The Credit Crunch and Socialism

I came across an article on a blog recently that exemplifies how far removed from reality the socialists’ ideology is. This person declares that “Capitalism is Bankrupt”.

The blog-owner begins: “Their system creates recession, hunger and climate chaos, but they want you to pay.”

Evidence for this please?

Let’s compare the freer countries in this world to the less-free. Let’s compare America of the 19th century to Soviet Russia of the 20th. Let’s compare quality of living for even the poorest member of society in pre-industrial society to the poorest person now. Let’s compare the freedom, happiness, healthcare, and wealth, of countries with fewer government restrictions to those with more. Further examples are irrelevant; anyone with even a passing knowledge of world history can tell you the difference; between what happens when men are free to create and trade and invent, and when they are stifled, regulated, and restricted.

The facts of history in every region where it has been systematically practised show that socialism fails.

“Until A few weeks ago, supporters of free market capitalism were confident enough to proclaim that their system was the only way that the world could be organised. Now their certainties have vanished.”

So a few weeks of economic crisis are enough to make the supporters of capitalism uncertain and unsure of their ideology? Who are these supporters and where? Are they are the mixed-economy type (a contradiction in terms), or are they the capitalists who believe morality is still self-sacrifice and dutiful service to those who have earned nothing?

True capitalists are not so easily daunted; if fact, we cannot be daunted, because we know that capitalism is the only MORAL political system, and nothing can violate this principle, ever.

In fact, this attack is capitalism is very foolish for one very important reason: capitalism has NEVER fully been given a chance! Whereas every variety of socialism has tried and failed, capitalism has never been fully practised. 19th century America came the closest anyone has to it, and witness what happened: the freest, happiest, wealthiest, most powerful nation in human history.

“The economic crisis that started in banking and finance has spread quickly to the wider economy. Now it threatens to engulf whole countries, bringing untold misery to millions.”

But did the economic crisis merely start in banking in finance? Let’s quickly look at inflation. In Ayn Rand’s words:

“The expansion of a country’s currency (which, incidentally, cannot be perpetrated by private citizens, only by the government) consists in palming off, as values, a stream of paper backed by nothing but promises (or hot air) and getting actual values, the citizens’ goods or services, in return—until the country’s wealth is drained. A similar activity, in private performance, is the passing of checks on a non-existent bank account. But, in private performance, this is regarded as a crime—and most people understand why such an activity cannot last for long.

Today, people are beginning to understand that the government’s account is overdrawn, that a piece of paper is not the equivalent of a gold coin, or an automobile, or a loaf of bread—and that if you attempt to falsify monetary values, you do not achieve abundance, you merely debase the currency and go bankrupt.” – Moral Inflation.

The source of wealth is production. And money represents produced goods non-yet-consumed. The government is never a source of production and therefore never a source of wealth. The source of production is private individuals (and companies) who transform the world into objects of value and trade these values with people for other values. A free trader trades value for value – he cannot trade value for fresh air, because his counterpart will not accept fresh air as payment, nor will the trader except it from his counterpart. The only agent in the world that can trade fresh air for value, that can convolute “money” out of thin air to trade, is the government. This is the cause of inflation. Whilst actual produced goods are linked to the free market (what people are freely capable of producing and what anyone is freely capable to buy), money by contrast is printed in bulk by the government. This devalues it.

In a free market, the price of any product is the lowest a seller can make a profit on it and simultaneously the highest a buyer is prepared. There is no way to contradict this law of supply and demand except by force, and the only institution with the power to exert this force is: government.

Did banks and building societies force anyone to accept their loans? Did free citizens force banks to trade with them? No, and no. Now consider that the government has persistently put pressure on banks to offer people loans that they cannot afford, and consistently bailed out banks and private citizens that continue to be reckless with their money – at the expense of the taxpayer. Where does this money come from? How is this money linked to the market, to supply and demand? It isn’t. When two people lose out on a trade, the only people that lose out are them. Now, when other people are forced to pay to cover their loss, a transaction they have had NO involvement with, the repercussions are felt by everyone, and the additional money required to cover this loss is not generated by wealth or production, is it taken by sabotaging wealth and limiting production. To illustrate this, imagine if, all other things being equal, you had to pay £1000 a month from your wages to cover another person’s foolishness or bad luck in business. But, how are you going to live? How will you make up this loss? You cannot pull money out of thin air. So you cut down on your spending (which means sellers now lose business and end up in the same boat as you), or maybe you demand to be paid more by your employer, who himself cannot make money out of thin air. So he rejects your demand, or makes other people unemployed, or pays you more money at a loss to himself. And of course if he does this for everyone, he makes even more loss. Bear in mind that he himself is already losing out because fewer people are buying his products because they are cutting their spending because their cost of living has gone up.

Because capitalism is the free voluntary trade of people with value for value, NO ONE ELSE benefits from this trade. Similarly, NO ONE ELSE is punished either. However, anyone can freely choose to ‘get in on the act’ and do business with other successful people, but no one is forced to, and no one is forced to pay the price for failure. Conversely, the only system where people can be forced to pay for others is under socialism.

“Belarus, Hungary, Iceland, Pakistan and Ukraine all stand on the brink of bankruptcy. Beyond them are even bigger countries – including Poland, Russia, Argentina and Turkey – whose economies are in danger of collapse.”

And why are they in danger of collapse? Is it due to producers over-charging? Is it due to buyers defrauding sellers? Or is it due to paper money spending for non-existent resources? And if so, whose fault is this?

“As their currencies slide and exports falter, all of these countries have been forced to borrow heavily just to ensure that they can pay their bills.

Some have so little in their foreign exchange reserves that they will only last a matter of weeks without an injection of cash. They have been forced to beg the International Monetary Fund (IMF) for emergency loans.

But the IMF – an organisation dominated by the rich countries of the West – will only extend its help at a price.”

Well, yes. What does the socialist suggest? That rich countries sustain other countries and business for no benefit and even loss? Actually, yes. That is the irrational anti-human ideology of the socialist: sacrifice.

“During past crises, it has demanded swingeing cuts in government budgets, privatisation of industries and the liberalisation of markets. Struggling nations are now preparing themselves for the worst.

In Pakistan, where already millions cannot afford food or the fuel to cook it with, the government has announced the ending of fuel subsidies and the removal of a cap on gas and electricity prices. This is to be accompanied by big cuts in government spending.

In Hungary, the government has suggested a massive assault on its state pension and the slashing of pay as part of the bailout of the economy.”

Well, if the government’s solution to economic crisis in these countries was to remove its controls and liberate the market, then what was the problem in the first place that made the situation so bad and forced the government to address its interventionist policies??

Why did the government decide to take action (by reducing its involvement) unless there was already a problem? And since the solution was a move towards a freer market, the free market couldn’t have been the problem in the first place!

“If the past is anything to go by, the IMF will endorse these measures but demand much more for its money.”

Perhaps the IMF should stop bailing other countries out then?

“The economic shockwave that is spreading across the world is not confining itself to poorer economies. Already the Bank of England estimates the cost of the financial crash at $2.8 trillion – a sum so big that it defies comprehention.

And despite the billions spent on bank bailouts, scores of British firms announced major redundancies this week.”

Obviously! Pouring water into a bucket with holes only tops it up for a short time. Money represents produced goods. Tipping trillions of dollars into a hole does not produce goods, create wealth, or solve the problem. It actually exacerbates the problem by spending already limited government money (read: money expropriated from taxpayers) on a cause it should have no involvement with, to solve a problem it created. It also punishes the innocent traders for the bad lending and bad borrowing of other people. Remember this the next time a socialist says that capitalists “want you to pay!”

“We are told that these shutdowns are inevitable and that it is pointless to resist. There is simply a lack of a demand for the goods that are produced, it is said.

But while goods pile up unsold and workers are laid off, millions of people go without the things they need because they can’t afford to buy them.”

The socialist wonders why. Alan Greenspan explains:

The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy’s books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold.”“Gold and Economic Freedom”, Capitalism – The Unknown Ideal.

The socialist continues:

And the skills and machinery in each closing factory could offer solutions to some of the greatest problems facing humanity. For example, engineers who once made cars could be employed to make generators for alternative sources of energy.”

And who would employ them? And who would use their product?

There is only ONE problem facing man: the problem of survival. The only solution is for man to create the values he needs in order to live. Just as a man cannot think for another, he cannot live for another. Each person must transform the world into something to sustain his life, and where possible and necessary, trade his values for those others have. The fact that a tiny minority are unable to do so does not create a mortgage on the lives of others. Without a free mind and body, man cannot create and produce. Without the use of his produce, he cannot realise his Right to Life. A Right to Life without a Right to Property is a contradiction in terms; one flows from the other.

I make the above point to clarify the false implication in the socialists’ last paragraph: that there are problems for “humanity” which are NOT problems for individuals. There are ONLY individuals. Humanity is a collection of individuals, and the problem for each of us is the same: survival. And the ONLY ethical solution is: think, act, produce, consume, trade. This is the ONLY recourse left to free rational beings. The ONLY alternative is expropriation. When one man does this to another, he is a criminal and we arrest him. When a large group of men do this by force (or by vote, which amounts to the same thing), in order to “serve” those who can’t/won’t produce, we call it a welfare state. When one man takes money from another in order to fill the hole created by his failure or misfortunate, we lock him up and demand he repay what he has stolen. When a bureaucrat does this, we call it a “government bailout”.

And if a man needs to cut down a tree to survive, he must. If a man needs to build a car, or drill for oil, or kill animals for food, he must. If a man needs to compete in another market by inventing new fuel and energy sources, in order to survive, he must. And his fellow traders, the people who will want his product in exchange for their own, will decide if he is to be successful. What a man cannot morally (and therefore politically) do is FORCE his values or product on others. Nor can he force their value or product on himself. The only institution that can legally do this is: government. So is government the protector of our Rights, or the violator?

The socialist sees the need for alternative energy sources like the needs of those who have less: as a mortgage on those who CAN already produce energy and those who DO already have. But this is to be expected: socialism is the sacrifice of the CANs and DOs for the CAN’Ts and DON’Ts; of the HAVEs for the HAVE NOTs. Capitalism on the other hand means no sacrifice of anybody for anybody.

In fact, the glaringly obvious and appalling mistake all socialists make, like this one quoted here, is to forget that the only reason the Western countries became so rich and affluent whilst the rest of the world sits in a mire of poverty, superstitious, ignorance, and crime, is because WE allowed man to freely create wealth in the first place. Once again, witness the explosion of wealth and prosperity in 19th century America to the fully-state-controlled socialist’s (and worker’s) paradise of Soviet Russia, where millions were systematically starved to death by the government because there was nothing to feed them with.

“We have the resources to build a better world. So far, the stranglehold of capitalism has been a barrier. Now it is up to us all to ensure that its hold is broken.”

The socialist wants the “stranglehold” of capitalism, that is: a political system where every human being is recognised as a sovereign individual with his own life as an end in itself, where he is free to trade or not to trade whatever he wants for whatever he can, at no harm to anyone – the socialist wants that replaced, with another stranglehold – a government that can legally violate your Rights by physical force to whatever end a mass of people or politicians deems “necessary” for whatever “greater good” they settle upon; where the sources and means of production are stifled, restricted, and regulated, and where the creative and productive and intelligent and efficient are a resource to be tapped for the uncreative, unproductive, unintelligent, and lazy.

The altruist sees each man as a means to another end: other people; society. The rational person sees each man as an end in himself; as a being in his own right. The altruist therefore wants a political system geared to sacrifice and cannibalism: socialism and communism. The rational man chooses life, he chooses capitalism.

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12 Responses to “The Credit Crunch and Socialism”

  1. Ergo Says:

    What we’re seeing really is the collapse of the mixed economy of central planning (Central Reserve Banks and their monetary policies) and some free market practices.

    The communist ideology demonstrated its bankruptcy in the Soviet Union, East Germany, and North Korea. Now, it’s the mixed economy pragmaticism that is being revealed for all its emptiness.

    As Rand said: in any compromise between good and evil, it is only the evil that wins. Of all the things she couldn’t tolerate, it was the almost, the not-quite, the half-way that she hated the most.

  2. Ralph Says:

    The most telling phrase the blogger used was “the only way the world could be organized”.
    I suspect the blogger has ideas of a world wide socialist government.

  3. sam222 Says:

    The Central Reserve Banks of the world want to control the money supply. I fear what they are up to is to try to create a one world currency.

    I believe they sabotaged the 08 election with a false scheme of a credit freeze if we don’t get 700 billion today. the fact of the matter is the credit markets did not freeze but it worked for them to got Obama and the Democrats in who are no doubt going to run the national dept amuck causing hiper inflation.

    After that The Central Reserve Banks will step in and say we can fix this we just need to create a one world currency. There plan from the beginning.

    Federal reserve bank truth video.
    http://sam222.wordpress.com/2008/12/11/federal-reserve-bank-what-is-it/

  4. John Matrix Says:

    In fact, this attack is capitalism is very foolish for one very important reason: capitalism has NEVER fully been given a chance! Whereas every variety of socialism has tried and failed, capitalism has never been fully practised. 19th century America came the closest anyone has to it, and witness what happened: the freest, happiest, wealthiest, most powerful nation in human history.

    …..unless you were chinese.

    You realise also that communists can and do make the same claim about communism never having been fully given a chance. It may be true too in both cases to some degree and therefore a realm of conjecture. Certainty on would happen should surely be avoided.

  5. John Matrix Says:

    … or native american

  6. John Matrix Says:

    …. or basically anyone oppressed to make the few rich. I’m sure the railway tycoon was happy, free and undoubtedly wealthy but I would not be nearly so confident of the status of those in his employ.

  7. John Matrix Says:

    Sorry about the multiple posts but I thought the Beasts bit about Alan Greenspan was quite funny. He rated him the 5th most loathsome person in America in 2008. It is humorous in intent and the zero accountability bill is hilarious. I’m sure you won’t agree with the assessment and particularly the Atlas Shrugged bit but even you should get a giggle out of the bill.

    http://buffalobeast.com/134/50mostloathsome2008-p5.html

  8. evanescent Says:

    John, I doubt communism could’ve been taken to any further extreme than Soviet Russia; communism was taken to its full natural extent, and look what happened.

    Now, has capitaism been taken to its full natural extent? No. No nation in history can point to a time when this occurred, despite how close America came.

    In a free market, companies can compete for employees the way employees compete for jobs. Companies can offer better pay, better healthcare, better living conditions etc. When jobs are few and employees many, employees tend to get paid less and treated poorer. When employees are few and jobs many, employees tend to get paid and treated better. This is the law of supply and demand at work.

    It is true that living conditions during the industrial revolution were not great. A socialist would argue that government enforced health and safety and worker “rights” changed this. A laissez-faire capitalist would argue that it was capitalism that brought about the existence of these jobs in the first place, meaning even the dumbest employee could at least get some money and pay his way. The quality of life and employment might have been slow coming, but it came.

    As industry bloomed and wealth (and jobs) were created, companies offered more to attract employees. Now human beings don’t have to scratch around hunting wild animals or fashioning their own loincloths or building mud huts – we just go to work 9-5 and use money to get whatever we want – the advent of big business and industry removes the immediate problem of survival from every waking hour of our lives – freeing our time for activities that make us happy and flourish.

    We should be grateful that individuals far more intelligent and creative than us throughout history have created things of value from this planet that generate wealth for everyone, from the poorest to the richest.

  9. dr Says:

    One lesson of this crisis that, unfortunately, many people don’t get: communism and libertarianism (total capitalism) are two faces of the same coin – great theories that don’t work because of human nature. Communism failed because those who came into power wanted everything for themselves, not for the good of community. Pure (unregulated) capitalism would be bad because you can’t have free market if you have a limited choice. Economic theory says that price in monopolism or oligarchy is always higher than in total competition, and in many industries exist a few big players who control most of the market. Without the government control, they would legally rule the world. This crisis started because some people decided to put their short-term gain before long-term market health (most people have tendency to do that). That is expected and accepted behavior in libertarianism. But if society wants to advance, such behavior shouldn’t be tolerated past the point where it can heavily influence the whole society (like now). That’s why we need to have regulated capitalism – actually, something close to what Sarkozy is suggesting.

  10. evanescent Says:

    Dr, there are two reasons why you are wrong here.

    The first is that you divorce the moral justification for capitalism from human nature. The reason capitalism is the only moral political system is BECAUSE of human nature. It is human nature to be free, to think, to create, and if he is not alone: to trade. In fact, there is no other way for a man to live (as a man). Capitalism is the only system that fully accepts this fact and guarantees its application in the real world.

    Secondly, in what way can “unregulated” (read: without a gun being pointed at you) result in anyone ruling the world? By what means do you think it is possible to exercise rulership over another? By them being “forced” to buy a medicine that you make? By them being “forced” to buy their shoes or bread or milk from you? By them being “forced” to use your operating system on your PC instead of another brand?

    The only real way anybody can coerce another against their will is by physical force or fraud (which is essentially the same thing). Yet this is exactly what is banned in a capitalist society!

    Another thing you don’t realise is that in a free market, market control is only possible one way: excellence. You simply cannot corner the (free) market unless your prices are better than your competitors, and/or your products are of superior quality. Big companies do not charge “whatever they feel like”; rather, in a free market all prices are determined by supply and demand. If you reach a point where your products are so ubiquitous and popular and necessary than any other’s (for example, Microsoft), why should you be stopped from being even bigger and better? Does Microsoft’s market dominance hurt anyone? No. It certainly doesn’t hurt the 95% of the population who use their products and are FREE to look elsewhere for the same results…IF THEY CAN. But nothing is given to man freely on this planet, except his freedom. That means that he is free to compete with Microsoft IF HE CAN. Free to start his own company and write his own software IF HE CAN. Free to make his products better and cheaper and more user friendly than Microsoft’s IF HE CAN. But his failure on any of these aspects is not Microsoft’s fault. And they should not be handicapped and restrained by the use of governmental force JUST IN CASE some other less successful smaller company may or may not exist and want to challenge. Anything else is the celebration of failure and the penalisation of greatness – two things that embody the very spirit of socialism and communism.

    Regulated capitalism is an oxymoron. Capitalism is based on the truth that man is free to act in whatever way he sees fit to benefit his own life, as long as he does not use force against others. But regulation IS the use of force against others, against the innocent. Regulated capitalism is a despicable term designed to pretend that man is free, but also concede that he shouldn’t be free if a group of people, usually the vote-hungry principle-less collectivist politicians, decide that he is too free, whatever that means.

    One more thing: you say you can’t have non-regulation in a free market where there is limited choice. But there is always limited choice in any market, even one as diverse and free as the mobile phone industry. At some point, you will find a phone that is a good as you can possibly afford for as much as you’re prepared to pay. Where do you go from here? Do you want the option to have it for “free?” Well, it’s costless to you but the law of supply of demand cannot be avoided; someone must pay for it, someone who doesn’t want it but is forced to pay for your need or want; in case you haven’t guessed I’m comparing this to the welfare state now.

    You should be grateful that the very things you need/want on a daily basis: food, drinks, clothes, computers, cars, phones etc are already available to you because people much cleverer than you or I used their brain and life to invent such things and then develop those industries to the point where they are now virtually universally available in the semi-free world. And guess what? They did it all without government bailouts or regulations. Instead of complaining that these pioneers of human intelligence (businessmen) should be forced to lower their prices or stop making “too much” money (as if their gain was your loss), the socialists should be thankful that they even exist in the first place.

  11. Trevor Says:

    Evanescent I believe I understand your point. I’m curious, is it safe to say that the Unions are sort of the”Fly in the ointment” Without the Unions, for example, if a man didn’t like his job or felt his wages were unfair, he could simply get another job possibly creating competitivness for his services. If an employer didn’t wish to pay him a said amount, he would continue to search for a better job or simply settle for what’s available. He would probably still be paid handsomely. This would keep a business costs down and maintain competitive pricing for goods and services. With Unions, corporations are forced to agree to exorbant wages and benefits thus driving up costs and passing those costs on to consumers. The Unions become the third party in control of the company. It seems that without Unions, the playing field would be managed by the “Buyer and the Seller” and not by a third party. As you said before,”Man must survive” I believe the Unions rather than the government is impeding his survival. Well…corection if the Unions are dishing out campaign contributions, then I guess they are both controlling his destiny.

  12. evanescent Says:

    There is nothing wrong with forming a Union to represent a workforce and negotiate with an employer as a voice of many, in principle.

    But there should be no obligation at all for any employer to listen to a Union. Quite simply, if you sign a contract with an employer, all things equal, then you agree to the terms of condition of your employment. Depending on the terms of your contract, your employer cannot arbitrarily decide not to pay or employ you. Likewise, you cannot change your mind regarding something and refuse to work, and still expect to be paid.

    The state of the market generally determines who has the bargaining power between employee and employer, but then so do more obvious issues, like your skill.

    I think it is very good (i.e.: moral, because it’s in an employer’s self interest) so listen to its workforce and keep them reasonably happy, i.e.: motivated to work and happy to come to work and feeling appreciated and not exploited, but also not overly appease its workface at the expense of efficiency. Giving everyone a 200% payrise for example would please staff for about 1 week, before the company went out of business and everyone was out of a job altogether. These decisions are an employer’s to make, and his alone. No one has the right to enforce anything else on him.

    Because everyone wants a job, employers generally have greater bargaining power than their employees. However when jobs are needed on a grand scale, skilful employees gain the upperhand and can demand more of employers. When this happens, you don’t see companies running to the government asking for special treatment because the nasty individal is asking for more wages or better working conditions. So why should it be any different when Unions make demands of employers?


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