Definitions are Everything

One last post (I think) from the Yvonne Lorenzo interview of the Saker.  This one will be quite different, as I believe that there is a bridge to be built between the Saker and at least one segment of adherents to Austrian Economics.

Lorenzo’s opening statement / question in her interview of the Saker included something on the generosity, or lack thereof, by Christians and others.  In his answer, the Saker made some comments on capitalism:

Modern “post-Christian pseudo-Christians” do not understand that. They somehow manage to delude themselves with the notion that capitalism can be compatible with Christianity. Truly, it is “either, or”. As Christ Himself said, “No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. Ye cannot serve God and mammon” (Matt 6:24). Ask yourself, what is capitalism at its core, as a worldview? Simply put, it is an worldview and ideology which claims that the sum of our greeds will result in an optimally organized society. What folly! Imagine what Christ or the Fathers would have to say about such demonically inspired nonsense!

“…[Capitalism] claims that the sum of our greeds will result in an optimally organized society.”  This does not conform to a definition of either capitalism or society that I comprehend.  Nor does it conform with ideas by advocates of capitalism from the Austrian School – as least those advocates of which I am most familiar.  “Organizing society” is not even in the job description of proper economists – despite the wishes of many economists and politicians.

The Saker further offers an extensive quote from Alexander Solzhenitsyn, much of which I agree with.  That the West is losing its religious essence – thought by many to therefore result in an increasing freedom – is, instead, enslaving us.  I have written too much about this to recount – including several cites from Solzhenitsyn expressing similar sentiments in the introduction to my book.

The Solzhenitsyn quote from the Saker includes the following:

Amid all the vituperation we forget that the defects of capitalism represent the basic flaws of human nature, allowed unlimited freedom together with the various human rights…

Now, definitions matter, and Saker will offer his more detailed description and definition of capitalism later in the comment section – as his criticisms of capitalism as being anti-Christian, despite being a small part of the interview, generated some lengthy discussion. 

I offer a description of capitalism by Ludwig von Mises, from his book The Anti-Capitalist Mentality (PDF) – the book cited by Lorenzo:

The characteristic feature of modern capitalism is mass production of goods destined for consumption by the masses.

This is the “characteristic feature”; certainly, there are other features, but Mises uniquely identifies this feature.

On the market of a capitalistic society the common man is the sovereign consumer whose buying or abstention from buying ultimately determines what should be produced and in what quantity and quality. (Page 1)

If one can find a “human right” in Mises’s definition of capitalism, I guess it would be this: that the consumer is sovereign – the consumer decides what he will buy, therefore what will be produced.

As one can see, this definition is not the one employed by the Saker, at least not to my understanding.  Please note what Mises also says in the same book:

Now, nobody ever contended that under unhampered capitalism those fare best who, from the point of view of eternal standards of value, ought to be preferred.

There is nothing about eternal standards of value in Mises’s description of capitalism.

What the capitalistic democracy of the market brings about is not rewarding people according to their "true" merits, inherent worth and moral eminence. (Page 9)

There is nothing about “an optimally organized society” in Mises’s description of capitalism.  It is a task for other disciplines (philosophy, theology, ethics, and political science), not for economics.  I want to be clear: I expect that what the Saker describes as “capitalism” is that which he sees around him in the West.  Mises would not describe what he sees around him in the West as capitalism.  Mises would certainly see capitalistic elements, but not a system as he has described in his writings.

This is why definitions matter.

So, I will tackle one objection at a time.  By the time I work through this, it should be clear that the objections raised by the Saker are also the same or similar objections raised by Ludwig von Mises and many economists associated with the Mises Institute.

He offers (on October 04, 2019 at 5:26 pm EST/EDT):

FIRST AND FOREMOST: it is based on usury.

Also on this point (on October 05, 2019 at 1:00 pm EST/EDT):

Finally, modern capitalism is ALWAYS based on banking and modern banking is ALWAYS based on usury. Which God and His Church have declared sinful and evil. (Emphasis in original)

I will not pretend to get at the bottom of the usury discussion in this post; it is a discussion that has gone on for 2000 years and more, and will continue long after I am dead.  The concept of usury existed well before anyone dreamt up the idea of capitalism – however capitalism is defined.

What I will offer – which I believe will resolve the overwhelming majority if not all of the difference between the Saker and Mises’s vision of capitalism on this point – is that what exists today is not a feature of any capitalist system that Mises would advocate. 

Today interest is charged on assets created from thin air by central banks – assets no one produced, assets not representing anything of value, assets that did not first have to be saved.  This begins with central banking and is extended through the fractional reserves enabled by government guarantees of banks and of depositors.  (For my purposes here, I will not get into a discussion of the issues regarding fractional reserve banking, as it is not conducive to a short discussion.)

No one in the system faces risk of loss, therefore everyone is free to take maximum risk.  There is nothing in this system that conforms with “capitalism” as Mises describes it.  That it is a feature of modern economies does not make it “capitalism.”

So, interest is charged for the borrowing of wealth that has never been created, other than by computer keystroke – which allows for a virtually unlimited and unconstrained amount of false-assets that can be loaned.  Now, whatever one’s definition of usury, eliminate this immoral practice and the government guarantees that secure it, and the overwhelming majority of interest charged would be eliminated with it.

Second, capital always end up being concentrated in a few hands (compare that with what Saint Basil wrote!)

Wealth inequality was generally being reduced in the United States throughout the twentieth century until the mid-1970s.  Proportionally, median income was increasing for all income levels until about the mid-1970s.  After the mid-1970s, both median income and wealth distribution began to skew exponentially toward the higher end – in fewer hands.  (See various charts here and here.)

As an example, regarding wealth: in 1963, the ratio of wealth for the 95^th percentile relative to the 50^th percentile was about ten to one.  In 2016, that ratio grew to about twenty-five to one.  It is exponentially worse when one looks at the 99^th percentile.

What happened in the mid-1970s?  President Nixon closed the gold window.  From the end of World War Two, the United States dollar was tied to gold for international trading purposes – which at least afforded some constraint on government spending and central bank inflation. 

Given the massive social and war spending in the 1960s, gold was being demanded by foreign governments in exchange for the dollars they held.  Gold reserves were vastly depleted in the US; hence Nixon closed the gold window – foreign governments could no longer demand gold in exchange for the dollars they held.

This removed the last bit of discipline from the dollar and government spending.  The Federal Reserve was now unconstrained.  And the first recipients of this unconstrained largesse are always the connected and wealthy, not the middle class. 

Does this conform to the idea of capitalism as Mises and many Austrian economists see it?  No.  To make a long story short, money – honest money – is commodity based; when markets have been free to discover money, this has been the outcome.  Commodity money builds discipline in the market; money cannot just be created by fiat and distributed to the connected class. 

It is beyond the scope of this post to examine this further in detail, but the connection is direct.  I can offer two books that develop these issues in detail.  First, by Murray Rothbard: What Has Government Done to our Money?  Second, The Creature from Jekyll Island, by G. Edward Griffin.

Third, capitalism is unsustainable since it is based on infinite growth in a finite environment. God did not create Adam for him to destroy the planet.

Well, we certainly need growth at least proportional to the population.  It also is desirable to have growth by pulling people up from poverty – this seems more Christian than dragging those who are living above poverty into poverty.

But, refer back to my earlier points: what happens when money and credit are created from nothing, to be spent on projects that would otherwise not be possible or profitable?  Inefficient and wasteful growth is the result.  This wastes resources – resources from our “finite environment.”  End central banking and government backing of banking systems, and you will greatly reduce such waste.  This is all fully consistent with capitalism as seen by Mises.

In clarification, he offers further:

trade & commerce != capitalism

just saying,

The Saker

Which I take to mean that he accepts trade and commerce as legitimate, and that this is not his definition of the capitalism that is incompatible with Christianity.

If money is allowed to return to its honest form – a commodity, to be produced and traded – then this is capitalism as Mises would describe it:  trade and commerce.  The commodity would have to be produced (grown or mined, processed, etc.) and traded.

Just saying.

Conclusion

To summarize all of this: in any economy that has developed beyond barter, money and credit represent one side of every single transaction.  As long as money and credit are controlled by elite, the system is ripe for abuse and will always be used for the benefit of the few and against the larger population.

This is what underlies the thing that Saker ultimately is calling the non-Christian aspect of capitalism; it is also what Mises would describe as the non-capitalism aspect of capitalism.

Nothing about modern banking as it is applied in the modern economy fits into the definition of capitalism as Mises sees it.  It is understandable that Saker would have criticisms of today’s economics; Mises, as I hope I have shown, would have the same criticisms – or at least his criticisms would result in similar outcomes.