Failure of capitalism or consequence of communism?
© 12.11.08 By Peter Gustavson
 Hugo Chavez, president of Venezuela, recently said that in times of economic difficulty, U.S. President Bush the capitalist becomes a fellow communist. However, Chavez was only half right. The truth is that our nation's economic problems are the result of the long term application of communistic policy (with the long term full support of President Bush), not capitalistic excess.
 In his book An Inquiry into the Nature And Causes of the Wealth of Nations Adam Smith made it clear that capitalism is characterized by directed self-interest and personal responsibility. The truth is that the economy of the United States of America is not capitalistic. Instead, beginning in the years just after the war between the states, this nation abandoned true capitalism. Certainly there are those individual entrepreneurs who assume the risk of their ventures but for the most part this nation is characterized by a socialistic program of transferring risk to others.
For instance the big three automakers are not capitalistic but limited liability corporations which seek to remove the risk of failure from the (so-called), company leadership and pass it on to the American public. This has been the case long before the bail out of Chrysler Corporation more than 20 years ago. This anti-capitalist business structure prevalent in our nation today separates ownership from responsibility and the role of management from the ownership of property as well.1 In our current business climate executives control large corporations and the owners (or stockholders), of the corporation have little or no control over day-to-day business affairs. Thus, we have managers who seek to feather their own nests with little interest in the consequences of their behavior. True free enterprise requires the assumption of risk and when the management of a company realizes little exposure to danger for their behavior then we are no longer dealing with a capitalistic business organization.
In a free society responsibility is assumed by both the individual and the corporation. In a truly free society it is the duty of each entrepreneur to protect themselves through prudent management of their enterprise rather than depend upon government intervention on their behalf. Yet, when that risk is placed upon the shoulders of society, irresponsibility is encouraged because those who should be responsible for the proper management of the company end up assuming no risk whatsoever.
This is most evident when the government steps in to bail-out a failing concern or openly nationalizes the company in an effort to "protect" the economy. Again, as Adam Smith maintained, joint stock companies prove dangerous to the public interest because efficiency is the result of every man attending to his own self-interest: such attention cannot be successfully delegated. This is not to day that there is no place for the financing of a business venture through the sale of shares in the company. However, this parceling out of ownership cannot at the same time be a shirking of responsibility. Those who share in the profits must likewise share in the risks. It is anti-capitalistic to force disinterested parties to pick up the pieces when a failed concern meets with bankruptcy. But this is exactly what happens when a limited liability company goes under and the proprietor(s), walks away from the mess with his personal fortune intact. The creditors, suppliers, and other parties with financial interests in the firm cannot pursue the owner(s) to collect their losses; their must recoup what they can from the empty shell of the corporation.
Use of the limited liability business model brings a corresponding willingness to accumulate debt. The reason for this should be clear; the property and income of those involved are not at risk. Thus, the willingness to assume large amounts of debt in an effort to quickly grow the company. In an inflationary environment (such as has been the rule in this nation for many generations), this makes a certain sense. In other words, it makes sense to borrow huge amounts of money in order to expand production when one knows that they will be able to pay back the loans with devalued dollars. However, this line of reasoning has its weak points. A willingness to transfer risk to others breeds a certain recklessness. Once again this is evidenced in the mismanagement of the Big Three auto companies. Without any regard for the future, American automakers agreed to outlandish contractual obligations with the UAW. Even in the best of times those agreements represented a huge burden. Therefore at the first sign of deflation the Big Three began to experience difficulty in maintaining a profit (this would include deflation not in the "strict" sense alone but also in the sense of any downturn in automobile sales even excluding a "traditional" deflationary climate where prices are falling on goods and services across the board).
Rather then turn to a more blatant form of socialism such as a bail out or a nationalization of business the only effective answer to our current financial crisis is a commitment to true capitalism. Unfortunately this would require a restructuring of the entire financial apparatus in this nation.
In the first place it would mean a return to a solid money system. This would require the abolition of a central bank. Instead of fiat money our economy must be built upon a monetary system that is based on true value. In other words, we must have gold and silver backed money. One of the basic tenets of communism is the control of a central banking system which allows for inflation.2 With this kind of system the central governing power has unlimited opportunity to exercise control over the citizenry. The entire nation is held hostage by the central bank because the money system depends upon government edict rather than the intrinsic value of the monetary unit. In this arrangement the centrally controlled banks are used to maintain control of private enterprise as well. The federal government determines what is legal tender and thereby controls funding for any business. Because this money steadily declines in value businesses are encouraged to borrow recklessly (further cementing the power of the central bank), in the sure knowledge that repayment will be made with dollars with reduced buying power.
The second thing that must take place in order to turn our economy around is the reintroduction of risk to the world of big business. Business owners must be held responsible for their actions and not allowed avoid the consequences of poor judgement by handing the bill to the taxpayer. Multibillion dollar corporations are allowed to run upon the rocks and then turn to the Fed for apparently unlimited financial assistance while those with the most to lose are left holding the bag.
The answer to our economic woes is not more socialism but less. Those who claim that we have arrived at this stage because of unregulated capitalism could not be more wrong. We have arrived at this point because of an over regulated economy and a desire to side-step personal and corporate responsibility. We have arrived at this critical juncture because of the communistic belief that a central power is capable of eliminating risk for private citizens and business concerns alike.
It is foolish to think that American business is generally conservative. It is equally wooden-headed to think that the Republican Party represents conservative business concerns. Both major parties are joined at the hip to big business and both are thoroughly socialistic in their worldview. The fact of the matter is that modern business (worldwide), is built upon inflationary policies. No doubt, poor management has brought us to this current crisis; poor management that has been encouraged by government meddling -- socialistic intervention -- and not capitalism run amuck. Modern business depends upon inflationary politics in order to survive. Feeling protected from liability for their actions, they eagerly assume debt and with equal eagerness call for an unlimited money supply. The current clamor for government funds is proof enough that big business in this nation is not capitalistic but socialistic in character.
The cure for our current economic disease requires a bitter pill. Indeed, I have no hope for an easy cure. It seems that the only way this mess will be fixed is through the death of the patient. Until the disease produces a corpse we will witness one socialistic "remedy" after another. Our best hope is a quick demise of the patient and a corresponding collapse of the central governing authority. When that happens, perhaps true entrepreneurship and capitalism will once again arise from the ashes.
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