The Free Market 20, no. 10 (October 2002)
What a sight: the legislative and executive branches of government celebrating as they impose new criminal codes against corporate fraud, each politician trying to outdo the other in their moral outrage against business. These are people who created and guard what is perhaps the greatest financial fraud of all time, the $2 trillion federal budget.
How interesting are these people who spare themselves indignation at their own unfathomable misdeeds while standing in judgment over the corporate sector based on the behavior of only a few. The New York Times revealed the trick in its news report: “Rarely has an issue caught such instant bipartisan fire in Washington. This one was fueled by nearly daily disclosures of corporate fraud, the plummeting stock market, and politicians’ concerns that voters would hold them responsible.”
Capitalism needs a conscience, said Bush, because otherwise it will be consumed by the “estructive greed” of businessmen, who would turn the market into a “jungle in which only the unscrupulous survive.” Alan Greenspan concurred, adding that when this greed is “infectious,” it destabilizes markets. “This cowboy capitalism must stop,” added Congresswoman Maxine Waters of California, further urging Bush and Greenspan to apply a regulatory “conscience” to quarantine “infectious greed.â€
Yet Bush didn’t go far enough in his speech, say the nation’s editorial pages. He should have gone “after the evils of capitalism” itself, said the San Francisco Chronicle, in the same way that Clinton went after racism even when it emanated from Sister Souljah.
After all, the corporate scandals demonstrate that the Seattle protestors (smashing store fronts, looting, and rioting against the market) were “prophetic,” writes lefty columnist Sean Gonsalves. He hopes their plans to hamper the market can proceed without “some F.A. Hayek or Milton Friedman fanatic drowning” them out.
Whereas the Republicans regulate, they say, in order to save the market from itself, the Democrats are more honest in openly opposing free markets. Either way, the result is the same: an unrelenting war on capitalism going on right now, in our time.
Regulating financial markets is only a start. Government spending is exploding. Protectionism is on the march. The police state is making huge inroads against the ability and responsibility of individuals and communities to provide for their own security and privacy.
If you think about it, this hysteria is astonishing, even terrifying. The market economy has created unfathomable prosperity and, decade by decade, for centuries and centuries, miraculous feats of innovation, production, distribution, and social coordination.
To the free market, we owe all material prosperity, all our leisure time, our health and longevity, our huge and growing population, nearly everything we call life itself. Capitalism and capitalism alone has rescued the human race from degrading poverty, rampant sickness, and early death.
In the absence of the capitalist economy, and all its underlying institutions, the world’s population would, over time, shrink to a fraction of its current size, in a holocaust of unimaginable scale, and whatever remained of the human race would be systematically reduced to subsistence, eating only what can be hunted or gathered.
And this is only to mention its economic benefits. Capitalism is also an expression of freedom. It is not so much a social system but the de facto result in a society where individual rights are respected, where businesses, families, and every form of association are permitted to flourish in the absence of coercion, theft, war, and aggression.
Capitalism protects the weak against the strong, granting choice and opportunity to the masses who once had no choice but to live in a state of dependency on the politically connected and their enforcers. The high value placed on women, children, the disabled, and the aged— unknown in the ancient world —owes so much to capitalism’s productivity and distribution of power.
Must we compare the record of capitalism with that of the state, which, looking at the sweep of this past century alone, has killed hundreds of millions of people in wars, famines, camps, and deliberate starvation campaigns? And the record of central planning of the type now being urged on American enterprise is perfectly abysmal.
Let the state attempt to eradicate anything—unemployment, poverty, drugs, business cycles, illiteracy, crime, terrorism—and it ends up creating more of it than would have been the case if the state had done nothing at all. As James Sheehan writes in this issue, a war on corporate fraud will have the same result.
The state has created nothing. The market has created everything. But let the stock market fall 20 percent in 18 months, and what happens? The leading intellectuals discover anew why the Bolshevik Revolution was a pretty good idea, even if the results weren’t what idealists might have hoped for. We are told that we must rethink the very foundations of civilization itself.
In every society, there is greed, fraud, and theft. But let these vices rear their head in a socialist society and the fact goes unnoticed or is attributed to the remnants of capitalist thinking. Let these vices appear in a largely free economy, and the cry goes out: take away the freedom of everyone to trade and put the state in charge!
The advocates of regulation may protest: we have no plan to eradicate the market economy and replace it with socialism but rather to improve it, make it transparent, make it honest, save it from itself.
Let’s leave aside the evidence that the economic downturn and even the accounting scandals are a consequence of government meddling with credit and regulation of industry and the financial markets. A more fundamental question for anyone who agrees with this position is: do you believe capitalism is soiled by the sins of individuals, in which case no social system measures up because they are all inhabited by sinful individuals; or do you believe that there is a sin at the very root of capitalism itself that can and must be suppressed by the state?
Of course we know the answer. After all, if we are only talking about the sins of individuals, the market has been brutal in its punishment. To the same extent that the credit-fueled bull market overlooked old-fashioned concerns like corporate revenue, the market is now on a witch hunt against any firm that prettified its books. And this is all to the good. Whether the scandals result from greed, error, or just bad forecasting, the markets do not care: bankruptcy has been the fate of many of them. No institution, certainly not government, has a greater incentive to fix itself than the market.
It seems absurd to have to say it again: the “legitimacy” of capitalism should not be in question. Were it not for the mysterious persistence of anticapitalist bias, it would be perfectly clear to everyone that the only institutions that should seriously be questioned today are the regulatory state and central banking, the first of which is inhibiting recovery and the second of which caused this mess in the first place.
In 1931, as the world sunk further into economic depression, Mises described the then-current intellectual culture: “The capitalistic economic system, that is the social system based on private ownership of the means of production, is rejected unanimously today by all political parties and governments. No similar agreement may be found with respect to what economic system should replace it in the future.”
After Mises wrote this, fascism tightened its grip in Italy, and the Third Reich began its program of extreme interventionism in Germany. The New Deal came to the US, and the entire episode ended in war and holocaust. How much has changed, really, in 71 years? The hatred of markets must be countered by defenses of freedom in every generation. Our lives depend on it.
Llewellyn H. Rockwell, Jr., is president of the Mises Institute (rockwell@mises.org).
