Capitalism Institute

Monthly Archives: August 2011

What Ended the Great Depression?

August 28, 2011 Shaun Connell No comments

Few historical events are more convuluted and filled with complete myths than the Great Depression, and the eventual recovery. Most high school students are told that capitalism caused the depression, FDR saved the economy, and eventually us getting involved in World War 2 ended the depression.

Every one of these “facts” are completely false. In this short article series, we’ll take a quick, simple approach to each event and see what really happened in America during and after the great depression. I’ll update this page as the articles are written.

Here are the topics and answers we’ll cover:

Did Capitalism Cause the Great Depression? Absolutely not. It was easy credit from the Federal Reserve, as well as constant government meddling during the crash that caused and maintained the depression. The government did absolutely everything wrong before, during, and after the crash.

Did FDR Save the American Economy? Absolutely not. FDR is one of the most tyrannical, economically incompetent world leaders in American history. His understanding of economics was essentially non-existent, and his plans failed for over a decade. He was a failure.

Did Joining World War 2 End the Great Depression? Absolutely not. Us going to war was horrible for our economy, like it always is for a country to go to war. Our economy survived because we were the only nation with factories still in tact after the war — it was the lack of war at home that made our economy recover. The rest of the world was essentially destroyed. Wars don’t make everyone richer, but someone else’s war can certainly make you richer.

Of course, we’ll be adding even more articles to this page as time goes on. If you have any topics you think we should cover in this article series, just send us a message via the contact form and we’ll be in touch with you. If you’d like to write on this topic, let us know.

Corporations Don’t Pay Taxes, People Pay Taxes

August 23, 2011 Shaun Connell No comments

Capitalism Institute accepts articles written by anyone with an understanding of the topic they’re writing, regardless of whether they’re considered “experts” by society at large. We offer a platform to anyone with something to say about property and liberty. The following was written by Christopher Hill, a 16-year-old high-school debate student. If you’d like to write something for this website, click here.

Taxation is one of the most misunderstood concepts in all of economics. Few people want to feel the brunt of taxes and most want some other group to “share” the burden. In the last couple of years, plenty of people — including Warren Buffett — have argued that we increase taxes.

One of the favorite targets of the increase-taxes crowd is corporations. It’s easy to want to tax companies — after all, they don’t have families, retirements, or anything like real people, right?

Sadly, most people miss a simple concept when it comes to economics: taxing corporations isn’t just taxing corporations — it’s taxing people. Employees, retirees, families — people always pay the real cost, plain and simple. To learn more, just read below.

Who Really Pays the Taxes?

Let me explain what I mean; ALL taxes that are levied on a business are not just payed by that business but are passed on by that business. The tax on people is just hidden and is camouflaged through lower pay, lower investment capital, unemployment, lower quality products, or some other form.

Allow me to explain further. I love coffee! And for a while now Iʼve wanted to open up my own organic gourmet coffee business. For the sake of this article, let’s pretend I open that business.

I call it “Chris’ Coffee” and I import coffees from third world countries to an adoring fan base. The business makes $20 million a year. But (and this is a big but) it costs me $18 million a year to run the coffee business.

This includes wages, business expenses, employee beneﬁts, overhead, etc. At this point I now have a proﬁt of $2 million.

Not bad youʼre thinking, right? Probably right, but unfortunately, the Federal Government just came out with an increase in taxes that is roughly 5% of my profits. This means a $100,000 chunk is taken out of the proﬁt. We won’t go through how the math works out for the sake of saving time — instead, let’s look at where the money for taxes really comes from.

I have the get the money from somewhere, so where? Let’s look at the options:

Option 1: Cut Profits.

Profit is the easy target of all taxationists. Profit, they think, is excess that helps no one but a handful of rich investors. This is, of course, hideously incorrect. From profits come money for expansion of business, new investments, new businesses, and funds to act as a cushion during economic hard-times.

When corporate taxes go up to the extent that profits go down, not just the owners are impacted — anyone who would have benefited from economic and business expansion get hit. Fewer jobs, lower wages, etc — taking 100k out of profits isn’t just 100k anymore, but could effectly be several times worse because of lost investment opportunities in the future.

This doesn’t even begin to touch on a stock’s value going down, which means that workers might need to work literally years longer to have the same retirement with a lower tax. Real people get hurt.

In the end, everyone is victimized — rich, middle class, and poor alike. Everyone pays the tax.

Option 2: Raise Prices.

In this scenario, I could just add this new tax onto the price of my coffees. That way my shareholders are happy, my employees are happy, Iʼm happy, and everyone is having a grand old time. But wait. letʼs say you are one of the millions of people who loves coffee.

Now if you come to my place (or any coffee company if the tax is hiked for all of us) you have an increased price that takes away your money from other expenses. This hurts you, the consumer. Or even worse, it might mean you can no longer choose to consume the coffee at all — and we both suffer greatly for it.

If my business suffers then I might have to cut beneﬁts, lay people off, or cut the money retirees get as a shareholder. Everyone pays the tax.

Option 3: Cut Costs.

I could cut costs. But, unfortunately, nothing is free — not even cutting costs.

For example, cutting benefits would certainly help pay for the new corporate tax. But then that will harm my employees.

Or, I could layoff a few lesser performing employees! But there’s a reason they’ve been hired in the first place — there’s no one better to replace them.

Or we could change products; I could buy coffee from someone else. But changing where I purchase the coffee from has huge built-in costs – re-branding, new taste, potential customer loss, as well as the huge amount of time and resources to build new relationships with new coffee producers. This move could literally send the company under.

The Lesson of Corporate Taxes

Taxes are a, well, tax on the economy. People pay them. The money has to come from somewhere; there’s no such thing as a free tax. The more one studies about taxes, the more we’ll see that the tax burden will be greatly shifted on others. Either way, the economy is slowed down, and people are hurt.

Increasing corporate taxes passes on the tax to consumers, investors, and sucks growth out of the economy. This is inevitable, and is just a basic part of the most fundamental lessons of economics. Everybody pays the corporate tax.

The Simple Reason Socialism Always Fails

August 21, 2011 Shaun Connell No comments

Karl Marx Picture Modern sociology is essentially based on the teachings of Karl Marx. Few people mention the man with such reverence as a professor teaching how societies interact, evolve, and function. In a typical sociology classroom, the students and professor will learn about class warfare, economics, the survival of the fittest, as well as plenty of examples where the rich are “exploiting” the poor.

Karl Marx is considered the intellectual godfather of hundreds of thousands of professors, intellectuals, elitists, and anti-capitalists. He invented what’s known as the “Conflict Theory”, the notion that change occurs because of conflict between two groups of people. He was right about that, but he was hideously, deadly wrong about how he applied it.

Marx saw political conflict — people using resources and force to enslave other people — and he concluded that it wasn’t the use of force that was wrong, but the existence of capital. It’s a completely incoherent logical leap, and it had grave consequences for the rest of humanity.

Missing the Point With The Communist Manifesto

Karl Marx’s infamous “The Communist Manifesto” is the most important document he wrote, because it was the intellectual rallying cry of anti-capitalists everywhere.

It was the justification for confiscating trillions of dollars worth of property and then mismanaging it in the most incompetent economic planning the world has ever seen.

It was the justification for public executions of capitalists — people like myself, who own and use capital to produce even more.

Hundreds of millions of capitalists were murdered because of Marx’s philosophy. Families were wiped out, husbands were hanged, children made orphans, economies destroyed, and during the Cold War, the world itself almost met its fiery end due to the insane delusions of equality by the power-greedy communists.

In this document, Marx wrote the following:

“Let the ruling classes tremble at a Communist revolution. The proletarians have nothing to lose but their chains. They have a world to win. Working men of all countries, unite!”

What laughable insanity. This man of a giant beard and a small mind referenced power as the reason the poor were “victims”, and yet his response wasn’t the downfall of the ruling classes — it was taking political inequality and unleashing it in a manner the world had never seen before.

Consolidating power to the state doesn’t end inequality — consolidating power fosters inequality. Not all men are free to rule their neighbors, because that is outlawed under socialist dogma. Under socialism, a handful of men determine the rules, the economic planning, and the rations that the rest of the “workers” will receive.

The end-goal, socialists argue, is a society where power isn’t necessary. But to get there, they explain, we need to consolidate power in a socialist economy. A handful of men need to be given the power to decide what to do with everyone’s property, what ideas can be discussed, what lives can be ended, and what freedoms must be deleted for the sake of the eventual “common good”.

Learn the Lessons of History

Anyone who understands human nature sees the flaw here. Men abuse; absolute power tends to the abuse of power. But instead of people trying to manipulate others with money and resources through marketing, they created a society where negotiation began and ended with force — violence, prisons, executions, starvation.

The greatest source of inequality in the 20th century was socialism itself.

The greatest cause of poverty in the 20th century was socialism itself.

The greatest catalyst for exploitation in the 20th century was socialism itself.

They realized that the “ruling class” was wrecking havoc on society, and then concluded that it wasn’t the power — it was the money itself. The irony of such a misplaced philosophy and a self-defeating movement would be humorous if it hadn’t wrecked havoc with an evil the world had never seen before.

Let the ruling classes tremble? They tremble in excitement because they will be the ones who control your socialist empire.

Nothing to lose but your chains? Communism enslaves billions. Nothing to lose? Except your families to starvation, your friends to execution, your material well-being through rationing, and your freedom itself.

Working men of all countries? We have no time for angry and violent riots — we are carrying your world on our shoulders.

The Real Conflict is: Liberty Vs. Slavery

Marx was right about one thing: social movement occurs from perceived class conflict. The poor are progressively becoming more and more socialistic in America, not because the rich are harming them, but because they perceive the world as being owned, controlled, and regulated by a handful of the super rich — even though this is economically, historically, and politically inaccurate.

No one will ever argue that some of the rich do not abuse their wealth with regulations, bailouts, and subsidies — but the problem isn’t the existence of capital; the problem is political force itself.

For example, I am a capitalist. I take my wealth and multiply it through leverage, business projects, and other endeavors. I will not, however, use my money to manipulate the system in order to destroy other businesses. I will not take my money to manipulate the economy so I get an advantage over others.

Other companies, like Wal-Mart and Microsoft, almost always utilize their wealth to buy politicians in order to take down their competitors. This is not a flaw of capitalism — this is a flaw of corruption. It is not a flaw of freedom when someone abandons it — that is a definitional impossibility and a self-defeating concept.

The root of all social evil is unwarranted force — the violation of the rights of others. Murder, theft, rape, war — these are the things of evil. The free market doesn’t include any of these concepts. Once we understand this, all else follows, and we’ll soon come to realize that capitalism is the only moral economic system that protects and respects the rights of all men — regardless of their class.

6 Reasons Why I’m a Capitalist

August 20, 2011 Shaun Connell No comments

economics books A couple of months ago, I was with a group of radical anti-capitalists. They thought that government was the answer to life, the universe and everything. They thought that businessmen secretly cheat on their wives and beat their children, whereas the poor starving individual was heroically beaten down by the brutal financial leaders. Capitalists are tyrants and the poor are victims. This was their childishly oversimplified view.

When I announced to them that I was a capitalist, they just gave me a blank stare. This is the ultimate “evil” thing to be, according to almost every Hollywood movie, plenty of churches, and millions of professors around the world. They were simply repeating the same angry arguments they’d heard from others — there was no rational analysis of the pros and cons of capitalism.

“How can you be a capitalist if it’s so evil?”, was the simple question they asked me. The following is a summary of my explanation.

First I defined capitalism as being a simple idea. It’s where the government leaves people alone, enforces contracts, and protects property. It’s when governments don’t try to do business work in a senate committee with people who have never done business. Capitalism is economic liberty.

There are six reasons I like capitalism. They are as follows:

6. I like big business

Restrictive economic policies target big business. No, this doesn’t mean it’s good for the workers. Think about it. Hurting big business hurts the whole business — workers are part of the business.

Capitalism Logo

Every restriction for big business ends up trickling down and hurting their workers, either through fewer pay upgrades or through laying people off to increase efficiency. Restricting big business is restricting the little guy.

Oh. And big business is actually good. Why? Because they became “big”. How did they become big? The market — or, for the socialists — society liked them. Big business only gets that way by offering the people nice stuff. If the people like it, then they aren’t evil.

It’s really not complicated. But we’ve been told by the restrictive forces of the world that big is bad, that little is good. I propose an alternative: both are good. Speaking of which, that brings us to reason number five.

5. I like small business

I own a small business. My parents own a small business. These small business are based on our family working incredibly hard, serving clients, and helping others enough that they’re willing to pay us for it. Both sides win. We’re not evil. We’re good. We help other business by helping them market their products and advertise to increase their profits. We help regular people learn how to manage their money, get out of debt, invest appropriately, and retire securely.

By working hard, we only succeed through helping others succeed. Capitalism allows us to do that unhampered. But restrictive policies severely restrict our ability to do business.* Restrictions that might not seem like much to us on paper can be devastating in real life. Real people go under every time we pass another law. Every restriction destroys lives.

4. I like rich people

Rich people aren’t evil. I don’t care what Hollywood wishes me to think about “The Capitalists”. I won’t buy the commie propaganda. I like rich people. I don’t like snobs. There’s a difference. Poor people can be snobs. Rich people can be snobs. Rich people can be jerks. Poor people can be jerks.

The rich that I’ve met in my life are the hardest working individuals I’ve ever known. There’s a reason they are rich. And I appreciate their work, and recognize that their hard labor paid off both for them and the countless people who gained from the micro-economic impacts of their labor.

The idea that most rich got there because of ripping others off is just stupid. It’s out of touch with reality. It’s just people making an excuse for hating those with more — envy, the most destructive of all emotions.

The idea that most rich got there because of an inheritances is equally wrong. Very few rich got rich through inheritance — and those that did didn’t get the money until way later in life, long enough to build their own wealth. The fantasy of rich people just inherent everything without working is essentially a classroom lie.

3. I like poor people

Liberals paint themselves as loving poor people. So they increase government programs, welfare, restrictions on the rich, etc. But their restrictions on business cause unemployment — liberalism causes poverty. Their welfare encourages dependence on federal aid, psychologically keeping the poor in their poverty. I am a capitalist because I hate poverty.

I am a capitalist because I hate poverty. I am not a liberal because I care about the poor enough not to buy into emotional arguments that realistically destroy the working class. Freedom brings prosperity. This is absolutely inevitable — anyone who disagrees simply needs to read economic history.

2. I like justice

Capitalism is where everyone is allowed to unleash their minds in order to produce and achieve. You don’t get rich being a moron, with the notable exceptions of almost everything on E News. You have to use your mind or muscle. Or, for most, a mixture of the two.

Capitalism rewards the hard-working and punishes the lazy. It’s the only economic system on earth that does this. This is why it works.

As Ayn Rand said:

“The moral justification for capitalism lies in the fact that it is the only system consonant with man’s rational nature, that it protects man’s survival qua man, and that its ruling principle is: justice.”

1. I like money

I know. I’m supposed to pretend like the only thing on earth important is people and puppy dogs. But guess what? I like nice stuff too. And so does the liberal. And Obama. And Edwards. Especially them. See, they like being commies in theory. But in reality, they like “capital”. They like money. They like private jets, private islands, nice food, nice clothes and $500 haircuts.

And you know what? That would have been fine, if only they didn’t pretend that it was evil. In their hearts, they know there’s nothing wrong with working hard and establishing a fantastic house, expensive car and great lifestyle for your kids. They know there’s no reason to think that we should restrict business owners, or try to go against wealth.

But in policy, they stop. They pretend that greed is wrong, because other people want your money (read that a few times, and see what’s amiss). But when it comes down to it, they know that capital is good. They live like rich cats.

Ironically, it’s for the same reason as me. There’s nothing wrong with material wealth. The whole goal of economics is understanding how to get our wealth to be maximized. Well, I have news for the news people and the politicians of the world:

Try Capitalism. Capitalism sets mankind free to work and achieve his values. It allows people barter freely and exercise choice rather than being manipulated by Washington elites. Capitalism works because it’s based on that age old principle that the human mind works best when it’s set free.

Capitalism works because freedom works.

So that’s why I’m a capitalist. I didn’t get much of a response after explaining these concepts, and I rarely do. The reasoning for this is pretty simple. Anti-capitalistic arguments are based on anger, emotion, and completely disregard the scientific principles of economics. Because a rational view of the evidence should lead us all to become capitalists.

*Our family business is an oldies radio station. The FCC’s policies are often random, restrictive and expensive. They hurt our customers and communities by forcing us to keep prices artificially higher than they would be if we didn’t have the nearly random restrictions.

Why Warren Buffett Wants Higher Taxes

August 18, 2011 Shaun Connell No comments

Warren Buffett

Warren Buffett recently made another public claim that his secretary pays a higher tax rate than he does, and argued that capital gains and dividend taxes should be greatly increased. His main point was that he pays a lower tax rate than his secretary, and because of that we need to increase taxes.

Warren Buffett doesn’t pay hardly any taxes from his personal portfolio for two reasons: he only owns only a handful of long-term value stocks, and almost never sells them. And one of those stocks doesn’t pay dividends at all. Those that do are long-term value investment buys.

His income tax is low because he’s not an income investor. He owns dividend stocks because they’re good long-term buys — he’s not a fan of dividends.

His capital gains tax is non-existent because he almost never sells.

Unfortunately, this is a huge source of fuel among economically illiterate moderates and liberals who think this means you can be pro-rich while also being pro-tax… it makes them feel clever and helps them rationalize their anti-wealth view away.

Buffett’s income from Coca-Cola, one of the stocks he owns that pays a dividend, has gone up a lot since 2003, when the current 15% cap on dividend taxes was put into effect. It’s like 50% higher.

Increasing dividend taxes to 30% will slow down the increase in dividend payment increases, meaning his actual tax PAYMENTS over time will be lower because of a higher tax rate.

At the same time, people have left long-term investing by the hoards and are focusing on dividend investing — this huge tax change will funnel them back into long term “hold forever” investing meaning they’ll be looking for a good long-term company that doesn’t pay taxes. If they keep their money in dividend-paying companies (he personally owns parts of like 10), it’s still all good because they’ll all probably pay smaller dividends than if the tax rate hadn’t been hiked.

One of those companies is a little firm called “Berkshire-Hathaway”. And one of the biggest owners of that little firm is Warren Buffett.

Of course, almost nobody understands this and fewer will explain it to others. It’s just one more reason never to automatically equate a higher tax rate with higher tax revenue.

Don’t forget, the goodwill Buffett gets from publicly acting like he, too, hates the rich or whatever is undeniable. He’s loved by capitalists for being rich and liberals for being pro-tax. That’s a good position to be in when it comes to business and investing.

Capitalism Institute

In defense of free markets, property rights, and economic liberty.

Monthly Archives: August 2011

What Ended the Great Depression?