The Free Market vs. Fraud
Charles Hugh Smith begins his essay on widespread fraud in the rhetorically correct way: by stating the truth in a list of short observations.
This can’t be said politely: the entire status quo in America is a fraud.
The financial system is a fraud.
The political system is a fraud.
National Defense is a fraud.
The healthcare system is a fraud.
Higher education is a fraud.
The mainstream corporate media is a fraud.
Culture–from high to pop–is a fraud.
Need I go on?
I have never seen a more cogent short list of neglected but important points.
But Smith neglects to see all this as an extension of Sturgeon’s law: “90% of everything is crap.” Theodore Sturgeon was my favorite science fiction author in my youth. But his law is more science than fiction.
What is different today is this: a growing minority of Americans understand the specific nature of several of these frauds, and the general public is sensing that something is deeply wrong.
There is another important aspect of this list: it’s not just America. Western industrial society indulges in the same frauds.
The financial system is international. It’s an Anglo-American fraud. At the heart of this is the Mother of All Financial Frauds, central banking. The British provided the model in 1694: the Bank of England.
Higher education is a fraud everywhere. It’s not just the West.
Outside of the State of Israel, national defense is a fraud.
The West’s political systems have been frauds from the beginning. The increase in fraud is due to democracy. It takes greater skill and more spin to bamboozle the democratic public than it does a public under tyrants. That is Classical Greece’s legacy to the West. Educated men in the West have been asked to read Thucydides’ reconstructed speech by Pericles on Athenian democracy. In the good old days, educated men read the speech in Greek. But their teachers rarely asked them to put two and two together. Pericles had convinced Athens to start a war with Sparta in 431 B.C. In the second year of the war, he gave a funeral oration — a rhetorical justification of his own lack of good judgment. If you want the background, read my 2003 article, “It Usually Begins With Thucydides.” Athens lost the war after 26 years. Five years later, the Athenian government convicted Socrates of corrupting youth by asking politically incorrect questions. Socrates was silly enough to drink the hemlock instead of departing, which was an option granted to him by the assembly. He believed — as they all believed — in salvation through politics. For the Greeks, as for Tip O’Neill, all politics was local. Socrates preferred to die rather than to leave Spin City. Apologists for both Greek democracy and Socrates have been spinning this sequence of events for a millennium. The Western political tradition rests on fraud. The more things change, the more they stay the same.
In the United States, this increase in the reign of political fraud has had the support of the public for over a century. The election of 1912 solidified it politically: the triumph of the Progressives. We had a respite, 1921-29. Then it ended. Basically, the Presidential election of 1904 ended the Old Democracy: limited civil government based on Grover Cleveland’s model. Yet how many historians — let alone voters — remember that election and the candidate who lost? Almost none.
Mainstream media are frauds all over the world.
There are healthcare systems that are not frauds. The rich have concierge medicine. Where there is no government support, medical technology advances, and prices fall. Think of cosmetic surgery. Think of laser eye surgery. Meanwhile, Canadians flee to the USA to get treated. The British system was the pioneer in the West: the National Health Service. The Soviet Union beat Britain to the punch.
In short, when we combine Sturgeon’s law, the welfare state, and Keynesian finance, the world is in the grip of a fraudulent system.
This is altogether good. How would we like the world in which the theft implicit in the welfare state produced greater insight into the burdens of life and how to deal with them?
Bad ideas produce bad results. We should never complain about this system of moral and intellectual causation.
Can parents escape the fraud of higher education? Of course. Their kids can work part-time at McDonald’s and pay for college: distance learning. Some parents know this, yet they still write the checks to send their kids off to a high-priced college. Fools and their money are soon parted. My YouTube video on how to earn an accredited degree for $11 a day has had over 115,000 hits over the last decade. Only one person has ever contacted me and said he did it my way as a result of my video.
Here is what Smith did not mention: Even when people know something is a fraud, most of them stick with it. Quoting Kipling’s poem, The Gods of the Copybook Headings, we stick with the devils we know. This is the tried and true method of safe living.
Productive change comes at the margin. Most changes do, outside of major wars. Most changes fail. This is Pareto’s 20/80 law in action. We wait to see what works before we change. Most of us are late adopters. Even though most of us can escape most of these frauds if we choose to, we choose not to.
Yet somehow we have muddled through as a civilization. The creative power of Sturgeon’s 10% has enabled us to move forward.
Politically, we’re trapped, but where can we go where we will not be trapped? It is universal.
National defense is a fraud, but at least our wars cost us mainly money, not lives. And there is no draft. That ended a generation ago. The Great Fraudster Richard Nixon ended it.
The mainstream corporate media are fraudulent, but they are declining in influence. They are losing market share.
Mass culture is fraudulent, but we can still read classic (pre-1923) books — cheap or even for free. Download them on Kindle.
We can read the classics of free market economics online for free on Mises.org and the Liberty Fund’s online library of liberty. We can buy printed copies inexpensively. Two decades ago, most of these books were available only in used bookstores, and only sporadically.
We can still watch classic movies for $2.95 on Google and Amazon — for $3.95, we can watch in high definition. We do not watch on 9-inch black-and-white flickering screens. (Yes, my family owned such a set in 1949. I watched Hoot Gibson and Ken Maynard on Saturday mornings. This was not Shakespeare.)
The variety of choices is enormous, and it is growing.
We can use Pareto’s law and Sturgeon’s law to access the best 10%. The price is low.
THE FREE MARKET
The free market has done this for us. The range of choice grows. Prices continually fall. This has been going on since at least 1820 in the United States and Great Britain. This is nothing new.
The overwhelming power of the free market to offer productive alternatives to the masses and to the elites is the magnificent trend of our time.
As for fraud, it is also growing. People buy it. They prefer it.
Pogo Possum had it right a generation ago: “We have met the enemy, and he is us.”
We have known about Gresham’s law for half a millennium: “Bad money drives out good money.” But this law is misstated. Here is the correct formulation: “Money that is artificially overvalued by the state drives out money that is artificially undervalued.”
There is a Gresham’s law of culture: “Bad culture drives out the good.” But that law is misstated. “Bad culture when subsidized by the state drives out good culture.”
We live in an era of the modern humanist state. It has promised us protection. It has promised us a security net. In banking, this is called — accurately — “moral hazard.” Walter Bagehot coined the term in 1873. It holds true in every area of life, not just banking.
Still less should it [the government] give peculiar favour to any one [bank], and by entrusting it with the Government account secure to it a mischievous supremacy above all other banks. The skill of a financier in such an age is to equalise the receipt of taxation, and the outgoing of expenditure; it should be a principal care with him to make sure that more should not be locked up at a particular moment in the Government coffers than is usually locked up there. If the amount of dead capital so buried in the Treasury does not at any time much exceed the common average, the evil so caused is inconsiderable: it is only the loss of interest on a certain sum of money, which would not be much of a burden on the whole nation; the additional taxation it would cause would be inconsiderable. Such an evil is nothing in comparison with that of losing the money necessary for inevitable expense by entrusting it to a bad bank, or that of recovering this money by identifying the national credit with the bad bank and so propping it up and perpetuating it. So long as the security of the Money Market is not entirely to be relied on, the Government of a country had much better leave it to itself and keep its own money. If the banks are bad, they will certainly continue bad and will probably become worse if the Government sustains and encourages them. The cardinal maxim is, that any aid to a present bad bank is the surest mode of preventing the establishment of a future good bank.
Remove the state’s guarantees of protection from the competition of the free market, and Gresham’s law will be repealed. Good money — and everything else — will drive out bad money.
I am optimistic. I think the free market will reduce the percentage of crap to 80%. Then, over time, to 75%. All change comes at the margin. It takes time. It is cumulative.
As for those who prefer crap, its price will fall. That is the tendency of the free market. “Sell people what they want, but at a lower price.”
If fraud increases in a free market, it is because we prefer it. Like a rich old widow who prefers to hear sweet nothings in the mouths of unemployed younger men, we may prefer fraud. Don’t blame the free market for that.