Advanced Worldview Analysis - Lesson 9

Dr. Ronald Nash

Advanced Worldview Analysis

th710-09

Defense of Capitalism

Lesson Transcript

I now want to give you a better definition of capitalism. And this is good. It’s much simpler. What I'm putting on the screen is a heading that says, The peaceful means of exchange. I'm going to contrast that with a different theory called the violent means of exchange. I'm going to tell you who I borrowed this from. I borrowed this from a very good economist named Walter Williams. Walter Williams says there are 2 and only 2 ways in which anything can be exchanged. Any good economist says this all the time. But the language is Walter Williams. He calls them the peaceful means of exchange and the violent means of exchange. Now, here's the definition of the peaceful means of exchange. The peaceful means of exchange can be summed up in this expression. If you do something good for me, then I'm going to do something good for you. That's the peaceful means of exchange. Abraham needed a place to bury his wife Sarah. He reasoned with a man and he said if you do something good for me, if you give me this land where I can bury my wife, then I will give you so much money and silver. You do something good for me, I'll do something [good for you]. Now, I argue that if you understand capitalism correctly, capitalism is the epitome of the peaceful means of exchange. Now, what's the other means of exchange. It's the violent means of exchange, and here's how you sum it up. Unless you do something good for me, I'm going to do something bad to you. Now, that's the way thieves and crooks operate. This is the epitome of capitalism. This is the epitome of socialism. Unless you do something good for me, I'm going to hurt you, brother. Whether you're my brother or not, I'm going to hurt you. If you'll accept those definitions, I want to put on the screen the 2 major objections to capitalism. In my book, I gave you several more. And I answered every one of them.

Let's call this the first major objection to capitalism and here's how it goes. Capitalism is immoral because it encourages the sub-Christian attitude of greed. You know, right now I'm thinking of a Christian college in a state that I will not name. Close to the city of Chicago but that could include a hundred different colleges. I'm not going to say anything about that. All of the Christian parents who sent their kids to that college and how I used to run into those parents after their kids have spent 4 years at this Christian college getting turned into Marxists. I remember one day I was having breakfast in a hotel in Washington DC, and this parent started to tell what this particular college had done to their son. And they wept and they cried. And what this college which we have not named, and which no listener of this program can name either- turned them into Marxists. Because, you see, Capitalism encourages greed and greed is evil. And here's the answer to this phony objection. And you must learn these exact words. No substitute words will work. In a true market economy, capitalism doesn’t encourage greed. In a true market economy, capitalism neutralizes greed. It neutralizes it. There is no better word here than neutralize. I give you an example. I want you to imagine the greediest man who lives in some little college town. This guy thinks that every college student in that town is loaded with money. When he goes to bed at night, he is thinking of the dollar bills flowing from the wallets of these students into his bank account. So he starts a business. Let's say, he started a Laundromat. And a lot of students come by once but they never go back a second time. So finally he reads my economics textbook which is called 'Poverty and Wealth' published by Probooks and Richardson & ??? He reads my book and says, 'Will you advise me on how I can improve my business?' So I looked through it. Takes me about 30 seconds. I say here's what you've got to do. First of all you've got to get rid of the rats, and the other vermin. That tends to discourage people coming in here. Secondly, you got to change the smell of this place. It stinks, man. Thirdly, you've got to get rid of these broken down machines. That one right there has stolen 50 bucks from me and it hasn't work in 6 months.

You could to brighten up the place. Put in a little reading place where students can read some of my books. Free of charge, and then put in some Christian music. If you do that, you'll going to have students standing in line for a mile. They are going to think its a security checkpoint at an airport. That's how long the line's going to be. And the guy takes my advice and man, he just cleans up. Now, here's my lesson. If a man, even a greedy man, operates a business in a market system, he has to put his customers first. He MUST. He has to think of other people. Otherwise he will fail, sooner or later. But if Mr Scrooge is operating in an interventionist system, is he going to put the customer first? No sir. Who is he going to put first? The politicians. He's going to make all of these side payments to liberal politicians, maybe conservatives take money too, I don't know. And if he is operating in a Socialist system, he's going to join the party. The Socialist Party. The only economic system in which people have an incentive to put other human beings first is Capitalism. Why? Because in a free market system, you got to give people reason why they come back to your place. That's my first objection and my first answer. And that answer is correct, friends.

Now, here's the second objection to capitalism. Capitalism is immoral because it creates situations in which some win at the expense of others who lose. This phony objection is at the foundation of all supposed imperialism. Capitalism is immoral because it creates situations in which some people win at the expense of others who lose. That's untrue. Here's the correct answer. This objection assumes that free or market or capitalistic exchanges are a zero sum game. Now let me explain zero sum game. A zero sum game is a game in which for every person who wins, there is some other person who loses. Plus 1 here, minus 1 here, you have a zero sum game. Baseball is a zero sum game. If the Indians play the Tigers and the Indians win, then the Tigers lose. Football is a zero sum game. Hockey is a zero sum game. Now, in truth a market exchange is a positive sum game. Now what is a positive sum game? It's a game or a relationship in which everybody can win. Listen to me. Nobody unless he is an idiot rents an apartment, buys a house, does this or does that unless he at least believes that he's giving up something that he doesn't want or need for something else that he does want more than what he is giving up. Now, sometimes people are wrong. Sometimes people deceive others, but that's against the capitalist rules. If you know the truth about all these phony objections to capitalism, they come from people who don't know what time it is. Their clocks are set to a different time zone. There are lots of phony objections to capitalism and I deal with them in a book. You can read them for yourself. I've given you 2 objections to capitalism. I've shown you the answer to both.

Now what I want to do is give you the killer objection against both Socialism and Interventionism. Let's take Socialism first of all. The killer question, the killer refutation of Socialism was discovered by an Austrian economist named Ludvig Von Mises. Mises was an economist who lived in Austria. He taught there throughout the 1920s, eventually after the Nazi's came to power, he came to the United States and taught in New York city. He's the author of a very famous and highly respected economics textbook called "Human Action" available in many translations. Mises said this about socialism, and he said it, I think, in 1921. And the reason he said it was, after World War One, Germany went down the road to Socialism. He said, 'Socialism is a logically self defeating economic system, because Socialism makes rational economic activity impossible.' Let me explain. Maybe I better tell you where in the book this argument appears, [page] 82. There it is. Somewhere in here, I have a little syllogism but it would be too hard for me to locate it. Let me see if I can do it from memory. Without calculation, without economic calculation, (let's shorten this) rational economic activity, economic activity, is impossible. Now let me explain what economic calculation is, and then you'll clearly see why if it's impossible, then rational economic activity is impossible. When you go into a store to buy a fairly significant good, what's the first question you ask? What is the price? What is the price? Can you imagine a seminary student going into a clothing store, and just saying, I'll take this, and I'll take that, and I'll take that, and then only after he's got 6 or 7 pieces of clothing piled up on the counter only then does he say, Oh, what's the price? No! Now what would happen, if we were all participants in an economic system that made rational pricing impossible. If that were the case, then we could not have any rational economic activity. You can't have rational economic activity without prices. And legitimate prices. I give an example. Imagine that you are driving down a country road. Maybe you are going on to Apoochuwata?? or whatever the name of that place is and you find a dirt road that goes off into a kind of black tarmac or something. And you go down that road and you come across a farm so far back that's it's almost in South Carolina. And let's say that this farm is self contain. It has had no real contact with the world. It has no radios, no television set. It gets no newspapers. It’s just a farm full of people who just love farming and they don’t care what's going on in the world. And while you are there, the guy shows you around. And they make everything they need. They make their own electricity, they make their own gasoline. They have no contact with the outside world. So you see a bunch of chickens there and you say to the farmer, Could I have a dozen eggs? He says, Yeah, yeah. So, having read Von Mises you ask, What's the price? This guy, no one's ever asked him that. And he doesn't know what price to ask. He doesn't know what's money's worth. So he says, I don't know, what about $2,000. Well, you say, Mmmm, that's a little high. Oh, is that too much? What about 20 cents? For a whole dozen eggs? What's the next thing he asks? How many dozen can I have? Hah, he must be thinking, I'll load them in the truck and go to Krogers??? or Publix or something and do a little arbitrage. Now, here's the problem. When you produce everything you need you really have no idea what your costs are. And because you don’t know what your costs are you don't know really what price to set upon anything that you might exchange.

Now this is the way it is with Socialism. Under Socialism, over here, we're talking here about the real Soviet Union. We're talking Lenin. We're talking Stalin. Under socialism, the government owned everything. It owned the land, the factory. It owned the machines. It owned the raw material, it owned the power. And by the time the Soviets were through, they had no way to know what it cost them to make a widget, let us say. What is a widget? It can be anything you want it to be. And because they had no idea and could have no idea what it cost in a socialist system to make a widget, they didn't know what to charge for a widget. Wouldn't it be awful if they are selling widgets for less than it cost it to make the widget. And do you know how the Soviets solve the problem? And this is the truth. The Soviets send spies to the nations of the West. And Igor would call from St Louise. And in code he would say, At Kmart, no, no, at the Walmart in St Louise, widgets are selling for 10 cents apiece. Ah ha, the Russians said, We'll sell ours for 9 cents apiece. We'll show those capitalist pigs. Don't you think something like that didn't contribute to the collapse of the Soviet Union? Then Olga, she calls from Brooklyn and she says in Brooklyn, widgets are selling for 11 cents apiece. That's Brooklyn, taxes, no doubt. That's the only thing that kept the Soviet Union alive. Listen to what I'm telling you. If they hadn't been semi market nations out there for the Soviets to spy on and to get economic information from, the Soviet Union would have collapsed decades earlier. But they cheated. The most important function of a market economy is to give people information. Information supplied in the form of prices. Now, here's the information that prices supply. When prices are rising, well, you tell me, give me 2 reasons why prices go up. Too much demand or too little supply. Yeah.

When prices go down, the supply is up and the demand is down. Gasoline prices have started to go up because the cartels have lowered the quantity. But you see, in a socialist system, rising and falling prices had no meaning. So that's the failure of Socialism. It is an economic system that makes rational economic activity impossible. And the reason it makes economic activity impossible is because it cannot perform the informational function that a market can perform. And it doesn't matter whether you've got saints running a Socialist system. There is no information coming out of the system. In my chapter, I tell you how Soviets recognize the threat of Mise's argument and they try to counter it. But let me tell you this, there is a former Marxist university, I think it's in Poland. And they used to have a statue of the Marxist who offered a phony argument against Mises and today they have abosted? Mises in that Marxist university. This is called the problem of economic calculation.

Now, that’s the major failing of Socialism. I got to give you the basic objection to interventionism. The trouble with interventionism is it always produces consequences directly opposite to those of the Statists. Over here in Socialism, you have complete controls. Complete controls. The government owns everything. But we are way over here, of course when we say this, that the Government owns everything. Interventionism is a system of partial controls. The Statists who are interventionist say we are not completely under Government control. We are only partly [under Government control]. But what they don't recognize is that when the Government only exercises partial controls, then people have loopholes through which they can escape the governmental controls. And the end result is that politicians end up getting the exact opposite results that they expected. Example- suppose a group of liberals in the Congress decides that they wanted to make eggs cheaper for poor people. I am Ted Kennedy getting up on the floor of the Senate and make an eloquent plea for the poor to have more eggs and before you know it, all the soccer mums in America are weeping because eggs cost 75 cents a dozen. Here's what Kennedy says. We are going to put price controls on eggs. And nobody will in America from this day forward be able to sell a dozen eggs for more than 50 cents a dozen. Price control. That will make eggs more available to poor people. Now, if you think not, start raising you hand or shaking your head. No, because do you know what the end result will be? There'll be fewer eggs, there'll be fewer eggs and in a moment I will tell you why there will be fewer eggs. And if you keep the price at 50 cents, when you go in to Publix's grocery store, there won’t be any eggs in the store. But there will be a guy in a farmer's truck behind Publix who will sell you all the eggs you want for $2 a dozen. That's called the black market. Now, here's what happens. When the Government says you can't price eggs higher than 50 cents a dozen, there are marginal egg producers who can't survive. They could survive if they can make 10 cents a dozen on a dozen eggs. But if they are losing money, do you know what they are going to do? They are going to sell their chickens to Colonel Sanders. And dead chickens don't produce eggs. And once you sell your chickens to Colonel Sanders, you don’t have any more chickens to sell them either. See? Then you know what? The Government puts a new freeze on chicken feed. It now becomes illegal to sell chicken feed for more than a certain amount of money. That takes care of the chicken producers. But it puts the farmers out of business because they are losing money. Well then, what else? So, eventually the partial controls have to become either total controls which means as your partial controls produce more and more devastating consequences, you got to move closer and closer to total controls Interventionism must become socialism or throw up its hands and give up. And in my book I give you example after example about how good hearted liberal politicians thought that they would be able to save the American textile industry or this thing or that thing and now the steel industry and they all collapse.

One last example, rent controls in New York city. In New York city, there isn't anybody that I know of, unless there is some hanky panky going on here that can get the real market value for rental property unless they are related to the city council, in Brooklyn or where ever else. So, let's say you've got an apartment owner who have some nice apartments. We'll just look at one of them, maybe 3 bedroom apartment. 3 bedroom apartment in New York city? Not likely. Which under normal circumstances he might easily be able to rent for$2,000 a month, or $2,500 a month, but because of rent control he can't rent it for more than $900, maybe less. So here's what happens in New York City. The guy comes in to look at the apartment and he says, Mmm, this is a pretty apartment. How much can I have it for? And the guy says, Well, the rental price is $900 but you see this little coat hanger here in the corner, you've got to give me $1,000 a month for that coat hanger. That's how they do it. Or else the guy, the owner, might say, You can have my apartment for $900 but you've got to date my sister. And they do that too. Even your love life. The Socialists will even destroy your love life. That's what they will do. Down with Socialism, man. But that's the problem with Interventionism. It always leads to unforeseen consequences.

Which economic system is most consistent with the Biblical worldview? Is it the economic system that defends the peaceful means of exchange or the violent means of exchange? Yeah, I can see these Christian left wingers saying, Go for the violent means of exchange. You alright? See the choice of words is totally neutral here and it has nothing to do with making my case.