Why capitalism is better for your dog than communism

pedigree

I was interviewed last week by someone researching the financial independence movement and was surprised when they asked me if I agreed that FIRE is an anti-capitalism movement?

No! I think he may have had his terms muddled up. When thinking about this stuff you need to understand the 4 Cs:

  1. Capitalism
  2. Consumerism
  3. Corporatism
  4. Communism

Let’s try to explain these terms as simply, clearly and accurately as we can.

1) Capitalism

festival-essentials

Have you ever been to a festival? Or a car boot sale? Or a farmers market? Or an art fair?

All those farmers, merchants, vendors and artists are capitalists. They are selling things that other people want to buy.

Now you may say that not everyone needs vegan burgers, healing crystals, face paint, Indian headresses or Kylie songs. You may even be right.

But the beauty of free trade is that if demand exists then someone will supply it.

That’s because capitalism rewards you for solving other people’s problems and supplying them with things they want.

Capitalism in its purest sense just means allowing people to come together, co-operate with each other and trade stuff so that everyone gains in the process. If I have spare beer and you have spare pizza, then we can trade and everyone gets to have beer and pizza.

Not only do we all benefit as customers but we can benefit as owners of capitalism. The beauty of index funds is that they allow you (or anyone) to easily own the market economy. By owning a single index fund you can own a slice of global capitalism: it’s as easy as running an online bank account.

Capitalism does not need to be started or directed by government because it’s a grass roots, bottom up process.  It’s not reliant on any one person. A visitor to London from the Soviet Union once asked: who is in charge of the food supply for the city? The beauty of free markets is that no one person is in charge and that’s why the system is fair, robust and flexible.

But capitalism does need to be regulated. For a start, capitalism does not work if the producers gang up against customers by forming a cartel where they agree to restrict competition.

This is not news. In The Wealth of Nations (published in 1776) Adam Smith warned of the dangers of vested interests blocking competition. This is why we have the Competition and Markets Authority in the UK, the Federal Trade Commission in the USA. These should be some of the most important government agencies.

There is no reason why you can’t combine free market capitalism with taxation, welfare safety nets and laws to ensure equality of opportunity (not outcome) and universal access to healthcare. In fact, we already do that.

Free trade: the voluntary exchange of products, services and ideas has been the driving force of human progress.  Have you ever tried to make your own smartphone? To mine the metals, design the computer chip, programme the operating software all by yourself? Probably not.  The magic only happens when people come together to collaborate for mutual benefit, guided by profits.

Is there anything more hilarious than middle class students at an anti-capitalism protest? Someone should really tell those clowns that if it weren’t for free markets, they would NOT be on track to be PR agents, lawyers and teachers with Tinder, food delivery apps and naughty pictures on their iphones.

No, in pre-capitalist feudalism they would be struggling up to their knees in mud working for the Lord of The Manor: ploughing his fields with oxen (if they were lucky) or pulling the plough themselves (if they weren’t).

Or in post-capitalist communism they’d be trying to fix the broken down tractor in an attempt to hit their beetroot production quotas. And then being shot by Red Army soldiers when they failed. I hate it when that happens.

In contrast, capitalism drives technological progress and produces abundance. So I hope that you can see that capitalism is good news for people that like being alive (not to mention warm, fed and clothed).

Capitalism is also good for your pet dog.   I was recently chatting to one of the ladies at my local gym. In a “Peak Surrey” moment she told me that her pampered pooch had just had knee surgery at a cost of £6,000.  That does not happen under communism (see below).

2) Consumerism

Handsome man washing car with a sponge and foam

Consumerism is keeping up with The Joneses.

It’s buying stuff that you don’t need. It’s the glorification of consumption and possessions such as cars, smartphones, soft furnishings and other stuff.

The main problem with consumerism is that it ends up making people unhappy. The “sugar hit” from shopping quickly wears off.

You can never win by competing at this game because there is always some clown with a bigger boat. I’m not making this up. In his book Affluenza Oliver James illustrates how consumerism is like a disease of the mind. Even better is the book Status Anxiety by Alain de Botton.

As a nasty side effect, consumerism hurts the environment because we produce an endless array of crap that then gets dumped in landfill, incinerated or hangs around for centuries looking ugly (e.g. plastic in the oceans).

Oh and did I mention that if you prioritise “stuff”, you will always be trapped working for The Man and his corporations (see below)?

Yes, I think I did.

3. Corporatism

Mr_Burns

Corporatism is an economy dominated by large and powerful corporations, bureaucracies and similar institutions.

How does this happen? Well, the industrial revolution saw the invention of the factory production line and large scale manufacturing.

Think of the Model T Ford which set the standard for all subsequent mass-market cars. Bigger companies had more economies of scale: they could spread their fixed costs over more units of output. The good news was that this resulted in lower prices for the customer.

The bad news is that corporatism concentrates power and tends towards monopoly and the suppression of free competition. This is sometimes referred to as oligopoly (a few powerful companies) or oligarchy (a few powerful people).

There used to be >100 car manufacturers in America but by the 1920s they had consolidated into the Big 3 (Ford, General Motors, Chrysler). Fast forward to 2008/09 and General Motors and Chrysler are bust and the CEOs are flying to Washington in the company jet to beg the government for taxpayer dollars.

When people rail against abuses of capitalism (e.g. the banks blowing up the economy and then being bailed out by government) they don’t realise that this is corporatism not capitalism. You can call it crony capitalism and I think that’s a fair description.

In capitalism, entrepreneurs get rewarded for innovation. They have to take risks where there are consequences of failure. But in corporatism, there is no skin in the game. Large company CEOs don’t risk their own money.

Corporate lobby groups (such as the CBI) mostly speak for large companies rather than for entrepreneurs or business as a whole.  Large corporations have access to politicians who they lobby…sometimes for good business reasons but often to ask for subsidies or to change the rules in their favour.

It doesn’t matter that much whether the corporations are owned by The State (e.g. The British Broadcasting Corporation) or by private sector shareholders (e.g. General Motors Corporation). Human nature is human nature.  Ego, greed and empire building happen in the public sector just as much as in the private sector.

In Corporatism there is a huge power imbalance between the company and the employee. It gets worse: we are moving towards a world where a handful of tech corporations know the locations, activities and private lives of everyone.

Not only do big corporations have the power to break the employee economically (by firing them) they have the power to control the speech of the employee, how they dress and ultimately how they think.  Welcome to The Prison Camp.

4. Communism

commie3

Communism is the state ownership / control of the means of production (land, factories, companies).

In other words, the government has all the economic power as well as all the political and military power. There are no checks and balances: all power is concentrated in the hands of the few not the many.

If you want to try to understand Communism, you can read The Communist Manifesto by Karl Marx. I warn you now its mostly incoherent but don’t take my word for it: please read it for yourself.

Communism does not end well.  One of the big positives of immigration into the UK from Eastern Europe is that they know what a disaster communism is. For Eastern Europeans, communism is not just a Hammer & Sickle badge to pin to their Gap dungarees at college. It’s something that enslaved and killed millions of people.

We live in a strange time when people on the far left claim that they are fighting fascism.  Yet communism and fascism are for all practical purposes the same thing. They are both forms of totalitarianism. And now its the left that poses the threat to free speech in the UK.

When your free speech has been taken away, you’ve been rounded up and are starving to death in a concentration camp, you really don’t care whether the guards are wearing black shirts (Fascism) or navy blue boiler suits (Communism).

Adolf Hitler knew a thing or two about killing people but he really was a hopeless amateur when compared with communists such as Stalin (Russia) Mao (China) and Pol Pot (Cambodia) who together with other communist dictators caused the deaths of about 100 million people.

Putting communists in charge of a market democracy is like putting Coco the Clown in charge of a Trident missile system. Or Dracula in charge of a Blood Bank.  Or Harvey Weinstein in charge of recruitment at a talent agency.

The recent example of Venezuala provides an example of what happens when you put communists in charge of a large economy.  And when I say large, I mean large before. Afterwards not so much.

When the land and factories have been confiscated and food production crashes, people have to turn to unconventional food sources. That’s not good for you but it’s even worse news for your pet dog.

Yes, there is black humour here. But first and foremost it’s a tragedy.  Will we ever learn?


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12 comments

  1. Great post Barney, thank you.

    Capitalist businesses, in general, need to allocate resources efficiently in order to survive and thrive.
    Anyone following FIRE is therefore pro-capitalist. One forms a plan and executes for the efficient resource allocation for themselves/their family: Efficient, value driven spending. Maximize their income for the working hours they have available. Good locations to investment their surplus capital. How to spend their free time energy. etc. etc.
    That is why the FIRE movement IS capitalism in practice.

    1. Kristian · · Reply

      Absolutely. Equally so those people spending every penny of each pay check keeping up with the Jones’. Those people see “investing” in material things as the best way for themselves and their families to prosper. The fact that many don’t know about the FIRE way of thinking or aren’t open to it when its explained to them is a whole other topic. My point was really that there’s lots of different approaches that could be said to fall within capitalism. Some of which we would see as positive and others not so much so.

  2. Dickrog · · Reply

    Good piece on where the FIRE movement sits politically. Something which I haven’t seen a lot of commentary/blogging on to date

    1. chadfrugalfinance · · Reply

      I love that we don’t seem to have any political divisiveness in the FIRE community – everyone is happy to bring each other up and let them choose how to best live their own lives. At the same time, I suspect we’d have to be cautious about calls for escalation in state intervention. I’m reading The Road to Serfdom now and Hayek captures well how increased planning (aka state intervention) removes choice. As we essentially are able to do what we do by exercising unconventional choices, decreased choice and increased taxation would hinder our abilities to reach financial independence.

    2. Thank you for your comments. I don’t claim to speak for the FIRE movement (politically or otherwise). It’s a broad church so there will be lots of different views out there and that’s fine. But I do think we should be voting for politicians that truly believe in freedom of speech, democracy and (regulated) capitalism.

  3. could he BE less informed about communism ?

    1. chadfrugalfinance · · Reply

      “Never even been tried, don’t know what he’s talking about”
      – The Guardian, probably

      1. My favourite response to the Game of Thrones finale:

        “True Daenerysism has never been tried”

  4. Good article – thanks. Must get a pair of those GAP dungarees!

    Are consumerism and corporatism not just nasty side affects of capitalism? Consumerism comes from good marketing and human nature. Corporatism comes from poorly regulated capitalism and human nature.

    Although it is not actually communist and does have a lot of problems, the NHS is a long way from capitalist and is a much loved institution here in the UK. On the whole it does a bloody good job and I am sure a major reason for this is staff on the frontline who put patient care well above their capitalist ideals.

    Extremism (left and right) comes when the capitalists screw up. For example a possible tipping point for extremism is extreme wealth inequality from a number of sources.
    1) Inherited wealth. In the south east UK the young are not going to be buying a house without the help of the bank of Mum & Dad. And they may not be able to afford rent either. So not much equality of opportunity here.
    2) Senior pay continues to grow far more quickly than low pay. This is then magnified by low tax. And yes you may get more tax take from lower taxes but follow the maths – this means inequality will be increasing further.
    3) Trickle down economics is simply garbage. Look at all us FIRE people. We are not spending – we are saving – so no trickle down.
    4) Solutions to the Global Financial Crises have increased asset values across the board. Yes it was necessary but it just increased wealth inequality further.

    With the Brexit mess (I think whether you voted leave or remain we can probably agree the Brexit project is in a mess) leaving many people politically homeless and ensuring everything non Brexit is not getting sufficient focus there is a much higher chance of a far left government in the UK than there should be. From a FIRE perspective, I am most fearful of a Brexit followed by a Mr Corbyn Government.

    1. chadfrugalfinance · · Reply

      That’s a grand post, and I’m with you on how corporatism and commercialism are undesirable offshoots of capitalism – though not inevitable. There’s a good argument from Hayek about how socialism is inclined to extend itself to communism, in order to prevent its inherent problems. The NHS is a good example – it’s beloved, but perpetually in crisis because the ‘free’ service only creates more demand. disproportionate with people adding in, alongside the tendency to over-bureaucratise.

      On inequality though, I’d disagree with you. I know The Spirit Level tried to make the case for inequality being a big driver, and I was a fan of that book, but have seen how the authors arbitrarily selected which countries went into their data sets in order to make their point.
      1) Inherited Wealth isn’t the source of the housing price boom. Major factors are disproportionately concentrated centres of industry (so some areas are deserted, others hugely in demand), over-investment in property as an asset and, controversially, mass immigration. With 250,000+ people net arriving each year, builders can’t keep up and demand is overinflated. Without that, after the baby boom, the market would have calmed down and the lower birth rates of British people would have resulted in a calmer market. Instead, all these factors massively increased demand for housing.

      2) This is just a factor of supply and demand and expertise levels. I also think there’s an unfair framing, when people talk about how tax cuts will ‘benefit the rich most’. Well obviously, proportionally they pay the most tax and there’s an uncomfortable entitlement in the framing. I’m not ascribing it to you specifically, but it can read as ‘Be glad the government allows you to retain some of that money you earned’.

      3) Trickle Down works when the money is reinvested, as it then funds further industrial developments and commerce. It’s the ‘unseen effect’ that Henry Hazlitt puts it. Our investments are funding people’s jobs.

      4) Yep, fair enough and I’d argue a terrible example of corporatism.

      Ultimately, I don’t think wealth inequality is the issue you’re portraying it as. Smarter people than me can point out what aspects of modernised economics have allowed stratospheric wealth to accumulate in some people, but the key thing is whether the poorest have become less poor and that is unarguable. If the poorest in society are able to graft and do better than 10 years ago, what does it matter is the richest folk are richer?
      The question surely is ‘does stratospheric wealth enable you to have a disproportionate influence?’. I think we could probably agree on that, yes?
      After all, if most billionaires behaved like JK Rowling, we wouldn’t be concerned, right?

      Anyhoot, ending with further agreement – I’m worried about a bungled Brexit, followed by a socialist government. Interesting times ahead!

  5. While it is well documented how terrible communism is, however, feel that the pitfalls of Corporatism are often understated.

    As a form of interventionist economic policy it aims to artificially manipulate the market. Generally, in favor of a specific industry or company.

    Enron’s influence over legislation and public policy was quite pronounced at the apogee of their reign as monarch of crony capitalism.

    Please see below link from Cato Institue:

    https://www.cato.org/multimedia/events/enron-ascending-forgotten-years-1984-1996

    https://invertedlogicblog.wordpress.com/2019/06/27/political-opinions65the-paradox-of-che-guevara-merchandising/

  6. […] TEA has this to say on the benefits of capitalism (20) […]

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