Professional Documents
Culture Documents
Every man, as long as he does not violate the laws of justice, is left perfectly free to
pursue his own interest his own way, and to bring both his industry and capital into
competition with those of any other man or order of men. Adam Smith (1723-1790)
in Wealth of Nations (1776)
What kind of society isn't structured on greed? The problem of social organization is
how to set up an arrangement under which greed will do the least harm; capitalism is
that kind of system. Milton Friedman (1912-2006) in Capitalism and Freedom
(1962) 1
I believe that banking institutions are more dangerous to our liberties than standing
armies. Already they have raised up a monied aristocracy that has set the Govern-
ment at defiance. The issuing power should be taken from the banks and restored to
the people to whom it properly belongs. Thomas Jefferson (1743 - 1826) in Letter
to the Secretary of the Treasury Albert Gallatin (1802)
CAPITALISM : W H AT I S I T ?
Capitalism is an economic theory. It has absolutely nothing to do with the
tenets of Christianity, nor of democracy. The tenets of Christianity are based
on Judeo-Christian expressions of communal love and consideration for one’s
fellow man within the context of community. Capitalism is primarily predi-
cated on the idea that individuals, acting alone in their ‘enlightened’ self-
interest, can collectively generate economic progress. Capitalism, in its origi-
nal incarnation from Adam Smith in his Wealth of Nations assumed common
Judeo-Christian values for this theory of economic behavior to work in prac-
tice. However, the economics of capitalism, as it is played out in economies of
the world today, no longer assumes a common Judeo-Christian heritage or
shared values. Neither is democracy required for capitalism to work. There
are many non-democratic authoritarian, totalitarian, and fascist regimes in
the world today that have embraced capitalism.
CHRISTIANI T Y A N D C A P I TA L I S M
Capitalism today, no matter where it is practiced or under what form of po-
litical system whether it be democratic, authoritarian, totalitarian or fascist is
based on the accumulation and allocation of capital based on the principles of
technological positivism and utilitarianism. Technological positivism claims
that human ingenuity, not God’s will, determines what is possible. Utilitari-
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DEMOCRACY A N D C A P I TA L I S M
The ability of people to vote in a public election and to elect their representa-
tives to government is not what defines a democracy. It is often forgotten that
Adolf Hitler, for example was ‘elected’ by the German people to his first post
in the German government. The philosophical basis of liberal democracy is
the presumption of equality of citizenship as the foundation and guarantee of
the individual’s freedom. Thus, what defines whether a particular govern-
ment is a democracy or not is whether its elected or appointed officials have
all the people’s will and best interests as their guiding light in how the govern-
ment governs.
CAPITALISM R E Q U I R E S F R E E M A R K E T S TO F U N C T I O N
In place of common Judeo-Christian values as the substrate for capitalism in
a society, government regulations have been substituted. This is true for capi-
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THE PURPOS E O F F R E E M A R K E T S I S T H E E F F I C I E N T A L L O-
CATION OF C A P I TA L
In standard economic parlance, markets connect buyers and sellers of goods
UNREGULAT E D M A R K E T S A R E N O T ‘ F R E E M A R K E T S ’
Free markets require structure (rules of the game) to function efficiently.
Regulations help to define this structure as fair and equitable for all parties
who wish to transact business in this market. Unregulated markets tend to
develop unfair practices that are driven by avarice. This leads to the ineffi-
cient allocation of capital by markets that are not adequately regulated. Over
time, if capital is not efficiently allocated to activities that are productive and
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that produce a real economic return on invested capital, the market tends to-
wards collapse. Thus, the primary purpose of regulations is to prevent the
collapse of markets due to the inefficient allocation of capital within those
markets. By definition, collapsing markets have not been properly regulated.
Markets that are not prone to collapse are sustainable. It takes sustainable
markets to produce recovery and sustainable economic growth. All markets
are dynamical systems. These systems are either tending toward collapse or
towards sustainability. Sound regulations enable markets to move toward
sustainability.
‘COERCED M A R K E T S ’ A R E N O T F R E E M A R K E T S
Coerced markets are markets where market exchange prices do not reflect the
full value of externalities and/or contingent liabilities created by the trade. In
other words, market participants are coerced to engage in the dis-economic
allocation of capital to projects, purchases of products and services, and ex-
penditures of human resources and time that may not actually produce a real
economic return. Coerced markets may occur in capitalist or socialist eco-
nomic structures, and within both private and public sector activities. Co-
erced markets are the result of inadequate information, bad accounting rules,
and/or lack of meaningful regulations. One common feature of coerced mar-
kets is the socialization of private sector risk in order to boost profits.
MARKETS AR E N O T A P P R O P R I AT E F O R A L L A C T I V I T I E S I N
AN ECON OM Y
Free Markets are a relatively new way of ‘doing business.’ During much of
human history, markets (at least the way markets are conceived of today), did
not constitute the dominant mode of business. Tribalism, the divine right of
rulers, patronage, feudalism, manifest destiny, etc. drove the majority of
transactions, not free market exchange. There are some economic activities in
any economy where markets are an inappropriate mechanism for efficiently
allocating capital to that activity. 12 For example, uncertainty of what one is
buying (purchasing health care is not like buying a loaf of bread, a car, or a
home) and lack of consumer information (and even basic understanding of
the service being purchased) for comparison shopping may forever doom
health care as an economic activity that responds to free market forces. Thus,
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there are always economic activities in any economy where markets are an
inappropriate mechanism for managing transactions.13
CAPITALISM C O M E S I N D I F F E R E N T F L AV O R S
Today, there are many flavors of capitalism in the world. There are also many
flavors of capitalism operant in the United States. Thus, to speak of ‘capital-
ism’ as a monolithic ‘way of doing business’ in opposition to ‘government’ is
nonsense. All capitalist systems rely on government regulations of markets
to enable profits to be made by an enterprise, whether those governments are
democratic, authoritarian, totalitarian, or fascist. The different flavors of capi-
talism that exist in the world today are primarily differentiated by the degree
of hybridization that exists in the economy incorporating capitalism and so-
cialization of those activities, as well as the efficacy of the regulations in place
to assure that markets are fair and do a good job of allocating capital to the
most productive uses in the economy.
The most pernicious form of capitalism in the world today is called ‘disaster
capitalism.’ Disaster capitalism refers to making a huge fortune from natural
and planned disasters exacerbated by poverty, social tensions, environmental
degradation, ineffectual leadership, and weak political institutions. Disaster
capitalism’s raison d'être may be the promotion and generation of market in-
efficiencies – pricing signals that distort real prices for goods and services and
their real cost to the environment, public health, and social justice.14 The
checkered history and deleterious results of disaster capitalism, an outcome of
the Friedman or Chicago School of economics that promotes among other
things, tax cuts for the wealthy, industry consolidation and concentration,
and deregulation of markets to achieve market efficiency has proven to be a
wrong set of economic assumptions for how markets work in the real world
in every country so far in which these principles have been applied.
SOCIALISM: W H AT I S I T ?
Socialism denotes the government ownership of the means of production. 15 In-
stead of being in private hands, capital is best left under the purview of the
collective - which, under a democratic form of government is the government
duly elected by the people. Thus, capital is allocated not for the purposes of
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personal gain (or the gain of the shareholders of an enterprise) as under capi-
talism but for the benefit of the people governed. Almost all ‘capitalist
economies’ in the world today include some activities that have been social-
ized and operate under the tenets of socialism. Why? Because these economic
activities have demonstrated that they run more efficiently, i.e. capital is allo-
cated more productively, when these activities are operated under a socialist
economic model than under a capitalist model. Examples in the United States
include the U.S. military, the national intelligence services, the postal service,
public schools, police departments, fire departments, the military and Veter-
ans Administration health services, etc. These are all socialist enterprises, al-
though they are rarely thought of in this manner.
There are also in most capitalist societies in the world today, economic activi-
ties that are socialized, but do not follow strictly economic models of either
socialism or capitalism. A good example of this hybrid economic activity in
the U.S. is Medicare. Medicare is a government-funded, single payer health
insurance service that relies on private hospitals and private health care pro-
viders for service. Economic activities that are socialized may also operate
with some degree of free market enterprise for a portion of the socialized ac-
tivity.
There are few ‘pure’ socialist economies in the world today. Cuba may be the
purest and longest running socialist economy that most people are knowl-
edgeable about. Likewise, there are no ‘pure’ capitalist economies in the
world today that I am aware of. Almost all capitalist economies include vary-
ing degrees of socialism or socialized economic activities. Usually, activities
are socialized when a particular market system under a capitalist model
breaks down or collapses.
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systems, communism was an economic system that was run by an elite pri-
marily for the benefit of the elite.
CORPORATIS M : W H AT I S I T ?
Today, corporatism, the resistance to economically productive change and
preservation of dis-economic activities is more a threat to capitalism than so-
cialism. The economist, Joseph Schumpeter (1883-1950, Austria/Hungary), in
his book, "Capitalism, Socialism and Democracy," discussed capitalism’s
greatest strength as creative destruction - old ways of doing things are de-
stroyed and replaced by new ways through entrepreneurship. For Schum-
peter, socialism was no match for capitalism. However, he predicted that cor-
poratism would threaten and would finally undermine capitalism.
CAPITALISM , S O C I A L I S M , C O R P O R AT I S M & P R O F I T S
Economic profits represent the creation of new, real wealth for the commu-
nity. The world is better off for the economic activities that generated these
profits. However, sometimes firms report accounting profits even as no real,
new economic wealth was created. Instead, the accounting profits are merely
figments of imaginative managements as these reported profits fail to account
for externalities and contingent liabilities, or are ginned-up based on creative
or fraudulent accounting schemes.
Likewise, individuals may report that they personally ‘profited’ from a busi-
ness activity (i.e. they made ‘a lot of money’) even in situations where no
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ROLE OF GO V E R N M E N T U N D E R C A P I TA L I S M , S O C I A L I S M &
CORPORATIS M
Capitalism does not mean, and has never meant, a bright-line separation be-
tween business and government. One might argue that the primary and es-
sential function of a nation’s government under economic systems of capital-
ism, socialism or corporatism is to “supply the institutions that create and
sustain trust in financial promises.” 17 The foundation of such trust is built on
a “government accountable to the large mass of property owners” and the
maintenance of “the most important of all financial markets – that in gov-
ernment debt.” 18
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While this on first blush appears that government should solely be involved
in the affairs of Wall Street, upon reflection, what becomes clear is that creat-
ing and sustaining trust in financial promises involves structuring markets so
that transactions incorporate the best information as to the productive alloca-
tion of capital. Otherwise, over time, transactions would otherwise tend to
allocate capital to those agents who have an unfair competitive advantage,
cheat, or use coercive force (bribes, lobbying, implied threats, etc.) to achieve
a greater share of the market pie. The result of this situation, should it persist,
would be the negligence of basic needs of the citizenry and collapse of sup-
port systems for the economy.
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ENDNOTES
1 It may be argued that may societies throughout history have been structured on
principles other than human avarice (greed). Scripture is, of course, replete with sto-
ries of a society that attempted to structure their communal activities and economy
based on God as their sovereign not personal greed. In fact, throughout history one
might make an argument that avarice, at least as it is conceived today e.g. ‘Greed is
good’ was unknown as personal identity was established only through relationality
with one’s community, God, and environment.
So, on first take, Friedman’s statement is nonsensical, cynical, and wrong. However,
Friedman himself did not believe what the statement portends today, out of context.
For Friedman has said regarding self interest: Self-interest is not myopic selfishness. It is
whatever it is that interests the participants, whatever they value, whatever goals they pur-
sue. The scientist seeking to advance the frontiers of his discipline, the missionary seeking to
convert infidels to the true faith, the philanthropist seeking to bring comfort to the needy -- all
are pursuing their interests, as they see them, as they judge them by their own values. From a
letter introducing the Milton and Rose D. Friedman Foundation for Education Choice
(May 1996).
Of course these values have some grounding in human community. The presumption
here is that these values are not destructive of human society nor capital. Thus, this
hardly refers to unbounded greed that calculates personal accumulation of capital to
the detriment of all others. For example, of what value to the capitalist would it be to
gain the entire world, if that world was polluted with PCBs, radioactivity from nu-
clear weapons from conflict engendered from self-serving policies, and all shunned
by all humanity, including the capitalist’s family. That is a result of unbounded greed.
It is unlikely that is what Friedman is referring to, or at least we may hope so.
2 Utilitarianism (‘the more human desires that can be met, the more moral good that
has been created’ or ‘the greatest good for the greatest number’) presently serves as
the “primary moral framework for decision making in modern societies.” Utilitarian-
ism is legitimized and sustained due to two factors: (a) a central myth of modernity
that equates the telos of history as human progress brought about by goods resulting
from economic development and technological innovation; and (b) the goods of hu-
man progress can be justified as moral exclusively through self-reflective interiority
and determined by human happiness measured in economic terms. “God is super-
fluous to the order of the material world.” See Michael S. Northcott, The Environment
and Christian Ethics (Cambridge: Cambridge University Press, 2001), 57, 70
3This promise is made to all people, regardless of race, ethnicity, nationality, wealth,
position, level of education or any other attribute, and to all of creation.
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4Jeremiah 31:8; cf. Exod. 22:25; 23:11; Lev. 19:10; 23:22; Deut. 15:11; 24:17; 26:12, 13; 1
Sam. 2:8; Job 22:9, 19; 24:3, 14; 29:12; Ps. 9:9, 18; 10:2; 12:5; 14:6; 22:26; 41:1; 68:5; 72:4,
12; 74:21; Isa. 1:17, 23; 9:17; 10:2; 51:14; 58:6; 61:1; Amos 8:4; Matt. 5:3; 11:5; 19:21; Luke
4:18; John 13:29; Rom. 15:26; 2 Cor. 9:9; Gal. 2:10; James 2:5,6.
5 “The God of Israel is a God who makes and keeps promises....The promises of God
are not theoretical or spiritual, but concern real-life in a reordered, political-economic
situation’ (Jer. 32:42-44). See Walter Brueggemann, A Commentary on Jeremiah: Exile &
Homecoming (Grand Rapids & Cambridge: Eerdmans, 1998), 265 (#3), 281, 284, 311.
6 Exod. 6:7; Lev. 26:12; Jer. 7:23; Jer 11:4; Jer. 30:22; Ezek. 36:28.
7 Lev. 19:18; Matt. 5:43; 19:19; Mark 12:31; Rom. 13:9; Gal. 5:14; James 2:8.
8 For example, “reforming health care is a moral obligation, and that the responsibil-
ity to heal the sick is at the heart of every faith tradition and is required for a civilized
society.” These imperatives are not typically what drive markets. See Marshall Gantz,
“We Have the Hope. Now Where’s the Audacity,” Harvard Kennedy School (August
30, 2009) at http://www.hks.harvard.edu/ news-events/news/commentary/we-
have-the-hope.
9 From Lincoln’s Gettysburg Address on November 19, 1863: that this nation, under
God, shall have a new birth of freedom -- and that government of the people, by the people, for
the people, shall not perish from the earth
(http://showcase.netins.net/web/creative/lincoln/speeches/gettysburg.htm) that
was exegeted from the Preamble of United States Constitution adopted September
17, 1787: We the People of the United States, in Order to form a more perfect Union, establish
Justice, ensure domestic Tranquility, provide for the common defense, promote the general
Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and
establish this Constitution for the United States of America.
The intent of the U.S. Constitution was to establish a government of, by and for The
People. This was at the time, and still is, an innovation of governance. What is clear is
that governance in America was never intended to be limited to providing favors to
the elite of the land or the wealthy. It was also clear that people was envisioned as
those ‘naturally borne’ and does not include corporations and the legal fiction that
corporations are ‘individuals.’
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10 Max Weber and others have argued persuasively that greed and the unrestrained
pursuit of profit are not foundational to the tenets of capitalism and never were so.
For without the restraint of rational calculation and support of government to make
legal the economic activity in question, economic progress would grind quickly to a
halt. In fact, the progress attributed to capitalism and its use of free markets might be
better attributed to this-worldly asceticism that emphasized hard work, education, and
deferred gratification as the noblest of virtues for the amassing of capital and invest-
ing this capital to good effect. See Zygmunt Bauman, “Building a Capitalist Society in
a Postmodern World,” in Peter Beilharz, ed., The Bauman Reader (Malden, MA & Ox-
ford: Blackwell, 2001), 65.
12Even today, free markets are not a panacea. Markets are not always applicable for
all transactions. Instead of encouraging the proper allocation of capital to economic
activities, the use of markets for some economic activities can be destructive of capi-
tal and harmful to the economy even when ‘properly’ regulated. Health care may be
an economic activity where markets are inappropriate for very good reasons. See link
to Kenneth Arrow’s Uncertainty and the welfare economics of health care in Paul
Krugman, “Why Markets can’t cure healthcare,” NY Times (July 25, 2009) at
http://krugman.blogs.nytimes.com/2009/07/25/why-markets-cant-cure-healthcare
/?pagemode=print.
13 There have been claims that 3rd party reimbursal for health care expenses ‘distort’
the true market for health care in the U.S. However, actual experience in other indus-
trialized countries, ones where insurance pays ~100% of billed services, is that health
costs as % of GDP is <10%. In U.S., where insurance pays <65% of billed services,
health care is 18% of GDP, soon to be 20% (CBO #s). The problem is not 3rd party
payers. Turns out markets don't work very efficiently for delivering health care (at
least no one has figured out to have them work efficiently in practice). In the U.S., we
have moved from not-for-profit community-based care to an industrial, for-profit
care model. Insurance companies are part of the problem as they have moved to a for
profit model themselves. This is one factor that is driving up the cost of health care in
America, not the 3rd party payer model.
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See Naomi Klein, The Shock Doctrine: The Rise of Disaster Capitalism (New York:
14
15The military and Veterans Administration ( VA) run socialized health care in the
U.S., similar to NHS in UK, Spain, most Scandinavian countries, New Zealand, Hong
Kong, Cuba have for all their citizens (Beveridge model).
Federal employees, Congress, and their staff have a single payer, similar to what the
Swiss, Germans, France, Switzerland, Belgium, the Netherlands, Japan have for all
citizens (Bismark social insurance Model).
Medicare is a single payer system similar to what Canada, Taiwan, South Korea have
for all their citizens (National Health Insurance Model).
In U.S. health insurance is linked to employment for those under 65 yrs. of age. Those
working for certain private and public employers get insurance. Those working for
other employers, changing jobs, or out of the workforce for any reason don't get it
and may even be denied coverage from the individual market at the discretion of the
insurer and get nothing. - that's 'free market' health care, U.S. style.
16 “Socialism may be seen ... as a radical but logical extension of capitalist liberal-
ism.... [Where] liberalism saw the equality of citizenship as the foundation and guar-
antee of the individual’s freedom.... Socialism, on the contrary, considered the estab-
lishment of political equality as a means and a first step to the incorporation of the
totality of individual life into a community of equal men.” In this respect, capitalism
wishes to improve the community through the self-interested actions of individuals
whereas socialism wishes to improve the community through communal actions
where individuals are acting in concert for the good of the community. See Zygmunt
Bauman, “The Historical Location of Socialism,” in The Bauman Reader, 35.
17Martin Wolf, Fixing Global Finance (Baltimore: The Johns Hopkins University Press,
2008), 16.
19 Wolf, 17.
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