Free trade and free-market capitalism, which was embraced by the United States before it was most other places (some places still don’t have it and they suffer), has caused the standard of living to skyrocket and lifted billions of people out of poverty. This works. It always works. It never not works. And places that have “controlled” or “closed” economies do not work, and the people have a far lower standard of living.
Remember our talk yesterday of observing “what works and what does not work” and holding it above our ill-conceived beliefs. As the United States grew and we made lots of stuff. We were first to make much of the stuff because we were the first to embrace capitalism.
Free market capitalism is where we all have the opportunity to serve others by making better mousetraps or giving better service. When we solve problems for other people, these customers are free to buy what we have, adding their money for it in a voluntary exchange, because they feel their life will be better. If they don’t like what we have or the price we ask, they won’t buy.
This forces the producers to get better to win more customers and beat our competition. If we don’t have competition and force others to buy our stuff through regulation, coercion, or by shutting down competition, then our consumers have poor choices in the marketplace.
Often, when people criticize capitalism, they are criticizing crony capitalism. That’s when the big established business or industries lobby the government for protection or favors or subsidies. If Detroit goes to Washington and says “slap tariffs on imports so we can charge higher prices” (instead of becoming better and more efficient), that is crony capitalism. If unions lobby and negotiate for higher wages and pensions, it ties the hands of the company or government, preventing them from firing poor performers, reducing incentives of workers to get better, and raises costs for the company or government. In this scenario, the parasite often kills the host – unless the parasite moves to a host that can just raise taxes, borrow huge sums, or print money – which may work for a while, but not forever. I digress.
When an industry lobbies for protection, such as requiring all participants to be licensed (i.e. hairdressers, nail salons, plumbers,) or requiring them to get permission from some board or commission or meet over stringent requirements, it’s often a blend of trying to make things better, with a healthy dose of protectionism – making it harder for new people or companies to come in and compete with them by creating a barrier to entry. It also creates the boards, inspectors, and agencies that exert power over the regulated, which is a recipe for favors and bad behavior and getting in the way of an entrepreneur that has a better idea.
Let’s be clear. Crony capitalism is not free-market capitalism. Instead, it’s the evil child.
More on the next post…
There is nothing wrong with digressing when it includes such important topics as the ongoing viability of our great nation. I know this isn’t the main point of your blog this morning, but the national debt, annual deficits and insatiable appetite for more free stuff is antithetical to capitalism. It is good to take care of others and help them, but to confiscate the wealth that is being created to such a degree as it is today is unsustainable – IMHO. I’d love to hear your thoughts on that.
“ Free market capitalism is where we all have the opportunity to serve others by making better mousetraps or giving better service.”
Should be replaced with:
“Free market capitalism is where we all have the opportunity to pursue our own values by creating values for others through free, voluntary exchange.”
Hi Larry! I am really loving this mini-series you are doing! Keep it up, I can’t wait to hear what’s next.
I don’t disagree. however lets give credit where credit is due. The Dutch invented Capitalism… we just took their ideas when they came here (Wall Street was originally a Dutch settlement) and made them better.