Capitalism and the Wall Street Protesters

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With at least
12 compulsory years in public schools, one would think that most
of the twenty-something Wall Street protesters would have some understanding
of capitalism, its actual history, and its accomplishments. Well,
maybe not. One can only wonder what passes for economic education
these days.

So what is
capitalism? Free market capitalism is based on the individual
right to own and freely trade property. It permits owners of property
(land, labor, capital, etc.) to enter (or exit) any contract on
mutually agreeable terms. It gives entrepreneurs the freedom to
start any business (without government permission) and to borrow
money and develop products for consumers. It permits land owners
to rent (or sell) their property for any peaceful purpose. It gives
adult workers the liberty to lease their services to any business
at any agreeable wage and to terminate that agreement at will; employers
would have the same right.

Capitalism
allows firms to compete (and cooperate) with other firms; it allows
firms to succeed and reinvest their profits; it allows firms to
make losses and fail and go out of business. It allows consumers
to choose any product or service (drugs and prostitution would both
be legal) and allows parents to educate their children in any manner
and for any length of time that they decide is appropriate.

Under capitalism,
there would be no government bailouts; no Federal Reserve; no Fannie
Mae or Freddy Mac; no state restrictions on competition (so-called
antitrust laws); no tax-supported schools and no government supported
monopolies of any kind. Crony capitalism, after all, is not real
capitalism.

As should be
apparent, a capitalistic economic system is grounded on individual
liberty. When and if individual rights are violated under capitalism
(theft, harmful pollution, contract defaults, protesters breaking
store windows) it would be legitimate to prosecute and punish rights-violaters
(criminals) under the rule of law.

Now what exactly
are the Wall Street protesters protesting? A few are legitimately
protesting the special privileges and economic distortions associated
with crony capitalism. Fine. Most, however, are confusing crony
capitalism with real capitalism. For example, they think corporations
are too "powerful" or they are upset about the dearth
of jobs (and blame the free market), or they want incomes more evenly
"distributed" or, more generally, they want more government
control of the marketplace.

Let’s take
these one at a time.

Corporations
such as Apple and Wal-Mart and Allstate are all large organizations
that compete in an open market with other businesses (large and
small) for the favor of consumers. Their overall success depends
not on any government grant of "power" but solely on their
internal efficiency and their ability to convince consumers to purchase
their products and services every hour of every day; if they fail,
they get smaller, and their employees and investors suffer.

Do the protesters
object to growth and success based on efficiency and consumer choice?
Would they restrict that choice or hamper that efficiency to keep
firms small? And if small is more expensive, why is this good?

Protesters
also say that they are concerned about the fact that the jobless
rate is stuck at 9%? But whose fault is that? In all previous post
WW2 recessions the economy has always recovered and the U.S. job
market has always expanded. There are two exceptions: the 1930′s
and the last three years. Interestingly, these are the only
recessions where Keynesian economic policies were used by the federal
government in an attempt to "stimulate" the economy and
bailout ailing corporations and financial institutions. I think
that there is a lesson here if only the protesters would pay attention.

On the matter
of income distribution, let’s be clear: Incomes are not "distributed"
but are earned when owners of land, labor, or capital sell or rent
their property. The distribution is unequal because the original
endowment (talent, inheritance, etc.) is always unequal and because
free market prices and wage rates are different for different products
and services.

Consumers place
a higher value on Lady Gaga’s services than they do on my services
and, thus, her income is far higher than mine. Under capitalism,
Lady Gaga (certainly a member of the 1% club) is entitled by right
to keep what she earns in free trade…or give it away if she chooses.
By what right would protesters advocate that government confiscate
some of that income and "distribute" it to people who
didn’t earn it? Sounds like theft and not "social justice"
to me.

Notice that
the general theme accepted by most of the protesters is that government
power is always necessary to correct the free market choices that
consumers and businessmen make every day. I say: Get some historical
perspective. Nations have tried those sort of regimes for centuries
and they have proven both illiberal and inefficient. Real capitalism,
is the newest and freest and most productive economic system ever
tried and we must salvage, not wreck, what’s left of it. Perhaps
a field trip to Greece (or Cuba) for the Wall Street protesters
is in order.

November
19, 2011

Dom
Armentano is Professor Emeritus at the University of Hartford (CT)
and the author of Antitrust
and Monopoly

(Independent Institute, 1998) and Antitrust:
The Case for Repeal

(Mises Institute, 1999). He has published articles, op/eds and reviews
in The New
York Times, Wall Street Journal, London Financial Times, Financial
Post, Hartford Courant, National Review, Antitrust Bulletin
and many other journals.

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