Monday, October 31, 2011

The Way to Capitalistic Glory Is Not Through a College Education

By Bill Bonner

When the financial crisis of 2008 hit, we saw how state-managed capitalism works. Favored companies are allowed to make as much money as they can. But they are protected from going broke.

Certain firms are deemed “too big to fail,” by virtue of the key role they play in the economy, or at least by the role they play in a politician’s plans for re-election or future employment. But state-managed capitalism is very different from the real thing. It is capitalism in a degenerate form.

Real capitalism progresses in fits and starts, described by Josef Schumpeter as “creative destruction.” It is like a jungle…not like a zoo. It cannot be managed. You cannot take out the predators or feed selected species without upsetting the balance of nature. Take out the destruction, and you block the creative process too.

Since the beginning of the Industrial Revolution, most real wealth has come from real capitalism. Not from “playing the market.” Not from getting a good job. Not by trying to cadge favors from the government.
So, what is real capitalism? It is what we’ve seen in the computer/Internet industry over the last 20 years. This was a new industry. It had not yet been tamed by the government. Regulations were few. There were no large, entrenched companies to block start-ups. There were no lobbyists to curry favor from the politicians. There were no subsidies…and no barriers. It was young, dynamic, chaotic…and very prone to blow-ups.

The whole industry blew up in January 2000. Mistakes were not bailed out. They were corrected. Money moved from weak hands to strong ones. Many companies failed. The companies that survived, and prospered…went on to glory. Amazon. Google. Microsoft. Apple.

And who was behind these new companies? College drop-outs, computer nerds, products of teenage mothers and broken marriages. They did not enter the ranks of existing technology companies, work their way up to senior management and then create new product lines. It is almost as if they succeeded not because of advanced American capitalism, but in spite of it. They created an entirely new industry…with new companies nobody had ever heard of. And then, they destroyed some of the biggest businesses in America.

Typically, in a correction, asset prices fall and unemployment goes up. Misallocated resources – including labor – needs to be re-priced and put back to work. But when markets are not allowed to work the bid and ask spread in the labor market can stay out of whack for years. Joblessness becomes a structural problem, not a cyclical problem. People do not find new jobs. Old businesses are not swept away and new businesses do not start up.

A zoo economy keeps the old animals alive as long as possible.

Let’s look at education. Now, there’s an industry – we can all agree – that adds value. You could look at it as a charitable activity. Or as a profit-making business. Either way, education has to be a plus for the individual and for the society, right?
Wrong on both points

Read the rest here.


  1. Wenz, baby, use the html editor, especially for pasting.

  2. Mr. Bonner is a smart man but he makes an error if he thinks free markets were envisioned as a "jungle" by Adam Smith (and I'm pretty sure Rand and Mises, perhaps Rothbard as well).

    The law of the jungle is "might makes right".
    Even the statists back their force with a claim to law, not might.

    The law of the free market is actually reciprocity (trade without fraud or force).

    But if the free marketers themselves don't know it, how much chance are you going to have with socialists?

  3. Even the internet and computer industries aren't real capitalism. They rely heavily on government granted monopolies known as patents and copyrights. Much less so in the very early days, but it was still there. Today it is of course far worse.

  4. Lila,

    I guess that I can see what you're saying. I don't know much about Bonner, but you're claim doesn't seem that far-fetched with relation to the article. I must admit that I am not too keen on Rand's works, but I have read my share of Mises and Rothbard. The one thing that they both stressed is that the market is dependent upon cooperation.

    Mises even said clearly that each individual carries the weight of society on his shoulders, that we individuals are all partaking and contributing to this thing, that we could not make this happen without cooperation, and that in the unhampered market it is those who most contribute to their fellow man that enjoy the fruits of that contribution. But, they both were individualists and as such they rejected both egalitarianism and collectivism. I think that this is where many people inherit the idea that Austro-libertarian ideas are akin to "social darwinism". Obviously, social darwinism is the "law of the jungle" as one would say and it is far removed from anything that Mises and Rothbard were talking about; it is anarchy in its worst form.

  5. Half the people talking about capitalism and quoting Ayn Rand are actually social Darwinists who've never read Rand and who don't believe in the rule of law even as an ideal.

    In other words, they don't just object to state regulation, they don't believe in the notion of the rule of law, or a common ethical standard, or even the expectation of one.

    It's kind of a terminal case of "don't fence me in" and fundamentally antisocial.

    I've seen this over and over and it is a complete misrepresentation of Smith, or Mises, or Rand. Too bad that's how libertarianism gets branded.

    Paleo-libs I understand. The other kind, not sure where they come from or where they're going. And I find atheism and atheists boring a, unless they've also got a bad case of eastern mysticism going for them.

  6. if i were an austrian economics teacher,
    i would go bananas like steve ballmer of microsoft: jumping up and down singing


    no law of the jungle.

    bonner does not paint any 'rule of the jungle 'picture.i dont see anything except his emphasis on nobody being entitled to things

  7. Lila,

    I am sorry to hear that you find atheists boring. I will admit that I have a burning curiosity for things that I do not understand, so I have read a great deal of theological works (including eastern ideas). But, I still do consider myself an "agnostic atheist". I'll admit, it is the middle ground and is quite boring in that respect. But, I essentially came to the conclusion that while I do not know what the answers to life are, I also cannot subscribe to a particular faith with any sense of conviction.

    There are many things that I believe that I am sure of. Creation and the physical world around me? Not a clue. But, I am content with that. Though, that has never stopped me from speculating upon the possibilities.

  8. @Fetz

    I meant militant atheists.

    I have no problem with agnostics. I used to be one and still am on some things.
    Militant atheists are always trying to prove how infinitely more intelligent they are than believers or agnostics.

    But I actually find them people missing a faculty, sort of like the tone-deaf. Or they grew up in extremely confining religious households and then turned on religion because they have emotional hang-ups.

    In any case, if they didn't look down from such a high throne of disdain, I'd have more respect for them. But one and all are on a crusade to denigrate anyone who respects or believes in traditional faiths, and most of them don't even trouble themselves to learn anything about the things they denigrate.


    ”It is like a jungle…not like a zoo."

    And many other similar comments in pieces.
    Maybe it was just casual.

    But I've seen it in so many libertarian writers,

  9. Lila,

    I didn't realize that you co-wrote a book with Bonner. I guess that does indeed lend you more credibility in this regard.

    Take care.

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