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:
Let’s try to explain these terms as simply, clearly and accurately as we can.
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).
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.
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.
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. Socialism (its baby brother) is not quite as bad : the dog survives but you may have to share some of its Pedigree Chum when things get tight.
Yes, there is black humour here. But first and foremost it’s a tragedy. Will we ever learn?