The Three Principles of Capitalism and the Free Society

The following is a collection of the materials used in creating the twenty-eighth episode of the [CitizenReaganPod|Citizen Reagan podcast] about the [Reagan Radio Commentaries|Reagan's Radio Commentaries].

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<TR ALIGN="CENTER"><TD>[IBM1Pod|Part 1]</TD><TD>Part 2</TD><TD>[IBM3Pod|Part 3]</TD><TD>[IBM4Pod|Part 4]</TD><TD>[IBM5Pod|Part 5]</TD>
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==Audio==

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==Transcript==
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This is the Citizen Reagan podcast and I need to get in the habit of doing a few things with every episode, like asking you to rate and review the podcast with whatever services you use. Like asking you to share us with your friends, family, complete strangers and your worst enemies, I don’t care really, just as long as you share it. Like telling you that you can find past episodes, transcripts, research and more on a wiki on my webspace. The address for the wiki is [http://www.poorrichardsprintshop.com/wiki|www.poorrichardsprintshop.com/wiki] but if you just visit [http://www.poorrichardsprintshop.com|poorrichardsprintshop.com], I have a variety of other projects there. I sell digitally restored books, magazines and pamphlets. I have constructed an archive of old pulp short stories. I accept donations through [http://ko-fi.com/poorrichards|Ko-fi], if you're willing help out. It’s all there on the website. Now, with that out of the way, let's get to Reagan.

Welcome back to my multi-episode look at the book, "The Incredible Bread Machine," from which Reagan read the namesake poem on his radio show. Reagan would ultimately read the poem 3 times due to its popularity. In the 1999 revised edition from which I am working, author R.W. Grant expanded on that original poem.

In my previous episode, I ran through the contents of Part 1 of the book, the Historical Notes. In this episode, we look at Part 2, The Three Principles of Capitalism and the Free Society.

Before we can start to discuss any principles, Grant finishes off his discussion of Radical Pique by asking why it continues in spite of numerous failures by other systems (he specifically mentions socialism). He points out that capitalism has no defined philosophy. Capitalism is what happens in the absence of economic planning or management. Without something to stand on, it's harder to defend against other systems.

That, I believe, is where these Principles of Capitalism come into play. But why do we need principles? Principles, help us know what is right and wrong. Without principles, we would just be forced to rely on other means. Just because something is legal, doesn't make it right. Just because a majority believes something is right, doesn't make it right. Just because something benefits the most people (using Ted Kennedy's phrase, 'The Greatest Good for the Greatest Number'), doesn't make it right.

Principles always exist and are simply discovered, Grant argues, similar to natural laws. 1000 years ago, humanity wasn't aware of the laws of physics, but we have always been subject to them.

The three principles Grant speaks of are: 1. Individualism, 2. The Institution of Private Property and 3. The Market Economy.

There is a constant conflict between individualism or self-interest and altruism. Grant uses baseball as a metaphor for the difference. He compares the American style of baseball to that of Japan. In Japan, there is a focus on the team and group harmony, while in America, the team has some importance, but serves, quote, "only as a vehicle for the achievement of individual goals."

A further example of individualism cited in the book is the Lincoln Electric Company of Cleveland, OH. In 1934, the company instituted an employee incentive program. They found themselves able to undersell their competition, while also paying double the prevailing industry wage. The company's president, James Lincoln stated, "Selfishness is the motivating force of all human endeavour."

Lincoln was simply tapping into a fact of nature: People will and should pursue their own welfare. Without food, shelter, clothing, etc. people will die and they will do what they find necessary to keep from dying. This is not to say that individualism does not include an element of obligation to others. But, such obligations are at the discretion of the individual and to be entered into voluntarily.

Altruism, then, is the moral obligation to put others before yourself, instead of yourself before others. The book contains numerous situational examples to demonstrate the idea. The concept of altruism sounds noble, but in the end, it may not be the best way. One example suggested in the book is to imagine that you find two children drowning. One is your own child, one is a stranger. The altruist, suggests Grant, would be forced, in putting others before themself, to save the stranger, leaving their own child to drown, because to save your own child would be to put your own interests first.

Altruism may have its merits, but it would be hard to practice. Combine altruism with politics and you’ve got the makings of a fine disaster. Suddenly "others" comes to include a more nebulous concept... society, i.e. the State, i.e. the Fatherland. "To be a socialist, is to submit the I to the thou; socialism is sacrificing the individual to the whole." That's Goebbels.

Next chapter, private property.
If we accept individualism over altruism, it makes logical sense for private property to be the norm. However, if altruism is the favored principle, private property rights will not be accepted. When you put others over yourself, is any property really yours? Your paycheck?? The altruistic person would make sure that money benefits somebody else.

As an example of a society where there was no private property, Grant cites the history of the Plymouth Colony, as written by its governor, William Bradford. For the first two years on a new continent, they farmed communally, and they nearly starved. They found that the young and strong were less willing to do work that benefited other families. It was decided then that each family would get a parcel of land to work for themselves. A certain portion of the crop was put into the common stores of the group, but anything over-and-above that amount could be kept by the family. This change saved the colony. The Virginia Colony suffered in a similar way.

Another flaw of a non-private property situation is described in a 1968 article from Science magazine entitled "The Tragedy of the Commons." The article’s author, Garrett Hardin, envisions a small public meadow, where all the shepherds go to graze their animals. When each has only a small number of sheep or cows, the meadow is ok, but as each shepherd owns and tends more animals, the meadow becomes exhausted. Because none have a specific responsibility to the upkeep of the meadow, they have doomed their collective group. But, if each has their own plot of land, it then becomes their own self-interest to make sure nothing happens to their land.

The idea extends to other areas. Public vs. private timberland. Public vs. Private waterways. Taking a step back for a second, would you rather use a private restroom or a public restroom? With private assets, there is a vested interest in maintaining it for continued, future use.

Private property is integral in securing other personal liberties. If a government owned the land that churches were built on, they could easily pick and choose which religions are "free" to practice. Freedom of the press is worthless if all the printing presses are owned or regulated by government. Where do you peaceably assemble against the government when the government controls the buildings you would assemble in? This is the stuff of totalitarians.

You would think government would promote private property rights, to make sure everyone is fed, to ensure the commons is not depleted, to not look totalitarian, yet they continue to make moves against it. At this point, Grant speaks of several of the ways government continues its encroachment on property rights. He starts with a couple stories of asset forfeiture, incidents in which a person's property was used in a crime, even if they, the owner that is, had not committed the crime. The property was seized and the owner had no recourse to get it back. It could be a car, cash, land, you name it.

The next section is environmental. This, to me, is more pernicious. Imagine being told that a piece of land you own must remain as it is, that it has been declared a protected habitat of some kind. This is worse than having the land seized because it's still yours. You still have to pay taxes on it!

Then there's zoning, where you can only own a piece of property... if you use it for whatever the government tells you. Grant explains how things work in Houston Texas, where they have never had zoning.

Eminent Domain is the final piece. Grant acknowledges the original intent, the building of roads and other public works, but in the next sentence explains the erosion of property rights. In 1954, there was a Supreme Court decision that supported the concept of Urban Renewal, where eminent domain was used to take private land, then given to another private entity, often citing the public benefit of increased tax revenue. Reagan spoke negatively of urban renewal on numerous opportunities. Grant finishes by suggesting eminent domain should be eliminated.
If you’ve been listening to the podcast, you may remember my friend Mike and I had a discussion on land use and eminent domain a while back in Episode 20, if you want to go listen. Episodes and transcripts at poorrichardsprintshop.com/wiki/

The final of the three principles is, appropriately, the market economy. After you've accumulated some kind of private property, whether its money or goods, you must have a place to trade it for something you can use to maintain yourself. Unless you plan to keep animals for meat, grain for breads, chop trees for wood, make that wood into furniture or burn it for heat and, in summary, just provide completely for yourself, you.re going to need to trade for food and other finished goods. You need a market.

Grant starts the chapter by talking about the destruction that comes from capitalism. Yes, destruction. I talked about it in episode 1. The burning forest. But from that destruction comes renewal, rebirth and growth. Grant, at this point shares the transcripts of two speeches from the movie [https://en.wikipedia.org/wiki/Other_People%27s_Money|Other People's Money] starring Gregory Peck and Danny DeVito. Peck plays the CEO of an old wire company while Devito is a corporate takeover man, seeking to buy this company so it can be transformed into something productive. At the yearly shareholders meeting, Peck and DeVito each state their cases for why the company should accept or decline the offer to buy the company. I probably can't provide the speeches here legally, not sure if I can claim Fair Use, but I'll provide links on the wiki to where you can listen. &#0091;[https://www.americanrhetoric.com/MovieSpeeches/moviespeechotherpeoplesmoneypeck.html|Gregory Peck's speech]&#0093; &#0091;[https://www.americanrhetoric.com/MovieSpeeches/moviespeechotherpeoplesmoneydevito.html|Danny DeVito's speech]&#0093; In any case, spoiler alert, Danny DeVito wins and, in the end, the company restructures. The point is the market may not always be fair, but it has ways of working everything out. 

Grant shares another story of government interference into a private corporation. The United Shoe Machinery Company, in 1917, leased or sold 85% of the machinery that made shoes in the country. In that year, they were taken to court for violating antitrust laws and the Supreme Court found in their favor. "...[A]n efficient company offering a good product was not violating the law." 5 years later, another suit forced them to modify their leasing contracts. Then, in 1947 yet another antitrust suit. The judge acknowledged that they produced superior products and services, they maintained all the machines well, the pay for leasing was fair and no customers were dissatisfied. First, government lawyers argued that the leasing period of 10 years was too long. It was ordered to be shortened. Second, the lease contract had provisions that no other company's machines should be used. That was anti-competitive and must be removed, nevermind to ask why lease the equipment if you don’t plan to use it. Third, there was an early-return fee if a machine was returned before the lease was up. That fee would be adjusted if the company leased another machine from United Shoe. This lessened fee was deemed anti-competitive. Fourth, a free repair policy was anti-competitive and the service must be offered for a fee. Fifth, leasing machines meant there was no used machine market and United Shoe was ordered to offer machines for sale... except they already did. And finally, the court decided that they must sell off their shoe supply subsidiaries, that would manufacture nails, tacks and eyelets. A fourth suit came in 1967, arguing that the earlier orders had not gone far enough, ignoring the fact that the company's market share had dropped from 85% to 60% in those 14 years. They were further ordered to break up the company further, provide services to the split off companies and license its patents to competitors. The company eventually dropped out of the market and, after numerous buyouts, mergers and name changes disappeared in 2000. Foreign companies now dominate this market.

In spite of interference of this kind, the system continues to work.

Our final chapter in this section is called the Origin of Cooperation. We interact with each other, millions of times per day if you look at a country-wide scale and government doesn't poke its nose into each one to make sure we are cooperating with each other. So, is government necessary to ensure cooperation amongst its people? Is government necessary to ensure a smoothly running market? Yes, you need some basic policing to prevent fraud or bullying, but do you need anything more than that?

Grant argues the larger question at play here involves the origin of the social order. Does social order come about naturally from the interactions of self-interested peoples or is there some covert or overt political authority at work? One of the quotes from "Musings on Money" that I shared in podcast episode 10 involved Oliver Wendell Holmes saying, "Taxes are what we pay for civilized society." But, Grant argues, if order evolves from political authority, where does political authority come from? Can you get to order without it? Grant cites the Hebrew tribes that left Egypt for what is now Israel. They were organized around tribal units and their religion. If a cooperative social order can evolve in the absence of a political authority, Holmes is wrong and government isn't a requirement for civilization.

So, if cooperation can operate independent of civilization, how does it evolve on its own? At this point, Grant goes into a relatively lengthy telling of a series of experiments performed by Robert Axelrod in the late 1970s and early 1980s, each building on the previous experiments. He invited computer programmers to create programs which would be pitted against each other on "The Prisoner's Dilemma." Here is the hypothetical situation: You and a friend have committed a crime together. If you both remain silent about the crime, you will each get 1 year in prison. This is cooperation. If you betray your friend, you will go free, and he will get 3 years, but he can also do the same to you. If you both betray each other, you will each get 2 years. You have no way to communicate with your friend.

He was surprised to find that one of the best performers throughout the series of experiments was a 4-line program called "Tit for Tat." It always cooperated on the first attempt, then copied it's opponent’s previous choice for all subsequent rounds. Axelrod's post-game analysis found that this seemed to replicate a number of personality traits: 

<OL>
<LI>being nice (don't betray first) 
<LI>being forgiving (being willing to consider cooperation even after being betrayed)
<LI>being provokable (being willing to retaliate in kind when you've been betrayed)
<LI>Showing clarity (opponents found cooperation with the Tit for Tat program allowed them to prosper)
</OL>

To summarize: Computer programs, and by extension their programmers, operated on a one-on-one basis with no external authority to punish or reward their actions. They found that cooperating was best for their self-interests.
I boiled that down quite a bit. For more on the story, I recommend picking up a copy of the book.

But that's just an experiment with computer programs. Can that translate to the real world? Certainly! Grant's next stop is a study by the Institute for Liberty and Democracy of the underground economy of Peru during the early 1980s. During that time, Peru had an intrusive socialist government and it forced the development of an extra-legal underground economy. This economy worked so well, it was capable of straightening out corrupt judges. These judges would sometimes get hired to arbitrate disputes. They could get away with taking bribes while working with the State, there wasn't any punishment involved. But if they were found to be crooked by the underground, they wouldn't get rehired.

Imagine that? The accountability of the marketplace as a means of correcting bad behavior.

This brings us to the end of Part 2.
Next time: Part 3 The Principles Ignored, How Political Force Disrupts Our Lives

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The Three Principles of Capitalism and the Free Society
