Capitalism and Democracy

Capitalism and Democracy
by Alex Merced

Detractors to Capitalism often will make satire of the idea of "the invisible hand" as if Free Market Capitalist believe there is an actual invisible hand. The Invisible hand is a metaphor for much more beautiful and plausible idea; that the actions and choices of every individual under no coercive influence can best manage scarce resources. I mean to anyone who calls themselves anti-establishment, how can this not be a beautiful idea, the lack of central power, the freedom from a top down world. Detractors will then make arguments about "Market Failure" essentially making claims that the market doesn't achive impossible and often impracticle goals such as EQUAL income distribution.

Proponents such as myself are always glad to point out any problems that do exist tend to often if not always come from the results of barriers to entry through prohibitions and costly regulations that inhibit the amount of choice and diversity that makes a market works to it's best ability. Essentially to believe in Free Market Capitalism is to believe in a sort of Market Democracy where instead of decisions being the votes of all individuals but by the purposeful actions of all individuals.

Detractors will claim that you can't trust people to make the right decisions with their resources and their lives, so of course you need a coercive foce such as government to correct these "failures". In order to choose who sits in government to make these corrections detractors will be proponents of a democratic process... believing that the choices of all individuals will put best people in power, basically a market for government power. My questions then becomes, if you don't believe peoples decisions individually can manage resources then how can you claim that those same individuals decisions on who to manage will be any better?

The counter arument would be "Like the markets, we believe it should be a regulated process", thus comes all the campaign finance rules, ballot access measures, and other regulations of the democratic process. Although, if this is a market process these regulations should achieve the same results we see in the market limiting choice thus limiting the ability for individuals to truly take actions that make the market mechanism work at finding the most valued result.

Bottom line...

If you can't believe in Markets, how can you believe in Democracy?

Liquidity: The Destructor of Economies and Liberty

Liquidity: The Destructor of Economies and Liberty
by Alex Merced

I always believed and still believe that innovations that make our day to day tasks simpler and easier is the key to raising the standard of life. Although, in making investment more convenient we have sown the seeds of our own destruction. The primary deterrent to anyone saving or investing capital has always been liability, the risk that the bank may go under, or that they won't be able to get out of their investment in a good time at a good value. In trying to accommodate to this fear we have focused on created several institutions to separate these liabilities from investment. Although, when separating liability from those who rightfully should own that liability you distort the economic calculation between risk and reward which will always yield unintended consequences.

Through different legal structures and mandatory insurance programs people became more and more willing to invest their capital, but they also became less concerned with what they were investing it, and with who. On top of this through trading markets and derivatives we made it possible for investors to get their return on their investments in short and shorter a period of time, creating more demand for investment.

Due to these "innovations" the time horizon for investors became less and less as "liquidity" increased. Is there any inherent problems with these innovations? Trading Markets and Derivative products in themselves were great innovations, yet the underlying separation between ownership of enterprise and liability caused by the underlying corporate structure caused a level of moral hazard that was heightened by the amount of liquidity provided to any investment. The check's a balances built into structures like a Limited Partnership were gone, and along with it much of the prudence and calculation that makes investment and it's benefits sustainable.

You couple this with the fraud of fractional reserve banking, and the leverage it allows, the end result you have is self-destructing economic whirlwind. As an economy is destroyed, liberty dissipates with it as people begin to look and blame each other for the lack of resources.

The answer to all this is a sound belief in ownership of property, and the liability that should come with it or else in a world without this basic principle, Liquidity will eventually be the catalyst of the economies destruction.