Wednesday, June 11, 2014

Is Inequality Caused by Capitalism or Statism?

By John Browne

The French economist Thomas Piketty has achieved worldwide fame by promoting a thesis that capitalism is the cause of growing economic inequality. Unfortunately, he is partially right. However, the important distinction missed by Piketty and all of his supporters is that
state capitalism, not free market capitalism, has reigned supreme in recent decades in the world's leading democracies. It is this misguided attempt to wed the power of the state to the private ownership of capital that has led to the mushrooming of economic inequality. If the public cannot be made aware of the distinction, we risk abandoning the only system capable of creating real improvements for the vast majority of people.

In his book entitled 'Capital in the 21st Century', Piketty, like Karl Marx in 'Das Kapital,' places the hinge of economic tension at the supposed opposition between the competing interest of labor and capital. He believes that "capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based." However, this can only become true if free markets become controlled, or distorted, by the establishment of monopolies, be they private or state owned.

In the early twentieth century, U.S. Governments were alert to the destruction of free markets by monopolistic cartels and enacted strong anti-trust laws to curb their power. The United States thereafter achieved strong economic results in the first three decades of the 20th Century. In contrast, the socialist governments of post WWII Britain used public funds to establish state owned monopolies, similar to those existing in the Soviet Union. This resulted in dramatic economic declines, that continued into the 1980s when the U.K. was rescued by the free market policies of Margaret Thatcher. Her central strategy was to restore individual freedom by breaking state owned monopolies and reducing the coercive control of trade unions. Her actions unleashed a resurgence of prosperity in Britain that was imitated in many other countries. Her policies were adopted with particular enthusiasm by countries, like Poland, which had only recently shaken off the yoke of Soviet Communism. Poland is now one of the strongest economies in Europe.

History provides ample evidence that when allowed to function properly free market capitalism generates massive national prosperity with high employment, a strong currency and rising standards of living. It is only when the state manipulates and over regulates free markets that capitalism fails. However, capitalism usually takes the blame for the failures of statism.

Piketty asserts that capitalism is "inherently unstable because it concentrates wealth and income progressively over time, leaving behind an impoverished majority. ..." He proscribes even an international wealth tax and higher income taxes, above 80 percent, to redistribute rather than to invest savings. This would essentially create a state monopoly on wealth. But again, history tends to demonstrate that state monopolies create poverty for all but the politically connected elite.

Even the Soviet Union, a military superpower, was brought to its economic knees by state monopolies. Communist Party Secretaries, Andrapov and Gorbachev, were forced to the recognition that free markets should be introduced within Russia. This led to 'Perestroika' and 'Glasnost' and the freeing of markets in Russia.

By concluding that capitalism, even if it is confined to just a few countries, will lead to increasing poverty among the masses around the world, many cynical observers may conclude that Piketty is laying out a carefully planned case towards global socialism along the lines first attempted by the Bolshevik Commintern. Some conclude that such a move could be spearheaded by international institutions like the UN and IMF.

To achieve inherently unpopular global power, national elites must cooperate to bring about such levels of economic chaos and human suffering that people, despairing of ineffective democracy, will look for strong, global government as a welcome solution. To achieve this end the economic problems and human suffering must be extreme and seemingly beyond solution by any national government. By continuing to debase and destroy fiat currencies while preventing the markets from healing themselves, central banks around the world are doing their part to create these conditions.

However, those who look towards strong global government must realize that likely it will lead to a world of extreme global inequality in which any effective opposition will be impossible. This is the fascistic face behind the cuddly and concerned image that has made Piketty the economic North Star of a new generation. These faulty bearings must be corrected or the world's poor will suffer far more than they need to.

John Browne is a Senior Economic Consultant to Euro Pacific Capital. Opinions expressed are those of the writer, and may or may not reflect those held by Euro Pacific Capital, or its CEO, Peter Schiff.

11 comments:

  1. "The French economist Thomas Piketty has achieved worldwide fame by promoting a thesis that capitalism is the cause of growing economic inequality."

    Yes, the way to achieve worldwide fame is to find some fancy rhetoric to promote the whores we affectionately call the state. Keynes did it. Marx did it. Friedman did it. Piketty is doing it.

    Just don't try to get famous by promoting liberty. That's a no no for the mainsewer media.

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    1. "Yes, the way to achieve worldwide fame is to find some fancy rhetoric to promote the whores we affectionately call the state. Keynes did it. Marx did it. Friedman did it. Piketty is doing it. "

      You know what the funny part of this is? All you have to do is dress up old errors with new tinsel and the idiot shithead masses fall for the same damn things over and over and over again. It's just so easy to do. Why? Because most people are too LAZY to even study a simple econ 101 book. The other part of the problem is ENVY.

      These people are so pathetic I wish I could secede from them all. They're just not worthy to even have voting rights. It's like having spoiled 3 year olds voting for more free candy and toys fro themselves. Makes me ill.

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    2. @Mike 9:07AM

      I am not convinced that the "masses" are all that bad. I am gravely suspicious of the electoral process: the total intellectual corruption of education and of the media, the rigged ballot access laws, the electronic voting machines, and the Orwellian destruction of the language by the statists all make voting a futile gesture.

      I would argue that the masses have no way out except revolution, a very dangerous undertaking in a growing police state where most of the victims are disarmed.

      If the masses would listen to you, what would you tell them to do, exactly? Vote? Write a letter to the whore claiming to represent them? Carry a sign in a "free speech zone"? By a book by yet another libertarian preacher?

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    3. "If the masses would listen to you, what would you tell them to do, exactly? Vote? Write a letter to the whore claiming to represent them? Carry a sign in a "free speech zone"? By a book by yet another libertarian preacher? "

      People won't be able to do ANYTHING unless they educate themselves first. That's step 1. If they can't even get that far then nothing else will matter.

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    4. Mike, that does not answer my question. Assume they have educated themselves and they all agree with you. Then what should they do?

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  2. Calling Thomas Woods!

    "In the early twentieth century, U.S. Governments were alert to the destruction of free markets by monopolistic cartels and enacted strong anti-trust laws to curb their power. The United States thereafter achieved strong economic results in the first three decades of the 20th Century."


    I think Mr. Browne needs to educate himself about this portion of American History.

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    1. "I think Mr. Browne needs to educate himself about this portion of American History."

      Yup. Like most people (as I was telling John Howard here) this is the type of complete ignorance and stupidity I'm talking about. How the hell can any changes ever occur (I don't care if it's through voting, revolution, or whatever) if dipshits like that guy can't even be bothered to read a little bit of economic history? Educating yourself is STEP 1! It's not rocket science.

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    2. What is Step 2?

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  3. Really terrible stuff from Browne! If he fancies himself a defender of the free market, then he should not praise anti-trust laws!!! Anti-trust laws -- a form of government economic planning -- punish successful companies and harm consumers by "protecting" them from receiving the best possible service and prices brought about by free competition.

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  4. Call it anti-trust or not, some limits on property claims need to be recognized to prevent cartelization of markets. The state, after all, is in essence a cartel on the market for protection services that tends to engulf every other market. The absurdity of anti-trust law is not that it impacts markets but that it is enforced by the worst cartel of all. What is needed are decentralized mechanisms for preventing the rise of cartels. One such system is proposed over at www.vlda.org, describing a system of voluntary law based in individual sovereignty.

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    1. "...some limits on property claims need to be recognized to prevent cartelization."

      That's mistaken. What is wrong with a cartel? Is it not just a bunch of individuals who agree on a price to charge for their goods or services? Anti-trust / anti-cartel laws are nothing more than coercive interference in the free market. People have a right to agree and they have a right to charge whatever they wish for what they own and have a right to sell. No buyer has a right to a certain price.

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