Economics and Wealth, Part II
In the Beginning
How money works is as clear as how our solar system works. The movement of the sun, moon, stars and planets are easy to see and therefore we knew that the sun rose in the east and set in the west. We could see the planets and stars revolving around earth. It was plain as day and easy to understand. The only problem with that is, what had passed for self-evident proof, for knowledge, education and wisdom for thousands of years was wrong.
It was the same with economics. Self-evident “proof” was wrong. We thought the value of money was the value of what we held in our hand, like gold. At first we bartered. Your flint arrowhead for my carved bone. Our safe passage through your territory for seventeen bison skins. And so on. Later, gold and silver were assigned a monetary value and was used as money. One shekel of gold was worth so much food.
Natural resources were considered money. Where do natural resources come from? It comes from the ground. Gold comes from the ground. Water comes from the ground. Bison comes from the ground. They eat grass and grow. They don’t come from the sky. Flint comes from the ground. Bones come from bison that come from the ground. Arrow shafts come from trees which come from the ground. All right, all right, I get it.
Money comes from somewhere else, too. It’s funny, because practically everybody I talk to gives me this same answer. That shows just how prevalent this attitude is among humans. When I ask somebody how we get money, the answer is, we earn it or we steal it. We also get money by taking it away from other people.
The beginning, worldwide philosophy has always been, we get money by either digging it out of the ground or by taking it away from other people. Thus, the United States is blamed for being wealthy by taking wealth away from other, poorer, weaker people. That is absurd of course, as we have already seen.
In the sixteenth century Ambassador Jean Baptiste Colbert (1619-1683) of France observed which economic practices brought in more gold for the king. He then described to King Louis XIV an economic system that we call Mercantilism. It was designed so the country would import more gold than it exported, and export more goods than it imported. The profit would go to the king. You can see it is impossible for every country to import more gold then it exports; somebody has to lose in that deal, and it is usually the weaker countries that lose. Mercantilism became official, and was adopted quickly among strong nations.
Mercantilism is based on the idea that wealth comes from limited natural resources. That is, gold. The more gold you have, the richer you are. Since gold is a finite resource (there's just so much on planet Earth, and no more), it is theoretically possible for one person to own all the gold, all the wealth. It would also be true (if mercantilism were correct) that the more wealth you have, the less someone else can have.
Mercantilism demands a person or policy to be clever, crafty, and strong in order to survive. It is designed to enrich the king, the strongest of all, who has enough money to hire clever and crafty men.
The framers of mercantilism did what seemed right and proper. It seemed there were two great truths in that day: wealth comes from gold and the sun revolves about the earth. The leaders merely dealt with "the way things are." Furthermore, the king owned the country; therefore, the economic system should and must be controlled by the king and benefit the king. There was nothing evil in the intent with which mercantilism was designed. Colbert simply used the wisdom of the day to benefit the country he loved. But as it turns out, anything that benefits one person by impoverishing another is evil whether the participants realize it or not.
Although it started with gold as the standard of wealth, it easily became apparent that any natural resource will substitute for gold: silver, copper, lumber, spice and oil, to name a few. However, the belief that wealth comes from limited resources is as wrong and as damaging as the belief that the sun revolves around the earth every 24 hours. It seems obvious that the sun rises in the east and sets in the west but in fact the earth rotates from west to east. Because the Mercantilist theory appears to be self-evident, “the value of money comes from gold” (limited natural resources), it is used today by almost all the countries. It is designed to bring wealth and power to the rulers, in order that they may rule the country as they see fit.
The Mercantilist idea is that there is a finite amount of money. The more you have, the less someone else can have. Every dollar you have deprives a poorer person of that dollar. That's just the way things are; you can't change it, so don't worry about it. Even Jesus said, "You always have the poor with you."
You can see how this economic belief influences a person's religion and his politics. If every dollar you have is a dollar someone else cannot have, then rich people are sinful; they have deprived the poor of basic necessities. "The rich get richer and the poor get poorer." A conscientious citizen would vote for the political party that promises to punish the rich and return the money to the poor. Politicians would capitalize on the fear, frustration and anger of the population by promising to take back the money they had lost and return it to them. For some reason this method of redistribution never seems permanently to change the poverty of its recipients but rather it boxes them in. Instead of teaching the recipients that wealth comes from proper expenditure of their own efforts, it teaches them that wealth comes from the government. Unfortunately, the government never has enough money to provide for them, because it can not have enough money under this system.
In the world of international trade, according to Mercantile theory, it is important that a country's trade be designed to bring more gold into the country (into the king's coffers) than what goes out. Therefore we have protective tariffs and are concerned about the "balance of trade."
The problem with Mercantilism is that it supposes wealth is drawn from finite natural resources and therefore is limited. The logical result is that the more wealth one person has, the less wealth another person can have. The truth is, wealth is unlimited, and it is not based solely on natural resources. Besides that, natural resources are continually changing. What was a natural resource in one age (e.g. whale oil) is not a natural resource in another age.
Mercantilism was formed by a theory. The study of the way economics and money really work soon demonstrates the error of Mercantilism. It cannot ultimately be successful and benefit the people.
Capitalism was not started in the way Mercantilism was started; it was not thought out and designed to accomplish a purpose, to enrich the king. Mercantilism is economic practices based on a theory. Capitalism is economic practices based on observation and analysis of what works. It allows private citizens to engage in business, provide for their own needs, and enrich themselves.
Adam Smith, an eighteenth century Oxford professor, wondered, "Why are some nations more prosperous than others? What is it they do differently?" Until that time, economies evolved in a hodgepodge way. A monarch may grant one city or class of people special favors, while keeping other people or cities in serfdom. Mercantilism had been defined in the early seventeenth century, but it did not have a pure implementation throughout all nations. The result was that one economic practice was implemented in one city, another practice in another city, and still another for the country overall. In this situation, some countries prospered and some did not.
Adam Smith wondered why. He studied the economic practices of nations and saw a pattern. When people practiced certain economic principles, they prospered. When they practiced other principles, they were impoverished. He wrote a book, Wealth of Nations, defining what he found and explaining it. One of the revelations in that book is that the wealth of a country is determined by the wealth of its citizens, not by the wealth of its king.
Adam Smith’s work, Wealth of Nations, was not a secret, and national leaders eagerly waited for his book. It was published in March, 1776, and quickly shipped to the American British Colonies. American leaders, after studying his book, declared the United States will be a Capitalist nation, and set it up as such. Since that time, the United States has become the world's leading economy. Other nations, still far behind the USA, are catching up only as they implement Capitalism in their own country.
Capitalism is an economic system in which the people of a country are allowed to engage in commerce. The economy is not owned by a government or a political party; it is owned by the people engaging in fair trade. They themselves decide what to make and what to charge for it. With their profit they provide for themselves and pay taxes. Free Enterprise, incidentally, is the legal right for all citizens to engage in capitalism.
Capitalism has enriched more people and more countries than any other economic system. It holds the potential to rescue everyone from poverty and distress. It has provided more aid, more wealth, more inventions, more food, more goods, and more housing than any other economic system. In Capitalism, people care for themselves. It is impossible for a person – the king – or a political party to provide for millions of individual needs, but it is possible for millions of individuals to provide for their own needs.
"Wait a minute!" you may say. "What about all the abuses and injustice to mankind found in the Capitalist system?" The fact is, abuses come from two sources:
- Mercantilism masquerading as "capitalism," is the chief culprit
- Misuse of capitalism
Don’t be deceived; many national leaders who are openly practicing mercantilism are parading around pretending to be supporters of capitalism. They may not even know it themselves. They may be thinking, as many people do, that because they are in America they are therefore Capitalists. That is like saying, “Because I’m in a church I’m a Christian,” or “Because I’m in a garage I’m a car.”
Not Capitalism but the misuse of Capitalism is responsible for abuse of other people. If you want to remove the abuse done to people, then practice pure and correct Capitalism. We can not say that about Mercantilism, because Mercantilism is designed to abuse one group of people in order to help another (which ultimately results in both groups being hurt).
What about those people who cannot help themselves, the orphans, the widows and the sick? Remember that Capitalism is the result of a study of what does actually happen; it was not created by theory. In the proper use of Capitalism, when people have more money, more money is available to help those who cannot help themselves. Under Capitalism more poor are cared for, more hungry fed, more homeless housed, more orphans secured than under any other system.
The next argument may be made: “If misuse of Capitalism is responsible for people being abused in the United States, doesn’t that show Capitalism is not being practiced in the USA but its abuse is being practiced. Yet the USA is still the wealthiest nation. Doesn't that show it's not Capitalism that brought prosperity, but something else?”
No. Remember that Capitalism was discovered by studying its results when practiced while intermixed with another economy, Mercantilism. The greater degree in which Capitalism was practiced, the greater that country prospered. That shows Capitalism works very well, even when adulterated.
Here are some hallmarks of Capitalism:
- The people of a country engage in private commerce; they own their own business. In Free Enterprise, every citizen is allowed to practice Capitalism.
- The type, quantity and quality of goods and services provided depend on the demand for those goods.
- Prices are regulated in three ways: the availability of goods, the demand of goods and the competition.
These abuses of Capitalism result in abuses of the people:
- Price fixing
- Charging too low an amount for goods and services
Does that confuse you? How is charging too low for merchandise an abuse of capitalism and harms people? Here’s what happens. A wealthy company charges too low for merchandise and takes a loss. His competitor cannot compete with that and goes out of business. The wealthy company then raises its prices to recover the loss it received earlier. What has happened is that the wealthy company has become a monopoly and has eliminated competition.
Mercantilism has a champion political philosophy, Socialism. Socialism exists because of Mercantilism. They teach it and practice it continually, in order that they may reap its rewards: all the money and all the power in the hands of a few at the top of the government. Because of that, Mercantile philosophy is widely and wildly proclaimed and found even in the mouths of babies throughout the land: "The rich get richer and the poor get poorer." "More welfare!" "Free medical care!"
Capitalism has no champion political party. There is no political group specifically teaching and practicing Capitalism. The result is that people are ignorant and confused. They are being led astray by those who would be King.
Two Political Parties
In the United States today we have two predominant political parties, the Democrats and the Republicans. We also have two predominant political opinions, liberal and conservative. Democrats are primarily liberal, about 90%. Republicans are primarily conservative, about 60%.
Liberalism, defined it the very simplest terms with one sentence is this:
A liberal is a person who believes the government is responsible for the welfare of the individual.
Conservativism, defined in the very simplest terms with one sentence is this:
A conservative is a person who believes the individual is responsible for his own welfare and the responsibility of the state is to enable him to do that.
Liberalism uses Mercantilism as its economic model. It must, otherwise liberalism loses its justification for existence. If wealth (or money) is the result of the ownership of limited natural resources, then the state must step in to equally and fairly divide the wealth.
Conservativism uses Capitalism as its economic model. That means, the economic function of the state is to make sure capitalism works: free enterprise, competition, and so on.
Under Liberalism, wealth is limited and the people have limited money. However, remember that mercantilism was designed to enrich the rulers, and so it is. The rulers of a Liberal government have unlimited wealth.
Under Conservativism, wealth is unlimited and the people have the responsible and ability to partake of it as much as they want.
Wealth is unlimited. Natural resources play a role in the value of money but they do not create wealth. Natural resources are unlimited because they change. Business creates money. The best economic system to enrich the most people is capitalism.