Has Capitalism Failed

by Robert Villegas

  Notice that Hazlitt’s formulation here does not take cognizance of this altruistic element and this blinds him to the real cause of the broken window fallacy which is the desire to affect re-distribution from the able to the needy. It is not merely that the loss to the able is unseen, it is unseen because altruism is considered good. It is blindly thought that the result of altruism is good and actually accomplished. So, one could say that the broken window fallacy not only creates unseen consequences but those consequences can only be seen by observing the altruism that is implicit in any act of re-distribution.

  Take a look at your latest tax filing form and identify how much money you paid through out the year on taxes. Then ask yourself what you would have bought with that money. Then take a trip to a store where that item is sold and find it on the store shelf. Now you can see with your own eyes what you have lost, what you do not have.

  Would it have been immoral for you to have that item? Is it a new Recreational Vehicle, a new Home Theater, hundreds of books you could have read or even a new Jacuzzi? Look at them in the store; spend a few minutes contemplating what you would be doing if you had that item in your possession right now; how much better your life would now be with that item. Then realize that this item has been taken from you by the government because it holds to the principle of altruism, that your goal in life is not to enjoy your earnings but to give them up for someone else. Feel better? Those people who take your money and spend it on something else don’t seem to have much concern for you and your needs – yet you are the one working to make their spending possible.

  If you want to get even more wistful, look at the latest report you received from the Social Security Administration detailing how much you have paid into that program. Depending on the number of years you’ve paid into the system, I’ll bet you could have bought a much nicer house; or perhaps several vacations over the years, maybe even a real pension that isn’t threatened by extinction. Remember that Social Security came from the government’s altruistic notion that you are better served by their taking your money now, having the government spend it on other programs and then taxing your children and grandchildren to take care of you.

  Now go to an online Real Estate website and look through some houses whose prices match the amount of money taken from you for your Social Security account; or look at some travel agency brochures and figure out how many places you could have visited with that money. Savor the pictures of the sites you were not able to visit. Now you can see what you have sacrificed. I might add, parenthetically, that the house you might have bought with this money could have been a retirement house, which means you would have retained all that money as equity. Now, as a pensioner, you will only get it back in small monthly payments that are barely enough to survive on. Again, ask yourself what good all this altruism is doing for you compared to whatever good you could have done for yourself with your own money.

  Some would say that the exercise I am recommending is a selfish way of looking at the issue and that you should instead consider the good that the government has done with your money. Rather, I would say, do some research on government waste and identify a program that has not been a boondoggle or that has not benefited a Congressman by setting up a phony business so he (through proxies) could pocket your money. Or learn about how much money was paid by government to friends or relatives of politicians and you’ll see the harm that has been done to you. You may also consider that the house you could have bought would not involve anything but your own sense of self and what you can accomplish for your life. If that is selfish, make the most of it.

  Hazlitt was a classical economist who taught his generation to look at all aspects of a government program, not just the beneficiaries but the harm that is done to the people who earned the money. Classical economists were not blind to the fact that the government was violating the individual and property rights of some people in order to give benefits to their voting blocks. Their arguments were critical of socialist ideas but they missed the truth that the government did not have the moral right to take the property of citizens. They considered themselves to be number-crunchers; like dutiful pragmatists, they only wanted to consider the actual results of socialist schemes and thought that questions of value were irrelevant to a discussion of economic effects. So they never (or seldom) brought up the impropriety (or evil) of the idea of re-distribution. Needless to say, armed with the moral argument for altruism and the imposition of guilt upon anyone who refused to sacrifice, the left won the day.

  Working hard in order to live a better life and educating yourself so you can earn more money, are both moral actions and anyone who decides to engage in such acts is a moral agent, a good person. To look at those actions and then to claim that there is no moral issue involved is a crude mistake, if you don’t mind my saying so. It is your moral right to better yourself and it is immoral of the government to violate your right to a better life. Well, look with your own eyes at the benefits you have been denied; the very benefits that have been forbidden to you; benefits that would enable you to have a better life and also to create more jobs so other people can live better lives. Isn’t the denial of your right to be moral a denial of morality?

  You did the work, did you not? You exerted your energy and your thinking in order to make this money, did you not? Was it not a moral decision to decide that you should be the beneficiary of your actions? Since morality is a normative study, how could someone say that living and making the decisions of living are not moral decisions? How can someone make mere statistics out of being moral?

  Why should anyone take your money from you? Who gave the government the authority to expropriate your property? Who gave them the moral authority, the moral right, to decide what to do with your money; money that would not have been created without your effort? The answer is that there is no such authority, no such right held by any man anywhere to decide what to do with your earnings and property.

  Laissez nous Faire "Leave us Alone"

  A major flaw in today’s government is that most technocrats think re-distribution actually works. The truth is that it leaves producers impoverished and defeated in the face of a world that has enacted retribution against them for their success. What the government refuses to acknowledge is that they still need the productive to keep working if they are to continue their plundering.

  Arguments that the rich are supported by the rest of society, that there is an implicit “social contract” that requires them to “give back” to society and that they should want to contribute to society by paying higher taxes while they are also denigrated as greedy cut throats who are taking advantage of society are nothing more than utter cruelty imposed upon ‘the rich’.

  All dictatorships are re-distribution schemes in one form or another. Fascism is the redistribution of wealth from productive property owners to the government and special interests that they designate. Socialism is a more advanced form of fascism where the government controls the major industries in order to accomplish the same goals. Welfare-statism is the focus of government on re-distributing income from the wealthy to the non-working poor. Communism is the re-distribution of property once owned by a propertied “class”, the taking of that property by a government elite (presumably) on behalf of the workers who are an exploited proxy for government elites.

  All these schemes result in the expropriation or theft of productive power by political power. All re-distribution equalizes results for all people regardless of effort. Once re-distribution takes hold, the ablest people will slow their effort because they know their product will be given to others. On the other hand, the less able people will also slow their effort because they know the government will re-distribute money from the rich to them.

  There is no incentive to excel in a re-distribution scheme which means that all effort is reduced and the system becomes nothing more than finger pointing and bickering about who is working hard enough to support the group. This is why no socialist system
ever works. Re-distribution is theft of property and energy and because so it reduces both the amount of property created and the effort required to produce it. It is a historically proven fact that whenever you establish re-distribution, your nation is on the path toward socialism.

  There is always going to be a certain level of fear when an individual takes a stand against government tyranny. He learns that fear should not be a reason to stop working for freedom. As I see it, the 2009 Tea Party movement was not about anger. It was not about fear of a police state. It was not about following what your friends think. It was about recognizing that only the productive citizen matters in society because he/she has the self-esteem necessary to be successful and to thrive. The productive individual is the most important citizen in our economy, not because he or she spends money from a printing press but because he or she makes things that can be traded; things that make life better for others who buy them. It is the productive citizen who is exploited in a mixed or socialist economy and when a society is fraught with exploitation, it is the productive citizen who stops working.

  If we are going to have a viable movement for individual rights, then it must be a philosophical movement. It must be a movement of ideas that recognizes the clear differences between the productive citizen and the looters in the government. The individual must educate himself on the reasons why we originally had a free society, on the genius of the principles elaborated in the Constitution and why they are the only hope for humanity. It means recognizing that the individual has a pivotal role in saving his country and defeating the enemies of freedom. It means that you stand for the Constitution and especially for capitalism as the expression of freedom, property and capital savings which are the pillars of an affluent and happy society. But it also means that you control the government; you limit its powers and whenever it becomes predatory and coercive, you refuse to participate in the looting and refuse to be looted.

  It is inconsistent for the individual to accept one form of re-distribution while being against only those forms that affect him directly. The re-distributive state always uses coercion. Put another way, today, for our government, coercion is the means of political action. Force against property owners is coercion that consists of

  Economic regulation of businesses that re-distributes market share to businesses favored by government

  Taxes that re-distribute money from the most productive citizens to the less productive

  Government ownership of businesses that re-distributes jobs, income and profits to bureaucrats and favored labor unions

  Welfare programs such as direct payments to “the poor” that re-distribute income from those better able to use property to those who can’t manage their money

  Government management of industries that provides jobs for government appointees and siphons profits to party campaign committees (Fannie Mae and Freddie Mac)

  Government regulations that created sub-prime mortgages which re-distribute loans from people with good credit ratings to people who are credit risks – this creates a massive shift of capital from productive banking activities to worthless packaged securities, shifting huge amounts from insurance companies and government to banks that had thought the securities were backed by the government - resulting in re-distribution of half of the value in the stock market and almost half of the value in 401Ks from American savers to short sellers

  TARP that gives taxpayer dollars to companies that don’t need it or that should go out of business

  Stimulus programs that re-distribute taxpayer income to government social engineering programs

  Tariffs that restrict international commerce and destroy jobs

  Onerous immigration regulations that keep freedom-loving people from being “legal” and reduces the pool of willing, needed and low-wage workers

  Laws that favor unions over employers, creating unnecessary dues-paying jobs, forcing employers to pay workers too much, destroying the work ethic and raising prices while also sending businesses overseas

  Government education of our children that indoctrinates them for collectivism before it teaches them viable job skills, and

  Any scheme that involves the use of tax money for anything other than police, courts and military defense.

  In order to have peace and security, arbitrariness must be removed from the actions of government. The government should never be allowed to interfere in the private business of citizens. Lawfulness means treating all citizens equally and without caprice; it means having a respect for property rights. A proper government recognizes that the principles of re-distribution and expropriation are violent acts and the government which engages in them does not deserve to govern. A bad law is no law at all among free people.

  A market society provides the framework for efficient commerce. As we saw in the chapter, “Has Capitalism Failed?”, capitalism is made up of a series of principles that are an outgrowth of individual rights. When property is left in the hands of those who are able to use it; all citizens benefit – rich and poor alike. The rich provide factories that produce life-serving products. They also provide jobs and better lives for the formerly poor who are given an opportunity to earn their livelihoods, to gain property, even to become rich themselves and to enjoy life. This has always been the outcome when a society is left free.

  The idea that capitalism exploits the poor and keeps them poor is a lie. Government coercion exploits both rich and poor and reduces them to bare subsistence. The poor today were not made poor by capitalism; they were made poor by government; by the principle of re-distribution which removed investment capital from the economy and diverted it to consumption rather than production. The impact on jobs and opportunity in the economy, over time, is palpable.

  The proper principle for a good society is that of “Laissez Faire” which means that the government should have a “hands off” restriction when it comes to regulating the lives of citizens. This means that government cannot be allowed to enact legislation that interferes in the lives and decisions of citizens.

  Robert “Turgot was the French Adam Smith. His Reflections on the Production and Distribution of Wealth,which predated Smith’s The Wealth of Nations by ten years, argues against government intervention in the economic sector. Turgot recognized the function of the division of labor, investigated how prices were determined, and analyzed the origins of economic growth. Like François Quesnay, Turgot was a leading Physiocrat who attempted to reform the most stifling of his government’s economic policies.

  “Probably Turgot’s most important contribution to economics was to point out that capital is necessary for economic growth, and that the only way to accumulate capital is for people not to consume all they produce. Most capital, he believed, was accumulated by landowners who saved the surplus product after paying the cost of materials and of labor. Turgot agreed with Quesnay’s notion of the circular flow of savings and investment, where savings in one period become investment in the next.

  “In Reflections, Turgot analyzed the interdependence of different rates of return and interest among different investments, noting that interest is determined by the supply and demand for capital. Although the rates of return on each investment may vary, he argued, in a competitive free-market economy with capital mobility, rates of return on all investments will tend toward equality:

  “As soon as the profits resulting from an employment of money, whatever it may be, increase or diminish, capitals turn in that direction or withdraw from other employments, or withdraw and turn towards other employments, and this necessarily alters in each of these employments, the relation between the capital and the annual product. (p. 87)

  “Turgot distinguished between a commodity’s market price—determined by supply and demand—and its “natural” price, the price it would tend to if industries were competitive and resources could be reallocated. An increase in demand, for example, could increase a good’s price, but if resources were free to enter that industry, the new supply would b
ring the price back down to its “natural” level. In this reasoning Turgot anticipated Adam Smith.

  “Turgot also predated Smith in recognizing the importance of the division of labor for an economy’s prosperity, and he was the first economist to recognize the law of diminishing marginal returns in agriculture. Predating the Marginalists by a century, he argued that “each increase [in an input] would be less and less productive.”

  “Turgot applied many of his laissez-faire economic beliefs during his thirteen-year appointment (1761–1774) as chief administrator for the Limoges district under Louis XV and as minister of finance, trade, and public works from 1774 to 1776 under newly anointed Louis XVI. In the latter job one of his first measures was to abolish all restrictions on sales of grain within France, a measure the Physiocrats had long advocated. He ended the government’s policy of conscripting labor to build and maintain roads, and replaced it with a more efficient tax in money. Milton Friedman has called the replacing of taxes in kind with taxes in money “one of the greatest advances in human freedom.” Turgot abolished the guild system left over from medieval times. The guild system, like occupational licensing today, prevented workers from entering certain occupations without permission. Turgot also argued against the regulation of interest rates.