purchasing power of the gold-ounce rises. There has been no loss to society, which simply carries on with a lower active supply of more “powerful” gold ounces.
Even in the worst possible view of the matter, then, nothing has gone wrong, and monetary freedom creates no difficulties. But there is more to the problem than that. For it is by no means irrational for people to desire more or less money in their cash balances. Let us, at this point, study cash balances further. Why do people keep any cash balances at all? Suppose that all of us were able to foretell the future with absolute certainty. In that case, no one would have to keep cash balances on hand. Everyone would know exactly how much he will spend, and how much income he will receive, at all future dates. He need not keep any money at hand, but will lend out his gold so as to receive his payments in the needed amounts on the very days he makes his expenditures. But, of course, we necessarily live in a world of uncertainty. People do not precisely know what will happen to them, or what their future incomes or costs will be. The more uncertain and fearful they are, the more cash balances they will want to hold; the more secure, the less cash they will wish to keep on hand. Another reason for keeping cash is also a function of the real world of uncertainty. If people expect the price of money to fall in the near future, they will spend their money now while money is more valuable, thus “dishoarding” and reducing their demand for money. Conversely, if they expect the price of money to rise, they will wait to spend money later when it is more valuable, and their demand for cash will increase. People’s demands for cash balances, then, rise and fall for good and sound reasons. Economists err if they believe something is wrong when money is not in constant, active “circulation.” Money is only useful for exchange value, true, but it is not only useful at the actual moment of exchange. This truth has been often overlooked. Money is just as useful when lying “idle” in somebody’s cash balance. For that money is being held now in wait for possible future exchange—it supplies to its owner, right now, the usefulness of permitting exchanges at any time—present or future—the owner might desire.
“Yes it can. Consumer goods are used up by consumers; capital goods and natural resources are used up in the process of producing consumer goods. But money is not used up; its function is to act as a medium of exchanges—to enable goods and services to travel more expeditiously from one person to another. So the total amount of money-stuff is not relevant the same way the total amount of consumer goods and capital goods. Machine lubrication is also a consumer good, so a more proper analogy would be shares in a company. A person may own 5% of a company year one, but if the company is twice is big in two years and the person doesn’t touch his shares he doesn’t all of a sudden own 10 % of the company”
That is a horrible analogy for the money supply and capital growth. You seem to believe that the amount of economic activity in the economy is going to be directly proportional to the BASE supply of money. In reality the fractional reserve system is expanding the velocity of money and the use of money by effectively making it multiple places at once. And the money needs to be paid back which means that it actually increases the demand for new money. For example, a bank has $100 in reserves, and it lends $50 of it out to several people asking for 4% interest on the loans. In order for the bank to be able to get paid back it actually needs to get $52 back. If it doesn’t get the money back it can risk a bank run which can lead to debt deflation. So the bank is actually creating a demand for more money than it originally lent out and what it had. And if hundreds of banks across the economy are doing this it is creating a demand for billions of new dollars. And if you factor in the fact that inflation is expected to occur over time banks make sure to keep the interest rates high enough that they will get the real cost paid back, which means that they are creating even more demand for money. Fractional reserve banking may increase the money supply in terms of utility and where it is, but the actual base money supply has to come from some where. That’s why new money has to be introduced in a fractional reserve capitalist economy. You have it all backwards, you seem to think I am saying money is being “used up” or disappearing, but that’s what is happening. What is happening is that the money is being used in a way that is creating a demand for new money to be created.
Money is not just a medium of exchange, it is also a representation of capital and is therefore used to induce people into engaging in economic activity. And the nature of the activity grows the economy and creates demand for more money. And since the money made is usually stored in banks or invested in the economy with an expectation of return, this system self perpetuates. If you have a physically limited money supply, it will cause it to have more violent business cycles like what we saw before the introduction of the federal reserve system.
“Fractional reserve banking is more efficient because it allows for exchanges to be made simultaneously”
Incorrect. Your example illustrates the first step of the business cycle, not efficiency. The issue of fiduciary media by banks leads to malinvestments during the boom which must be liquidated during the bust. Likewise, during the housing boom the additional houses produced (and the additional capital capacity produced to support housing production) was not efficient.
You may agree that fiduciary money infers a social benefit if new money allows five restaurants to be built rather than, say three. But it is only better for society to have another restaurant built if it proves to produce goods more valuable to people in society than the ALTERNATIVE production facility that could have been built with the same scarce resources employed in building that extra restaurant. That the restaurant owner pays back his loan is not a sufficient condition to prove social benefit – Lots of homeowners were paying back their mortgages during the housing boom.
In the market, profit and loss calculations reveal when the use of resources in one line of production have greater value than in another alternative line of production. An enterprise earns profit if the revenue generated by the sale of its output exceeds the costs incurred from the purchase of its inputs. The revenue generated is determined by the demand people have for its output. The costs incurred is determined by the demand other entrepreneurs have to produce their output which, in turn, is determined by the demand people have for their output. An enterprise earns profit by compensating the input owners for the loss of value they cannot receive from other entrepreneurs and then uses the inputs to produce output that people value more highly than that which would have been produced by other entrepreneurs.
Now apply these general principles to banking. If a bank intermediates credit, then they compensate savers by paying interest to borrow funds from them. Because they have lent money to the banks, the savers must reduce their demands for goods. But they have willingly entered into an agreement to do this. If the bank issues fiduciary media, then it pays no opportunity cost to obtain command over these funds. And yet, when it lends the funds out to borrowers, they are able to bid resources away from other people without anybody agreeing to such restrictions in their command over resources. Such activity is inefficient on these grounds alone.
We can come to the same conclusion about fiat money. If the government prints more fiat money and spends it to build three more bridges is society better off? Clearly not. All such spending of the government is inefficient by the nature of how the resources are transfers out of the hands of some people and into the hands of other people. Unless this is done in voluntary exchange under the guidance of economic calculation, then the activity is socially inefficient.
If the price of money does not correlate to the price of the resources purchased with the money, economic calculation is impossible. This means the SCARCE resources which correspond to the value of a FIAT currency literally cannot be allocated more efficiently. More stuff per unit of time does not mean more efficiently allocated. Especially when these malinvestments have to be liquidated.
You seem to have the impression that banks should only be having 100% success rates, but that’s not how business works. Who is to say whether a town needs 3 restaurants or 1? The market decides whether a business venture is useful to the community or not. The fact is that if capital was constrained and made overly scarce and credit was hard to find, investors acting in a deflationary environment would tend to seek out safe, conservative investments. And usually these conservative investments are in areas which are at less risk for being adversely affected by change and new ideas. In other words capital would flow away from areas of innovation. This leads to economies which change little overtime and fuel backwards societies. However in a fractional reserve environment when capital is not overly scarce people are free to experiment and innovate and those inventions which truly better the lives of humanity are better incentivized. While in a capital scarce environment innovation and entrepreneurial risk is de-incentivized.
Its true that some businesses will fail and some will succeed, but that is how the market works, let consumers decide what they want or don’t want. It is also true that sometimes you can have marked wide overinvestment in certain areas which can lead to debt deflation, but the fact is that since the advent of central banks and fiat monetary policy this has only happened a few times. Between 1929 and 2008 no major financial crises that you talk about occur, it was an era of extraordinary growth and innovation that brought many new ideas and goods which have changed our world for the better. Had we had tighter credit we wouldn’t have seen nearly as many of these benefits occur. In the eras before fractional reserve banking took hold humanity saw extraordinary slow progress, the technological innovation between 1400 BC and 1400 AD had changed little. However, allowing capital to expand and flow to innovators and entrepreneurs has allowed us to see great progress. The environment you support would be one of limited change. And the fact that you are bothered by central banks and fiat money isn’t a good enough reason install a monetary system which would extraordinarily hamper progress. All you are doing is artificially making things scarce which in reality aren’t and shouldn’t be scarce.
I think you also misunderstand human and nature and the feasibility of a society which has no fractional reserve wealth creation. In order to stop fractional reserve banking (which is a product of the free market), you would have to have extraordinary control over the finance sector. Even if this could be accomplished, you would probably see an over reliance on other debt instruments like bonds, debentures, notes, private (person to person) loans and mortgage backed assets. Are we to go to private individuals and prevent them from having a money market account or buying and selling bonds? How is that for free market fairness? And if corporations and businesses turned to debt instruments to make up for the lack of loanable funds from banks, you would be having the exact same effect on the money supply as fractional reserve banking and the exact same risks as it, so you have accomplished absolutely nothing. In fact such an environment would be even more risky than fractional reserve banking because now you have extension of credit being done mostly in the form of debt assets which are subject to their own market forces which can greatly increase the chance of a bubble forming and a credit collapse. What was really driving the over-lending in the mortgage crisis was a demand for mortgage backed assets being sold to investors, the banks knew they could make their money from selling those, if banks were making money solely on interest they would probably have been more prudent in their loans since there is no immediate profit and they want the loans to be successful in the future. However if one is going to make an immediate profit by selling a debt asset on the market they are much more likely to overlook long term problems.
Human beings are a fractional reserve species. That is just how it is, you can’t change human nature. Fractional reserve banking carries risks but it also carries many rewards. One of the ways to contain that risk is to have central banks and expansionary monetary policies. I know that you may not like that, but that’s just reality. If you think you can somehow change human nature, or that you find it morally repugnant, well you are hardly better than a communist. I prefer to accept humanity for what it is and what it isn’t, and in light of that, the opposition to fractional reserve banking is pointless and most likely harmful as well.
If by “empirically false”, you mean “demonstrably not always true”, then you might be right. Growth is growth, whether the downward pressure on prices from an increase in production outweighs the upward pressure on prices caused by increasing purchasing power or not. If it generally does not, as you say (and there is no reason for basic Austrian theory to dispute this), then there goes Krugman’s main argument against hard money. If I have ever seemed to assume that you are a Krugmanite, then I apologize.
However, I will dispute any claim that price deflation is necessarily a bad thing. It certainly accompanies credit crunches, which would explain the correlation between price deflation and hard times, but I would say that deflation is only an effect of economic problems, not a cause.
“Wealth is not created by money, wealth is created by productive enterprise. The real value is in the goods themselves, money only holds value out of its ability to purchase real goods and real services.”
You must have misunderstood me. I am as subjectivist as you get. But money doesn’t really need to expand to keep up with growth, except maybe in extreme situations where the amount of gold that a person’s note is redeemable for is so small that the risk of losing it outweighs one’s desire to have it. In this case, other medals, such as silver and copper can enter the mix. But if gold would not be deflationary in a growing economy, as you have said, then this would not be an issue.
We’ve had way more than two panics since 1913 that are comparable to the notable ones of the pre-Fed era. Also, some economists (including non-Austrians) have reviewed the data from the pre-Fed era and discovered that periods when depressions are believed to have occurred during that time were actually periods of deflationary growth that were mistaken for depressions. For example, the “Long Depression” of the 1870s has been discovered to have been a period of high real growth in GNP and in living standards, despite downward-trending prices.
Concerning how long people can wait, the 15% and five years were just hypothetical figures I pulled out of my head. Even if prices halve every ten years, there would still be an expectation of future demand (they must be saving up for something). Cars don’t last forever, so they have to be replaced. Maintenance is necessary. Your kid becomes old enough to drive and you are tired of driving him/her everywhere. You have a project you want to work on. It is the job of the entrepreneur to predict demand over time and to produce accordingly.
” And because deflation means that long term investments are actually made more expensive by future drops in prices, it INCREASES the costs of lifting yourself out of poverty. The costs of getting an education or starting a business go up rather than down, and the poor will always be behind the curve, unable to life themselves out.”
I talked about this. Factor prices would fall to compensate for the future drop in sale prices, assuming the price deflation is unexpected (it’s an entrepreneur’s job to predict them). The observed problems caused by deflation have occurred, not during periods of steady deflation, but times when the deflation was sudden, due to a credit crunch or whatever.
“Really? Have you seen a chart of gold lately, it could easily fall to half of what it was 2 years ago.”
It could, and those who invest in gold should be wary of this possibility. Also, let me be clear, I am not in favor of a mandated gold standard. If businesses decided that something else makes for a more promising medium of exchange, then they should switch. Anyway, are there not other explanations for the fluctuations in gold, besides it just not being a good store of value? It seems like the changes in the price of gold are largely either relative to changes in the market (gold doing what it’s supposed to do) or they are due to governments (ours and others) selling their gold, which puts huge downward pressure on the price.
“However, I will dispute any claim that price deflation is necessarily a bad thing. It certainly accompanies credit crunches, which would explain the correlation between price deflation and hard times, but I would say that deflation is only an effect of economic problems, not a cause.”
Its true that price deflation itself is not necessarily a bad thing, what is actually the bad thing is the monetary deflation which occurs when the liquidity preference (demand for money) increases and a credit crunch occurs. Price deflation from innovation and decreased costs like what we’ve seen in cell phones and computers is probably a good thing. However most of the time you aren’t going to see economy wide deflation (as opposed to a single commodity or single industry) unless there is an economic downturn going on. Its true that rarely is deflation itself *the* cause of an economic downturn, but the existence of monetary deflation during one certainly puts extra pressure on the entire cycle, creating feedback loops and worsening a depression.
“For example, the “Long Depression” of the 1870s has been discovered to have been a period of high real growth in GNP and in living standards, despite downward-trending prices”
Most economies are going to be in growth, the world economy has been in growth the past 5 years, Japan has seen growth the past 20 years, The Great Depression saw growth as well. However all this growth has been below capacity. It is probably true that you can still see real GNP growth and improvements in living standards, but there is a reason why these periods are called depressions. The “Long Depression” got its name because it was a hard time, and growth was below what it could have been, if it truly was a time of prosperity it wouldn’t have gotten that name or been labeled as such. So yes, while there is growth in depressions and deflationary periods, its important to realize that a depression is not just based on growth but is really an employment/opportunity/social phenomenon, and it would be rather ridiculous to revise history and say “no it wasn’t”. During these downturns many businesses can survive by cutting costs and firing workers, and they may still post growth numbers, but things like employment are still way below what they are in periods of true prosperity and growth.
But you never really addressed what I think was my most important point, which is that hard money is more volatile in the short term. And the short term volatility is what prevents it from being a workable currency in the modern economy. Money needs to be able to function as a store of value, medium of exchange and a unit of account. In order for it to do so in any meaningful way it must be stable enough to keep a steady value range in the short term. Truth be told most “commodity currencies” of history were not in fact commodity currencies, but fiat money which fixed a commodity to itself. Gold would be fixed to fiat at for example $35/oz. This was a fixed standard of equating money and gold. However commodities have their own markets outside of money itself, things like oil, gold and silver all have their own independent supply and demand which responds to entirely different things than the demand for money itself. Now price fixing itself (including fixing of commodities to fiat) was able to work for centuries simply because markets had not developed to the point of there being enough suppliers for floating price signals to take over. However this too came to a breaking point in the early 20th century, and its no surprise that floating prices came to being around the same time as floating exchange rates. If something occurred which caused the demand for gold to rise above $35/oz. to maybe $50/oz. or higher, the supply of gold could quickly run out as people would take advantage of the artificially low prices. And if people tried to change the exchange rate to $50/oz. to better reflect the changed market conditions, it could cause a shock to the money supply because the value of your money just decreased by about 42% in an instant. Now in the 19th century when markets were less developed and price fixing was easier this could be avoided, but by the 20th century such changes could be devastated. Imagine if your bank account became 42% less valuable overnight. These kinds of problems were plaguing countries and made a tight money supply unworkable. And pure fiat has really been more stable than the gold standards of old, which were still just fiat anyways because like I said it was gold being fixed to the currency rather than the other way around.
Now of course one way of getting around this is to just have free floating exchange between money and precious metals, but that is basically what we have today. Fiat is supported by the demand for money. Money itself is really a cultural institution, created by the tribe, it has value for the same reason why you shake hands with people you meet, or why brides wear white on their wedding day. Its cultural tradition that makes a tribe accept gold, or wampum or cowry shells as payments. And because that is what is needed to do business with that tribe, it has demand even outside the tribe because of its utility. That’s why Europeans in the age of discovery started seeking out things like cowry shells, it had no use in European commerce, but they knew that they needed it to do business with certain tribes and acquire their real goods like furs or spices. Our society has longed use the state as the source of currency, and there is really no intrinsic value that is needed because as long as money can continue to buy things it will always have the most utility out of any commodity. In fact the main reason why ancient societies used gold coins was simply because: 1) gold doesn’t tarnish or rust making it have a long life, and 2) it helped to give it a value outside of its tribe as gold coins were used by many ancient societies, so international trade could happen easier. And of course since it was still fiat, the gold coin of one country may actually be worth more money in another, thus facilitating an early version of comparative advantage among currencies. Of course in this day and age we really don’t need to do that, the US dollar has pull far outside of its borders, and in fact most currencies around the world still have value simply from the fact that they can be exchanged for money or goods.
Finally, I will be the first person to say that our current money situation is dysfunctional. In fact I’m pretty sure economists of all schools of thought would agree that the current situation is dysfunctional. We inflate over time because its the best option we have at the moment. Many countries use deficit spending to inflate their currencies and give them favorable exchange rates which then only serves to build up large government debts and deficits with seemingly no way out. However rather than advocate for a hard currency or tight currency, I prefer more alternative means of approaching the situation, similar to Silvio Giselle’s theories of either temporary money (that had a fixed expiration date) or perhaps having multiple currencies. Since modern fiat is stabilized by other fiat and commodities via an exchange rate, introducing new alternative currencies can help stabilize the money supply without having to resort to inflation. I will probably write future blog articles about this, but possible changes could be introducing preferred currencies with limited buying power, similar to preferred shares of stocks which can bear interest and are designed to be deflationary while still maintaining an exchange currency used for buying goods. The preferred currencies could only be used to purchase other currencies and perhaps some financial instruments. The role of money as both a store of value and a medium of exchange can be contradictory at times, and in my opinion is probably the reason why it tends to either be inflating or deflating and never in a steady state. During an economic downturn the preferred currency will naturally start to deflate from increased demand (people trying to hoard) and the exchange currency itself would naturally inflate from the altered exchange rate. The bank which issues the preferred currency ( it could be a central bank, though Silvio Giselle was an anarchist and saw the currency issuer as simply a public institution which could be state-like, but not the state) would be flush with exchange currency and could be able to lend it out at low interest rates to stimulate growth. This would prevent a credit crunch from occurring as the primary store of value would be different from the medium of exchange. And issuance of preferred currencies could help to replace government bond sales for raising public funds and increasing the money supply. This of course is just a thought. But I just wanted to make it clear that even though I am defending central banking I don’t necessarily see our current system as the optimal one.
dear fucking sir,
have you ever heard of corporate personhood? or a limited liability corporation? do you even know what capitalism is and how these two things are mutually exclusive? capitalism is a system of profit and LOSS. when the GOVERNMENT caps company losses via limited liability then you no longer have capitalism – you have corporatism (aka fascism). corporations would not be possible in a society without government.
furthermore, regulations are used by large corporations to stifle small businesses who would compete with them and keep their size down. if you want an example of this, just look at the internet tax bill being passed today. amazon.com can easily handle the extra costs, but the medium sized competitors on ebay cannot. hence amazon will eat up some ebay customers and get fatter.
we ancaps have nothing against a company becoming big. so long as it does not use government favours to do so and then further use government favours to shield itself from justice.
please research your topic before you write another blog.
Please research my topic? I think you need to research some topics before you make such replies. Limited liability is an essential feature for all businesses, are you seriously suggesting that we get rid of limited liability for businesses? That would be absurd. The limited liability feature of corporations existed long before any government recognized it, as an entity in and of itself it protects its members from the risks of business. Corporatism comes in many forms, fascism is just one economic ideology that utilized corporate dominance over the economy. A company becoming big and strong will naturally seek to gain political power, the happening of which is inevitable.
But I’m confused, you say that corporations would not be possible without government, yet you later say that you have nothing against a company becoming big. So which is it? Do you favor corporations and large companies or not? This is the kind of contradictory nonsense which this article was meant to address.
“you say that corporations would not be possible without government, yet you later say that you have nothing against a company becoming big.”
How is it you can be so snide and condescending when you don’t even read what you, yourself, are writing?
The difference between a corporation and a business is that the government grants the former rights that the latter does not have. You can not have a corporation without a government, who would grant the rights and protections by their assumed authority? Without a government everything that is currently a corporation would just be a company.
“he limited liability feature of corporations existed long before any government recognized it”
Which of course is nonsense, unless you decide you are going to live in a world that conflates “corporation” with “business”
“as an entity in and of itself it protects its members from the risks of business”
Yes, this is exactly why those in a government risk-reduced corporation behave poorly. Imagine a world where the leaders of a company were personally responsible for the companies actions. Would there be as much environmental damage? Would the poor, the young and the needy be so subjugated?
Corporate legislation takes the responsibility of what a corporation does away from the owners. If a corporation steals from you it is fined instead of the owners arrested. Sure some form of collective ownership may exist in a free market (free meaning government treats every person with the same freedom and doesn’t makes laws to favor or hurt anyone) but it would not be a version that hold owners accountable for what their actions do.
What most people don’t realize is that the idea of a corporation, business, firm, or even the idea of government is just an illusion. Corporations don’t exist, we just like to pretend that they do once there’s some piece of paper that says they do. And we’ve all agreed that once your business is filed as a corporation you are no longer responsible for your actions, your corporation is responsible. They exist so that we can have scapegoats for the bad things we do under the facade of “it’s not personal it’s business”.
Yes almost every economic model was something that resembles corporations, however, what would you call anarcho-capitalism? I would call it a complete lack of an economic model.
It is pure naivety to deny how much power big business gains by getting in bed with government. The only way a big business could survive in a laissez faire economy is if it offered a product that enough people wanted at a price enough people wanted to pay. And why would the business have to charge a fair price, pay fair wage, and make a good product. Because they can be replace very easily. A store near them can offer a better wage and a better price and steal all of the business both labor and consumer sides.
I feel like this article was written from a position that doesn’t have any real understanding of the free market competitive business model. And how easy it is in a truly free market to enter and exit an industry.
The new meaning of the word corporatism has a good use here, or Neo-corporatism:
“Neo-corporatism favoured economic tripartism which involved strong labour unions, employers’ unions, and governments that cooperated as “social partners” to negotiate and manage a national economy.” – Wikipedia
While this definition sounds benign at first glance it really is not. Neo-corporatism creates a means for corporations to decide what regulations they get, what taxes are levied, and how much government assistance they get. While other industries are choked by labor unions that control companies and run them into the ground.
You need an economics lesson from a college professor that isn’t trying to brainwash you. Or just read friedman, then sowell, then mises in that order to ween you off loving the state.
“Corporate legislation takes the responsibility of what a corporation does away from the owners. If a corporation steals from you it is fined instead of the owners arrested. ”
Actually that’s not true, there is a legal doctrine known as “piercing the corporate veil” which allows for the limited liability of the owners or parent companies to be shattered under certain circumstances. Deliberate criminal acts are one such circumstance, if the owners of a corporation used their business to willfully commit a crime they would most certainly be held liable. Limited liability is called “limited” for a reason, it is not blank check to commit abuses.
“Yes almost every economic model was something that resembles corporations, however, what would you call anarcho-capitalism? I would call it a complete lack of an economic model.”
I agree entirely, anarcho-capitalism is not an economic model, it is just philosophical nonsense. Which is why it would fail in the real world. It has more to do with fiction than with anything in reality.
Interesting article. What were some of your influences for it?
What influenced me to write is all of the ignorance that I see from many self proclaimed ancaps who make promises about their utopian fantasies which simply aren’t realistic. The corporatism/capitalism thing is just the tip of the iceberg.
“He doesn’t all of a sudden own 2,5 % of the company’s shares”
so why don’t corporations support freeing the market? if it is in their interest why don’t they back-up laissez-faire?:D
Well many of them do. Laissez faire economics is not exactly an odd man out among corporate and business leaders. Corporate money leads the charge in opposing new regulations many libertarian think tanks are supported by corporate funding. I certainly wouldn’t call the corporate community in America hostile to laissez faire. There are certainly many “Keynesian” businessmen but that is really just mostly on monetary policy, when it comes to things like regulation, outside of a few businessmen who simply have strong pro-labor leanings like Costco’s Craig Jelinek and Amazon founder Nick Hanauer, most of corporate America is strongly pro free market.
so with the power that they have on politics, and propaganda through the media, they could easily turn the economy into a more free market and less of a welfare state. So either they don’t have that much power on politics, in which case OWS is BS, or they want it exactly the way they created it, which is a monopolistic market thanks to regulations in their favor 🙂
Its not that they don’t have much power on politics, because they do. Its that our political system does not have much power over the people, the corporations still have to contend with democracy. So they have managed to make markets as favorable to them as they can given the political climate, but corporate America certainly hasn’t won over the voting populace, who ultimately have the final say in these policy matters. Democracy is what created most of these regulations as people strive for social control, the corporations have managed to create favorable markets in spite of regulations, not because of them.
corporations have power over politics, and
politics doesn’t have a lot of power over the people, but
democracy has the power over corporations??
do you even know what you are talking about?
so democracy created most regulations, but corporations control the government (that writes the regulations)??
how do regulations come to be? is it from the people or from the group in charge governing peoples lives? 😀
so you think that the “monsanto protection act” for example (like many other favorable regulations for creating corporate monopolies) was a result of the democratic will of the people?? well that’s dumb…and has nothing to do with reality.
corporations that have power over those that write the regulations will have the ability to create favorable markets for themselves by influencing the regulations to be in their favor, and get rid of competition that doesn’t have connections to those in power writing the regulations.
PS: idealizing democracy is delusional, as you have to distort reality to ignore the basic immorality of democracy…who would even want democracy?? it’s terrible: many have unlimited power over the few just because of their number?? that’s insane…that’s why many countries are Republics and not Democracies…in order to constrain under rule of law that tribalistic aspect of pure democracy
I think you are still trying to cling to absolutes and simplified explanations about things. Corporations do not “control” the government, they have substantial influence, but they do not control it. You really have a simplistic view if you actually believe that it works like that. Society has multiple forces competing for power, no one controls it completely. Its much more complicated than you are willing to admit. I know that you would like a simple answer to these things (like either corporations control everything or they control nothing) but that’s not really how it works. What can I say, if you want to cling to simplistic answers you can, but I like to look at things as they are. Corporations have enormous power and are able to influence markets, but they by no means control markets and they are not running the show. The same with the electorate.
Demonizing democracy is delusional, how can you deduce democracy down to the majority controlling the rest of people? Besides, like I said earlier, in our society there is no one force which is controlling the show, its a complex interplay of multiple interests. You seem to fall for the old Republic/Democracy distinction fallacy. America is both a democracy and a republic. A republic is merely a form of government (government owned by and for the people), while democracy is a system of governments which give sovereignty to voters to elect leaders and influence policy. America is a republic in that it is publicly owned, and it is a democracy in its political system, specifically representative democracy. Just because its not a pure absolute democracy (which is absurd, pure democracy has never existed nor would it ever) doesn’t mean its not a democracy. That would be like saying a capitalist economy isn’t capitalist unless it is 100% laissez faire-wait a second, that is what idiots like you believe. I forgot, I’m dealing with an absolutist here who only likes simplistic answers and can’t handle more than one thought at once. Ok well regardless, America is both a republic and a democracy, they are not mutually exclusive terms and in fact you really can’t ever have a democracy unless it is also a republic. So all democracies are republics as well. Seriously dude you need to read up on the civics because you seem to have some horribly naïve and simplistic views on things.
that’s what democracy is: “the will of the many outweigh the will of the few.”
it’s a system that can be implemented in any aspect of society, not just politics.
and without rule of law the will of the many can be anything the many want it to be…anything.
it’s actually cute that you think democracy is where the voters are in charge 🙂
it’s like a seventh-grade textbook explanation about “civics” :))
I form my opinions based on analyzing the real world, thank you very much.
but lets take only the political aspect (which you seem to favor):
democracy means that a relative majority imposes their will (or choice in representatives) over the rest of the minorities. Now it is true that in a republic, the democratic aspect of society is restrained through laws, but the inherit immorality of democracy (which I mentioned at the beginning of my comment) is still present.
But you still didn’t answer my question on how regulations (like the monsanto protection act) come to be?? is it from the people? 😀
Also how do representatives (that will eventually start to regulate peoples lives) get to be on the ballot for the people to vote for them? and have you noticed that none of them ever speak about specific cuts in their electoral campaign? I wonder why? 🙂
also, if it is such a democratic process, and a government “by the people”, why can’t any average-joe run for office? (and please stop to actually think about it before you start quoting propaganda like “that’s the beauty of our system, that anyone can run and become a ruler through democracy” 😛 …that would be a knee-jerk brainwashed reaction, that I encountered several times…hope you don’t have it 🙂 )
Wow, have you even been reading my comments or are you just blindly typing whatever you feel like? Where did I say that democracy is where “voters are in charge”? If you had actually read what I wrote you would know that what I’m saying is that our society has a complex political environment where multiple forces are at play, the voters are certainly one such force but they are not “in charge”, no one is “in charge”. Stop trying to burn a straw man by attacking a feel good interpretation of democracy which I never gave and actually address my real arguments for once. Although I have doubts as to your ability to actually stay on point.
Of course absolute democracy would be bad thing, and I am not advocating that. Most people are very much aware of the immoral aspects of a pure democracy which is why every democratic system on earth has substantial controls in place to keep that from happening! You are attacking your interpretation of the “immorality” of democracy even in a controlled democracy like ours without considering the alternatives. Majorities can still impose themselves on minorities in monarchies and anarchies as well, democracy is not unique in that aspect. Furthermore you seem to have some major misconceptions about how our democratic system actually works. Certainly a majority can impose its preferences on a minority through elections, but in terms of consensus a true majority really only exists for a few issues here and there. Voters may be able to come to a consensus on a few issues, but in terms of more controversial issues it can be much more divided. As a result the laws which get passed tend to reflect those few areas where a majority can be formed, things like abortion have been left up to courts precisely because the electorate can’t make up their minds on it in a fashion which constitutes a majority. So its not just going to be “anything” that the majority chooses because many if not most things are controversial enough that no clear majority ever forms on them and thus they are unable to have an appreciable presence at the polls to be able to actually enact many of these ideas.
So how do regulations come to be? Well that’s an awfully stupid question. The simple answer is that congress and the senate pass laws, the president signs them and unless they get struck down for being unconstitutional they go into enforcement. Now of course it is little more complicated than that, but I think you are still viewing “regulations” in an awfully simplistic and juvenile way. “Regulations” are not a monolith, some of them are unfairly construed to help corporations, some of them are not helpful to corporations. Each law is different and the process and motivations behind it are different. I doubt your have the mental capacity to understand that though, since you seem to want to cling to simple one or two word answers for everything, “democracy is bad”, “corporations are in control”, “regulations are all done to give unfair advantages”. I on the other hand prefer to view things as they are and that means being cognizant of the fact that our system is complex and one word answers aren’t going to be exact.
But if you really want to know how it all works, first a politician gets an idea for a law, and their motivations for introducing that bill can be far and wide, some of them do it because they got elected on promises of introducing such bills, some of them do it because they want to help out corporate donors, some of them do it because they genuinely feel it will be a good law. Then the law goes up for a vote and is subject to being amended, the vested interests will obviously have a say and try to persuade congressmen to make it as favorable to them as possible, or they out right oppose the bill. Sometimes congress bows down to this pressure and makes the bill more favorable to them, sometimes they do not. Many congressmen don’t want to seem too bought out and if they pass a bill that is downright crony capitalism they can (and have been) voted out in the next election. Congressmen have a complex balancing game of appealing to voters but also wanting to have the donations for the next campaign. Then if the bill passes the president can choose to veto it or not. And if he signs it the law will go into enforcement unless it is found to be unconstitutional.
Overall every bill is different, every regulation is different, some of them are more favorable to corporations than others. Its a complex process with many different interests involved. The politicians ultimately want to stay in power and have to contend with both voters and lobbyists. Corporate lobbyists have influence to a certain extent, but overall they cannot control the whole thing because politicians know they can lose a primary if they appear too corporate friendly. Sorry I didn’t give you the simplistic one word answer that you are looking for, but unlike you I like to see things in realistic terms rather than simplistic answers.
Now please, next time, instead of just doing straw man fallacies and obnoxiously using smiley faces, actually READ my comment and ADDRESS the arguments which I AM ACTUALLY MAKING.
I didn’t do any strawman. here’s the demo:
1. you said: “…while democracy is a system of governments which give SOVEREIGNTY to voters to elect leaders and influence policy.”
2. Now “sovereignty” (Mirriam-Webster) is the supreme power especially over a body politic, while “sovereign” is one possessing or held to possess supreme political power or sovereignty.
3. If the term “supreme power” doesn’t suggest “in charge”, I don’t know what does.
so yeah, sorry to burst your strawman bubble…it’s actually quite common to cry “strawman” when unable to rebut.
First I apologize on focusing mainly on corporations having control over politics, when I know that they are a part of a wider circle known as “interest groups” (as you seem to really cling on the specifics) so there…I like to view all of them as “puppet-masters”. 🙂
I asked two specific questions (the creation of regulation and the “creation” of regulators) because they are linked. And I was hoping for a more realistic response rather than the “civics” textbook: “A politician has an idea for a law…bla..bla”. Here’s how it actually comes to be:
Some interest group wants to keep their influence and to keep making money of the tax-payer/consumer, so they fund politicians (usually more than one…it’s better to have more horses in the race) to get elected to office so they can return the favor by pushing their agenda. As no politician can have a campaign without private funding (that generally requires returns), all of them do this. Because all of them do this, they usually have more than one interest group funding them (each with their own agenda) in order to compete and remain in the race.
Now the fun part is that, aware of the competition between interest groups to push (or keep) their agenda, during their campaign NOT A SINGLE politician will ever talk about specific cuts to specific programs (which are always some interest group’s focus), as they know that the next day that interest group will start funding against him (another competitor, or just an anti-campaign) to take him out of the race. Media control is always a bonus when it comes to corporate influence on politics.
Ok. Their horse won and now the interest group wants their return on the favor, which is push their agenda or oppose any law that might endanger that agenda. (I like the Robin Williams joke when he says that congressmen should wear “Nascar”-type jackets with all their “puppet-masters” funding them 😛 ). So they start making up laws and regulation to benefit their “masters”. Now corporate puppets push for creating monopolies and back-doors for their corporate masters, and others (unions for example) push for their masters. All in all the interest of the citizen is nowhere in mind, as all the masters want to profit off the citizens (thus having interests diametrically opposed to the voters electing their puppet…isn’t it ironic)
And the cherry on the cake is that incumbents that get funded to run again have proven their “loyalty” and are “worthy” to receive new funds for a new campaign to keep pushing agendas.
And when the biggest “punishment” for not honoring promises to voters is that they wont be voted again (that vote going to a highly probable replacement puppet, if there even is an alternative), it’s like saying to a grown-up he won’t receive toys from Santa next Christmas.
Again, I was focusing on the corporations (because of the blog topic) as a very big part of the interest group, but I’m aware that some regulations don’t favor corporations, they just favor other interest groups…but none of which are the common citizen…and that was the point I was trying to make.
As for the democracy tangent, fully aware of the immoralities of democracy, even in controlled form (as the basic immoral principals are kept in place, and even cheered to some extent), I condemn it just like I would condemn any other immorality. If you make murder more humane, it’s still murder…if you give your rape victim flowers and a ride home, it’s still rape. No lesser degree of an immoral thing will ever redeem it, until it reaches 0%
Thanks for your distinction on corporatocracy vs corporatism. I disagree with you fundamentally, but it’s good to have the opposing view push for clarity.
slightly confused… I agree that, in some sense, capitalism and communism lead to the same end. I tend to think of corporatism as a sort of higher level of organization inherent in capitalism: there is a sense of inevitability about it. Of course, u need some market economics in there but are markets ever free as the capitalists tell us they should be?
Wrong. Corporatism is more aligned with socialism than capitalism …
“Capitalism is a social and economic system which recognizes individual rights, including the right to own properties and the possession of goods for the individual’s personal consumption. Corporatism, on the other hand, is a form of economy that was created as an option to socialism and intends to achieve social justice and equality without the need to take away private property from individual members of society. It stresses the positive role that government has in ensuring social justice while restraining social unrest as people look after their self-interests.
The key player in a capitalist economy is the individual or a groups of individuals. They are given equal opportunity in competing as buyers or sellers of property or goods in a free market without the intervention of the government except for rules and regulations that maintain a level playing field. The trading of goods and services are independent actions of the individuals. There is no room for aggression in a capitalist society. The heart of a corporatist economy, on the other hand, is the political community that must reach its full potential to enable individuals of society to attain self-fulfillment and happiness.
Capitalism allows individuals unlimited opportunities in creating wealth for themselves and own as much properties and goods that they can afford to buy. This results in inequality that can eventually motivate individuals to work for more wealth to catch up with other individuals. Individuals are, however, to respect the rights of other individuals and avoid coercion. All forms of aggression against another individual are considered illegal.
In comparison, corporatism is a collectivist society just like socialism. Corporatism, however, only nationalizes private property in fact and not by operation of law. It blends capitalism and socialism in governing society and the economy. As such, it allows private businesses to operate within tolerable limits while prioritizing and promoting major projects of the state. The government justifies the creation of public ventures claiming that there are no takers of certain projects that are essential to the people from the private sector because the projects are huge and require a large amount of investment that the businessmen cannot afford.
In terms of labor issues, capitalism resolves labor questions through collective bargaining where representatives of management and the labor union sit together to reach an agreement on the issues. Corporatism, on the other hand, organizes labor and management into major interest groups or corporations to negotiate problems including labor issues through their representatives.
Both capitalism and corporatism are still practiced today and even co-exist and are adopted by politicians as advocacies.”
1. Capitalism is an economic system that recognizes individual rights while corporatism is a political and economic system that seeks social justice and equality among individuals.
2. The key player in a capitalist society is the individual who must work for his own well being while the central figure in a corporatist society is the political community that must work for the individual’s self-fulfillment and happiness.
3. Capitalism is an individualist society while corporatism is collectivist.
4. Labor issues in capitalism are resolved through collective bargaining while corporatism tackles such issues through negotiation.
5. Both capitalism and corporatism are still in use today.
Read more: Difference Between Capitalism and Corporatism | Difference Between | Capitalism vs Corporatism http://www.differencebetween.net/miscellaneous/politics/difference-between-capitalism-and-corporatism/#ixzz3FM753gZl
You missed the point, idiot. No one is saying corporations won’t exist, they are saying corporatism won’t exist; namely the ability of a corporation through positive rights and government to exercise political control. You severe these links with a free market and no positive rights and you remove corporatism. Not corporations In themselves. Embarrassing strawman.
I’m from Argentina. One of the most socialist countries in the world and we have corporatism here. It’s the opposite of capitalism. Generally speaking, corporations pay to have the atributes of a public entity. We have Lumilagro, a thermos factory that paid money for the presidential campaign.For such an act, thermos from China were banned, and heavy taxes imposed on competitors. They control 100% of the industry like any other public-socialist factory. Capitalism is all about individualism, unregulated markets, and private property. Corporations in bed with the govt. can, if allowed by the govt, destroy your house with a bulldozer in order to expand their empire. They don’t respet the individual, his property, and people’s right to choose.
You should come here to know what a corporation really is.
Democracy creates corporatism. If we were the Republic our forefathers intended us to be. Politicians and beyractacies put in place “for the people” would be held accountable to uphold the law rather than lying in bed with them. The definition of the two words aren’t the same, so they aren’t the same, moron.
Corporatism is capitalism, and capitalism is evil. This should come naturally to any human who cares about other humans. If it doesn’t, and you don’t care about other humans, you are a sociopath. Most CEOs are sociopaths.
I agree with your conclusions in this article. But I seen you made a quip about anarchists. “Anarcho”-capitalists aren’t anarchists. No other school in the anarchist tradition see them as legit because they advocate the authoritarian system of capitalism. “Anarcho”-capitalists are only anarchists in the minds of other “anarcho”-capitalists.
Ancaps/libertarians…can’t take them seriously.
Many of these comments seem to be missing the point or splitting hairs, The Hobbesian has showed why corporations will form with or without the state. This point need not address everyone’s personal definitions of what corporatism entails. I’ve heard enough of “corporations are bad and wouldn’t exist in [insert capitalist utopia here]” to see why this kind of response was overdue.
Also, just wanted to say thanks for writing with such clarity, force, and reason! Though I think you could tone down the name-calling, your analysis is spot-on and clears up some socialist writing (“Labor and Monopoly Capital” in particular) that I’ve been reading.
You are the moron. Capitalism is not corporatism. http://www.forbes.com/sites/richardsalsman/2011/12/07/capitalism-is-decidedly-not-corporatism-or-cronyism/#69a8e24a10b7
The point of interest ….never mentioned, seen or noted by an apparent moron…very bright obviously…very moronic as well…is the human ethical one…No enterprise detrimental to life..or its living…should be permissible…. Raping for profit of pleasure or profit…placing profit and market share over all other consideration…runs counter to broad national interests of individuals…Nations can require enterprise within them, so show and have common benefit….Enterprise of any sort causing harm in pursuit of profits…need not be permitted….As a nation of individuals we choose to allow or not…approaches, the consequences of which, we live….If we choose, ethics of, “do no harm”….”show common benefit”…can become required…Limits to market share…or complete monopoly…depending on objectives, can be enacted…some national objectives are best obtained via a socialist approach…those we wish to have as matters of national interest…whose objectives are not profit…objectives “some” nations seek as matters of the common good…education of all…healthcare, housing, security and opportunity for all…the chance to rise and prosper…for “all”…individual empowerment as the common good…as the national objective…Money is means to an end…if money become the end, in and of itself…over and above common interests….laws and approach can change…to better meet our national…personal…needs and interests …Ethics of approach matter ..
Terrible opinion article. You’re ignoring the fact that nearly every regulation, minus stopping monopolies and fraud, don’t hurt big business…”moron”… in fact big biz is often active in drawing up such legistlation. It is small to mid-size businesses and entrepreneurs that suffer, therefore allowing the greedy corporations to dominate. Why do you think corporations lobby for min wage? Because they know they can afford it and that some competitors won’t be able to, and will fail. Never judge policies and programs by intentions, judge theme by results. Corporatism is only when the corporations have government control.if government would stay out of biz and have integrity not to take brides but rather prosecute corporations who try to influence them. We wouldn’t even be discussing the subject .
Very well argued.
Is it not that Capitalism is an ideal like Marxism for those that believe in that, but in practice this manifests as suboptimal for either one?
There is a clear difference between partnership and corporations in the common understanding. One was a clear notion of accountability enumerated as individual people versus diffuse accountability via uncountable or even undefinable ownership (like another corporation) and a manager accountable only to a “board” who are not nec. even owners. There is no distinction in American law between them. But socially and politically it makes a big difference. LLCs are almost as corrosive as corporations insofar as they prevent responsibility legally if not necessarily socially, i.e. stigmatizing.
Reblogged this on Scott Andrew Hutchins.