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Feb-11-2014 14:43printcomments

Crony Capitalism And Free Enterprise: Misunderstanding The American Political Tradition

Crony capitalism is not really capitalism at all, but a form of socialism.

Crony capitalism

(WASHINGTON, DC) - The economic system we have today is a strange hybrid----made so by the political machinations of both political parties.

In a genuine free market economy, some businesses succeed and some fail. The market decides. In our system, business groups contribute money to political candidates of both parties not because they want government to leave them alone----but because they fear a genuinely free market and want government to protect them from competition---and from failure.

Because of bad financial decisions, Wall Street collapsed---and took a large portion of the economy with it. Institutions which made bad decisions were bailed out by both Republicans and Democrats---with taxpayer funds. Adam Smith, the great philosopher of capitalism, said that when two businessmen get together to talk, the subject is often how to keep competitors out of the market. He could hardly have envisioned the crony capitalism of today---with taxpayers insulating whole industries---such as sugar producers--from genuine competition.

Americans would well to remember what the Founding Fathers thought about the best way to organize the economy, consistent with their philosophy of a genuinely free society.

In his Second Treatise, John Locke, the philosopher who most significantly influenced Thr thinking of the framers of the Constitution, stated that, "The great and chief end...of man's uniting into commonwealths and putting themselves under government is the preservation of their property...Every man has a property in his own person. This nobody has any right to but himself.The labor of his body and the work of his hands, we may say, are properly his. Whatsoever, then, he removed out of the state that nature hath provided and left it in, he hath mixed his labor with it, and joined to it something that is his own, and thereby makes it his property."

Today, there is much discussion of "income inequality." To the extent that we are concerned about the excessive compensation given, for example, to Wall Street financiers who bankrupted their own companies and asked the rest of us to rescue them, this is a legitimate concern. In more general terms, however, a degree of income inequality is consistent with the workings of a free economy.

In The Federalist Papers, James Madison clearly deals with this question. He wrote that,"The diversity in the faculties of men, from which the rights of property originate, is not less an unsuperable obstacle to a uniformity of interest. The protection of these faculties is the first object of government. From the protection of different and unequal faculties of acquiring property, the possession of different degrees and kinds of property immediately results."

From the earliest days, the American colonists learned the important lesson that the entire idea of the "common ownership" of property was both impractical and unequitable.

Discussing the experience in the Plymouth Colony, Professor Gottfried Dietze, in his book "In Defense Of Property," writes that, "Irrespective of what each one of the colonists produced, everything went into a common warehouse and the government doled out the proceeds of the warehouse as need seemed to require. However, this system soon proved to be unsatisfactory. The warehouse was constantly running out of provisions and many of the colonists were starving. In view of this emergency, Governor Bradford and the remaining members of the colony agreed during the third winter to give up the common ownership and to permit each colonist to keep the products of his work. This gave incentive to all."

When Spring came, reported Governor Bradford,"the women now wente willingly into ye field and tooke their little ones with them to set corne, which before would alledge weakness, and inabilitie; whom to have compelled would have been thought great tiranie and oppression." The result of these efforts was a happy one.

Professor Dietze, reviewing the history of the entire American colonial period, as well as the thinking of the framers of the constitution, concludes that, "...the American Revolution became, to a great extent, a movement for the protection of property."

James Otis' treatise, "The Rights of the British Colonies Asserted and Proved,"'published in 1764, requests the right to participate in Parliament as a means for the protection of the colonists' liberty and property. The resolutions of the Stamp Act Congress of 1765, as well as John Dickinson's "Farmer's Letters," show that the colonists considered property rights as an essential part of freedom.

In their initial consideration about what kind of government to establish, the Founding Fathers, when they turned their attention to questions of economic organization, asked themselves which economic form would best maintain the free society they were in the process of creating. Clearly, the answer was free enterprise. For men suspicious of government power this was an obvious choice.

Professor Milton Friedman explains that, "The kind of economic organization that provides economic freedom directly, namely competitive capitalism, also promotes political freedom because it separates economic power from political power and in this way enables one to offset the other....Political freedom means the absence of coercion of a man by his fellow men.

The fundamental threat to freedom is power to coerce, be it in the hands of a monarch, a dictator, an oligarchy, or a momentary majority. The preservation of freedom requires the elimination of such concentration of power to the fullest possible extent and the dispersal and distribution of whatever power cannot be eliminated--a system of checks and balances. By removing the organization of economic activity from the control of political authority, the market eliminates this source of coercive power. It enables economic strength to be a check to political power rather than a reinforcement."

Yet, while a system of genuine free enterprise may be the form of economic organization most consistent with other freedoms, the current American economy is a reflection of dramatic government intervention, often at the behest of business interests who prefer government subsidization to the vagaries of the marketplace. The form of capitalism many now embrace is wealth for those who succeed and subsidization and bailout for those who do not. Ironically, some of the same members of Congress who decry welfare benefits for the poor, embrace similar---and often far larger---payments to large corporations or agricultural interests which have found it impossible to succeed in the marketplace.

Crony capitalism is not really capitalism at all, but a form of socialism. Genuine free enterprise, it seems, is embraced by some philosophers and economists but rejected by many in the real world. In the debate over the distribution of income few ask whether some at the top are there because of their genuine contribution to our economic well being, or because of government largesse, subsidization and bailouts---i.e., crony capitalism. In the coming debate on this subject, it is important not to ignore this growing blemish on our society.


_________________________________________ contributor Allan C. Brownfeld received his B.A. degree from the College of William and Mary, his J.D. degree from the Marshall-Wythe School of Law of the College of William and Mary and his M.A. in Government and Politics from the University of Maryland. He has served on the faculties of St. Stephen's Episcopal School, Alexandria, Virginia, and the University College of the University of Maryland.

The recipient of a Wall Street Journal Foundation Award, Mr. Brownfeld has written for such newspapers as THE HOUSTON PRESS, THE RICHMOND TIMES DISPATCH, THE WASHINGTON EVENING STAR and THE CINCINNATI ENQUIRER. For many years he wrote three columns a week for such newspapers as THE PHOENIX GAZETTE, THE MANCHESTER UNION LEADER, and THE ORANGE COUNTY REGISTER. His weekly column appeared for more than a decade in ROLL CALL, the newspaper of Capitol Hill. His articles have appeared in such journals as THE YALE REVIEW, THE TEXAS QUARTERLY, THE NORTH AMERICAN REVIEW, ORBIS and MODERN AGE.

Mr. Brownfeld served as a member of the staff of the U.S. Senate Internal Security Subcommittee and was the author of that committee's 250-page study of the New Left. He has also served as Assistant to the Research Director of the House Republican Conference and as a consultant to such members of Congress as Reps. Phil Crane (R-Il) and Jack Kemp (R-NY) and to the Vice President of the United States.

He is a former editor of THE NEW GUARD and PRIVATE PRACTICE, the journal of the Congress of County Medical Societies and has served as a Contributing Editor AMERICA'S FUTURE and HUMAN EVENTS. He served as Washington correspondent for the London-based publications, JANE'S ISLAMIC AFFAIRS ANALYST and JANE'S TERRORISM REPORT. His articles regularly appear in newspapers and magazines in England, South Africa, Sweden, the Netherlands and other countries. You can write to Allan at


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