 I'm very pleased today to present the speaker for our F.A. Hayek Memorial Lecture, which is sponsored by Greg and Joy Morin, both of whom are present. Randall Holcomb is the devote more professor of economics at Florida State University. He received his Ph.D. in economics from Virginia Tech and taught at Texas A&M University and Auburn University prior to coming to Florida State in 1988. Dr. Holcomb is also a senior fellow at the James Madison Institute, a Tallahassee-based think tank that specializes in issues facing state governments. He's also a research fellow at the Independent Institute and I'm happy to say an associated scholar of the Mises Institute. He served on Governor Jeb Bush's Council of Economic Advisers in Florida from 2000 to 2006 and is past president of the Public Choice Society and Society for the Development of Austrian Economics. Dr. Holcomb is the author of 15 books and more than 150 articles published in academic and professional journals. His books include From Liberty to Democracy, The Transformation of American Government, Producing Prosperity and Political Capitalism, How Economic and Political Power is Made and Maintained, His Primary Areas of Interest or Public Finance and the Economic Analysis of Public Policy Issues. Dr. Holcomb will address this morning on Political Capitalism, How Economic and Political Power is Made and Maintained. Please welcome Dr. Holcomb. Thank you very much for that introduction, Joe. I am delighted to be here. It's a homecoming of sorts for me because I was on the economics faculty at Auburn University for 11 years, including when the Mises Institute was founded here in Auburn. Actually, in its early days, the Mises Institute and the Economics Department at Auburn had a very close association. We had a number of faculty members who were interested in Austrian economics. We had a regular Austrian economics seminar with the faculty and graduate students, had a great group of people there in that group. So it was great to see the Mises Institute founded and getting off to a bit of a start and is really, really rewarding to see how the Institute has grown and thrived and prospered over the years. So I'm delighted to be here and as I say, a homecoming of sorts because I was on the faculty here for 11 years before I took my current job at Florida State University. And what I'm going to talk about today is the subject matter of my recent book, Political Capitalism, how economic and political power is made and maintained. And in the context of, this is the Hayek lecture. So let me start out by talking a little bit about Hayek's most popular book, The Road to Serfdom, which was written in the 1940s. And you all will be familiar with his ideas. Hayek thought that The Road to Serfdom was socialism. And around the same time in the 1940s, Joseph Schumpeter wrote capitalism, socialism, and democracy. And Schumpeter, who was a fan of capitalism, nevertheless thought that it wouldn't survive, that it would be displaced by socialism because Schumpeter said the strongest beneficiaries, the people who benefited the most from capitalism, wouldn't stand up to defend it. And so he saw that threat of socialism. So here in the 1940s, Hayek, Schumpeter, both saw socialism as a big threat to capitalism. And if we move up into the 21st century, people like Bernie Sanders, Alexandria Ocasio-Cortez keep that idea of socialism alive. But what I'm going to suggest to you today is that the biggest threat to capitalism doesn't come from socialists. It comes from capitalists. That capitalists tend to promote policies that undermine the capitalist system. When you hear the term pro-business, somebody's pro- business, usually that means anti-free market. What I want to do is explore that idea a little bit further. And I want to discuss with you what I think is a distinct economic system of political capitalism. So political capitalism is an economic and political system in which the economic and political elite cooperate for their mutual benefit. Profitability of business is determined by political connections rather than the satisfaction of consumer preferences. And this idea of political capitalism, it's widely recognized, widely opposed, although not necessarily widely understood. From political left to political right, people decry the problems of cronyism, corporatism, favoritism. Nobody likes crony capitalism. Fascism seems to be closely related. And President Eisenhower, as he was leaving office, warned about the military industrial complex. So this idea of political capitalism, it's widely recognized. It's widely opposed, but it's not widely understood. Lots of people see the symptoms. Few people see the causes. Political capitalism, it's not a mixed economy. It's not something that lies between capitalism and socialism. It's a distinct and separate economic system. So I want to talk a little bit about that, explain some of the foundations of political capitalism, where it comes from, and maybe get some insight into why we don't often understand what's actually going on to undermine free market capitalism. If you go back to the 20th century, a common course that was taught in economics departments all over was comparative economic systems. And with comparative economic systems, mostly looked at capitalism versus socialism. It was based on a Cold War era method of thinking, where you go back to the Cold War era and we had the capitalist democracies on the one hand, the communist dictatorships on the other hand. There was a battle between them, not only the Cold War battle, but an intellectual battle also about the merits of these economic systems. And lying in between capitalism and socialism were mixed economies, some combination of capitalism and central planning, markets and central planning. And that Cold War era way of looking at economic systems more or less faded away after the collapse of the Berlin Wall in 1989, followed by the breakup of the Soviet Union in 1991, that Francis Fukuyama in his book The End of History saw capitalism as an economic system and democracy as a political system. He called that the end of history, that basically that's the final evolution of political and economic systems. I'm not so sure that's true and I see some fundamental incompatibilities between capitalism and democracy that I'll come back to toward the end of my talk. If you think about that 20th century way of looking at economic systems, basically we had the idea that economic systems range from capitalism at the one extreme to socialism at the other extreme with mixed economies in between. And economic and political systems were independent of each other. So you had on the one hand democracy and on the other hand dictatorship, and maybe some cases in between, not fully dictatorial, but not completely democratic either. And the 20th century way of looking at these things was that really political and economic systems were independent of each other. So again, thinking in the 20th century Cold War era method of thinking, we had the capitalist democracies up here in this cell against the communist dictatorships, the United States being the prototypical capitalist democracy, the Soviet Union being the prototypical communist dictatorship. But you could have all different mixes of political and economic systems. Democratic socialism, a lot of people pointed toward Sweden as an example of democratic socialism. I think that's problematic, but I'm not going to really get into that at the moment. I mean, this is the way people tended to look at things in the 20th century, and the fascism of Nazi Germany, capitalist system, but a dictatorship. Again, I think that's problematic, but I'm not going to get into it. All I'm saying is, this is the way that we tended to look at economic systems in the 20th century. And we haven't fully left that behind. So one result of that is that we do tend to think of socialism as the big threat to capitalism. And as I'm going to discuss through the remainder of the hour, I really think the bigger threat is political capitalism. As we move into the 21st century, this idea of comparative economic systems, we've really left it behind. We really don't even think about comparative economic systems anymore. Basically, the way economists look at economic systems in the 21st century is the market system is the economic system. And then there are various levels of interference with markets. So we have taxes, we have regulations and so forth that are interference with markets. So we've left this comparative economic systems paradigm. It's rarely taught in universities anymore. It was so common in the 20th century, rarely taught as a separate course anymore. We teach about markets and we teach about interference with markets. And so my argument to you today is we really need to go back to thinking about comparative economic systems, and we need to understand political capitalism as a separate economic system, and really the biggest threat to market capitalism. Now, I said at the outset that political capitalism was widely recognized. And I want to give you some examples of that, starting with a couple of famous economists from the 19th century, Marx and Engels. Here's what they had to say. Each step in the development of the bourgeoisie was accompanied by a corresponding political advance of that class. The bourgeoisie has at last, since the establishment of modern industry and the world market, conquered for itself in the modern representative state, exclusive political sway. The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie. So that's a pretty good idea of political capitalism, jumping ahead into the 21st century Here's Tom Morello in interview. This was an interview in Guitar World. Tom Morello is a guitarist for Rage Against the Machine. And Morello says, the government basically has one function, and that is to serve the interests of the people who own the country. So we see, again, popular recognition of this idea of political capitalism, but it really goes from one end of the political spectrum to the other. Here's Murray Rothbard in the Progressive Era. Increasing statism on a federal and state level can be better interpreted as a profitable alliance between certain business and industrial interests, looking for government to cartilize their industry. How often do we find Rothbard and Marx on the same page? And again, from Rothbard, the Progressive Era recreated that age old alliance between big government, large business firms, and opinion molding intellectuals. Power was shifted out of the hands of the masses and into the hands of a minority elite of technocrats and upper income businessmen. So one of the things we want to try to understand in political capitalism is how it is that the elite are able to capture the policymaking process. Let me give you some additional examples. Here's Joseph Stiglitz. I tend to think of Stiglitz as sort of on the left leaning end of the political spectrum. Stiglitz says it's one thing to win a fair game. It's quite another to be able to write the rules of the game and to write them in ways that enhance one's prospects of winning. And it's even worse when you can choose your own referees. And at the other end of the political spectrum, I tend to think of David Stockman as more leaning toward the right. David Stockman says we have a rigged system, a regime of crony capitalism. In truth, the historic boundary between the free market and the state has been eradicated. And therefore, anything that can be peddled by crony capitalists is fair game. So it's kind of interesting, you know, if I'm right in characterizing Stiglitz is leaning to the political left, Stockman is leaning to the political right. It's interesting to see the commonality of their views. And actually, these two books that were published around the same time, until you get to the conclusions, what the message that they have is almost interchangeable. Now their conclusions, as far as policy recommendations are different. The left, somebody like Stiglitz, you know, I think we need more government oversight, we need more regulation and so forth. On the right, people like Stockman think government is the problem, we need less government. But until you get to those policy conclusions, there's a huge amount of similarity between the ideas of people on the left and people on the right. As I say, the problem was widely recognized, if not widely understood. Here, Stiglitz and Stockman, again. Stiglitz says, you know, when one interest group holds too much power, it succeeds in getting policies that benefit itself, rather than policies that would benefit society as a whole. And Stockman, at the other end of the political spectrum, our government is no longer a system of democratic choice and governance. It is a tyranny of incumbency and money politics. The gangs of crony capitalism will fight tooth and nail to preserve their slice of an imperiled pie, thereby disenfranchising even further ordinary taxpayers and citizens who have no voice in the Washington policy auctions. So here, you know, if you just look at the popular recognition, the general recognition of these issues, everybody from political left to political right sees the problem. There are an elite few who make public policy and they tend to make those policies for their own benefit. And then there are the masses who are essentially disenfranchised. They bear the costs of the policies that are passed by the elite. So there are two groups of people, the cronies and everybody else, we give them different names, the bourgeoisie versus the proletariat, the elite versus the masses, and in the Occupy Wall Street language, the 1% versus the 99%. So how is it that this system is able to exist? How is it that it's able to perpetuate itself? And so what I want to do is to try to build a theory of political capitalism so that we can understand what's behind it, how this system works. And the building blocks of political capitalism, I'm going to going to rest heavily on elite theory that tells us who benefits and public choice theory that explains how they benefit. Neither one of these theories by themselves does the whole job. Elite theory developed by sociologists and political scientists for more than a century, the elite versus the masses. That elite theory tells us who benefits. But it doesn't explain how they benefit. Public choice theory explains how some people are able to benefit at the expense of others. We have theories of rent seeking, regulatory capture, interest group politics, that these aspects of public choice theory describe how it is that some benefit at the expense of others. But it doesn't identify that there is a systematic group of people who always are the beneficiaries, and the masses who typically bear the costs. So elite theory tells us who benefits, public choice theory tells us how they benefit. And one thing that's kept economists from really seeing, seeing this theory of political capitalism as a whole is economists tend to take a very individualistic approach to social science in general. It's individuals who act. It's not groups who act, it's individuals who act. And I'm sympathetic with that. But as we push this idea, what we do is we leave out the fact that individuals are members of groups and some groups are able to systematically work together for their own benefit. Now, an example of that individualistic approach comes in James Buchanan and Gordon Tulloch's book, The Calculus of Consent. And so Buchanan and Tulloch say they reject any theory or conception of the collectivity, which embodies the exploitation of a ruled by a ruling class. This includes the Marxist vision, which incorporates the polity as one means through which the economically dominant group imposes its will on the downtrodden. And so basically, what Buchanan and Tulloch, starting off this way in their book, The Calculus of Consent, was take off the table a possibility of seeing this theory of political capitalism because they take such an individualistic approach. So let me talk a little bit about elite theory. And we can see in a lot of work in economics, the foundations that lead us to understand how how elite theory works, we can see an economic foundation for elite theory. We see it in Mancer Olson's theory of group action, where small concentrated groups have an advantage over larger groups, even in Buchanan and Tulloch's book, while while they reject this notion of group action, do note that log rolling and political exchange benefit the people who engage in exchanges. And one one key thing to understand here is that the idea of log rolling, it's political exchange, it's sometimes it's vote trading. But it can be more than that. Sometimes it's like a political IOU. If you're in a situation, if you're a legislator, you might just you know, you vote for my bill, I'll vote for yours. But sometimes the transaction occurs over time. So a legislator says, will you support my bill? And other says, Okay, I will. But then an IOU is developed. So later on, the second legislator goes back and says, remember when I supported your bill, now I need your help, political exchange. And because there's a small number of people, you keep track of those political IOUs, and you have to pay your debts. Otherwise, you'll be left out of those political exchanges in the future. And it can log rolling occurs in other ways too, you know, we support my bill, I need your support. I don't know. We can provide some money for your district to build such and such. Okay, if we do that, put that in the bill, then I'll support it. So that's those are examples of political exchange. But those political exchanges can only occur among people where there are low transaction costs, so they're actually able to engage in exchange. I'm guessing that most of you, like me, aren't in that group where we can engage in political exchange. We just have to accept the legislation that's passed by the political insiders. That's the difference between the elites and the masses. Now, the coast theorem provides a good economic foundation for elite theory. This elite theory is rare to see it in economics. It's common to see it in sociology and political science. But there's a strong economic foundation for elite theory in the coast theorem. So many of you will be familiar with the coast theorem. Let me just talk about it a little bit in the context of markets, and then extend it to politics. One way to look at the coast theorem is the coast theorem says, in the absence of transaction costs, resources are allocated to their highest valued use. So let's think about what that means. In the absence of transaction costs, what does that mean? It means nothing is standing in the way of us making a mutually advantageous exchange. In the absence of transaction costs, resources are allocated to their highest valued uses. Okay, so nothing is standing in the way, low transaction costs, nothing is standing in the way of transaction costs, resources are allocated to their highest valued uses, because the people who value them the most are able to bargain to get them, to buy them, to engage in transactions to get them. So the coast theorem, I mean, there's a kind of a common sense explanation here to the coast theorem. If nothing is standing in the way of mutually advantageous exchange, then the parties to the exchange can allocate resources to their highest valued uses, because the people who value them the most can buy them. So let me give you, if we think about the coast theorem, a common example in economics is air pollution. So let's say we have a steel mill. A steel mill is selling steel to an automobile manufacturer. And so they engage in transactions. So the steel is bought and sold. There are low transaction costs. So it's easy for the auto manufacturer and the steel manufacturer to get together and engage in exchange so they can maximize the value of that exchange to themselves. But the air pollution example, now here this steel mill is creating all of this air pollution. And there are tens of thousands of people in the vicinity who are breathing polluted air, but they are in a high transaction cost group. It's difficult to get tens of thousands of people to organize to get together to bargain with the steel mill. So the whole idea of an externality here is the people in the low transaction cost group, that's the steel manufacturer, the auto manufacturer, they engage in transactions that maximize the value of resources to themselves. Then there are other people in the high transaction cost group, those of the people who are breathing the polluted air, they face high transaction costs. They're not able to engage in a bargain to negotiate to reduce air pollution. They suffer the externality. The resources that are allocated by people in the low transaction cost group, the steel manufacturer, the auto manufacturer impose costs on the people in the high transaction cost group. That's just, that's a theory of externalities that's common in economics. And it's an application of the cost theorem. Now let's apply that cost theorem to politics. We have a group of people who are in the low transaction cost group. They're the people who make public policy. In my earlier example, it's like the steel manufacturer, the auto manufacturer. But in politics, it's legislators, it's lobbyists, it's people who have political connections. Those are the people in the low transaction cost group. They get together, they negotiate, they maximize the value of resources to themselves. But just like the people who are breathing the polluted air in my market example, the masses, most people, most voters, most citizens, they're in the high transaction cost group. They don't have anything to say about public policy. I mean, you can vote. I'm going to talk a little bit more about that later. But I mean, your individual vote isn't going to make much of a difference. Those are the people in the high transaction cost group. So if we just apply the cost theorem to politics, we see some people are in the low transaction cost group, legislators, lobbyists, big businessmen who have connections to the political system. They're in the low transaction cost group. They maximize the value of public policy to themselves. Most people are in the high transaction cost group. They don't have any say in what policies are passed. They're unable to go to the legislature and say, Hey, you know, here's something that would would benefit me there in the high transaction cost group. So the actions of the people in the low transaction cost group, the cronies, the insiders, the people with political connections, they maximize the value of public policy to themselves. And just like the people who breathe the polluted air in the market example, the masses often end up bearing the costs of those public policies. And it's not just like in the externalities example, it's not that the elite, the insiders, the people with connections, it's not that they're trying to impose costs on the masses. It's just that it doesn't matter to them. I mean, it's like the steel mill is making steel to produce for the auto manufacturer. They don't consider the costs that they impose on other people in the process. And the same thing is true in politics that the insiders, the elite, the people with political connections, they do what's best for them. And just like the people breathing the polluted air, often the costs get imposed on the masses. So we have two groups of people then, and there's a good, see, there's an economic foundation for elite theory. And it's in the coast theorem. And the coast theorem gives just as much of an economic foundation to elite theory as it does to the externalities theories where it is often implied. So what we see then is that there are two groups of people. There is the insiders, the bourgeoisie, the elite, the 1%. And so who are they? They're the people in the low transaction cost group. And then the proletariat, the masses, the 99% group, the 99% there in the high transaction cost group. So we have two groups of people here. We've got the fat cats, and then we've got everybody else. And there's a solid economic foundation for this, for understanding this elite theory. So public choice theory explains to us, you know, how is it that people are able to benefit through rent seeking, through regulatory capture, and so forth. And the reason they're able to benefit is they are in the low transaction cost group. Now, there's a discontinuity in political power. Some people are in the low transaction cost group. They're able to participate in making public policy. Most people are in the high transaction cost group. They know that their one vote doesn't count. Economists will say voters are rationally ignorant. That idea comes from Anthony Downs' book, Economic Theory of Democracy. That's Downs all the way on the far side. And Ronald Kose's picture there in the middle. So voters tend to be rationally ignorant because their one vote doesn't count. In an election, it doesn't matter how you vote. The outcome of the election is going to be the same either way. So it's not that people are, you know, deliberately not interested. It just doesn't pay to collect information. A lot of people are well-informed, just like people are well-informed about sports. So here we are in March Madness. And I heard before that my talk, people talking about basketball games and so forth. They're interested. Some people are. Some people aren't interested. So if you're interested, you can learn a little bit. But it's not going to help your team that you happen to be interested in how they're doing. You know, and the same way in politics. Some people are interested in politics. Other people's not so. But, you know, if I ask the students out here, do you know the difference between a Big Mac and a Whopper? You know, there's a good reason to know the difference. It can make a difference in the quality of your lunch. But in politics, do you know the difference between political candidates? Some people are interested, but it doesn't matter how you vote. The outcome of the election is going to be the same in either case. You look at our somewhat controversial current president. You know, if you'd voted a couple of years ago, you'd voted for Trump. Who would be president today? Trump. What if you'd voted for Hillary Clinton? Then who would be president? Trump. And what if you didn't vote at all? Then who would be president? You see, so voters know their one vote doesn't count. So voters tend to be rationally ignorant. Rationally ignorant because whatever they do when they approach the ballot box isn't going to make any difference to the outcome of the election. So there's a discontinuity in political power unlike in economic power. Within economic power, a dollar is a dollar. And so some people have more economic power than others. Hard to see that blue line there. Some people have more economic power than others, but there tends to be a continuity in economic power. So if you have $20, you've got twice the economic power of somebody with $10. If you got $10 million, you got 10 times the economic power of somebody with $1 million. And if you wanted to, is there any way that you could get more economic power? Well, if you think I don't have very much, I'd like more. Maybe you could work overtime, collect a little more money, have a little more economic power. Maybe you could increase your skills and get a higher paying job. And you could get more economic power. Maybe take a second job. You could get more economic power. But there's this continuity in economic power so that when you show up at Starbucks with your $10, that has the same economic power as when Bill Gates shows up at Starbucks with his $10. So certainly some people have more economic power than others. But there's a continuity in economic power that we don't see in political power. That you can work a little more, exert a little more effort, build your skills, and you can gain economic power. But that's not the case with political power. With political power, there's a discontinuity in political power. Most people, the masses, have almost no political power. And a few people, the elite, have a lot of economic power. Now if you don't have very much political power, how could you get more? Well, I mean, you could volunteer to work on a political campaign for a candidate you like. You could make campaign contributions, but it's still not going to affect the outcome of the political process. So with economic power, you do a little bit more, gain a little bit more economic power. In politics, you do a little bit more, you don't gain any political power. You still have no say in the political process. Now, if you got a whole lot of money, then you can gain some economic power. But for most people, I mean, there's no adjustment at the margin here, like with economic power. With economic power, work a little bit more, earn a little bit more, get a little bit more economic power. With political power, contribute a little bit more to campaigns, do some volunteer work for political campaign, whatever. And you still have no political power. So there's a discontinuity in political power, unlike in economic power. And again, that plays into this whole idea of rational ignorance. I mean, citizens are rationally ignorant because they know that their actions in the political sphere are not going to have any effect on the outcome. So rational ignorance, it's just one manifestation of the discontinuity in political power. So if we look at political capitalism, to understand a little bit about the theory of political capitalism, there are people in a low transaction cost group. Those are people who design public policy, and they design it in order to maximize the benefit to themselves. Most people are in the high transaction cost group, they're unable to participate in the policymaking process. Often they end up having costs imposed on them. The economic and political elite cooperate for their mutual benefit. And the profitability of business increasingly is determined by political connections rather than by the satisfaction of consumer preferences. This is the threat to free market capitalism. Political capitalism isn't the welfare state. I'm not a fan of the welfare state, but that's not the big threat. It's not big government. It's not a mixed economy between capitalism and socialism. And in fact, the profits to the economic elite come from the fact that there's private ownership of the means of production. Political capitalism isn't defined by what government does, but by how big, it's not how big it is, but it's defined by what government does. So how is it that political capitalism was able to ease its way in to displace market capitalism? Now, I don't think we're all the way there, but this is the threat that we need to recognize to free markets and to capitalism. And how is it that the political process was able to evolve in such a way to enable political capitalism? So if we think about market capitalism, free market capitalism and political capitalism, political capitalism, profitability is based on satisfying market capitalism, profitability is based on satisfying consumer preferences. Political capitalism is based on political connections, but both rest on the private ownership of resources. Both are based on a market for goods and services. And here's a key point to think about some of capitalism's most vocal proponents support business-friendly policies like tax breaks, subsidies, regulatory protections and trade barriers. Typically, when you hear somebody say, here's a policy that's pro-business, what they're really saying is, here's a policy that's anti-free market. So how has this political capitalism been enabled? And progressive democracy is the political support, the foundation for political capitalism. If you go back to our nation's founding, we, our founders viewed the role of government as protecting the rights of individuals. And progressivism, which emerged in the late 1800s, expanded that vision of government so that not only is the role of government to protect our rights, but also to look out for our economic well-being. And progressivism was redistributive, redistributive from the, from its very beginning. If you go back to the late 1800s, some of the big capitalists of the day, the Rockefellers, the Vanderbilt Carnegie, those people often were referred to as robber barons. And the idea was that they had concentrated economic power, then they were taking advantage of people who didn't have so much economic power. And so let's try to level the playing field through mostly regulation, but eventually taxes impose costs on some for the benefit of others. Now, one key point that I want to get across is that progressivism from its very beginning was redistributive. From its very beginning, the ideas behind progressivism said it's good public policy to impose costs on some for the benefit of others. If we move into the 21st century, now we're not necessarily targeting the robber barons. I don't know, maybe, maybe, you know, somewhat we're looking at some of these new internet capitalists and so forth. But we don't even need that. I mean, basically 21st century progressivism continues that redistributive idea that it's often good public policy to impose costs on some for the benefit of others. So you look at the transfer programs, government transfer programs that we have. And it's not really that we're singling out people, you know, we want these people to pay these taxes for these welfare programs. It's just that progressivism justifies imposing costs on some for the benefit of others. That's the ideology of progressivism. And then we have the ideology of democracy. Now, the ideology of democracy justifies the actions of a democratic government as carrying out the will of its citizens as revealed through a democratic decision making process. Now there are two ways that we could look at democracy. One is that democracy is a good system for deciding who holds political power and for peacefully replacing people who hold political power from from time to time. That's one way of looking at democracy. But the ideology of democracy looks at democracy a little bit differently, that democratic government carries out the will of the people as determined by democratic elections. So you combine these ideas, the ideology of progressivism and the ideology of democracy. And so the ideology of progressive democracy says it's okay to have policies that impose costs on some for the benefit of others. And the ideology of democracy says when this is done through a democratic decision making process, it's carrying out the will of the people as revealed by that democratic decision making process. So progressive democracy lays the political foundation for political capitalism. Capitalists are some of capitalism's biggest enemies. Joseph Schumpeter and capitalism socialism and democracy asked, can capitalism survive? No, I don't think it can. And Schumpeter's reasoning on this was that the people who benefited most from the capitalist system wouldn't stand up to defend it. That when you look at businesses approaching the political process, business interaction with the political process, businesses aren't saying, we want free markets, we like laissez-faire, they're saying give us tax breaks, we want regulatory protection, give us tariffs to protect us from foreign competition. Businesses don't stand up to support the market system. Businesses are are acting in order to promote political capitalism. They're one of the drivers. They're the economic elite who are driving political capitalism. Here's Schumpeter again. Capitalism tends to wear away protective strata so as to break down its own defenses and disperse the garrisons of its entrenchments. We have finally seen that capitalism creates a critical frame of mind, which after having destroyed the moral authority of so many other institutions in the end turns against its own. And Schumpeter, again, the capitalist process not only destroys its own institutional framework, but also creates the conditions for another. Destruction may not be the right word after all, perhaps I should have spoken of transformation. But here again now, Schumpeter back in the 1940s is foreseeing a transformation from capitalism to socialism. And meanwhile, while we keep our eye on that, try to rein in the Bernie Sanders of the world, political capitalism is encroaching upon free market capitalism. That's the big threat to free market capitalism is happening right under our own eyes. Schumpeter, again, the essential point to grasp is that in dealing with capitalism, we are dealing with an evolutionary process. It may seem strange that anyone can fail to see this obvious so obvious effect. Capitalism then is by nature a former method of economic change. And not only never is but never can be stationary. What we need to try to guard against, we need to be on the lookout for this evolution from free market capitalism to political capitalism. Ludwig von Mises, in human action, he's talking about some of the failures of social planners. He says if social conditions do not fulfill the wishes of the reformers, if they're utopias proved unrealizable, the fault was seen in the moral failure of man. Social problems were considered ethical problems. What was needed in order to construct the ideal society they thought was good princes and virtuous citizens. With righteous men, any utopia might be realized. Of course, Mises thought this was the wrong way of looking at things. But even, you know, if we look at politics in the United States, the last presidential election was kind of interesting that Donald Trump called Hillary Clinton lying Hillary. And Hillary Clinton called the supporters of Trump a basket of deplorables. So, you know, if we go back and think about Mises, you know, the ideal society they thought were good princes and virtuous citizens, you know. And so, you know, Trump is saying Clinton is not a good prince or princess baby in this case. And Clinton is saying the supporters of Trump are not virtuous citizens. But we see that, I mean, that's not the problem Mises thought. Mises' idea was that we need to understand that institutions matter, that market institutions, that there are laws of economics, market institutions are what we need for a successful society. It's not a moral failure of man, but rather that we don't have good institutions. So, how can political capitalism be controlled? And I could talk at length about this, but in the interest of time I'm not going to go on too long. But let me just put this in the context of the Occupy Wall Street language where I have some sympathy with the complaints of the Occupy Wall Street people. What they were saying is government policy tends to favor the 1 percent rather than the 99 percent. In that particular case, the fat cat Wall Street bankers instead of people being foreclosed out of their homes and so forth, the policy bails out the fat cats and leaves the 99 percent on their own. So I'm pretty sympathetic with that viewpoint actually. But then if you look at what they were proposing, they wanted more regulation, more government oversight. We need more government to control the system. But look, who is it that designs that public policy? It's the 1 percent. So just thinking in that Occupy Wall Street language, I mean what are people saying? You know, what they're saying is we think that the 1 percent have designed policies to benefit themselves rather than the 99 percent. So let's give the 1 percent even more power and hope that this time they'll use it for our benefit instead of their own. So I mean, I'm sympathetic with the widely recognized problems of political capitalism. But to cite Ronald Reagan, we need to understand government isn't the solution, government is the problem. And when you give the 1 percent even more power, we move even further toward political capitalism. Now, some people have suggested to me they didn't like the name political capitalism because it gives capitalism a bad name. Okay, so is the name descriptive? One thing I would point out to is the political capitalism is enabled by private ownership of the means of production and elite control of the political process. So it's not socialism. If you have a common means of ownership of the means of production, then how are the economic elite going to be able to benefit? It's private ownership that channels resources back to them. Capitalism may have a tendency to evolve into political capitalism. I think we see that as cronyism becomes increasingly evident. And here's a big point that I would raise. The biggest threats to capitalism are the policies proposed by pro-business capitalist proponents. It's the people who claim that they're supporters of capitalism who are undermining capitalism. We need to understand the system in order to be able to control it. So let me just sum up a few points here that elite theory explains how it is that the elite benefit, who are the people who benefit? It's the elite who are able to benefit. And the cost theorem provides an economic foundation for understanding elite theory. Elite theories, it's been in political science and sociology, economics not so much because we tend to take an individualistic view of things. But looking at the cost theorem, there's an economic foundation for political capitalism. Elite theory explains who benefits. Public choice theory explains how they benefit through rent seeking, interest group politics, regulatory capture, and the result is political capitalism. It's a system where the economic and political elite cooperate for their mutual benefit. So profit is increasingly the result of connections rather than producing goods that consumers desire. It's facilitated, political capitalism is facilitated by the ideology of progressive democracy. Progressivism says the ideology of progressivism says it's not bad public policy if we impose costs on some people for the benefit of others. And the ideology of democracy says when this is done through a democratic decision making process, it's expressing the will of the people. It's carrying out the will of the people as revealed by that democratic decision making process. So public policy ends up being designed by the elite. They make the rules we should expect that those rules are going to work in their favor. Capitalist biggest enemies are its proponents. The pro-business usually means anti-capitalist, anti-free market. Political capitalism is not the welfare state, it's not big government, it's not a mixed economy between capitalism and socialism. It's a distinct economic system and we should recognize it as such. It's the power of the political and economic elite. They use that power to design policies that favor themselves. We're not going to be able to control political capitalism unless we understand it. The talk that I gave is based on my book, Political Capitalism. I noticed it's not available in the Mises Institute bookstore, but if you're interested in getting a copy at a 20% discount, I have some flyers up here on the stage and they tell you how you can go to the publisher and you can get a copy of the book at a 20% discount. And we have about 12 minutes or so left. So I'm happy to take any questions that anybody, any comments people might have. Randy, several years ago you and I, we had disagreement on the whole, on the Enron prosecutions, remember? I mean, you saw more criminality, I think that I did. I saw some bad decisions. But nonetheless, you know, Enron WorldCom, these guys were prosecuted, tossed into jail. And yet the overall effect of their, of their actions was not nearly as great as what we saw on Wall Street. And yet the Wall Street people seem to be protected by the, you know, from the criminal justice system. Tying in with what you're doing there, is there any relationship there? I mean, is there anything systematic that you can apply to why that was the case? Yeah, the question is comparing the Enron debacle with what went on in Wall Street and trying to see if there's any commonality there. And for starters, I would point out that Enron was engaged in fraudulent activity. They were misrepresenting what they were doing to investors. And a lot of people thought there's an example of the problems with the free market. But I think just the opposite is true. Enron ended up going bankrupt. And so, you know, if you engage in fraudulent activity, and eventually the market mechanism catches up with you. So, but anyways, they were engaged in fraudulent activity. Now, move up to the financial crisis and the Wall Street bankers and so forth, they managed to get the law on their side. And so what they were doing was legal because they managed to get the political process on their side so that they got government support. So the Wall Street thing, I think that's a good example of what I'm talking about political capitalism. The Enron thing, not so much. I mean, that was that was fraudulent activity. What do you think of Mansour Olson's thesis that the only way to break up political capitalism is war or violent revolution? Yeah, that's a good question. I hope it's not true. Yeah, that that Mansour Olson in his book, The Rise and Decline of Nations was published in 1982, talked about through war, revolution, those sorts of things. You completely reset the political process. You break those old political ties. And so then you have a system where to get ahead, people have to produce value for other people in a market system. But as the political system matures, there's an increasing connection between the economic and political elite. And that leads to the decline of nations. And I think there's a lot to that thesis. I'm a big fan of Mansour Olson's. But I hope that's not the only way. And when when you go back to the the original enlightenment ideas from people like Adam Smith, David Hume, David Ricardo, and so forth, I think we see some evidence there that maybe the power of ideas can work without war, without revolution. So as you move into the 1800s, we have increasingly free markets. We have increasingly limited governments. And so, you know, maybe I'm a little biased on this because I've been an academic my whole life. But I really think one of the key things is the power of ideas. I mean, that's one of the things behind the Mises Institute, one of the things behind a lot of academics is that through the power of ideas, we can keep these ideas about the virtues of markets, about the virtues of limited government in the forefront. And if people are thinking that way, even though voters tend to be rationally ignorant, if people are thinking that way, we can get those ideas across to our students, get those ideas across to voters. I'm optimistic that we can keep things under control. And again, let me just go back and think about the very pessimistic views of Hayek and Schumpeter in the 1940s. And here we are 70 years later. While we still see those ideas of socialism in the air, they really haven't come to the forefront. So again, I'm optimistic. And that's one of the key ideas I'm trying to get across is as we've got our eyes on the threat of socialism, what we're not keeping an eye on closely enough, those political connections, the way that political capitalism is displacing free market capitalism. Do you make a distinction between democracy as a procedure and democracy as an ideology? Because it seems to me that you said that the real problem is the ideology of democratic progressivism. Yeah, I absolutely agree with that, that there is a problem with the ideology of democracy. If we look at it as a method for peacefully replacing the people who hold political power, democracy is a good thing. But sure, but if we look at it as an ideology that the democratic decision making process reveals the will of the people and the policies designed through that democratic decision making process embody the will of the people as determined by a democratic decision making process, that's a very dangerous idea. But it's also an idea that our politicians have a big incentive to promote because it gives them more power. So how often do you see people who are elected? And then they say, I have a mandate. And I mean, basically what they're saying is, you know, the democratic decision making process gives a mandate to the policies I'm advocating, and it gives a certain legitimacy to the whole political process. That's one reason why politicians like high voter turnout. I mean, what if nobody came out to vote? It would be hard to say what I'm doing is the will of the people. But politicians of all stripes like to get a high political turnout, assuming they win, because what that does is to further legitimize what they're doing. So they can say, hey, I'm carrying out the will of the people. I think that ideology of democracy is very dangerous. Is she? Last election, you know, people recognize that there's this problem of these the elites just running things. And we don't have any say on both sides of the aisle of conservative and liberal voters. Now, the conservative voters voted for Trump thinking that he was a champion of the 99 percent. And he wasn't actually part of this ruling elite. What do you think? You think that he's a part of the elite and we're all being duped or what do you think is going on? Oh, that's that's that's a complex question. There's a question about about President Trump and whether he's a part of that that one percent. Well, I mean, clearly by his wealth and his business activities, you can see that he he is. I think it's a kind of a mixed bag that he's done a lot of deregulation. That's a good for free markets. He cut taxes. That's good. I don't see much in the way of reduction in government spending. And especially in international affairs, the tariffs, the wall and so forth. He seems to be pretty elitist and looking out for the interest of the one percent. So I don't know that I want to characterize him as, you know, entirely one way or the other. But if you're forcing me to choose, I'll put him in the one percent. Okay. And I'm told that my time is up. But thank you very much. I appreciate your attention.