Comment on "Prosperity"

A very good friend of mine, John McLaughlin, had a very extensive comment that wouldn't fit in the comment section, so I'm posting it.  Thanks, John:

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Rick,

My response to your latest blog was too long to publish on your page so here it is:

OK, a lot to comment on in your recent article about money…

Now I was in total agreement with what you said up until “Capitalism doesn't even really require money” when I had to chime in, as I am chiming in right now. Capitalism, by definition, or by my understanding of its intricate workings, requires capital. Capital is wealth, in some form, but most commonly a physical type of wealth which means assets such as found in the asset section of a balance sheet. This would exclude non-tangible things of value such as non-property type information, skills, love, etc. (otherwise communism would require capitalism to function in a physical world, and I would think we are trying to exclude that economic system here).

Barter is an attempt to make a good deal in order to exchange one asset for another of higher value, thus creating profit during the transaction. Often it is not a creation of profit that occurs though; it may just as easily be a reduction in a loss. Though it is a type of financial transaction, not all financial transactions require a capitalistic system to be performed, as those who toiled at jobs in the Soviet Union would attest. Anyone who trades labor for anything is a laborer, not a capitalist. If you were to trade someone else’s labor for something, and pay them less than you were paid for their labor, then capitalism has occurred.

An easy way for me to think of what capitalism is would be that it is the accumulation of temporarily unused assets. I have a collection of guitars. Let’s assume something untrue for a moment for my explanation to work. Let’s assume they are appreciating in value. Since I have more of them than I can play at one time, I have accumulated capital. My capital would be the ones that I am not playing at the moment. Perhaps I have band mates who are playing them and we are generating revenue with those instruments. In that case they would be defined as “working capital.” Let’s assume further than I pay each of them 17 cents per hour to play (I use this amount because this is exactly what my friend who is serving time in Florida on a felony conviction gets paid per hour. I think they wouldn’t pay at all except that it would be defined as slavery.) In this scenario I am a capitalist.

If instead of paying the guys 17 cents per hour we all split evenly the money we made from our gigs, then instead of being capitalists we would be socialists/communists, assuming the owner gave only one of us the money and that person divided it up. If the person receiving the money pocketed a portion (without divulging the true income to the band members) then divided the rest up, is that person a capitalist or a corrupt socialist? Therein lies the socialists’ definition of capitalism as corrupt.

The Star Trek concept is wonderful and it is derived from the assumption that “Game Theory” will eventually lead to an evolution in social and economic systems. Go to Wikipedia and look this one up ‘cause it is very informative. I first heard about it from a mathematician and close friend of mine who I shared a house with in Costa Rica. His most salient points had to do with Cooperative and Non-cooperative games as applied to societies. Star Trek requires the cooperative game as the operative one. Whether or not capitalism is an immoral version of socialism isn’t the real important point (immorality is a value judgment based on a pre-defined set of moral values, and since we are all individuals we will never agree 100% on what is right or wrong, except in those cases where we allow someone else to set our own standards for us: a topic for another long winded discussion). The important point is that mathematically a non-cooperative, competition based system is less efficient than a cooperative system.

It is the desire to get something for nothing or for far less than the typical required effort which defines greed. Greed is a failure of human nature, not of an economic system. Capitalism works better for the greedy, thus it is their preferred system. It will remain the dominant economic system until human nature changes and greed vanishes or becomes taboo. At that point some type of cooperative system will emerge (“will” shows my optimism, though I know it isn’t going to happen in my lifetime).

So why am I a libertarian (or quasi-libertarian) when I know that capitalism is flawed? It is because the larger the government is, and the more government employees, the more opportunities for corruption. Human nature being what it is I prefer the honest corruption of a capitalist to the dishonest corruption of socialism. Keep the assets and power away from the government and let society and the individual have more control. What I need from the government is protection of my property rights, ONLY. Let me defend myself if someone wants to kill me. That’s a pretty good incentive for me to not anger anyone. But what about murderous maniacs? We don’t live in a tribal society so I don’t have much concern about that. The occasional sociopath can’t be stopped from doing bad deeds any easier by the government than he would be stopped by a free society.

John