Erosion of capitalism undermines market

It is a grave mistake to confuse the popular perception with the ideal. If a label is mistakenly assigned to a concept, however noble that concept may be, the concept can drown in the madness of contemporary crowds.

This is exactly what is taking place in political meetings around the world regarding capitalism. Governments from one end of the spectrum to the other are placing the blame for the global slump on our shoulders with loud claims that capitalism is now a proven failure. Our own president accepts some of this blame on our behalf while trying to forge an international coalition of modern socialist nations.

Americans are being asked to believe that our way of life is worthy of condemnation (perhaps it is) and that the free market system we thought we were living under should be thrown on the scrap pile of history. While there was a time in our past when we truly did live in a free-market system, it has been almost a century since the first mighty blow was dealt, and proceeding decades only added to the injury.

The America of today no more represents a capitalist system than does Venezuela a democracy. Both live under perceptions and labels that allow most people to believe the publicly stated claims, but the intelligent thinker knows otherwise.

The modern American economy is taking the beating it has long deserved. The sham democracy in Venezuela will eventually suffer the same fate all command-and-control economies must suffer at some point: destruction.

From the birth of our nation in 1787 until 1913, America was a free-market capitalist society. Our federal government existed on a minimal basis and was primarily concerned with engaging in war and peace, trade negotiations and preserving individual liberties. There was more accomplished in this period to raise the standard of living of people and improve the human condition than in any time since the birth of Christ.

Unprecedented economic growth rates were experienced for generations. The creation rate for incredible corporations was high and many of those companies are still with us today.

Our leaders at the time committed a serious mistake in 1913 when they created the Federal Reserve and instituted a federal income tax. From that day on, we lost the right to say we are a capitalist society.

A federal income tax places far too much power and control in Washington, D.C., transferring the decision of how to allocate resources into the most inefficient means possible.

Another heavy blow to our free market system came under President Franklin Roosevelt in the Great Depression when he initiated the Social Security system and created Fannie Mae. This mistake was followed by President Johnson’s Medicare system and Freddie Mac.

The final major moves, and these are directly related to why our banking system is broken today, were put in place by presidents Carter and Clinton with their community-reinvestment acts, which forced banks to allocate precious loan resources to areas of the economy where no self-respecting banker would have gone on his own.

A strong and rising stock market is the sign of a healthy economy. A healthy economy can only be sustained under a true free-market capitalist society of producers and savers. Until we see real signs of health emerging on a global basis, rallies and bull markets can be realized, but they are likely to be truncated affairs.
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Hauke is the CEO of Samex Capital Advisors, a locally based money manager. Views expressed here are the writer’s. Hauke can be reached at 203-3365 or at keenan@ samexcapital.com.