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Focus on Freedom

Getting to the Bottom of the US Economic Woes

A number of article writers and many others are rightfully decrying the state of the economy in the US, but mistakenly label the system to be condemned as Capitalism. Rather, what exists in the US is a mix of capitalism + lots of government involvement, which mixture is more correctly seen as verging on fascism.

A review of fascism is warranted at this point to give my statement above more meaning for those weak in economic/political history. From As We Go Marching, part 1, chapter 10 by John T Flynn originally written in 1944:

As we survey the whole scene in Italy, therefore, we may now name all the essential ingredients of fascism. It is a form of social organization

  1. In which the government acknowledges no restraint upon its powers - totalitarianism
  2. In which this unrestrained government is managed by a dictator - the leadership principle
  3. In which the government is organized to operate the capitalist system and enable it to function - under an immense bureaucracy
  4. In which the economic society is organized on the syndicalist model, that is by producing groups formed into craft and professional categories under supervision of the state
  5. In which the government and the syndicalist organizations operate the capitalist society on the planned, autarchical principle
  6. In which the government holds itself responsible to provide the nation with adequate purchasing power by public spending and borrowing
  7. In which militarism is used as a conscious mechanism of government spending, and
  8. In which imperialism is included as a policy inevitably flowing from militarism as well as other elements of fascism.

Wherever you find a nation using all of these devices you will know that this is a fascist nation. In proportion as any nation uses most of them you may assume it is tending in the direction of fascism.

A review of the above in conjunction with the current economic and political situation in the US, will lead any reasoning reader to the conclusion that the US is very definitely "tending in the direction of fascism", and to a high degree of "tending". Similar conclusions, varying only in degree of "tending", will be reached from an objective study of many other countries, with the remainder tending more toward socialism - production owned by the State directly, with all citizens being employees.

The failure of so many to recognize (on their own, without seeing the list above) that this ever more closely encroaching fascism underlies current economic problems is largely because capitalism has never been fully practiced nor understood (except by a very few), even in the US - "the home of the free and the land of the brave". It has always been adulterated by government involvement - to a relatively small extent at the beginning of the US but increasingly so at the federal level since the days of Abraham Lincoln as President with his promotion of the National Bank Act and National Currency Act in 1863 (mainly in order to create an active secondary market for US Treasury securities to help finance the Civil War). The trend toward fascism continued and even picked up considerable speed with the Federal Reserve Act in 1913, the same year federal income taxes on individuals and corporations began, and hasn't diminished acceleration one bit through the Square Deal, the New Freedom, the New Era, the New Deal, the Fair Deal, the New Frontier, the Great Society and more recently the Homeland Security Act (2002) as part of the War on Terror - all during the 95 years since the Federal Reserve was born.

The federal, state and even local governments have many dozens of agencies that regulate all the enormous number of different areas and ways in which residents in and visitors to the US interact. All of these have costs - to run these enormous bureaucracies, paid for by taxes on residents and visitors, and fees from the companies and individuals being regulated. Since the fees and taxes charged to companies, along with the costs of meeting all government requirements, also become part of the costs that go into the price of their products and services, whether purchased directly by some individual or another company, ultimately, all government income is a direct loss of value by individual consumers.

Those who have never owned their own business, or been closely associated with the management of one, generally have little understanding of the enormity of government presence in whatever service or product they are attempting to value exchange with someone else. There are forms to fill out and submit before one can even get started in the smallest of businesses, and it never stops. The amount of government-required paperwork mushrooms the larger one's operation and/or with many types of businesses. And with the loss of time spent on that paperwork goes increasing amounts of money required to be sent to the various levels of government - for permission to offer particular services and/or products, among the ones that government even allows. It doesn't take too much imagination to realize that the amount of accounting and legal costs alone for a company of any size would decrease enormously if government regulation disappeared. However, some company owners/managers from the earliest days of the US (and later, also some employee associations/unions) have found that currying favor with politicians can create a special status for their organizations - even to the extent of eliminating the presence of competitors. And of course since politicians and bureaucrats have the legalized force of the government behind them, their decisions/edicts/regulations all include the threat of fines, imprisonment, confiscation or even death - if one resists the government authorized (and legally protected) enforcers.

In a free market - laissez-faire capitalism - people act in their own individual interests, either setting up and operating their own businesses by themselves or in voluntary association with others, or they sell their labor/skills/knowledge to those who own the companies; there is no government regulation of what and to/with/for whom and at what price any of this is done. One is self-responsible in a free-market - to succeed or fail - and interacts only with those whom one has chosen to do so. The company owner provides the tools, buildings and upfront cash (the capital - thus "capitalism") to get the business going and arrange for its continuance through management. S/he may do all this by hirself in addition to providing the service and/or products that s/he offers for sale to others - OR s/he may pay one or more others to do some of the tasks that are related to the numerous aspects of the business. The greater amount of service and/or product that the owner can produce that others are willing to purchase, the greater the likelihood that s/he will have employees, those who have decided to sell their labor (physical labor/skills/knowledge) to this particular business owner - and not some other, and instead of being self-employed. And also the more total value of exchange to mutual benefit will such a company generate, of which a part will become well-deserved profit for the owner.

A buyer in one transaction in a free market is also a seller in other transactions - and each individual involved is exchanging to hir own mutual benefit, with the end goal of maximizing hir lifetime happiness, the purpose of each person's life whether or not s/he recognizes that fact. The presence of government in these exchanges is like sand in a finely tuned machine, despite the claims by so many that the market must be "regulated" or it will run amok. It is the government's interference and it's never ending band-aids applied to fix problems that were created in a previous administration (or even the same) that has resulted in all the distortions, both upward and downward. Those who think that "[c]apitalism is designed to crash and transfer most of the money in the markets to a few hands", do not understand capitalism, since a free market is not "designed" at all, but simply comes about as a result of voluntary interactions. The "crashes" with their extensive loss of money by some, directly (and many indirectly) - as well as enormous surges - are as a result of the distortions created by government manipulation both of money (modern value exchange) via federal/central banking (effectively an arm of modern governments by legalized monopoly, or a direct department of those governments) and of markets, by pump priming, debt encouragement, bail-outs, etc.

Growth is the natural trend of a free market, since both populations and accumulation of wealth per capita generally increase with time, but humans are not omniscient and therefore some decisions will later be found to be unprofitable - the entrepreneur loses hir capital and/or the investor hir money. However, when the interactions between individuals are based on the judgment of each as to what is in hir own best interest, each will acknowledge responsibility, learn from hir error and the resulting corrections will be far less reaching and harmful to all than when numerous factors are at the whim of government at any one or more levels, in any one or more agencies, under any one or more administrations with any one or more particular bureaucrats. Despite what those managing companies or merely employed by such managers think, governments are not a necessity for the existence of an orderly society - one where physical harm is the rarity and, in such an occurrence, restitution is used to rectify the harm and social preferencing is used to strongly promote both the completion of restitution and the prevention of similar future actions.

So, to one writer's inferred question of whether the economic woes, seen now and/or in the past in the US (and elsewhere too), are a natural result of capitalism, the answer is "No". Those woes have occurred as a result of the government - an enormous Medusa with its thousands of tentacles that have transformed a mostly capitalistic system in this country's infancy into a system that is tending increasingly toward fascism, particularly accelerating during the past near 100 years. Fascism is what we are on the brink of now in the US; the kernel of capitalism is hardly recognizable at all by those who know what it really is.

Unless sufficient numbers of people come to realize the true situation in the US very soon, the economic distortions that have been taking place with increasing rate and amplitude since the 1910s will bring the chickens home to roost with a crash strong enough to flatten the hen house.

Highly recommended reading for everyone is a small and very readable but highly informative book that has never been out of print since its first publication in the mid 1940's - Economics in One Lesson by Henry Hazlitt. Renowned journalist and commentator of the early and mid-20th ceuntury, H.L. Mencken called Hazlitt "one of the few economists in human history who could really write." Nobel Laureate F.A. Hayek hailed this book as "a brilliant performance."

This article first appeared at on 7/31/08 - It started out to be a comment to another article, the one mentioned by its linked quote in the text above, but quickly became an article of its own.

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