H.R. 6377: Is your representative a traitor to Capitalism?

Yesterday, the United States House of Representatives passed a bill known as H.R. 6377. It will soon go to the Senate. 6377 is another one of the congress' beloved bills that push for a nanny-state and attack capitalism. It authorizes the government to have even more control in our supposedly free market.

The piece of legislation in question concerns 'speculation' and futures trading. Futures trading is basically a contract made in prediction of a future direction in the price of an asset. The main point here being that it is a CONTRACT (for elaboration on futures trading, see here.) Contracts are mutual agreements between two parties and only concern the parties involved. Government only can become involved if a contract is violated and the offended party wishes to sue over the violation. It is not their business to fight "price distortion" by regulating futures contracts to protect either party. By regulating futures markets, the government has decided that they can tell you how to bet on markets with your money. Of course, they are doing this under the disguise of protecting you from price fluctuations or distortion.

Do not fall for this appeal to emotion, it's an age-old trick of the state. While they might pretend to help you fight gas prices (you all know that's what this bill is intended for), they're really just asking you to let them bully the market more. They will do or say anything to get you to vote them more power.

To see if your representative is a traitor to capitalism look here.

Obama's Offensive Rhetoric

For quite some time now, the government has been manipulating the citizenry of America through propaganda and empty rhetoric. One cutting example of this in mainstream politics is the rhetoric espoused by Barack Obama on concepts such as "hope" or "change." To talk about hope properly, there must be an event or ideal for which you hope. To talk about change there must be a separate path which you wish to pursue. In Obama's rhetoric, no such logicality exists. Take this quote for example:

"In the end, that's what this election is about. Do we participate in a politics of cynicism or a politics of hope?" -Barack Obama

The above statement is a good example of empty government rhetoric. Using a rather commonplace definition of politics as the affairs and activities of government, the statement above translates to government activities of hope or government activities of cynicism. But do either of those make any sense?

To disassemble this sample of rhetoric, we must first examine the proper role of a government. A proper government should exist minimally and only enforce Natural Law. People will be protected from coercion from others and nothing else. There would be no regulation of wealth and the government would stay out of the affairs of the people. There is no good example of a truly proper government in existence in the world today. Nevertheless, that is the kind of government the US constitution was written to create.

Now that we have (briefly) defined a government as it should be, we can analyze how such a government could ever have policies of cynicism or hope. Would a government that adheres to Natural Law have to worry about trust? Would that government have to worry about hoping to improve the condition of its constituency?

If you couldn't deduce the logical answer to the two questions posed above, that answer is no. That government would just worry about the preservation of freedom and the shrinking of government. It would not have legislation that it hopes will work. It would not create policy out of distrust of the citizens (policies such as gun control). It would not engage in either of the politics presented by Senator Obama. In fact, it probably would never put up with a senator who preaches totalitarianism and Marxist economics. The sad part of it is, we'll elect that senator to higher office.

Capitalism: It's When You Buy Things

A lot is said of capitalism. Libertarians want capitalism. America is capitalist. China is not. Wal-Mart is an example of capitalism. Is any of this true? Do the people saying these things operate on a meaningful, concrete definition of the word 'capitalism'. I will explain what economists and (educated, objective) political pundits usually mean when they say 'capitalism'. When your Liberal-oriented American History teacher or the Democrat speaking at a press conference on CNN uses the word 'capitalism', she is not operating on this definition, or any definition, for that matter.

In this article, 'capitalism', 'the free market', and 'laissez-faire' are essentially synonymous.

It's When You Buy Things

In a capitalist society, the only method of acquiring things of value from other people is a form of voluntary contract agreement called 'purchase.' A purchase is simply the term for an exchange of two items between two individuals or associations in which one of the items is liquid currency (basically, money) and the other item is some product, service, entitlement, or other valuable. By definition, the price (the amount of liquid currency necessary to complete a purchase) of an item must be satisfactory to both parties involved when capitalism is the doctrine of an economy. It is a fallacy to claim that consumers have to pay whatever prices businesses want to charge in a free market - in fact, the exact opposite is true. The free market is the only economic system in which consumers agree to all the prices they pay.

If either the purchaser or the retailer of an item is restricted by force in his capacity to determine what he thinks is a fair price, the system fails to be capitalism. In this context, 'force' implies the use of coercive tactics that endanger one's self or one's possessions, such as government action, violent threats, et cetera. Necessity is not an example of force - that is, it would not be correct to say that hunger forces a person to buy food. A person may feel a very strong need to buy food, but that is the result of the person's own state as a human, and is not at all the same as coercion from an outside force. In addition, persuasion should not be confused with coercion. If a person witnesses a television advertisement and, as a result, buys a product he would not otherwise have bought, he cannot be said to have been forced to buy that product.

The primary pragmatic advantage to the capitalist concept of purchase is that it is rapid and fluidic, since the only parties involved are the retailer and the purchaser, and no unnecessary third parties must approve or even be made aware of the transaction. Much more importantly, the moral advantage is that the retailer gets to decide how much money he expects in exchange for his item, while the purchaser gets to decide how much he is willing to pay for it. If either party does not feel the other's price is fair, or simply doesn't want to do business with the other for any reason, he is free to refrain from making a transaction.

It's When You Make Things

There are only two means of acquiring wealth (i.e. currency or valuable property) in a capitalist society. One is by gift, which 'essentially begs the question', since gifts can only come from people who have previously acquired wealth, and the other is by production. 'Production' refers to the labor, of man or of machine, involved in converting raw nature into valuable commodity. Mining copper from the Earth, manufacturing wire from that copper, and installing that wire in a house are all forms of production. The former two involve increasing the value of a material by altering its state; the latter involves performing useful work to build that which otherwise would not exist in exchange for wages. One way or another, the unifying theme is that thought and effort are applied by a human worker, and the result is an increase in value that is beneficial to the worker.

All other systems of economy in some way allow for a gain in wealth by means other than production or gift. Many involve a grant from a government, which people treat as a gift, but which cannot be considered a gift, because the contributors of the original wealth do not give up their property willfully. When a person's money or commodities are taken from him by force and bestowed upon another person, what occurs is not a gift, but an act of compulsory self-sacrifice. Some systems purport to eliminate the concept of individual wealth and replace it with a more moral and pragmatic community wealth. This is a farce, in every sense of the word. In most cases, it is not actually implemented. To the extent that it is implemented, it could just as easily be labeled personal wealth that is simply not protected by any laws. The classic example of this is termed the 'tragedy of the commons', in which each person draws from a community source of wealth and no one contributes, because it is in everyone's interest to take and in no one's interest to give. That is to say, everyone treats the so-called 'community' wealth as their own personal wealth when they are spending and consuming, and someone else's personal wealth when they are producing value. Humans simply were not built to function on an idea of community wealth – it is our individual mind and individual interest that separates us from colonies of ants. Those societies which have tried to force self-interest out of man's mind and community interest in have invariably found that it is simply not human nature to live in that manner, and that intelligent, capable people would rather die than live for anyone but themselves.

That collectivist economies fail and capitalist economies succeed is not an unfortunate side note in human history – it is possibly the most significant empirical evidence that man is inherently conscious and discrete, and that evolution favors the self-interested man. The lesson to be learned is that capitalist societies succeed because of, not in spite of, the tendency of man to work for his own success. People want to live happy lives. To do this, they need property. People need food, shelter, and various other things that cannot simply be found; they must be sought and constructed. That is to say, productivity is an absolute necessity to life for a human. To be most productive, man must see a purpose, an ultimate end in his work. In a capitalist society, the ultimate moral and physical end of a man's work is the benefit it brings to his own life. However, in a collectivist society, the end of a man's work is the community – which he may or may not like or care about at all. In a collectivist society, the effort that man applies to his work is a result of how much he loves complete strangers, but, in a capitalist society, the effort that man applies to his work is a result of how much he loves himself. Clearly, it is in the nature of man and of the universe that he should function in his own interest, reap as he has sewn, get out of life what he puts in to it, and be held responsible only for himself. No man capable of producing anything significant will ever work as hard for the benefit of others as he will work for the benefit of himself – no man worth living will ever live for anyone but himself.

It's When You Keep Your Word

The free market revolves around the principle of the legally-enforceable contract. Exactly how contracts work is not hard to understand; it reduces to essentially that, where money and property is concerned, including all commodities and services of value, parties that indicate consent to a certain transaction must uphold and maintain all to which they agree, and all transactions are final unless all parties involved mutually agree to alter or eliminate them. In the simplest example, a customer is not entitled to demand a refund on an item he purchased if the item lived up to exactly the standards set for it, unless the retailer explicitly guaranteed the right to a refund. Conversely, if the item did not satisfy the standards promised by the retailer, then the retailer has no right to refuse him a refund. The former case operates on the principle that transactions are final unless agreed otherwise, while the latter utilizes the requirement that all parties involved in a contract make good on their word. By selling a faulty product when an operational one is advertised, a retailer fails to uphold his end of a bargain, and must compensate for this failure or face legal charges.

The existence of a stable government to enforce contracts between private parties is an absolute necessity to the laissez-faire system, not a hindrance as some erroneously claim. It is the objective, third-party to oversee transactions that sets capitalism apart from anarchy as a socioeconomic system. Those who argue for a system without government miss the tragic flaw that businesses and people can and will cheat if given the opportunity; that contracts occasionally require force to be fulfilled. Some suggest paying companies to oversee transactions, but it is hard to imagine why, if others would cheat, the moderating companies themselves would not cheat. What sets a government apart from an overseeing company is that a government is granted a monopoly by default over the service of enforcement of rules in a geographic region. A government lacks competition, and, if properly controlled by a balanced budget and a democratic process, it can be kept under the thumb of ethics. A business, if given the same task as a government, would, in very short order, cease to see any reason not to simply use its military against its own people for the benefit of the corporate owners, because citizens don't vote on how a company is run. To enforce mutual agreements and avoid coercive tactics, a small but powerful government must exist, with an absolute monopoly over the use of physical force and confiscation of property against citizens and businesses.

Standard Oil and the immorality of Anti-Trust

Background

Standard oil was an oil company that was created in Ohio and first incorporated as Standard Oil of Ohio in 1870. The company was created as a partnership between these individuals:

• John D. Rockefeller
• William Rockefeller
• Henry Flagler
• Samuel Andrews
• Stephen V. Harkness

The company grew out of Ohio, eventually controlling over 90% of the Oil refining in the United States. Only two years after its incorporation, Standard purchased most of the oil companies in Ohio. During this expansion, Rockefeller employed many tactics in growing his company, some of which allegedly gave him an "unfair" advantage over his competitors. In this article, I will review the claims against Rockefeller's so-called monopoly, and I will present an argument on how Rockefeller never overstepped his ethical boundaries.

The Complaints

1.)When Rockefeller purchased most of his competitor oil companies, he either shut them down for being too inefficient or incorporated them into Standard Oil. This annoyed small businesses because Rockefeller was able to achieve larger economies of scale and save costs in the production of kerosene.

2.)Rockefeller also improved his efficiency by making deals with railroad companies to ship a certain amount a day for a discounted rate. This further infuriated the small businesses who could not keep up with the growth of the oil giant. In one deal in 1868, Rockefeller secured a 71% discount with the Lake Shore Railroad by agreeing to ship 60 carloads of oil daily.

Justifications

1.)When Rockefeller purchased competitors, he used no form of coercion on them. Competitors reached mutual agreements with Rockefeller to exchange their company for a certain amount of Rockefeller's accumulated wealth. If a company did not believe it was profitable to stay in the market, it would concede its holdings to Rockefeller for monetary gain. In no way did this damage the ability of other oil companies to compete, except that it made it harder to achieve the low prices set by Standard Oil's massive operation.

2.) Deals with railroad companies were simply another mutual agreement secured by Rockefeller. The railroads had an incentive to cut prices for those who could supply a steady amount of business. A major component of the complaint against Rockefeller in this respect was that the deals were secret or semi-secret. This bit of information should be disregarded as trivial in a legal context. The Railroads, by keeping their deals secret, could only hurt themselves by keeping potential customers in the dark about special rates. While knowledge of those special rates would help other clients, a company should be allowed to give business to whomever it wants on whatever terms it sets. Not letting competitors use their system for the same rate was simply the terms which the railroad set with other clients.

Conclusions

From 1865 to 1870, the price of Standard Kerosene decreased from 58 cents to 26 cents. This price change greatly benefited the American consumer and led to the creation of a formidable competitor in the Oil industry. Standard jumped into the market and continued increasing the efficiency of kerosene production through greater economies of scale and successful business practices. One example of efficiencies achieved by Standard Oil was how Standard didn't dump gasoline into rivers like their competitors, instead using it for powering their machines. Standard also achieved efficiency by finding uses for waste products, with Standard becoming the first synthetic competitor for beeswax.

In Conclusion, The Supreme Court's decision to break up Standard Oil in 1911 was a horrible blunder perpetrated by the government of the United States. It punished a perfectly ethical business practice under the Sherman Antitrust act of 1890, which is in itself an immoral piece of legislation.

~minor grammatical edits by Jason at 9:02 pm on Wednesday, June 11, 2008~