Everyone hates capitalism, so it can’t be all bad. “Poor of the World, Unite against Capitalism!” says a huge poster in Managua…featuring the largest picture of an accused rapist we’ve ever seen. No kidding. Daniel Ortega’s stepdaughter said he had raped and abused her since she was 10 years old.

What is wrong with these people? Do they never learn anything? ‘Capitalism has failed,’ they say. ‘We need government to fix the problems…’ The rich hate capitalism because it threatens to take away their money. The poor hate it because they think it keeps them from getting any money in the first place. And everywhere you look, the chiselers are offering bailouts, boondoggles and bamboozles. With so many people trying to improve on capitalism, it’s a wonder they’ve never come up with something better.

Danny Ortega makes it sound like capitalism is a system invented by rich people to keep poor people down. Instead, it’s what happens when you leave people alone: some people watch TV…some blabber about politics…and some build wealth. The rules are simple: Thou shalt not steal, it saith in the Bible. Do unto others as you would have them do unto you, Jesus added. Everything else – from hedge funds to derivatives – is merely an elaboration. People make deals with their neighbors in order to get what they want. One plants the wheat; the other bakes the bread. As long as they respect each other’s deals and each other’s property, everything goes tolerably well.

But the urge to larceny and slavery is as strong as rum punch. One man gets a bottle of Flor de Cana rum; another wants to punch him and take it away. And if he gets away with it, we’re all in trouble. In the second half of the 20th century, approximately 2 billion people participated in a bold experiment. The idea was to prove – or disprove – that central planning would do a better job of providing goods and services than people left to their own devices.

After Mao came to power, for example, China turned its back on capitalism for an entire generation. Millions starved or were killed outright in various hokums such as the Great Leap Forward and the Cultural Revolution. Then, Deng Xiaoping announced a change. “To get rich is glorious,” he proclaimed. Since then, the comrade capitalists have been creating wealth at the fastest rate in history.

Too bad the Chinese weren’t running things in Africa. But then, Africa had a big disadvantage, says Damisa Moyo; the rest of the world was ‘helping’ it. Rather than allowing nature to take her course, Africa has gotten one bailout after another. Thanks to so many bailouts, it is now more busted and more desperate than ever.

“Think about it this way,” says Ms. Moyo, “China has 1.3 billion people, only 300 million of whom live like us, if you will, with Western living standards. There are a billion Chinese who are living in substandard conditions. Do you know anybody who feels sorry for China? Nobody. Forty years ago, China was poorer than many African countries. Yes, they have money today, but where did that money come from?”

It didn’t come from bailouts, she points out. And it didn’t come from anti-capitalist claptrap-babbling demagogues. Russia, too, prospered only after it sent the Bolsheviks packing. Gorbachev introduced his perestroika program in June ’87.

In the control group, meanwhile, Americans made their own anti- capitalist mistakes. The central bank lent money at artificially low rates – distorting the value of all capital assets. Tax policies, government-backed lenders, and government’s banking regulations stimulated the housing bubble. And the use of the dollar as an international reserve currency created what was effectively an all- night party with an open bar. Instead of having to settle up in gold, as they did up until 1971, the U.S. could pay its bills by emitting more pieces of green paper. Then, local economies had to put out great quantities of their own paper money just to keep up. This liquidity created a series of bubbles…leading up to the great bubble in finance and housing that blew up ’07-’08…

Late at night, after the party has been going strong, all credits are almost equally fetching. An Argentine bond? A house in Pomona? A share of Renault? All went up in value. But come the morning light, and investors begin to make distinctions: then, they want only the best credits.

A business that is losing money is like the Soviet Union – it is a wealth destroyer, not a wealth-builder. It produces things that are worth less than the resources that went into them. Eventually, it needs a perestroika; propping it up with bailouts and boondoggles only deepens the losses. In the soviet economy, businesses were taking valuable raw materials and working them up into shoddy finished products that no one wanted. In the capitalist blow-out, valuable products and services were produced by the boatload, for people who couldn’t really afford them. Naturally, the producers are worth a lot less than people thought. So are the houses their over-indebted customers live in. And so are all the debt-based instruments that their spending was meant to support. The wealth of the entire world is estimated to have a value of around $100 trillion. Capitalistic markets, in their wisdom, have judged about a third of that wealth no longer viable.

“Today, it’s America that must have a perestroika,” says ex-Soviet boss Michail Gorbachev. “You don’t have to be a Nobel Prize-winning economist to understand that it’s not normal that the country with 20% of the world’s GDP consumes 40% of the world’s resources.”

Yes, Gorbachev is right about a number of things. The western, capitalist economies are in the midst of their own perestroika. They are being restructured. But not by the world-improvers. Instead, they are being restructured by capitalism itself… Leave capitalism alone and it will do the job far faster and far better than the meddlers could ever do.

Bill Bonner
for Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

Latest posts by Bill Bonner (see all)

Leave a Reply


Notify of
Sort by:   newest | oldest | most voted
In an open market everything finds its’ level price. They should do this with the banks, their assets, and their balance sheets. Guarantee all deposits, if then a bank folds, these can be switched to another more viable bank. That is the limit of bailout, which our government did at the outset anyway. The administrator comes along and tallies up the real value of the assets, against its’ liabilities. The true loss is then discovered. Those indebted can then either file for bankruptcy themselves, or renegotiate their debt based on the real value of the asset they are holding. House… Read more »
The capitalist (bankers, ceo’s, wall street investors etc.) have been running the U.S. government for years and yes they run it for their own financial good and to the detriment of the working people who have just as much to do with wealth creation as bankers, investors and entrepreneurs. The problem with people everywhere is greed. The Soviet Union was never really socialist it was a dictatorship. And China is not really capitalist. The greed of those in power no matter how they structure it is the biggest problem we face as humans. We need to realize that everyone is… Read more »
Doug White
Bill Bonner writes that the biblical “thou shalt not steal” (Exodus 20:15) amounts to an endorsement of property ownership and therefore capitalism. Nice try but when you go to the very next two subsequent commandments you will find they repudiate a lot more of the things for which capitalism (rightly or wrongly) stands accused. Thou shalt not bear false witness (lying) and thou shalt not covet your neighbour’s belongings (greed). The commandment not to steal emphasises that (well-earned) property has to come from hard work – and capitalism won’t succeed where laziness, theft, lying and greed prevail. I enjoy the… Read more »

If capitalism has any intrinsic value, then it should be possible to justify it on a rational basis. Appeals to myth and superstition will not suffice.

A couple of thoughts. For a system to work it has to take into account what is normal human behaviour (acting in self interest, for example, or the observation that people seem to care more about the death of a single child than that of a hundred thousand adults). Capitalism does this a whole lot better than most other systems, but only when there are checks and balances. A system that relies on cultural norms or the good will of everyone is doomed to failure. Secondly, a system influences the population and therefore needs adjustment once it is put in… Read more »
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@marketsandmoney.com.au