The Businessman and the Defense of Capitalism

Benjamin Rogge's collection of essays, Can Capitalism Survive?, is a great choice for any business person interested in a clear and subtly humorous presentation of the source and future of the world's greatest economic system.

How many books by economics professors begin with a paper presented at the Playboy Club in Lake Geneva, Wisconsin?

You can order your own copy from the Liberty Fund by clicking on the book's image.

Below, I offer the entire chapter entitled, "The Businessman and the Defense of Capitalism,," from the online version of the entire text, available thanks to Liberty Fund at the Online Library of Liberty.

"The Businessman and the Defense of Capitalism"

The question before this house is not whether the survival of capitalism is in doubt (this is admitted). The question for us, as it was for Lenin at an earlier time, is, What to do? His concern was how best to hasten the collapse of capitalism; our concern is how to postpone or ward off that collapse.

Frankly, I feel more at ease as the diagnostician than as the therapist. Cancer is still easier to identify than to cure and so is overexpanded government. Admittedly, diagnosis must usually precede therapy. After a lengthy diagnostic examination, the doctor looks up at the patient in some puzzlement and asks, “Have you had this before?” To this the patient replies, “Yes,” and the doctor says, “Well, you’ve got it again.” Quite obviously something more than this is needed. Proper therapy usually rests upon diagnosis of the specific problem, including some notion of how the patient got into his fix, whatever it might be.

I begin then with the question, “What is our problem?” In an earlier sentence, I identified the problem as that of overexpanded government. This is not really correct for the purposes of therapy. Overexpanded government is, in fact, but the most noticeable, objectively evident symptom of our problem. Our problem is in the form of a set of ideas whose implementation calls for the use of force, and government is that agency of society given a monopoly of the right to use force. For so long as those ideas are dominant in society, Behemoth will continue to grow. Nor is it useful for those who hold and espouse those ideas publicly to regret the associated growth in government and all its instrumentalities. Thus Senator Edward Kennedy has said recently that “one of the greatest dangers of government is bureaucracy,” and Senator Gaylord Nelson has said, “The federal bureaucracy is just an impossible monstrosity.” All well and good, but that growth in bureaucracy which they so rightly lament is the necessary and inevitable outcome of the ideas that these two (and others) have so well and so convincingly espoused.

What are these ideas that produce bureaus as larvae do moths? They can be expressed in various ways but their essence is to be found in the following related propositions:

(1) There exist individuals and groups in society who know not only what is best for them but what is best for others as well.

(2) This wisdom, when combined with the coercive power of the state, can be used to produce “the good society.” An accurate verbalization of these ideas is to be found in the statement of Newton Minnow, who said as chairman of the agency controlling television in this country, “What is wrong with the television industry in this country is that it is giving the viewers what they (the viewers) want.”

Compare this, for example, with these words from Adam Smith’s Wealth of Nations:

What is the species of domestic industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him. The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.94

Some of you may see in other idea-systems (such as economic determinism, relativism, envy, or what have you) the real source of our malignancy. God, my wife, my children, and all of you know that I am fallible, and perhaps I have chosen poorly in this case. What I am prepared to argue in a more strenuous way is my conviction that our struggle is at the level of ideas and not that of men or institutions. In the words of the celebrated John Maynard Keynes,

The ideas of economists and political philosophers both when they are right and when they are wrong, are more powerful than is generally understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.95

My first point then is that we are involved in a war of ideas. My second is that our target is not the masses but those men and women in society who deal in ideas and who shape the thinking of the masses. In the words of one of the great idea men of this century, the late Ludwig von Mises, “The masses, the hosts of common men, do not conceive any ideas, sound or unsound. They only choose between the ideologies developed by the intellectual leaders of mankind. But their choice is final and determines the course of events. If they prefer bad doctrines, nothing can prevent disaster.”96

My third point is that the ideas that finally count are those that relate to such fundamental questions as the nature of man, his purpose here on earth, and the moral character of human action. Arguments on the basis of economic efficiency are not alone capable of saving capitalism.

In the words of Joseph Schumpeter: “It is an error to believe that political attack (on capitalism) arises primarily from grievance and that it can be turned by justification. Political criticism cannot be met by rational argument.... Utilitarian reason is in any case weak as a prime mover of group action. In no case is it a match for the extra-rational determinants of conduct. The stock exchange is a poor substitute for the Holy Grail.”97

I have now enumerated my assumptions as to the nature of the task in which we are involved. I have argued that we are really involved in a struggle for the souls of men, that in that struggle it is ideas that count, and that the questions that are relevant are largely ethical in nature. Moreover, I have argued that our target is not the masses but those who live by the spoken and written word and who thus largely shape opinion in society.

If these assumptions be even roughly valid, what then is implied as to the role of the businessman in the fight to save capitalism? Before attempting an answer to that question, let me consider one that seems to precede it. Should the businessman as businessman even get involved in the struggle?

A number of factors would seem to indicate a negative answer to that question. To begin with, the businessman is not typically hired by the stockholders to carry on programs of social reforms; he is hired to add to the net worth of the company. Admittedly the net worth of the company may be adversely affected by particular acts of government, and the stockholders would surely approve of management action in opposition to those specific threats to profits—for so long as the potential gain exceeded the cost. At the same time, the company may often stand to gain through specific acts of government, including actions that work against the principles of capitalism. Is it a tariff against foreign steel producers? or an export subsidy that would increase the demand for the company’s products? or a government-enforced price or interest rate that adds to the profits of the company? How now the businessman? How can the president of the Mobil Oil Company be a convincing spokesman for free enterprise when his job seems to require that he oppose immediate decontrol of oil prices? How can the president of General Electric stand four-square for capitalism, yet support export subsidies for many of the products sold by his firm?

The fact is that there is hardly a businessman in this country who is not receiving favors from government in one way or another. The fact that this is true of most other elements in the society, including his critics in the ranks of the intellectuals, does not really change the nature of the businessman’s dilemma. His job may seem to require of him that he support specific government intervention in the economy of precisely the kind that, in the fight for men’s souls, he must condemn as general practice. Knowledge of Kant’s Categorical Imperative—do only that which you would be willing to see done by all—may get you an A in a college course in philosophy but may get you fired if you attempt to practice it as a businessman.

In other words, his very position may seem to require of the businessman that, in the struggle against government intervention, he be as often a part of the problem as of the solution. Moreover, how can he face those he is attempting to persuade to hold the capitalist faith when his own hands are so obviously unclean?

A second reason for a possible negative answer to the question of whether the businessman should get into the fight to save capitalism is that he is usually an amateur in the practice of the arts required by that struggle. The art required is not that of making or selling men’s suits or aircraft motors; the art is that of the dealer in abstract ideas, including and particularly systems of ethical judgment. Don’t misunderstand me; it is not that the businessman is unintelligent. I yield to no one in my respect for the great practical and theoretical intelligence required for effective entrepreneurship. It is simply that his intelligence is not applied, day in and day out, to the kinds of questions and considerations that are at the center of the argument. Not only is this not his turf, but he is usually not adept at the word games that go on on that turf.

What I am saying in essence is that here, as in most of life, the prizes (in this case, the souls of men) will go largely to those who are specialists in the arts involved. Admittedly there are some such (I could name you a dozen or so) from the ranks of the businessmen, but their skills in the arena of ideas and words are not a product of their business experience but of what they have done on their own initiative to improve their own understanding of the ideas involved here and their skills in communicating those ideas.

Where then does this leave us? Can the typical businessman do nothing but deplore the growth of government and go on about his task—which may have been made easier in some ways and more difficult in other ways by that self-same expansion of government involvement in economic life? I believe that the answer to that question is “no”—but I have some real sympathy with those businessmen (and this will be the great majority) who by their inaction say “yes.” After all, as Henry David Thoreau put it, “I came into this world, not chiefly to make this a good place to live in, but to live in it, be it good or bad.”98 Nor, as I have argued elsewhere, is it the administrator-businessman who has the most to lose from the passing of capitalism. Most of them will end up as administrators of socialist enterprises if and when full socialism arrives. It is the masses who have the most to lose—and who also have the least understanding of that fact.

But for those of you who are interested in doing something as business and professional people to counter the drift to collectivism, here is what I would suggest that might be both useful and consistent with the profit-oriented role for which you draw your pay.

(1) Work with your own staff members and employees. A work force that has some understanding of the marketplace and of where its own goodies come from may (and it is only a may) be a less troublesome, more effective work force over time. Any number of such programs, of varying effectiveness, are now in operation and available for general use.

(2) Work with the appropriate audiences in the communities where you have operations. Here again, there may be some payoff in terms of a better political environment in which to function. Again, there are a number of such programs now in operation.

Anything more? Frankly, I am not much impressed by the usefulness of business attempts to reach nationwide audiences with free-enterprise propaganda.

What else? The “else” is what the businessman shouldn’t do rather than what he should do. Moreover, it requires that the individuals involved must have done their own homework.

In fact, let me say right now that even the first two steps I have identified can do more harm than good if the people selecting and authorizing the operations have not themselves taken the time and effort to decide exactly what it is they believe and why. There is nothing about being a successful businessman (even a very successful businessman) that automatically endows one with an understanding of or an attachment to the principles of freedom—a statement I could support with a hundred examples, if time permitted. In fact, some of the great fortunes of America have been made by those who have learned how to use government intervention to their own advantage.

I cannot emphasize too strongly that the very first thing each of you who wishes to be a truly effective part of this struggle must do is your own homework. This requires reading, thinking and, yes, writing. I challenge each of you to go home tonight and put down in brief form your guiding principles in life and their applications in this area of the relationship of the individual to his government. You might also find it interesting to follow that with a list of those things which you and/or your company or group are now doing that are clear or possible violations of those principles.

Am I asking you to immediately cease all ideological wrongdoing? to cut yourself off completely from all areas of government involvement? Were you to do so, there would be literally no way you could eat or move about or keep warm or survive—such is the extent of government’s involvement in our lives. Each of you, in your professional role, must decide for yourself the limits of your compromise with the apparent demands of the moment.

Let me summarize:

(1) I am arguing that the first and indispensable step for any person who wishes to be a part of the effort to save capitalism is a determination of precisely what he believes and why. This will usually involve, not just putting down the already determined, but active study, reflection, and discussion. This is your intellectual and philosophical armor, and without it you are not only vulnerable but as likely to be a handicap as a help in the struggle.

(2) Try as best you can in this imperfect world to live by those principles.

(3) In using your professional role or your company in the struggle, do only those things that seem consistent with the long-run interests of those whose money you are using. Remember, not all stockholders will wish to have their money used in this or any other crusade.

(4) If you wish to play a personal role, apart from your company or professional connection, then you must dig deeper into what you believe and why; you must know even more fully the arguments and values of those with whom you disagree; you must continually seek to improve your skill in expressing your ideas and in demonstrating the errors in contrary positions. My guess is that only a few of you will carry through to this level of participation—but it is not a numbers game anyway; it is a game in which it is the quality of the few that finally counts.

I spoke earlier of the things that you should not do but didn’t specify them. What are they?

(a) Don’t make a pest of yourself by trying to force your free-enterprise ideas down the throat of every passerby—whether in your home, your office, or at the cocktail party. In the words of Leonard Read, founder and president of the Foundation for Economic Education, who has taught me everything I know on this and many other questions, “Go only where called—but do your damnedest to get good enough to be called.”

(b) You may not be able to avoid involvement in departures from principle, but at least don’t lend your voice or your money to the support of those departures. You may have to pay into social security or submit to a system of wage-price controls but you don’t have to join committees or groups who support such programs.

In a hundred different ways and forms, the American businessman is aiding and abetting the enemy by continuing his involvement in organizations and programs which are as likely to propose as to oppose extensions of government. Don’t let this reciprocity game you people of substance play with each other or your desire to be a good guy lead you to give your money and/or your name (and hence, by implication, your support) to activities or organizations that are working the other side of the freedom street.

To return to Thoreau:

It is not a man’s duty, as a matter of course, to devote himself to the eradication of any, even the most enormous wrong; he may still properly have other concerns to engage him; but it is his duty, at least, to wash his hands of it, and, if he gives it no longer thought, not to give it practically his support.99

Forgive me if I seem to blaspheme, but even your church and your college should be examined with some care before you bless them with your dollars and your support. You don’t have to prove you are a nice, broad-minded guy by providing the devil with the coal for your own burning.

Again to be specific, you needn’t insist that every professor on your old campus think exactly as you do, but I believe it completely appropriate for you to find out if the general idea system that you believe to be best is well and ably represented in the ranks of the faculty.

I close this sermon with these words: Avoid anger, recrimination, and personal attack. Those with whom you are angry are probably (taken by and large) at least as filled with or as empty of virtue as you. Moreover, they are the very ones you might wish later to welcome as your allies.

Avoid panic and despair; be of good cheer. If you’re working in freedom’s vineyard to the best of your ability, the rest is in the hands of a higher authority anyway. If you can see no humor in what’s going on (and even at times in your own behavior) you’ll soon lose that sense of balance so important to effective and reasoned thought and action.

Finally, take comfort in the thought that the cause of freedom can never be lost, precisely because it can never be won. Given man’s nature, freedom will always be in jeopardy and the only question that need concern each of us is if and how well we took our stand in its defense during that short period of time when we were potentially a part of the struggle.

[94. ]Adam Smith, The Wealth of Nations (New York: Modern Library, 1937), p. 423.

[95. ]John Maynard Keynes, The General Theory of Employment, Interest, and Money (New York: Harcourt Brace, 1936), p. 383.

[96. ]Ludwig von Mises, Human Action (Chicago: Henry Regnery Co., 1963), p. 864.

[97. ]Joseph A. Schumpeter, Capitalism, Socialism, and Democracy, 3rd ed. (New York: Harper & Row, 1962), pp. 144, 137.

[98. ]Henry David Thoreau, “Civil Disobedience,” in Walden and Other Writings (New York: Modern Library), p. 645.

[99. ]Ibid., p. 642.

The copyright to this edition, in both print and electronic forms, is held by Liberty Fund, Inc. Used with permision under the conditions of fair use. This material is put online to further the educational goals of Liberty Fund, Inc. Unless otherwise stated in the Copyright Information section above, this material may be used freely for educational and academic purposes. It may not be used in any way for profit.

The Candlemaker's Petition

This is an audio version of Bastiat's famous satire, "The Candlemaker's Petition," where he pleads for the French government to protect France's domestic candle industry from unfair, low-cost foreign competition: the sun.

Bastiat's petition was published in 1845, and it is still effective as a brief but damning exposé of the self-serving logic of protectionism.

An excerpt...

" We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us so mercilessly we suspect he is being stirred up against us by perfidious Albion (excellent diplomacy nowadays!), particularly because he has for that haughty island a respect that he does not show for us."

You can print and read your own copy here.

You can down download a free audio version from FreeAudio.org.

Risk, Freedom, and Choice

"You can't just wave a magic wand and eliminate risk for free, which is what people want to do. If you restrict people from taking jobs, if you restrict the foods that they eat, if you place limits on how much they can weigh, all of these things will reduce their welfare as they perceive it. The proper role of government is to give people enough information so they can make reasonable decisions, and after that step aside and allow them to make their own choices."

W. Kip Viscusi of the Vanderbilt University Law School, interviewed in the Federal Reserve Bank of Richmond's publication Region Focus (Spring 2007), cited in The Cato Journal (Vol. 27, No. 3, Fall 2008).

March 2008 Monthly Meeting

Please be our guest at the next Bastiat Society monthly meeting to be held on Wednesday, March 5th.

Our distinguished speaker for the evening is Steve Lonegan, whose topic for the evening will be:

"The Dangers of the Entitlement State."

Date: Wednesday, March 5th
Location: Imaging Arts, 175 King Street, Charleston, SC
Time: 5 pm reception, 6 pm speaker
RSVP: Megan Rock

About the Speaker...

As the former Mayor of Bogota New Jersey, Steve Longegan successfully brought a "Taxpayers First" philosophy to his constituents. Steve fought against numerous proposed tax hikes and kept all municipal spending below inflation for the entire twelve years of his term in the face of reduced suburban aid and state mandates. Steve joined Americans for Prosperity in 2006 where he continues to fight for taxpayers. Americans for Prosperity is an organization dedicated to educating citizens about economic policy and engage citizens in the name of limited government and free markets. In 2007, Lonegan authored "Putting Taxpayers First," where he focuses on the entitlement state created by liberal Democrats and "moderate" Republicans.

Lonegan currently narrates the "Taxpayer Minute" on radio stations in New York, New Jersey and Philadelphia and he hosts a weekly radio show on WIBG in Ocean City. "New Jersey's Mayor" has been a guest on numerous TV news programs including Your World with Neil Cavuto, Fox & Friends, Good Day New York, The Big Idea with Donny Deutsch, Glenn Beck, Hannity & Colmes, Scarborough Country and New Jersey Power and Politics. He is a featured columnist on PoliticsNJ.com and news-papers throughout New Jersey.

Business, One Night Stands, and Polygamy

I gave the following presentation at the February 2008 monthly meeting of the Bastiat Society in Charleston, SC.

I did not enter the world of business via the usual paths. My family was not in business. My father was an artist and my mother worked for the state. As an undergraduate, I studied the humanities and sciences. At the risk of sounding pointy-headed, I came to business via my own search for the meaning of life. Little did I suspect that I would find it in earning a living.

My business career started in a philosophy class. A professor gave me subscription cards to reason and the now-defunct Inquiry magazines. Soon, I was voluntarily reading Adam Smith, Murray Rothbard, Milton Friedman, Friedrich Hayek, Ludwig von Mises, Frédéric Bastiat and others in the European liberal tradition, when I should have been studying something else.

Philosophy led me to economics, and economics led me to the belief that free market capitalism is the most productive form of large-scale social organization known. Through the pursuit of self-interest under the rule of law and an evolved moral code, entrepreneurs, business owners and executives create great wealth for themselves and for their societies.

But capitalism is more than just the creation of great wealth. Capitalism is morality in action, the morality of free and responsible individuals. Wealth without morality is theft. Morality without wealth is poverty. Only capitalism offers humans the opportunity to build a social order where they can be moral and they do not have to be poor.

When I announced my intention to go into business to my family and friends, along with some stunned silences, I got two memorable warnings. First a successful technology salesman told me I would never make it. He said, “You are too honest.”

This startled me, but I reasoned if there were that many crooks in business, honesty must be an unexploited marketing advantage. As Mark Twain advised, “When in doubt, tell the truth. It will confound your enemies and astound your friends.”

The second warning came from someone already in the same field. He told me getting clients was no different than picking up girls in bars. Now I was really worried. I was never any good at that. With slightly less confidence but a great deal of optimism, I went into business.

There I discovered the truth. First, honesty is a valuable business skill, not a liability. Honesty builds better marriages, families, friendships and business relationships. Human nature craves honesty and trust, and it quickly punishes those who fail to deliver them. It appears we operate based on an internal rule of, “Trust someone until they give you a reason not to.”

Second, I discovered that building business relationships is not at all like picking up women in bars (lucky me). It is not about lots of short term, unstable, one-sided relationships. It is about lots of long term, stable, mutually satisfying relationships. It is really like a successful marriage. Or, to be more dramatic, it is like successful polygamy.

The keys to success in business are the same as in any relationship: honesty and reliability. How then, did business get such a bad reputation? Why didn’t I know this before entering business and discovering it for myself? Why didn’t the technology salesman know it? Why didn’t the guy who treated his clients like one night stands know it? How could something so important be so misunderstood?

The answer lies in human nature, where the first rule is “survive.” All that we are, both the good and the bad, is there because at some point in the history of our species, it proved useful in the struggle for survival. Violence, lying, cheating, fear of strangers, envy, love, trust, peaceful competition, and cooperation are an ancient set of behavioral tools. We are all stuck with them, whether we want them or not.

However, through our culture and civilization, we have been steadily expanding the social and physical space where peaceful competition and cooperation work better than violence, fraud, and cheating. This doesn’t mean those awful behaviors aren’t there or that we’re not still tempted to use them – witness the warnings I received. Those behaviors just aren’t as effective in the struggle for human survival as peaceful competition, trust, and cooperation.

Consider, for example, the specific behavior of violence. Many people feel the world is becoming more violent. But the psychologist Stephen Pinker of Harvard has demonstrated that the world is undeniably becoming less violent, making violence more conspicuous when it does occur. In a world where lots of people die violently, another violent death is not news. In a world where few people die violently, it is. It grabs our attention and skews our perception.

The same logic applies to the business world. In a world where most commercial transactions conclude honestly, peacefully, and to mutual benefit, those that do not are news, and the bigger the breach of trust, the bigger the news. Think Enron. Think WorldCom. Psychologists call this an anchoring bias. When one event acquires far more significance than it should, it creates the impression that the exception is the rule. To borrow the title one of Bastiat’s essays, “What is Seen and What is Unseen,” we see the business scandal, but we do not see a much larger market that works extremely well.

The danger in anchoring bias – something we are all subject to as humans – is that people will act on the basis of biased perception, not on the basis of facts. The undeniable fact is that for-profit businesses employ, feed, clothe, house, transport, heal and entertain more people than all the charity in the world, and they do these things faster and better. Yet, consider the following news stories which paint an entirely different picture.

In the February, 2008 edition of Scientific American, Michael Shermer began an article on the evolutionary basis of the psychology of corporate environments with a loaded question, “Do All Companies Have to be Evil?”

In the 2006 movie, Superman Returns, Superman’s archenemy Lex Luthor is no longer the mad scientist he was in the old comic books. The director, Bryan Singer, said he wanted Luthor to be more bitter, more angry, and more evil. So he made the character a businessman. Luthor swindles an elderly, terminally ill woman. Then he tries to create his own continent (he must have been a developer). Kevin Spacey, the actor who played the role of Luthor, said he based his character on Enron’s Ken Lay.

According to a 2005 study of network television by the Media Research Center, corporate executives are twenty-one times more likely to commit a kidnapping or murder than mobsters, five times more likely than terrorists, and four times more likely than gang members.

With news and entertainment like that, it is easy to see why the exception becomes the norm in expectations, why headlines anchor the perception that all business is evil. Unless we can change this perception, we run the risk of a social and political war on the system of exchange that makes the modern world possible. Certainly, we all agree that any business guilty of theft, fraud, or violence should be punished. But an indiscriminate attack on all business is nothing less than an attack on civilization itself.

In Europe, the attack has already begun. Stefan Theil, the European economics editor for Newsweek, describes in detail what he calls “Europe’s Philosophy of Failure.” In a 2005 poll, just 36 percent of French citizens said they supported the free-enterprise system. In Germany, support for socialist ideals is running at an all-time-high. The most important French history text describes capitalism as “brutal,” “savage,” “neo-liberal,” and – the most damning word of all – “American.” In Germany, students are told India and China are successful because they have large, state-owned enterprises and have protectionist trade policies. Sub-Saharan Africa is held up as a case-study on what a free-market does to people.

The expansion of peaceful competition, trust, and cooperation under a private property rights system has been long and powerful. But it is not inevitable. What must be done to ensure its continued success?

First and foremost, we should proudly proclaim that a profitable business, honestly run, is one of the great achievements of mankind. The world is getting better and it is free enterprise that is doing it. Each mutually beneficial business transaction increases the overall well-being of the world. It reinforces trust, and it is trust that makes commercial civilization possible. Trust is the essential lubricant for commercial activity. Cheating, lying, stealing, violence and fraud are sand in the system.

On the other hand, cheating, lying, stealing, envy, violence and fraud are tools of the trade for criminals and politicians. We should be very skeptical about relying on politics and public policy to improve the world. As social tools, they are tempting because of their immediacy and power. The truth is that nothing is easier to change than public policy. All it takes is another election. The United States tax code is a depressing example of what happens when we rely on public policy to improve public policy. True reform must come from the culture, from the ground up (individual decision making), not from the top down (political decision making). If top down political reform worked as well as its faithful followers believed, Iraq would be a peaceful democracy today.

There is another danger in relying on public policy to improve the world. It comes from those unscrupulous souls among us who are eager to use the power of government to crush their competition and loot their customers. These businesses are often successful, but they are not market successes. They are political successes. They rely on government-sanctioned violence to collect the profits they cannot earn in the marketplace.

The best way to keep business out of government and government out of business is not to limit the size and influence of business. It is to limit the size and influence of government. A large and powerful government – even one with good intentions – is simply too tempting a prize to lay in front of that part of human nature that would rather steal wealth than earn it. Our Founding Fathers knew this well. That is why they drafted a Constitution: not so much to free humans as to bind the government’s ability to meddle in the affairs of free men.

Third, we in business should watch our language. We should never use phrases like “giving back” to describe the money or time we give away. It implies we took something that wasn’t ours. Phrases like this make us sound like a generous gangster or a Congressman running for re-election, not a valuable member of society.

Fourth, we all should learn enough to defend capitalism ourselves. This doesn’t mean we have to become PhDs. We can take small steps to improve our awareness of the ideas that make freedom work so well. For example, in Charleston, SC, we created the Bastiat Society to educate business people on how their efforts to make a profit also make the world a better place. We named the Society after the great 19th Century French economist and statesman Frédéric Bastiat, who was a master at explaining complex ideas in language anyone could understand – even maids and merchants. Our motto is, “Those who work in freedom should know how freedom works.” In addition to monthly meetings, the Bastiat Society maintains this blog where we try to have something new and thought-provoking every day. I encourage individuals interested in these ideals to consider starting their own discussion group, or consider partnering with the Basitat Society.

The Bastiat Society has worked with Liberty Fund, a private, educational foundation that promotes wide-ranging discussions centered on the topic of a society of free and responsible individuals, directing conferences for business people, addressing issues such as eminent domain, business ethics, and corporate social responsibility.

There are also opportunities for business people to engage in the self-study of economics. The Mises Institute offers an online course in Austrian economics. The Austrian School included Ludwig von Mises and Friedrich Hayek and played an important role in the development of free market theories. Austrian Economics influenced programs at the University of Chicago and the University of Virginia, and influenced Nobel-prize winning economists like Milton Friedman and James Buchanan. Friederich Hayek’s The Road to Serfdom is available as an audio book in most medium-sized public libraries. Many Austrian lectures and videos are available on YouTube. The Foundation for Economic Education a number of educational opportunities, including the periodical The Freeman: Ideas on Liberty.

Fifth, as wealth creators, business people have many opportunities to influence the intellectual and cultural opinion about business for generations to come. When philanthropy is carefully planned, the time and money successful business people donate can sway public opinion far more than the profit they earn. Business people should make sure they are not handing their money to their ideological enemies in the university, in public policy, or in the popular culture. They can avoid this by consulting with the Philanthropy Roundtable before making major gifts. They can use legal documents to enforce their intentions and prevent “mission drift.” They can also set up their own foundations with documents that clearly express donor intent, rather than making an unrestricted contribution to existing foundations or institutions.

None of what I have said should be taken to mean that business makes saints out of sinners. The crooked timber of humanity cannot be straightened out by an economic system. We will always struggle with inappropriate behaviors that are the vestiges of our beginning. However, capitalism is the economic system that is most consistent with our human nature as it really is, not as we wish it could be. Free market capitalism makes heroes out of ordinary men and women, one satisfied customer at a time.

The Laffer Curve, Part II

Dan Mitchell continues his lucid explanation of the idea that government can actually increase tax revenue by cutting tax rates.

Yes Virginia, there is a Santa Claus: tax cuts can pay for themselves.

View Part I here.

Sowell on "Economic Facts and Fallacies"

Thomas Sowell of Stanford University's Hoover Institution talks with EconTalk host Russ Roberts about the ideas in his new book, Economic Facts and Fallacies. He discusses the misleading nature of measured income inequality, CEO pay, why nations grow or stay poor, the role of intellectuals and experts in designing public policy, and immigration.

Listen to it here.

The Moral Foundations of Capitalism

We often hear that business has few friends in the universities. This may be true...for now. But there are promising signs of change, such as the Institute for the Study of Capitalism at Clemson University. The following video is from its 2007 conference on the Moral Foundations of Capitalism.

A Bad Retirement Plan

What an irony that the Supreme Court just decided that workers can sue for losses in their 401(k). According to the Wall Street Journal, "recent cases have included allegations that employers offered participants unwise investment choices, or allowed investment managers to charge participants unreasonably high fees."

In 1960, the Supreme Court ruled that individuals have no claim on any of the money they pay into the Social Security system. They cannot claim that money as a property right. They cannot sue the government for mismanagement. They cannot sue for excessive administrative fees or unwise investment choices. In fact, they have no absolute right to any benefit at all.

The Supreme Court said, "To engraft upon the Social Security system a concept of 'accrued property rights' would deprive it of the flexibility and boldness in adjustment to ever-changing conditions which it demands."

Or, in the words of P.J. O'Rourke, " Unfortunate people who scrutinize the Social Security Trust Fund discover two facts: It's not there. It's not theirs."

Yet another case of a double standard of justice: a strict one for the private sector, and a lax one for the public sector.

Skin on the Wall

Mark Cuban, American entrepreneur and billionaire, makes a point about the media and ambitious government prosecutors. From an interview in GQ...

"...look at the way the media handled Barry Bonds. They never pay attention to the fact that no one in government ever gets fired for trying to put a skin on the wall. They’ll only get promoted—other than Nifong from Duke.

Nifong was an extreme case.

It wasn’t an extreme case. He was just stupid enough to drive it in the media with his own name. You don’t know the guys behind the Barry Bonds investigation. You don’t know that someone’s not saying, “If I can only get Barry Bonds, I’ll be the stud in this government office.” Barry Bonds can’t sue the person who’s trying to make him a poster child. To spend however many years of government money to prove something that happened four years ago—what does it accomplish for the American people?"

Dangerous Tool, Deadly Master

When people allow the government to make up the rules, regulations and taxes that govern the most personal aspects of individual behavior, from diet to sex, it should come as no surprise that personal decisions suddenly become political flashpoints.

The result is toxic to civil society. While my neighbor and I may differ in our diet, we can peacefully co-exist, until we attempt to deny one another a choice. Then, we are no longer neighbors. We are political combatants locked in a struggle only one of us can win.

The great strength of business is that it labors to give people a choice. The great strength of government is that it can demand obedience. A healthy society encourages the former, and keeps the latter in reserve, knowing it to be a dangerous tool and deadly master.

A Business Education

Kathy Gornik, President of Thiel Audio, points out the paradox of a business school asking for political money to teach young people the principles of business. Her letter appeared in Business Lexington.

Kathy is also the first recipient of the Bastiat in Business Award.

Dear Editor,

I'm writing in response to Tom Martin's article about the University of Kentucky seeking state funding for a new high-tech home for the Gatton College of Business and Economics. I hope that the irony of this request is not lost on readers of Business Lexington.

Businesses create wealth by economic means, the ONLY way wealth is created. Businesses voluntarily produce good and services for which customers voluntarily trade their money. However, it is possible to OBTAIN wealth through political means, i.e., stealing it.

For the sake of the students they are teaching, one would hope that the Gatton College of Business, of all colleges within a university system, would raise its money through economic means, both as an educational example and moral reflection of what free enterprise, markets, and businesses are all about. By using tax dollars extracted from productive workers and business owners in Kentucky to build their new high tech home, Gatton College contradicts the very nature and meaning of what is being taught. Every dollar taken from the private sector impedes the ability of businesses to grow, prosper, and hire more workers. Why would the Gatton College of Business want to participate in such a system?

What an inspirational and educational statement it would make if Gatton would raise its own money through a voluntary system of private donations or some other means that put into practice what I can only assume they are teaching about business, entrepreneurship, economics, and wealth and job creation based on the American founding principles of private property, individual rights, and limited government. Business owners and their employees are the antithesis of a government handout.

Sincerely,

Kathy Gornik

A Seat at the Table

The most appalling thing about the capital city of any government is the number of groups that feel morally entitled to more of someone else's money. Every year, these groups line up to beg and whine before the legislature. When that doesn't work, they make threats.

If the spectacle didn't involve real money, it might make good theater -- of the absurd. Wikipedia says that kind of theater is defined by "broad comedy, often similar to Vaudeville, mixed with horrific or tragic images; characters caught in hopeless situations forced to do repetitive or meaningless actions; dialogue full of clichés, wordplay, and nonsense; plots that are cyclical or absurdly expansive."

That is a pretty good description of a legislative hearing. Nothing can drive a rational human being to existential despair and suicide faster than listening to a few days of testimony and Q&A before a sub-committee. No one in their right mind goes there voluntarily. Anyone who shows up every day is suspect.

The problem is we just don't have enough money to give all those groups all the money they want. Even if we took ALL the money from the people who have it, and gave it ALL to those people who want it, we'd still come up short. We just can't eat the rich. There aren't enough of them. Or there are too many people who want a seat at the all-you-can-eat bar-b-que. Either way, the only way to handle too many claims and not enough money is to develop a set of priorities.

The worst way to do this would be to divide up the money equally and give everyone the same amount, regardless of merit. Even a sub-committee wouldn't do that. Not usually. Well, maybe sometimes. But it is still a bad idea.

A better idea is to ask the question, "Where can we get the biggest bang for the buck?" Of course, every group shouts back "Right here!" Want to improve the condition of the poor, the balance of trade, stop global warming, end racism, promote dental hygiene, fight terrorism, and end obesity? Amazing! Everyone who wants your money can tie what they do to what you want. Now that is creative capitalism (Bill Gates take note)!

That is why I tend to be skeptical about any group that insists its project is the most important one on the agenda. Even when that group is the modern equivalent of Egyptian priests asking the Pharaoh for enough money to ensure the flooding of the Nile: a bunch of scientists.

Too Many Convictions

In the December 2007 edition of Imprimis, the historian Paul Johnson writes about what great statesmen have to teach us. Johnson is the author of more than forty books, including Modern Times, A History of the American People, and A History of the Jews.

"The best kind of democratic leader has just a few -- perhaps three or four -- central principles to which he is passionately attached and will not sacrifice under any circumstances. This was true, for instance, of Truman, of Konrad Adenauer of Germany, Alcide de Gasperi of Italy, and Robert Schuman of France -- all the outstanding men who did most to raise Europe from the ashes of the Second World War and who built up the West as a bulwark against Soviet advance and a repository of a free civilization. It was also true of Ronald Reagan and Margaret Thatcher, the two outstanding leaders of the next generation who carried on the work. I am not impressed by leaders who have definite views on everything. History teaches it is a mistake to have too many convictions, held with equal certitude and tenacity. They crowd each other out. A great leader is someone who can distinguish between the essential and the peripheral -- between what must be done and what is merely desirable. Mrs. Thatcher really had only three musts: uphold the rule of law at home and abroad; keep government activities to the minimum, and so taxes low; encourage individuals to do as much as they can, as well as they can."

The Independent Women's Forum

I'm adding a new link to the Independent Women's Forum. The Forum describes itself as:

"The Independent Women's Forum is a non-partisan, 501(c)(3) research and educational institution. Founded in 1992, IWF focuses on issues of concern to women, men, and families. Our mission is to rebuild civil society by advancing economic liberty, personal responsibility, and political freedom. IWF builds support for a greater respect for limited government, equality under the law, property rights, free markets, strong families, and a powerful and effective national defense and foreign policy. IWF is home to some of the nation's most influential scholars—women who are committed to promoting and defending economic opportunity and political freedom."

When Profits Aren't Greed

The New York Sun is having way too much fun pointing out the hypocrisy of the New York Times. Like most newspapers, the Times is in trouble. The family that controls the Times would like it to make more money. So where do they turn for help? Harvard? Yale? Nope...

When a director of an oil company tries to make profits for his shareholders, he is accused of "greed." When a Wal-Mart director tries to make profits for her shareholders, she is lectured about being "tight-fisted." But when The New York Times Company's shareholders start getting restless for profits, where does Arthur Sulzberger Jr. turn to for "exceptional individuals"? Why, to veterans of the boards of Wal-Mart and Chevron. When it is the Times that is hoping to make the profits, somehow it isn't "greed" but, as Mr. Sulzberger put it, "skills, expertise and leadership qualities." We couldn't have put it better ourselves.

Europe's Philosophy of Failure

Government schools in France and Germany are training the next generation to fear and despise a group of their own citizens.

This group is accused of blood sucking greed, violence, and an attack on the existing national order.

Sounds familiar, doesn't it? All that's missing is an anti-Semitic slur. However, in this case, the villains are not the Jews. The villains are business owners, corporate executives, and entrepreneurs. In short, anyone that doesn't have a government job.

In a truly excellent article in Foreign Policy, Stefan Theil, Newsweek's European economics editor reports on his research of American, French, and German textbooks. His conclusion: Europe is sowing the seeds of its own economic distress.

Consistently and across the board, French and German students are told that capitalism is savage, unhealthy and immoral. A French text goes so far as to use the ultimate French condemnation. It calls capitalism "American." The same French text warns students that globalization kills people.

German textbooks teach students that the internet dehumanizes people. German students are also taught India and China are big successes because they have powerful governments running the show, and that free markets made Sub-Saharan Africa the mess it is today.

The list of offenses goes on and on. Private companies destroy jobs; government policy creates them. Employers exploit their employees; government protects them. Capitalism creates market chaos. Governments establish order. Profit is a zero-sum game.

Of course, this is all hogwash. But there is a new generation rising in Europe that has heard nothing but hogwash.

The CEO of the Sofa

I've been re-reading P.J. O'Rourke's 2001 book, The CEO of the Sofa. It is classic O'Rourk: smart and laugh-out-loud funny. Some excerpts:

"Anthropology is just travel writing about places that don't have room service. Sociology is journalism without news, and Psychology is peeking into your sister's diary after your parents have sent her to rehab."

"Fascism sought to bring people together, to heal the fragmentation of society, to remedy the alienation that the individual feels in the ruthlessly competitive atmosphere of the free market. But, at the same time, fascism wanted to preserve and improve all the material benefits of industrialism and trade. So far it sounds -- as I've pointed out before -- like a New Democrats campaign platform. But instead of recounting votes in Palm Beach County, Mussolini, Hitler, Franco, and Tojo believed they could accomplish their aims with mindless patriotism, genocide, and secret police. It didn't work."

"Species extinction is sad, in a way, but it's nonetheless pleasant to go get the paper in the morning without being bothered by pterodactyls. And a mastodon would wreck the lawn."

"The world has been collapsing for more than two thousand years. Either the world was once a very wonderful place with a long way to fall (of which there is no historical evidence) or people my age are full of crap."

"The Founding Fathers, in their wisdom, devised a method by which our republic can take one hundred of its most prominent numskulls and keep them out of the private sector, where they might do actual harm."

"Women are successful in the business world because the business world was created by men. Men are babies. And women are ... good with kids."

The Average Wage

We often hear that it's getting harder and harder to make ends meet. That, however, is simply not true. Many of the things we buy are getting less expensive, largely due to the competitive pressure of international trade.

Michael Cox and Richard Alm discuss this in an op-ed in the New York Times. An excerpt:

At the average wage, a VCR fell from 365 hours in 1972 to a mere two hours today. A cellphone dropped from 456 hours in 1984 to four hours. A personal computer, jazzed up with thousands of times the computing power of the 1984 I.B.M., declined from 435 hours to 25 hours. Even cars are taking a smaller toll on our bank accounts: in the past decade, the work-time price of a mid-size Ford sedan declined by 6 percent.

There are several reasons that the costs of goods have dropped so drastically, but perhaps the biggest is increased international trade. Imports lower prices directly. Cheaper inputs cut domestic companies’ costs. International competition forces producers everywhere to become more efficient and hold down prices. Nations do what they do best and trade for the rest.

Thus there is a certain perversity to suggestions that the proper reaction to a potential recession is to enact protectionist measures. While foreign competition may have eroded some American workers’ incomes, looking at consumption broadens our perspective. Simply put, the poor are less poor. Globalization extends and deepens a capitalist system that has for generations been lifting American living standards — for high-income households, of course, but for low-income ones as well.

The Laffer Curve

Dan Mitchell of the Cato Institute explains why money-hungry politicians should love tax cuts. The right kind of tax cuts can actually increase tax revenue.

Facts and Fallacies

Mindful of the sage advice, "It isn't what you don't know that hurts you. It's what you know for sure that just isn't so," Thomas Sowell has published a new book, Economics Facts and Fallacies.

Among the fallacies he discusses are:

1. Government programs are needed to create “affordable housing.” (Actually, government intervention is what has made housing so unaffordable in places where even hovels are expensive.)

2. Employer discrimination is the main reason for differences in income between women and men. (Tons of evidence point in other directions.)

3. College tuition is going up so fast because of rising costs. (Only if you call voluntary increases in spending “rising costs.”)

4. Foreign aid helps poor countries become more prosperous. (Only if you don’t look at the evidence.)

5. The rich are getting richer and the poor are getting poorer. (It all depends on whether you are talking about flesh and blood human beings or statistical brackets.)

The Mind of the Market

From reasontv...

Michael Shermer is the founding publisher of Skeptic magazine, a columnist for Scientific American, and most recently the author of The Mind of the Market: Compassionate Apes, Competitive Humans, and Other Tales from Evolutionary Economics.

Shermer's new book--which The Washington Post says "has earned the right to our attention"--seeks to explain "how evolution shaped the modern economy and why people are so irrational about money."

Shermer, who lives and works in Southern California and is the author of previous books such as Why Darwin Matters and The Borderlands of Science, sat down with reason.tv to talk about the intersection between evolution and capitalism, trust in a globalized world, his "Google theory of peace," and his ideological journey toward libertarianism.

And why it's extremely tough to convince left-wingers who believe in evolution that capitalism is a good thing and conservatives who believe in free markets that evolution is real.

Discuss this story online at reason's Hit & Run blog.

The Best Books for Business

One of the best books for quickly understanding the way the world works is the classic text by Henry Hazlitt: Economics in One Lesson.

Among many other valuable insights, he retells Bastiat's fallacy of the broken window.

Someone breaks a shopkeeper's window, creating work for the window repairman. The window repair creates a visible job.

But before the window was broken, the shopkeeper had a window and enough money to buy something else, perhaps a new pair of shoes or a new suit of clothes. Now he must spend that money on repairing his window, i.e. that which is seen.

What is not seen is the loss of business suffered by the man who makes shoes or the tailor who makes clothes. This is the kind of loss that is often overlooked by politicians who are hell-bent to create jobs.

Buy your own copy of Economics in One Lesson with a forward by Steve Forbes from the Mises Institute for only $14.

We Found the Middle Class!

The Lowly and Despised

For most of human history, the economy was built to satisfy an elite few: kings, courtiers, priests and generals.

Ours is the first economy built to satisfy everyone. This still shocks many of the elite. That's why they make fun of people who live in trailers, own guns and go to church.

The consumer economy serves the humble and lowly as well as the powerful and wise. The apostle Paul didn't know anything about a consumer economy, but he understood the revolutionary potential among those the world had used and ridiculed.

1 Cor 1:26-31

Consider your own calling, brothers and sisters.
Not many of you were wise by human standards,
not many were powerful,
not many were of noble birth.
Rather, God chose the foolish of the world to shame the wise,
and God chose the weak of the world to shame the strong,
and God chose the lowly and despised of the world,
those who count for nothing,
to reduce to nothing those who are something,
so that no human being might boast before God.

The Morality of Capitalism

Rev. Robert A. Sirico is interviewed by James Freeman, assistant editor of the Wall Street Journal’s editorial page, about markets and morality and about the Acton Institute’s Call of the Entrepreneur documentary.

A New French Hero

NPR reports that Jerome Kerviel, the rogue trader who lost Société Générale $7 billion, has become a folk hero of the French left for exposing the weaknesses of "Anglo-Saxon capitalism."

A few more revolutionary successes like this and France -- unofficial motto: "One Nation Above God" -- won't have to worry about capitalism any more. It will join North Korea -- official motto: "Powerful and Prosperous Nation" -- at the vanguard of human progress.

Unlimited Limited Liability

Consider the growing list of human activities associated with the words "zero tolerance." We have zero tolerance for weapons in school, drunk driving, underage drinking, and pesticides in our food.

We have zero tolerance for medical mistakes, sexual harassment, drugs in school, hate speech and carbon dioxide emissions. We have zero tolerance for indoor smoke.

And of course, we have zero tolerance for product liability.

With all this "zero tolerance" running around, why don't we try a zero tolerance policy on public policy itself? As the situation currently stands, the governing class is free to exaggerate, obfuscate, and lie about the effects of its policies from behind a shield of almost unlimited limited liability. They can tinker with the lives and property of millions. They have the power to compel, coerce and destroy anyone who disagrees with them. They and their predecessors around the world have ruined, wounded and killed more people than shoddy products, tobacco, alcohol and privately owned firearms, combined.

If the governing class had a marketing motto, it would be "Millions and Millions Sacrificed."

The true believers in the power of governance will argue that we should not focus on the mistakes of governance, but on its successes, all the while working to repair and remove mistakes from the system. In other words, they are willing to live with a high tolerance for failure, harm and death when the government is involved. Everybody else gets zero.

In ancient Athens, a lawmaker was held responsible for the consequences of any legislation he proposed. He could be fined, imprisoned, or even executed for sponsoring a bad law. Today, bad laws and regulations flow out of Washington with impunity. It's a dream come true for every ambitious person who wants power without responsibility. It's a threat the rest of us have grudgingly learned to tolerate.

Compete, Don't Cheat

In Scientific American, Michael Shermer asks the question, "Do all companies have to be evil?"

The question reflects the popular belief that companies are evil. Shermer makes the point that they can be very good so long as their organizational principles encourage the virtue of trust.

This reminds me of Coach Lou Holtz's advice to a man in the business of financial advice. Coach Holtz told him the customer only wants to know three things:

1. Can I trust you?
2. Do you care about me?
3. Are you committed to excellence?

Trust is the essential lubricant of commercial activity. Cheating, lying, stealing, violence and fraud are sand in the system.

Stephen Moore at February Meeting

Stephen Moore, member of the editorial board and senior economics writer for The Wall Street Journal will be our speaker at the next monthly meeting of the Bastiat Society.

Mr. Moore focuses on economic issues, including budget, tax and monetary policy. A frequent contributor to the Journal over the years, Stephen has also written for Human Events, Reader's Digest, Chief Executive Magazine, and many other publications.

He was the founder and first president of the Club for Growth, which raises money for political candidates who favor free-market economic policies. Just prior to joining the Journal, Stephen was president of a new organization, the Free Enterprise Fund (founded by Bastiat Society board member Mallory Factor).

He has appeared on many national TV shows, including CNN's Inside Politics, Crossfire, and Moneyline, NBC's Nightly News, Fox Morning News, and The McLaughlin Group. Stephen has served as a senior economist on the Congressional Joint Economic Committee, as a budget expert for the Heritage Foundation, and as a senior economics fellow at the Cato Institute, where he published dozens of studies on federal and state tax and budget policy.

He was research director for President Reagan's Commission on Privatization. He is the author of five books, including (with the late Julian Simon) "It's Getting Better All The Time: 100 Greatest Trends of the Past 100 Years" and most recently "Bullish on Bush: How the Ownership Society Is Making America Richer." He graduated from the University of Illinois and holds a masters degree in economics from George Mason University.

DATE: Thursday, February 7th

TIME: 5pm Hors d'oeuvres & 6pm Presentation

LOCATION: Imaging Arts Gallery, 175 King Street, Charleston

Please RSVP here: megan.rock@imagingarts.com

900 Pages in Under 6 Minutes

On The Daily Show, P.J. O'Rourke summarizes 900 pages of Adam Smith's magnum opus, The Wealth of Nations, first published in 1776.

His unique insight? The market decentralizes our badness.

Free Trade and a Misty Moon

Popular entertainment is filled with heroes, superheroes, and messiahs, none of whom are in business.

Outside of the novels of Ayn Rand, the closest characterization I've been able to find of the businessman as hero is in the character of a smuggler -- a not wholly inappropriate place.

The lines below come from the only popular song to celebrate free trade. They are sung by Irish smugglers in the musical Eileen. The title of the song is "Free Trade and a Misty Moon."

While Heaven sends us a misty moon,
Sure, why not take it as a gracious boon?
If France and Spain have somethin' we can use,
Faith, 'twould be ungracious to refuse!
So, free of tax or duty
We'll fetch ashore our booty!
Let's drink to the mist o'er the moon!

How the World Has Changed

For the generation in college today, 1994 is ancient history. This clever spoof of the television series 24 reveals just how much has changed between then and now.

Notice that the differences are all in consumer products: pagers, telephones, Internet access, personal computers and printers.

Payday Lending

Is payday lending a scourge or consumer benefit? The debate is often tilted in favor of those who believe it is a scourge. However, here is an NPR broadcast that does a nice job of giving both sides of the story.

Listen to it here.

A Freer, Richer World

At a time when every politician in the United States promises to do something to get the economy moving, John Stossel reminds us what really works...

This week's newspapers are full of predictions of an impending recession, and maybe they're right. But the great untold story is the good news: the worldwide boom in economic growth.

"I think one of the best kept secrets is that the world is in the midst of an economic boom, and it is largely driven by increases in economic freedom," says economics professor James Gwartney, director of the Stavros Center for the Advancement of Free Enterprise and Economic Education at Florida State University. "The world has become more free, and, at the same time, growth is soaring to new highs. During 1995 to 2005, the growth rate of per capita GDP in 99 countries for which data are available has increased to 2.2 percent, nearly twice the rate of recent decades. Since 2000, the annual growth rate of per capita GDP has been even more rapid, 3.2 percent."

As the world gets freer, says Gwartney, it gets richer.

More on "Creative Capitalism"

From Cafe Hayek by Don Boudreaux of George Mason University...

Bill Gates's call, in Davos, for "creative capitalism" is getting much press. Here's a letter on this matter that I sent yesterday to the Wall Street Journal:

To the Editor:

I'm delighted that Bill Gates is reading the important work of the late Julian Simon ("Gates Calls for Kinder Capitalism," January 24). When he digests Mr. Simon's central idea - that human beings in market economies are "the ultimate resource" - Mr. Gates might then recognize that there is no need to change capitalism so that it becomes "creative." Capitalism has always been creative. It is inherently creative.

Everything from apparently mundane pencils and stocked supermarket shelves to obviously complex skyscrapers and personal computers are astonishingly complex artifacts created by human ingenuity unleashed, as only capitalism can unleash it, to experiment, cooperate, and compete. No philanthropist, no government body or commission, no Great Leader - no matter how "creative" or "kind" - has done one-trillionth as much to give dignity and comfort to ordinary people as has capitalism. It doesn't need re-inventing or to be made kinder; it just needs to be spread more widely around the world

Creative Capitalism

In today's Wall Street Journal, Bill Gates previews his speech on "creative capitalism" that he will give at Davos later today.

An excerpt and video...

Free enterprise has been good to Bill Gates. But later today, the Microsoft Corp. chairman will call for a revision of capitalism.

In a speech at the World Economic Forum in Davos, Switzerland, the software tycoon plans to call for a "creative capitalism" that uses market forces to address poor-country needs that he feels are being ignored.

Outgoing Microsoft Chairman Bill Gates talks to The Journal's Rob Guth about his concept of creative capitalism. (Jan. 23, 2008) "We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well," Mr. Gates will tell world leaders at the forum, according to a copy of the speech seen by The Wall Street Journal.



If I were at Davos and had a chance to chat with Bill, here is what I would ask...

By calling for "creative capitalism," aren't you implying that we now practice something else? Perhaps "shock capitalism" a la Naomi Klein, or "indifferent capitalism?"

If "creative capitalism" is not something entirely new, but really a wider application of the moral order of market forces, why discredit it by pretending it's something new?

In the 1960s, policy makers and intellectuals thought they could lift poor countries out of poverty by building big infrastructure and industrial projects like airports, steel mills and highways. Most of these failed. It was an expensive lesson. While technology is certainly important, have you considered the possibility that proposing technology as the first step to reduce poverty may be making the same mistake? Are there other issues that should be addressed first?

You've read Hernando de Soto's book The Mystery of Capital, yet you don't mention legitimizing property rights of the poor as the first step towards prosperity. Do you disagree?

You say the rate of improvement for the poor is very slow, while the rate of improvement for the well-to-do is very fast. However, from 1970 to 2000, 250 million people in China moved above the poverty line. During the same period in India, 140 million people escaped poverty. The rapid success at reducing poverty in these countries didn't come from technology, foreign aid, charity or philanthropy. It came from reducing internal controls that prevented an economy ordered by market forces rather than one ordered by mandarins and technocrats. Have you considered this in your philanthropic planning?

In the developed world, businesses that serve the poor are often vilified as greedy exploiters, e.g., pawn shops, payday lenders, check cashing services, and auto-title lenders. Why do you believe for-profit businesses operating in poor countries would be viewed favorably, when those kinds of businesses are often denounced as "predatory" when they are successful? Isn't the real problem a gross misunderstanding of the morality of exchange, not the lack of market opportunities for that exchange?

Waging the War of Ideas

One of the first free market think tanks in the world was founded by a businessman, Sir Antony Fisher. He founded the Institute of Economic Affairs in London in 1955.

In this audio file about his book Waging the War of Ideas John Blundell discusses the work, objectives and history of the Institute of Economic Affairs. The file can be downloaded and played on a computer or mp3 player. The the full text and summary of John Blundell's monograph, Waging the War of Ideas can also be downloaded.

Listen to it here.

It That Must Not be Named

Some historical perspective and humor from Bruce Yandle of Clemson University. So much for talking up the economy...

Funny thing about the R word ("Recession"). There was a time during the Carter Administration when fear of recession was more than the president could stand. Apparently, he believed a recession could be avoided if none of his officials used the word in testimony or discussion with the press. In a word, they were muzzled.

Bruce MacEwen, creator and host of Adam Smith, esq, (www.bmacewen.com) tells how Mr. Carter’s regulatory czar and head of the Civil Aeronautics Board Alfred Kahn dealt with the muzzle. Not one to be cornered when it came to talking, Fred Kahn was called to the Hill to testify about the economic outlook.

When asked point blank about the prospects for a recession, Fred, somewhat floored, remembered his instructions and noted that he could not speak directly to the question, but that he did expect there might be a “banana.” Banana then became the Washington code word for recession. Bruce MacEwen tells us that when the banana industry complained, Fred Kahn changed the code word to “cumquat.” The cumquat lobby was less effective in avoiding the hit.

Poor Stimuli

Political plans to stimulate the economy are frequently more popular than effective. Russ Roberts, an economics professor at George Mason University, offers commentary on NPR that puts campaign promises in proper perspective.

An excerpt:

The money has to come from somewhere. If you raise taxes to fund the plan, the people who are taxed are poorer and they'll spend less. If you borrow money to fund the plan, the people who buy the government bonds have less money to spend and that offsets the stimulus. It's like taking a bucket of water from the deep end of a pool and dumping it into the shallow end. Funny thing—the water in the shallow end doesn't get any deeper.

A Good Clean Business

From Bruce Yandle of Clemson University, a story of entrepreneurial success that really cleaned up the human race.

"Mr. Kohler’s Tub"
I can’t end this special report without putting in a word for entrepreneurs who make life so much better for all us. This one is John Michael Kohler, an Austrian immigrant who settled in Sheboygan, Wisconsin, in 1873.

Had a bath lately? This was quite a luxury for most of recorded history. In fact, it is said that only one percent of U.S. homes had indoor baths with running water in 1921. The Saturday scrub, if it came that often, was in a steel tub in front of the fire, or in the back yard for men.

All this had begun to change in 1883 when John Michael Kohler decided to add a coat of enamel to one of the cast iron horse troughs he made in his foundry. He then added claw feet to make the first enameled bathtub. With that, things began to get better on the home front. Well they at least got cleaner. Never satisfied and always creative, Mr. Kohler also invented the bubbler drinking fountain.

A visit to Kohler, Wisconsin, a model city and home of the company, sounds like a promising idea. Among the sites recommended is a museum that houses a full array of Kohler’s early plumbing products. The line up along one wall is called the Great Wall of China.

Evolutionary Economics, Part IV

Part IV of Michael Shermer's lecture on Evolutionary Economics...

Evolutionary Economics, Part III

Part III of Michael Shermer's lecture...

Evolutionary Economics, Part II

Part II of Michael Shermer's lecture...

Evolutionary Economics, Part I

A lecture by Michael Shermer at "The Amazing Meeting 5" on how the "invisible hand" of the market is to economics as "natural selection" is to evolution... or rather how they're actually the same.

Worse Than the Mob

Business is evil...

According to a study by the Media Research Center that examined 129 episodes of 12 major network shows during the May and November sweeps of 2005, corporate folks were 21 times more likely to commit a kidnapping or murder than mobsters, five times more likely than terrorists, and four times more likely than gang members. And if that's not enough of a black eye for the business community, Kevin Spacey -- one of a growing roster of Oscar winners who aren't ashamed of a comic book adaptation (and why should they be?) -- says he based his Superman Returns' villain, Lex Luthor, on Enron's Kenneth Lay.

Money and Capitalism

This well-done video makes an important distinction between the capitalism of free men and women, and "fraud ridden, government entwined" business.

Change We Can Believe In

Listening to all the candidates prattle on about "change," I am reminded of St. Augustine's prayer for chastity: "Lord, make me chaste. But not just yet."

I don't think these people really want change. If they did, they would be capitalists. Capitalists appreciate the kind of change that is most likely to bring the greatest benefits to the largest number of people. Capitalists understand how change comes from men who have the freedom to act, experiment, and make mistakes. If change is to be something more than a new set of rules administered by a new set of rulers, if it is going to truly be the discovery of something new and better, it must begin with confidence in a social order based on human freedom.

I don't hear any of these candidates talking about freedom as the first step to change. Their vision of change is dogmatic. It is not the change of free men. That would be ungovernable. What they offer is a change of masters.

The capitalist wants freedom first, and accepts change as a consequence. He knows that the only unacceptable outcome of freedom is the loss of freedom itself.

Treat Business Like Bees

Jonah Goldberg, author of Liberal Fascism: The Secret History of the American Left from Mussolini to the Politics of Meaning, explains how government efforts to "fight" business end up blurring the distinction between the two.

From National Review:

What progressives, then and now, always fail to recognize is that the more government meddles in business, the more business meddles in government. The left thinks the rational response to the bear hug that business has around government is to hug back twice as hard. The real answer is to let go, let companies sink or swim. Don’t render them “too big to fail” because they provide health care or other benefits.

All of these people who want to “crack down” on big business are simply inviting companies into the tent, giving them incentives to buy politicians, votes and policies. Yes, end the subsidies. But also stop trying to use business as government by proxy. Of course, some minimal standards of conduct need to be enforced. But beyond that, it’s better to treat business like bees. If you don’t bother them, they won’t bother you.

What is the Bastiat Society?

Periodically, for the benefit of new visitors to this site, I like to explain the purpose of the Bastiat Society.

To put it simply, the Bastiat Society exists to remind business people that their idea of what is good must include, first and foremost, the noble work they do everyday, creating wealth, creating jobs, and solving the problems of other people.

A Positive Reading of American History

From an Economist review of Morton Keller's new book on American history, an encouraging conclusion for a populace suffering from a Presidential campaign that has gone on too long and with too little civility...

His conclusion is that: “This is still a Republic worth keeping, with a polity capable of doing the job.” Despite the waste and folly of its bureaucracy, despite the slander and polarisation of its election campaigns, America's system of government is extraordinarily robust and flexible. Though everyone grumbles that politicians are out of touch, both Republicans and Democrats in fact respond swiftly to shifts in the national mood. Mr Keller reckons that the biggest challenge facing the two parties is that young voters no longer inherit their parents' political loyalties. In 1984 voters under 30 were the most Republican age group; in 2004 they were the most Democratic. This is surely good: each generation should decide for itself.

Milton Friedman Smacks Naomi Klein!

The Five Sorry Rules of Lateness

From Michael Munger, Chair of Political Science at Duke University, something every business person can appreciate: The Five Sorry Rules of Lateness.

Rule 1. The busier the person, the less likely he or she is to be late.

Rule 2. The closer my office is to the room, the later I arrive at the meeting.

Rule 3. The first will be last.

Rule 4. If you've never missed a plane, you spend too much time in airports.

Rule 5. If you have never been early, it's no accident.

Late people are different. If you are always late, then that's bias, not error. How do you tell if this is you? It's not hard. Do you consistently walk into meetings breathing heavily, and say, "Oh, sorry I'm late. You wouldn't believe what happened this time. I had to [insert improbable events here]."

Of course, you were also late last time, for other improbable reasons. Since the reasons are different, you think there is no pattern. But there is. Oh, there is. Late-niks always time it so that if (a) there is no traffic, (b) they catch every light green, (c) they find a parking space right at the front door of the building, and (d) they left the meeting folder on top of their desk in plain view, then they would be just 10 seconds late.

But "something goes wrong:" traffic, red lights, no parking, folder under pile of papers. Now,these are all actually predictable parts of life, not hundred year floods. If you are always late, though for different reasons, then those reasons are no reasons at all.

So, rules 4 and 5 work together: If you have never been late, you are wasting your time. If you have never been early, you are wasting other peoples' time.

Unions

Colbert interviews "blue collar brute" Richard Freeman of Harvard University on unions, capitalists, chickens and eggs.

The Way Science Works

Modern science likes to think of itself as far above the superstition, intuition, and lucky hunches of the hoi polloi.

The reality is, scientists are fully paid-up members of the human race. They do, in fact, think like the rest of us. As Michael Shermer points out in Scientific American, many scientific discoveries begin with something like the thought, "Gee, that's weird." The resulting path of trial and error discovery, intuition, hunches and (yes) even superstition, in hindsight, gives the scientific process far more empirical certainty than it really had.

Shermer's article reminded me of F. A. Hayek's 1952 book, The Counter Revolution of Science, wherein he made the case that intellectuals were guilty of a terrible mistake when they tried to use what they thought was the methodology of science to explain complex social phenomenon like markets.

This "abuse of reason" was dangerous because, among other things, there was a considerable difference between the methods scientists said they used and the ones they actually used. In effect, Hayek argued, scientific method was developed ex post, not ex ante.

As Hayek wrote," The methods which scientists or men fascinated by the natural sciences have so often tried to force upon the social sciences were not always necessarily those which the scientists in fact followed in their own field, but rather those which they believed that they employed. This is not necessarily the same thing. The scientist reflecting and theorizing about this procedure is not always a reliable guide."

The Human Costs of Border Control

Peruvian economist Hernando de Soto regularly makes the point that most people in developing countries don't want to live in the shadows of the legal economy; they are forced to do so by high social barriers that prevent them from acquiring legal title to property.

The same argument is true when discussing the topic of immigration. Very few immigrants want to be illegal. The vast majority would immigrate legally, if only the social barriers to legal immigration weren't so high.

Simply put, when the law does not accommodate human nature, human nature will seek accommodation outside the law.

Immigrants are not driven by the desire to cheat and steal something from another country. They are driven by the universal human desire to improve one's situation and the situation of one's family.

The solution to the problem of illegal immigration does not lie in making immigration more difficult or time-consuming. Such an effort will, in fact, only make illegal immigration more expensive and more dangerous. Consider this table from the Economist. Ten years ago, crossing the border from Mexico to Arizona cost about $350. Now, it costs as much as $3,000.

The solution to illegal immigration is to make it easier to immigrate legally. That is the only humane response to poor people from around the world who are willing to risk everything to build a better life in a new country.

Kathy Gornik on Free Trade

Kathy Gornik, president of co-founder, discusses the importance of international trade and how it has help grow Thiel Audio.

Thiel Audio on Why Lou Dobbs is Wrong

Kathy Gornik, president and co-founder of Thiel Audio, discusses why Lou Dobbs is wrong on trade.

Kathy is also the recipient of the first Bastiat Award in Business. The Bastiat Award in Business is given to a business person who demonstrates his or her commitment to the social and moral benefits of individual liberty and free trade.