 Welcome to the FeeCast, your weekly dose of economic thinking from your friends at the Foundation for Economic Education. My name is Richard Lawrence, and I'm here today with our excellent panel, Brittany Hunter, Dan Sanchez, and Mary Ann March. And today we're going to be talking about some big ideas, similar to how we've done in some previous FeeCasts, as usual. But first, I wanted to mention kind of leading into this big idea discussion that we had a seminar this past weekend at Clemson University with our partners at the Clemson Institute for the Study of Capitalism, and this was on the morality of capitalism. And we figured that given that we just discussed this over the weekend with about 100 students, given that we talked about socialism and progressivism and various other terms in the last FeeCasts and the previous one before that, that we might actually dig in a little bit to that one word that looms over all of these things, which is capitalism. Because that's a word that we use a lot, and we don't necessarily always have the same definition when we're talking with our friends or professors, or whomever else about that word, capitalism. And so I do want to mention real quick before we begin that this is our last FeeCast in this space for about a week, because next week we're actually going to be at FeeCon, where capitalism will be discussed in abundance, and we're going to be in a special set. So please be sure, if you're at FeeCon, say hello, come see our podcast recorded, come see each of us. We'd love to say hello, love to sign anything, programs, brochures, books, even if we didn't write them ourselves, we'll sign them. So we'll be at the biggest event that Fee has this year. It's next week on June 7th through June 9th here in downtown Atlanta. And so we'll be talking about capitalism and all sorts of things, entrepreneurship, technology, environmentalism. But one of the things that I wanted to lead our conversation off with today, particularly as we did with the previous episode on the isms, is what is the dictionary definition of capitalism? And as usual, I've looked in my trusty online dictionary, Miriam Webster, of course, it's not Wikipedia, so it's not been, you know, consumer reviewed. Sorry, Jimmy Wills. Well, Jimmy spoke at our last FeeCon, so we'll have to send her written apology for all the times that we've been digging on his website here. But it's not just him writing it, right? That's the idea. But Miriam Webster says that capitalism is an economic system, okay? Good so far. An economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in the free market. All right, so there are a lot of interesting things in here. And just because it actually characterized capitalism as an economic system characterized by private or corporate ownership, I wanted to go through and I wanted to find out what exactly Miriam Webster had for corporate. So the definition of corporate is an association endowed by law with the rights and liabilities of an individual. So we think about all sorts of interesting recent court decisions relating to perhaps campaign finance. But here's the idea. Capitalism is an economic system characterized by private ownership with characteristics of competition, typically in a free market. So is that right? Is that wrong? I think it's right. It pretty much agrees with Ludwig von Mises' definition. Mises said that capitalism or market economy is that system of social cooperation and division of labor that is based on private ownership of the means of production. So he basically boils corporate individual down to private. And he went into kind of society in that too, which this one kind of constrains itself to the economic system. Which I like, because I think that should be a part of it. So it seems like the important takeaway is who is controlling industry if it's individuals or groups of individuals as opposed to collectively being controlled by the state. Which we discussed last week and the week before with the main primary definition of socialism is that the state or some controlling power owns the means of production. Thank you for inserting that previous definition because I think it is very helpful here. Well, in that definition, they're talking about ownership of capital goods in particular, right? They don't mention like land or labor in that. No, no mention of labor, no mention of land, which would typically be in your classical definition of capitalism. It says corporate ownership of capital goods and by investments that are determined by private decisions. So exactly against or in opposition rather to what you said about socialism being the government or state control of the means of production. Can we back up and define capital goods? I think that's a great idea. All right, let's do it. Tell us what they are. So first it would be good to talk about land and labor. Because those are what are called the original means of production. So land is just resources, just raw materials that just exist in nature. And so that can include actual ground land or it can include wild animals or the ocean or the air. So that could be food then. If you're talking about animals, it could be like not hunted just animals in the wild. Well, right, right. So not processed food. Not processed. Yeah, it has to be in its natural state to be considered. And then labor is also original because it is the human factor of production. So people, you know, our effort is considered original. Like we don't consider ourselves to be like produced. And then so capital goods are then a combination of land and labor. So you combine your labor with the land and then you create something new that didn't already exist in nature. So it's a produced factor of production is a capital good. It's a produced factor of production. So a pencil? Yeah. We always go back to the pencil because it's the easy one. So a pencil would be a capital good. Well, it depends on who is using it. So if an architect was using it, then it would be capital good because it is ultimately for the sake of producing a sky. It's producing something else. It's being used to produce something else. But if my daughter was using it just to draw for fun, then it would be called a consumers good. There you go. Because then it wouldn't be a factor of production. It would just be a good that is just enjoyed for its own sake and not for the sake of producing something else. So just like a business owner would need capital to get started. They would also need capital goods to get started to create whatever empire or whatever, you know, consumer good they're creating. That's right. And so there's a little bit of a confusion because capital is also used in terms of money, that startup capital instead of like things like factories, like actual goods that do things, that sometimes they use it for money as startup capital and that can be a little confusing. And it all derives obviously from the Latin, which means head, right? Yeah. So per capita. Oh, yeah. So GDP per capita. We know that, yeah. Right. So capita or in cattle raising, right? They would say, or they would characterize that generally as capital. Yeah. That's a type of thing. Like a head of cattle. Right. A head of cattle, exactly. Yeah. And so that's interesting that you differentiate between sort of the consumer good versus the means of production or the capital good, right? Mm-hmm. Because one obviously sort of allows us to produce something further where the other one is merely for our own consumption or enjoyment. Yeah. Sort of the production ends there. Mm-hmm. And so there's a difference in the economic way in which we think of these two things, whether it's a pencil or something else. Yeah. And that's why the IRS lets you deduct, you know, when you buy a pencil for a business purpose. Yes. Versus a pencil for an artistic purpose. Unless you sell that. Unless you sell it. Unless you sell it. Exactly. There's a fine line even there, it seems like. And I thought that you guys might also be interested in knowing that capitalism is in the top 1% of lookups on Merriam-Webster. Mm-hmm. And I believe, if I recall correctly, that socialism was also in the top 1% of lookups. So this is. Well, who is looking these up? Because they need to spread the word. Because if a lot of people are looking them up, a lot of people certainly still don't know what they mean. I think that's totally right. And so like what would you say is the typical conversational definition of capitalism? I think people think of capitalism along with things like lobbying. People think about the mustache twirling tycoon who is swindling and taking advantage of people and then shaking hands with a government official to get subsidies. And of course that is not real capitalism. That's what we call crony capitalism. But even that Merriam-Webster definition kind of lends itself towards that interpretation. Because the Marxist critique of capitalism is that it is run by and for the capitalists. Because again, it focuses on ownership of capital. But under capitalism, workers also own themselves. So there's no slavery. There's no serfdom like in the feudalism that we had. And that land is also owned privately. And really what Mises taught is that, again, coming back to the consumption good and how all production is for the sake of consumption, that it's the consumers who really direct capitalism. That capitalists are really following the lead of consumers and competing with each other to best serve the consumers. And I think that's one way actually in which this definition gets it right. Because it says capitalism is a system under which investments are determined by private decision. And so if you read into that along the lines of what you were saying, Dan, that the consumer actually directs what the capitalist with the capital goods produces, then you can imagine that private decision is not only the mustache twirling capitalists sitting in the top of the ivory tower, ivory tower maybe being more academic, but the top of the skyscraper. But he's responding to a need that's expressed in the marketplace. And that's the private decision that really matters. I think that's one of the most empowering and beautiful aspects of capitalism, is that we think prices have nothing to do with us. I can't control how much a pair of Jordan sell for, but how much I'm willing to pay for sneakers has an impact on the price of it. Prices emerge from the laws of supply and demand and the interaction of people. And so I think that's exactly right. So after a break, get right back to that very question because there's a deeper critique that is baked into what you were just saying, Mary. And so we're going to take a quick break and we'll be right back for the next segment of the FeeCast. One year ago, over 700 students, scholars, philanthropists, and business leaders from five continents gathered in Atlanta for a brand new, one-of-a-kind event, FeeCon. But get ready. This year is going to be even bigger. At FeeCon, we celebrate inspiring entrepreneurs, innovators, and wealth creators while helping you set your own path to personal and professional success. And it was awesome. All around it's been like a vacation. It will become a must-attent event next year as well. I'm not going to wait for my invitation. I'm going to invite myself, I guess. With FeeCon 2018, Fee is taking the conference experience to a whole new level. With eight incredible tracks, more than 50 jam-packed sessions featuring over 100 electrifying speakers and vast networking opportunities. FeeCon 2018 is sure to offer an unforgettable experience for everyone. It's the must-attent event this summer and it's all happening at the Hyatt Regency Hotel in beautiful downtown Atlanta from June 7th through 9th. Available tickets are going fast, so register now at FeeCon.org and find out how you can set your path and change the world. Welcome back to the FeeCast. Thank you for being in the break as you were watching that ad about Homer's Iliad and how in Homer's Iliad, cattle were used as currency. So this whole notion of capital and heads of cows and cattle kind of all goes together, obviously not from just us saying it, but it goes way back. When they would try to convey how nice a set of armor was, they would say, oh, this was worth so many heads of cattle. We need to bring that back. Let's figure out how many heads of cattle maybe... I won't pay over seven heads of cattle for this. How many heads of cattle would you accept for your salary? That's actually a pretty good question. One million. Is that a new alt coin? Crypto currency in the real world. A new blockchain. One of the things that you said, right before we went into the break was something that reminded me of this often-leveled criticism that the rich get richer and the poor get poorer. And this is, in many people's minds, a hallmark feature of capitalism. And so I'm wondering, and this really is open to anybody, we hear this a lot. Is capitalism guilty of this oft-repeated saying the rich get richer and the poor get poorer? Well, there's a video by Daniel Hannon for PragerU that makes the case that under capitalism, historically at least, and theoretically too, but this video focuses on history, that under capitalism, the rich have gotten richer, but the poor have gotten richer faster. At a faster rate. And please correct me if I'm wrong. I've read, yes, you're going to have therefore the poor seem very poor when you're not comparing them to a new middle class that never existed before, but the middle class never existed before. You're having people lifted out of poverty who would have otherwise not been. True. And when you look at capitalist countries versus non-capitalist countries, if you're going to be poor in either of those places, you would prefer to be in the capitalist. The poor are much better off in the capitalist countries. And let's not sort of gloss over the importance of getting out of poverty anywhere. Poverty in any country is uncomfortable. It reduces our individual dignity. But overall, when you look at conditions of poverty throughout the world in economically free countries, meaning those typically who have a more capitalist type of economic system versus those with a less economically free or less free market, privately directed, market directed system, you would much rather, by just the mere material that you have accessible by yourself to yourself, be preference or prefer living in the capitalist system. I think it's also important to remember that poverty is the default of humanity. We are very lucky that we can think of having wealth as being the norm that has not been the norm throughout history and it's not the norm now. We have to create wealth. It's so funny too because wealth is one of those topics that's just so misunderstood. I don't think many people actually have a great definition of that. So I might ask for one of those in a second, but it reminds me also, you know, I go in the car all the time talking to the radio and I always hear, you know, Wells Fargo, wealth advisors, Bank of America, Chase Private Client, all these things that are designed to help you manage your family's wealth and at what point in history before this time was wealth something, or at least discussing what to do with your wealth, something that would be broadcast on radio, the most mass media consumption that's out there. And so it's available. It's not available to everyone. Everyone doesn't have it, but it's possible for many, many, many more people than in the past to actually acquire. I would say it almost is available to everyone. Again, I don't like to downplay poverty as serious, but it's kind of creativity. The people who say the rich get richer, therefore I get poorer, there's such a lack of creativity there. Why don't you do something? It's very static. There is no room to bend. There is no what if I create value in this new sector no one's even thought of before and therefore raise myself up. One of the biggest criticisms of capitalism is that it's not necessarily a level playing field for the reason that there are people who have disabilities or the elderly. We can't think of them as having necessarily the easiest way to add value. But it doesn't mean that we throw out the baby with the bathwater. We were talking beforehand about capitalism being the least imperfect of all the economic systems. And I like that. Not the most perfect, the least imperfect. The least imperfect because you're always going to have imperfection. And so how can you continue to move toward maybe a better type of perfection, maybe a little less imperfection. And the key there, sorry, the key there to me is consent. Because capitalism is the one form or one ideal economic theory where you have to agree to it. I'm not going to be enslaved as a worker because Dan wants to make money and therefore he's going to enslave me. I have to choose to voluntarily accept his terms, come on board as his worker, and then we're kind of working together in that system. Exactly. And embedded in that mutual consent is the fact that there's mutual benefit. Otherwise the two parties wouldn't consent. And so this whole view of it as a zero-sum game and as an antagonistic situation that of the rich get richer and the poor get poorer, it basically is based on the view that the only way that the poor can get richer is by taking from the rich. And the only way that the rich have been getting richer is by taking from the poor. But when that's not the case, that the reason why both get richer is because they're allowed to cooperate. And that is what... Allowed to cooperate, I like the way you said that because they're not always allowed to cooperate with the government. Or at least not precluded from not cooperating or working with each other. I do want to take a step back though because there was a conversation we had a minute ago about wealth. And let's just give a quick definition of wealth. I'm going to cue you, Danny. What's wealth? Well, I would classify wealth... Well, that's a good question. Wealth is the value, the monetary value of resources that you have. So there are a lot of things that make us well off that we don't really categorize as wealth because it's not for sale. Friendships, for example, are great. But it's not wealth. That's right. Or the breathable air that we have, for example. But the monetary value of the resources that we have that can be traded, that's usually what's considered wealth. And that leads to the question of what can enable people to get wealth. Because historically as we were saying before really it was not accessible to the vast public. Like you were saying that having a wealth management message being broadcast to millions of people, that is a very unique time in history that we are enjoying. Before, it was only an elite few, just like the upper crust of like less than 1% of the population that had any kind of wealth. And it was the vast majority of the people were barely getting by making a living. And really quickly how would you characterize those systems previously deployed under which very few were actually getting wealthy? Like what would you call those? Were those capitalist? No. We could call them feudalism. That's what I was thinking. Which gets into surf territory, right? We're talking about feudalism. Lords and serfs, feudalism. Serfs being tied to the land. Right. And not having, because again it's freedom of labor too. It's not just freedom of capital. It's that people are free to break out of their caste system. And have free entry into whatever market that they want to get into. That there aren't guilds that are saying, no, you can only be a peasant. And you can only be a labor in this industrial field. Although some laws that we have might actually try to sort of pine for those old days where competition would be stifled from example, entering into a field. And you've got competition and you've got guilds right now. Licensing. And like professional licensing for things such as interior designers and casket makers. Yeah, selling coffins. You have to have a license. So, you know, there's this sort of instinct in us that we need to protect the things that we've gotten and this far and no further, right? And so it's very interesting when you're talking about serfs being tied to the land. This was what Thomas Hobbes was talking about when he said that life was nasty, brutish, and short. This was what life was before we had a system that private initiative and private decision making could actually direct how the means of production were deployed. What they made and for whom and at what price. Which also allowed us to do other things like hobbies. Yeah, we never had hobbies before. Leisure time. That's exactly right. It's gigantic. But I don't think people appreciate that as well. And so I think, you know, the myth of capitalism right is this cast of people, this upper crust of people who are basically directing us to purchase whether we like it or not, their goods. And they'll, you know, build monopolies, the people like to say. And they're benefiting off of us, exploiting their own workers and getting richer and richer while the rest of us are suffering for it. But we had this article recently talking about the Fortune 500 and how much that churns. That's right. How no companies last very long in the Fortune 500 because consumer preferences change, technologies change and again, these capitalists and these corporations they are trying to serve the needs of the consumers and as those needs change then the arrangement of the best way of producing for that changes also. Well so we also want to serve the needs of our consumers here at the FECAS. So we're going to take a quick break and we're going to be right back after this message. Are you going to FECON this year? If you are, then make sure to download the FECON app today. When you download the FECON 2018 app you'll receive real-time updates and announcements. You can connect with other attendees, exhibitors and speakers. You can choose your sessions and manage your schedule. Locate breakout rooms, local attractions. You can schedule meetings and reminders. You can play games, share photos and so much more. Download the FECON 2018 app from the App Store or Google Play. I'll see you at FECON. Welcome back to the FECAST. Dan, I've got a bone to pick. And that bone is about something that you said in your definition of wealth. You said wealth was the monetary value or at least the ability to acquire things measured in monetary terms. Is that generally capturing that? I would almost and this is getting into the weeds a little bit but I would almost leave out the monetary terms bit because I think wealth is more than the amount of dollars in your bank account or wallet. It's much more than just sort of measuring by units of a currency. It's your ability through your own value creation through your own work to acquire the product of the work of others. Right? So basically I love your definition except I would leave out the measured in monetary terms. I think that makes sense because we look at an economy like America where there are our producer raised in the break that there are lots of people who don't have savings accounts. Right. And yet they are still living the lifestyle of a person in a wealthy economy who is very wealthy compared to people historically. They have iPhones even if they don't have savings accounts and they have cars and they have access to this living lifestyle living standards. I agree with that. Even with a negative net worth you're still wealthy. Maybe not the wisest thing to do. Right. So Richard what I think you might be are hitting on here is that it's not about money, it's not about numbers on a piece of paper it's about what you can do with that. It's about what you can trade and what you can gain. Which is funny because that's what we were talking about with capital goods. It's just a piece of wood. What are you going to use your brain your mind power to turn that into and then monetize? And it's not only the consumer goods that are available but why we have those consumer goods so available, so abundantly and so cheaply is because we have an abundance of capital goods. And that's one of the reasons why Mises actually embraced Marx's term capitalism even though it was meant as an insult Mises actually embraced it because he said that capitalism is characterized by an accumulation of capital goods of produced means of productions of tools and factories and that is what makes the work of a laborer much more productive that a worker can only do so much with his bare hands. But a caveman with a handaxe can do a little bit more and a worker with tools can do a lot more and so again it's not this antagonism it's not an antagonism of capital versus labor it's a cooperation it's a harmony because the more capital we have the more productive labor is and the higher wages labor is able to earn and the more abundance we have as society. Alright so that gets us I think back to sort of our conversation earlier about what are the criticisms that people have or capitalism rather and that hits on that very point. Yeah I think to what you were just saying Dan I think one of people's main gripes is that they think about that worker with the high power tool as doing all the work that the people on the bottom the dishwashers the retail workers they're doing all the work and then some big wig up top is just cash and checks and that they feel that that's not fair that the people at the bottom should be receiving something more fair. And we have a common sense soap box that will be available by the time this goes live that takes that on because that really is a Marxist critique is that they adhere to the Marxists adhere to the labor theory of value and so they believe that the reason why something is valuable is because of the amount of labor that went into producing it and so if that's the case then the worker did everything and so the worker should be any profit that the capitalist takes is stealing from the wages of the worker that it should all just go back to the worker. It's so interesting because labor theory of value obviously you said goes it's the amount of work that goes into it but this goes to speak to our language too because we talk about putting blood, sweat and tears into our work and it's not necessarily the blood, sweat and tears that we use or we spend in order to produce something but it's the actual value that that end result delivers to the person who ends up buying it. Well it just comes down to supply and demand. It's that intersection of what producers are willing and able to produce and what consumers are willing and able to purchase. And workers are not the only ones who sacrificed. Capitalists are also workers often but capitalists also sacrifice too because they are the ones who take the risk. They are the ones who they delay the remuneration they get is delayed. Workers get paid regardless of whether any profit is made and they get paid as they're working. Whereas the capitalist only gets paid after the production process is finished and after it's sold at a profit if that ever happens. And so the capitalist has to be compensated for that or else they would never start the business in the first place. Not to mention I think people always forget this. Entrepreneurs and we all have entrepreneur friends they don't take weekends. There's no such thing as like oh I'm an entrepreneur I'm going to take the weekend that doesn't happen because you're always working you're constantly innovating and you don't really have a personal life. And so I think that's even like not even taken as far as cost benefit goes that a lot of these people who were seeing as you know up in their high ivory towers have sacrificed a lot more than we're seeing and yes the workers are sacrificed so much to give them a job where they can now have weekends and pay for their families and buy iPhones. This discussion of sacrifice reminds me of a term that I think is also used a lot and it's even in the definition of capitalism I read at the very top of the program today which is investment. And investment versus consumption right? So you mentioned that the capitalist is delaying gratification. He or she is investing in something he or she believes is going to be more productive later on. A seed that they'll plant that actually will grow into something greater. Consumption, maybe, maybe not exactly. But consumption is immediate and it's permanent and it's gone, right? So housing is consumption because you can only sleep in one bed in one apartment or one house per night. Food. Food is consumption. So I think there's a sort of comparison there at least definitional sort of challenge that we have when we talk about investment. That's the delay of gratification for the purpose of someone else's future consumption. Not the capitalist, but the future customer. He's doing this so that future customer can actually enjoy something later on. And like you said, he's working weekends, he's working nights. But what other criticisms of capitalism, yeah, are generally those that you hear? Unfair. I mean that's funny. This is unfair. Why is this company allowed to prosper? Well, this one's still struggling. Right, so there's a fairness question. Justice question. Egalitarianism obviously. Inequality of income, right? That it breeds this. The rich get rich or the poor get poor. What else? What else are we... Externalities. Pollution. We don't want for one person's actions to adversely affect somebody who had no interaction in the original decisions. Alright, so pollution. Various other things that we don't have control over sort of stopping once a producer actually puts the soot in the air. Right, well I mean that's theoretically we could though, because if transaction costs were low enough, we could just pay each other for the externalities. If I'm producing pollution with my car in theory, I could just pay everyone around me who has to deal with my pollution. Wouldn't get rid of the pollution. Right. It would just be more of a but maybe it would if I had to pay so much money that maybe you would become too costly for me to create pollution. Well and the way that Murray Rothbard deals with this is that property rights handle externalities for the... generally. So then the challenge is like how do you allocate property rights for things that are commonly thought of as common good. And so if you are the first to move into an area and you have been enjoying the clean air in this area, then you have established a homestead right to breathing clean air in that area. And so if you were there first before a polluting factory was there and the polluting factory was pumping smoke into your airspace, then you have a right to sue based on property rights. It doesn't need to be some kind of government policy of like okay well you know we need to have some sort of redistribution to make this fair it would just be I bet we could have an entire episode on externalities. So let's just tackle this one by one I heard justice and fairness, egalitarianism externalities. How does capitalism address these? In your opinion at least. Why are those not valid criticisms? In my opinion capitalism is competition, it's market competition or that at least is a huge factor of it. Unfortunately competition is not equal. It does not matter what you do, where you're born, who you are we are all very different people. Someone born the exact same day as me is the same gender is going to have different struggles than I have. It's just a matter of fact. So in that competition is where we kind of come alive and assert our uniqueness, right? So that to me conquers inequality. The competition in itself is actually kind of saying yeah we are all unequal, let me put my product against yours and see if our uniqueness can compare. And it kind of addresses fairness in some ways too. It kind of does, yeah. And I think the concern for inequality basically stems from an antagonistic view of the way economies work. Because really what they're concerned about is their own material welfare. And if the only way that you can benefit is by at the expense of someone else if the only way that the poor can get richer is by taking from the rich, then yeah, inequality is a problem. But if you get richer in spite of the existing inequality because of cooperation with the rich and if the rich getting richer doesn't hurt your chances of getting richer either then really that's there's no problem. In other words it's not a zero sum game. You cannot necessarily, you don't have to make a profit by taking away something from somebody by actually creating value which is what we talk about with entrepreneurship and the market process all the time you're actually growing the pie. And so it definitely is that the Marxist critique which of course we introduced a couple of weeks ago when we discussed his 200th birth anniversary, the Marxist critique really pits consumers against producers, pits capital against labor. We need all of us. We need all of us. It's what Mises calls a warfare sociology. And that's not a productive way to look at it because we're all in it together. Literally not productive. Which is amazing. So we're going to talk more about the amazing side of the market process and capitalism and sort of all the other elements that go into producing the good life that we enjoy living but for now we're going to take a hiatus. We're going to end the FeeCast and we'll see you all next week at FeeCon here in Atlanta. Have a great weekend.