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Thomas E. Woods, Jr., is the New York Times bestselling author of 12 books, including The Politically Incorrect Guide to American History and Meltdown (on the financial crisis). A senior fellow of the Ludwig von Mises Institute, Woods has appeared on MSNBC, CNBC, FOX News, FOX Business, C-SPAN, Bloomberg Television, and hundreds of radio programs... (Read More)



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Do Libertarians Support Crony Capitalism?

7th May 2013      by: Tom Woods     

I don’t know what to make of this.

Ken Connor, of something called The Center for a Just Society, writes as follows:

Thanks to a renewed interest in the works of Ayn Rand and high-profile figures like John Stossel, Glenn Beck, and Rand Paul, libertarianism is enjoying a moment in the political sun. And just like America’s two major parties, libertarians can often be blind to faulty logic and flaws within their own ideology.

Not the first names that would have occurred to me as representatives of the libertarian position, but that’s not the point. Connor is telling us that libertarians, like anyone else, can be blind to faulty logic and flaws within their ideology. For examples, he points to a recent column by Tim Carney on the use of government power by private firms in order to benefit themselves.

Is there a libertarian who supports this? Of course not.

Is it a strike against libertarianism or the free market to note that business firms are willing to use the coercive arm of the state in order to benefit themselves? Again, of course not. This is one of the very arguments libertarians themselves use against the state. In a libertarian society this option would not be available to businesses, so it seems a little strange to blame us for it, or pretend that this is some kind of “blind spot” in our philosophy. Blind spot? We denounce it constantly.

A century and a half ago, Frederic Bastiat noted in The Law that the state made possible all manner of mutual plunder, which could not occur without the state. Bastiat’s book is one of the classic libertarian texts.

Again Connor:

Regardless of where your political sympathies lie, it’s undeniable that there is an unhealthy and unholy alliance between well-heeled special interests and politicians and policymakers.  It’s all well and good to embrace Ms. Rand’s philosophy of self-seeking individualism in theory, but when this mentality insinuates itself into the markets unchecked by moral and ethical principles, the results are antithetical to freedom and fairness.

This is incoherent. Connor begins by pointing out the alliance that exists between government and special interests, an alliance that runs completely counter to libertarianism and which could not exist were libertarianism triumphant. He then conflates this non-libertarian situation with “Ms. Rand’s philosophy of self-seeking individualism.” Ayn Rand was very clear in setting out a philosophy of man’s rights, which are of course violated by the very practices Connor is trying to blame her for, and which he pretends she promoted. She promoted the very opposite.

He goes on:

Basically, the special interests invest in political campaigns as a cost of doing business, and they expect a handsome return on their investments.  As Mr. Carney explains, that usually comes in the form of pet legislation, subsidies, tax breaks, limitations on liability, preferential treatment . . . the list goes on and on.  Of course, politicians are only too happy to accommodate these special interests in exchange for political contributions that help cement and perpetuate their power. As a result, the free market is stymied; it can’t do what it’s designed by nature to do, which is to sift good companies from bad ones, reward efficiency and innovation, and empower consumers with authentic choice in the marketplace. In effect, crony capitalism is a form of central planning, something that libertarians and conservatives historically eschew.

Is there someone out there Connor thinks he is rebuking? What libertarian would disagree with him here? That last sentence takes the cake: he’s speaking as if libertarians need to be told crony capitalism is bad, when it is they themselves who have been its greatest and most consistent opponents.

More:

The lack of accountability of the cronies is particularly damaging.  Defenders of free-market capitalism generally maintain that accountability and responsibility must run hand in hand in order for markets to operate effectively. If wrongdoers are not held accountable, their wrongdoing will multiply and the whole system will be corrupted. Unfortunately, many free-market apologists in the political arena are only too ready to offer a double standard to their corporate benefactors. Consequently, we wind up with the excesses that characterized firms like AIG, Fannie Mae, and Enron.

AIG’s problems, while serious, could have been handled in bankruptcy; the number of firms that would have suffered from its CDS issues was about one or two dozen. These firms held $20 trillion in assets, against the $60 billion they would have lost because of their exposure to AIG. They could easily have absorbed these losses. So while the market was punishing AIG, the government, which Connor thinks should protect us from institutions like this, was busy arranging for bailouts.

Fannie Mae, with its laundry list of government privileges, is not exactly a case of a free-market institution, so who knows what Connor is trying to prove with this example.

As for Enron, which Carney himself covers very effectively in his book The Big Ripoff, I recommend this article and this paper.

The rest of the piece is about the importance of a strong government role in consumer protection, so we don’t wind up with “drugs that cause injury and death and products that explode or fail and cause harm.” Interesting that he leaves out the subject of protection from financial predators like Bernie Madoff; this is of course embarrassing to his case, since  the private sector tried for ten years to get the SEC to do something about Madoff. When the SEC fails, its budget is not cut. This is a perverse incentive. It is also common sense: if you are not punished for doing the wrong thing, and if doing the wrong thing is far easier than doing the right thing, you will continue to do the wrong thing. This is the incentive structure to which Connor wishes to entrust our safety.

Connor simply accepts the left-wing version of things, according to which far-seeing crusaders for justice protect us from private-sector predators, and no other arrangement is conceivable. The possibility that private-label agencies could perform this function is not even considered. (Here’s a piece on Underwriters Laboratories, which is a good example of what I mean.) He also seems to think supporters of the free market are not interested in punishing people who produce lethal drugs or exploding products. But if those people are not being punished, is that the free market’s fault? Which institution has a monopoly on police services and a near-monopoly on dispute resolution? (It isn’t the free market.)

On consumer protection on the free market, I recommend this interview with Bob Murphy.

Finally:

Mr. Carney is correct when he says that the case for capitalism must rest on the willingness of free-marketeers to demand ethical conduct from corporations and politicians alike. Our current economic and political problems aren’t just the fault of President Obama, or Nancy Pelosi or any other big government bogey. The sooner libertarians and conservatives alike recognize this, the sooner we can get our economy and our government back on the right track, and given the enormity of the challenges facing us over the next several decades, this can’t happen soon enough.

The case for capitalism has nothing to do with politicians; much less does it have anything to do with “demand[ing] ethical conduct” from them, a fruitless enterprise. Capitalism involves nothing more than free contract and exchange, bounded by private-property rights. Politicians are predators on this process.

As for business firms, instead of claiming that we must “demand ethical behavior” from them, we ought instead insist on the less fuzzy and more specific demand that they make restitution to anyone who suffers damages at their hands. Contrary to what Connor implies, that is what any supporter of the free market supports.

He expects justice to come from government and its regulatory agencies. On that he is naive and unread. But he thinks libertarians have a blind spot when it comes to crony capitalism. The only blind spot is Connor’s, who thinks he is rebuking libertarians — of all people! — in an article on crony capitalism.

Unlearn the Propaganda!

  • http://twitter.com/Deskairn Rakeela Deskairn

    The state enforces its decrees by violence. Without taxation, it has precious little revenue. Without jails and confiscations, it has precious little power to make people do as it says.

    Capitalist endeavors can neither tax, nor jail, nor confiscate. They can only empower themselves by service to others (or by convincing others that service occurred when it did not, ie fraud). Even with no regulatory mechanisms whatsoever, no protections or recourses from fraud save to shun those known to engage in it, capitalism would represent a movement away from a violent organization of society and towards a peaceful organization.

    Libertarians do not propose to remove all protections or recourses from fraud. “Force and fraud” are the twin sins that libertarians oppose. Along the way, they seek to decentralize power and minimize violence. Progress and wealth in society have historically advanced away from violent modes of social organization and towards peaceful modes of social organization. To libertarians, statists appear to be regressive and barbaric.

  • http://www.facebook.com/people/Saulius-Muliolis/100003404730807 Saulius Muliolis

    ROFL!!!

    “…libertarians and conservatives would do their causes well by making the arguments for such limits.”
    But opposition to such limits IS our cause!

  • romano

    Libertarians here are right. More of state means less of capitalism. So it is not capitalism but capitalists (at least some of them) who want the state or statism. It is their interest. If you mean this I guess you are right.
    That’s why I am sceptical about stateless society.

  • Anonymous

    crony capitalism is as repugnant to a libertarian as any other illegitimate use of power for ones benefit. he clearly knows little of libertarian thought.

  • Anonymous

    this libertarian is eager to see only natural persons permitted to grease politicians…and then in unlimited amounts. the citizens united decision was simply wrong…a corporation has no “rights” as do persons. i’d be perfectly happy to see contributions to any politician banned except by persons who are vote holders. anyone else is simply currying favor.

  • D.M. Ryan

    Or left to fester, maybe? Those fallacies can be nipped in the bud for the benefit of the ordinary bloke, but there is a case for letting the fallacy-spinners dissolve into the abyss of their own b.s. Even if they win on points, they wind up blind.

  • D.M. Ryan

    “It constantly amazes me that we would receive so much hate…”
    And the nicer you are, the more baffling it is to Joe Average ;)

  • D.M. Ryan

    And wouldn’t it be funny if they vained their way into becoming libertarians without even knowing it?

  • http://www.facebook.com/people/Robert-Roddis/707435410 Robert Roddis

    What does this guy think “End the Fed” means? I suppose “think” is the operative term here.

  • http://www.facebook.com/people/Robert-Roddis/707435410 Robert Roddis

    I guess Mr. Connor missed David Stockman’s new book and his speeches at the Mises Institute. Robert Wenzel writes:

    Okay, I am now into chapter 2. Get a load of this. Stockman correctly writes, and I have not seen it written anywhere before, that if Morgan Stanley and Goldman Sachs had gone bankrupt:

    Their bankruptcy would have resulted in no measurable harm to the Main Street economy, and possibly some gain. It would have brought the curtains down on a generation of Wall Street speculators and sent them packing in disgrace and amid massive personal losses—the only possible way to end the current repugnant regime of crony capitalist domination of the nation’s central bank.[…] The preponderance of their fabled profitability[…]was generated by massive trading operations which scalped spreads from elephantine balance sheets that were preposterously leveraged (30 to 1) but also dangerously dependent upon volatile short-term funding to carry their assets. Indeed, perched on a foundation of several hundreds of billions in debt and equity capital, those firms had become voracious consumers of “wholesale” money market funds, mainly short-term “repo” loans and unsecured commercial paper. From these sources, they had erected trillion-dollar financial towers of hot-money speculation. It is no wonder mainstream establishment is only giving this book lukewarm coverage. It is speaking truth to the establishment and the banksters who control it.

    http://www.economicpolicyjournal.com/2013/05/the-most-important-book-coming-out-of.html

  • http://www.facebook.com/people/Dave-Carroll/100003342890124 Dave

    “Not the first names that would have occurred to me as representatives of the libertarian position,” What’s wrong with Stossel?

  • http://tomwoods.com Tom Woods

    Nothing’s wrong with Stossel. Not really the point of the post, though.

  • Ant

    His argument fails right off the bat when he lists those people as libertarians but I suspect he knows better. Nice subtle smear tactic.

  • Anonymous

    When two capitalists collude to corner a market or fix prices, that’s “crony capitalism”. What we call “crony capitalism” is actually “crony socialism”; using the power of the State to fleece the taxpayer and eliminate or reduce what would ordinarily be genuine risk in a genuine capitalist economy.

  • http://twitter.com/Aireck1 Aireck

    The liberals seem to be of the belief that the libertarians are dangerous because it is only the jackboot of the State that keeps the greedy corporations from running the whole system, and libertarians want to reduce the power of the State that keeps these monsters in check. The free-market capitalists would be free to try to make stuff for us at will and try to get us to buy it, willy-nilly. Terrible. Instead, it is the State that facilitates these monsters to exclude competition and use their jackboot to force the people to bail out and subsidise these creatures ad nauseum.

  • http://www.facebook.com/ernst.ghermann Ernst Ghermann

    What those who attack Ayn Rand and Atlas Shrugged consistently fail to see (how could anyone miss it), is that Atlas Shrugged is a screed against crony capitalism and its evils.

  • Anonymous

    You can “demand restitution”, but that is different from a judicial process that establishes fault and penalty and can actually execute subpoenas, warrants, compel witnesses, and seize assets to satisfy a judgment.

    You are absolutely correct that the crony capitalists (who hijacked the term free enterprise to mean immunity from prosecution) don’t want anything like this. Individuals could have taken down Madoff, but the only one that legally had the power was the SEC which was like Theoden under the influence of Wormtongue.

    But the Catholic teaching indicates a preference for the poor, since the rich seem to have no trouble nullifying just (in harmony with natural law) laws when they are caught. Any bankster could rape a child in central park while all the networks covered it live, and would not spend a day in jail. Rich kids have parents who hire lawyers to get them off – they can be falling down drunk, slam their car into a schoolbus, and only do a bit of rehab even if the death toll was high.

    Yet the Kochtipus libertarians say this is just more “free market”. But justice and property rights cannot be subject to market forces – is the robed person on the bench a referee or auctioneer? Is the goal the truth or the outcome the highest bidder (and the prosecution in criminal trials can bid high most times)?

    When we have the auctioneer’s gavel deciding, theft, robbery, fraud become profitable – the market feeds back that crime pays, and bribery is just a business expense. (The 1936 book “the professional thief” shows how this works – every city has a politically connected “fixer”, and the crimes are calculated toward profit like any other business).

    Here is where I don’t hear a solution. Anarchocapitalism? Arbiters – bribe or assassinate or find the thugs who will break bones for a price. Minarchy? Maybe, but how to keep it fair and small? Enforcement? Force. But I believe it is a dynamic problem – try and adapt, not some set of axioms and theorems.

    And that is the failing. Many libertarians don’t honor justice first, letting liberty and freedom flow from it. Honor is given to mostly to those who espouse license and anarchy, not truth, justice, and equality before the law. Justice and truth have nothing to do with power, strength, wealth – but by “liberty”, most honor the latter form.

    Consider abortion which kills thousands each day. No life, no liberty, but that is said to be choice and freedom – even a ‘right’. Would you nullify an assassination of an abortionist?

  • Libertytee

    Mr. Carney must have used Glenn Beck as his example of ‘Libertarians’ . Laughable at best! These examples sound what Beck would say.

  • dfazgh

    all labels are potentially dangerous … some libertarians consider themselves left-libertarians

    George Washington warned against the dividing of America on political affiliation:

    They serve to organize faction, to give it an artificial and
    extraordinary force; to put, in the place of the delegated will of the
    nation the will of a party, often a small but artful and enterprising
    minority of the community; and, according to the alternate triumphs of
    different parties, to make the public administration the mirror of the
    ill-concerted and incongruous projects of faction, rather than the organ
    of consistent and wholesome plans digested by common counsels and
    modified by mutual interests.
    http://avalon.law.yale.edu/18th_century/washing.asp

    some “libertarians” actually unwittingly promote fascism —

    Noam Chomsky identifies himself as a libertarian, though i’m sure extreme right-wing “libertarians” might disagree

    some “libertarians” think that there is no such thing as excessive self-interest

    some “libertarians” worship Ayn Rand —

    instead of defending “groups” and spouting labels the real battles should be over ideas — this would benefit society — this would be an unjust abuse of power — the Constitution protects this — the Constitution prohibits that

    the Founding Fathers would all be in prison if they were alive today, had different names, and were not born into privilege

    these are the things we should be debating about —

    a blanket denial that no libertarian has ever supported crony capitalism is misguided at best — i’m sure many economic fascists consider themselves libertarians

    don’t believe me? google Smedley Butler and google the Business plot

    The BBC’s … documentary program The White House Coup said, “The coup was aimed at toppling President Franklin D. Roosevelt with the help of half-a-million war veterans.”

    all of this stems from a term many “libertarians” claim to hate: “false consciousness” — it exists everywhere — on the right and on the left —

    I bet many “libertarians” do not know that one of the major proponents of impeaching President Bush and Vice President Dick Cheney was from the “left” — should anyone give a damn whether he was on the right or left? no!

    by the way, he’s also one of the most vocal critics of the Federal Reserve

    http://www.nbcnews.com/id/18297390/ns/politics-tom_curry/t/kucinich-launches-oust-cheney-effort/#.UgCEvCdbyxM
    http://edition.cnn.com/2008/POLITICS/06/11/kucinich.impeach/
    he was upholding his obligation to investigate high crimes by officials — all loyal Americans should have supported him: right left center “nonpartisan” etc.

    http://www.nbcnews.com/id/18297390/ns/politics-tom_curry/t/kucinich-launches-oust-cheney-effort/

    http://www.bbc.co.uk/radio4/history/document/document_20070723.shtml

    http://history.resultspage.com/search?w=The%20Plot%20to%20Overthrow%20FDR

    http://web.archive.org/web/20060106042535/http://www.clubhousewreckards.com/plot/plottoseizethewhitehouse.htm

  • dfazgh

    “Is there a libertarian who supports this? Of course not.”
    ergo all “libertarians” are saints without sin — this is the definition of false consciousness — say of me what you like.

  • dfazgh

    a brief history lesson — it’s not only the left that can be fascist the right can be fascist too so everyone that likes to get on their high horse about socialism and worships free markets should pay attention:

    http://en.wikipedia.org/wiki/American_Liberty_League
    http://www.nextnewdeal.net/tea-party-movement-successor-american-liberty-league
    http://personal.ashland.edu/~jmoser1/libertyleague.htm
    http://conservapedia.com/American_Liberty_League
    http://www.counterpunch.org/2011/12/02/wall-streets-failed-1934-coup/

    I guess it’s sheer coincidence that the Tea Party is funded by economic fascists.

  • dfazgh

    does anyone really believe that the Koch brothers believe in “free markets”? if you do, then you support crony capitalism
    how many billions in taxpayer subsidies did they receive? — even if we disregard the taxation issue, the Koch brothers have received millions (probably billions) of taxpayer subsidies
    i have never heard of a free market that takes money from taxpayers (working class and middle class) and redistributes it to economic fascists
    http://www.usnews.com/opinion/blogs/Peter-Fenn/2011/02/02/tea-party-funding-koch-brothers-emerge-from-anonymity
    http://www.nytimes.com/2010/08/29/opinion/29rich.html?_r=0
    http://www.huffingtonpost.com/brendan-demelle/study-confirms-tea-party-_b_2663125.html
    http://www.middleclasspoliticaleconomist.com/2013/05/libertarian-koch-brothers-have-taken.html
    http://exiledonline.com/why-should-taxpayers-be-forced-to-subsidize-billionaire-koch-brothers-donations-to-republicans-tea-party-right-wing-libertarian-groups/
    http://thinkprogress.org/climate/2012/09/10/819541/charles-koch-wsj/
    http://thinkprogress.org/economy/2011/03/01/146847/charles-koch-welfare/

  • dfazgh


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