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The root of the problem

March 1, 2016

Capitalism is not the same thing as a free market.  In fact, capitalism would not survive five minutes in a free market.  Far from being the antithesis of socialism, it is a moderate, middle-of-the-road sort of economic system.  Where socialism calls for a completely managed economy, capitalism requires a partially-regulated economy, not an unregulated one.

The defining feature of capitalism is capital.  Money.  Currency.  Capitalism gained its competitive advantage through the invention of the joint stock company, which allowed ambitious merchants to pool their resources in order to engage in profitable ventures that were more costly than any of them could afford to undertake alone.  How was this pooling accomplished?  By means of currency.  Only when their wealth became reducible to a widely accepted standard of value could they employ it as capital for an enterprise.  Capitalism is entirely dependent upon the existence of stable currencies.  Remove the currencies, and capitalism disappears.

No stable currency, backed by a nation-state, can exist in a truly free market.  Currency itself, fiat or otherwise, is a restraint on the market; therefore, for a market to be free, it must have no central or public currency, nothing more than an individual bank or lender could supply.  For an example of the way in which the existence of money distorts the market, consider the banana trade.  Florida’s climate is perfectly suited to growing bananas, and it has an ample population, creating a substantial local demand.  Is banana cultivation common in Florida?  No.  Economic distortions caused by monetary trade have made it more efficient, in financial terms, for businesses to tear oil and metals out of the ground, send them halfway around the world, build them into airplanes and ships, send them even farther around the world, and then transport bananas several thousand miles from Ecuador to Florida.  The pursuit of fractional profits and theoretical efficiencies made possible by the monetary system makes this seem more reasonable to financiers than local cultivation.  Needless to say, it is not just unreasonable in non-monetary terms, but outright dangerous, as it accustoms the local population to depending on a source of supply that would be unreachable in time of crisis.

While currency is the most essential limitation on a market that is required in order for capitalism to exist, national borders are a close second in terms of importance.  These too distort the effects of supply and demand, blocking labor sources that would be otherwise available, or preventing a surplus from being profitably disposed of based on political superstitions about what may be sold to whom, or adding expense to trades by requiring various self-important officials to be paid off and placated in order to secure permission to do business.  The result is the restriction of competition, which in turn benefits capitalist enterprises, as they have the resources to force out their remaining rivals and establish dominance within a market sector.  Furthermore, with their greater capital and revenues, they have better access to national leaders, enabling them to secure legal and regulatory privileges denied to smaller competitors, or even semi-monopolies on a trade.

It is ironic that political and economic theories have so evolved that, as we enter the twenty-first century, capitalism is not only seen as inseparable from the free market, but also from national pride, personal freedom, and entrepreneurship.  The connection between capitalism and the nation is true enough, but those two are diametrically opposed to the existence of individual liberty.  And money is the root of the problem.

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