Everything I Learned From 30 Years Studying Capitalism

Speaker A: When most people hear the words free market capitalism, they immediately think of Wall street stock traders yelling across a trading floor, quarterly earnings reports, asset prices that are flashing across the CNBC screen. And because that's the image most people have, they think that when stock prices go up, then capitalism must be doing well. But that's not really capitalism. Capitalism and free markets something else entirely. It's about commerce. It's about society and economy, not the next retirement account. The picture everyone has is deeply misleading. Wall street is not capitalism. Financial markets are not the same thing as free markets. And stock traders don't really trade capital. At its core, capitalism is not about money managers moving paper claims around in financial speculation. It's definitely not about politically connected corporations receiving favors from the government. And most of all, free market capitalism is not protecting large institutions from failure when they make bad choices. The capital in capitalism, properly understood, is productive enterprise, not equity shares, not money. It is about people organizing resources, labor, tools, knowledge and risk into sustainable commercial activity that creates value for more than just business customers. It's about a bakery that produces bread people want to buy. A manufacturer who makes useful goods, a farm that grows food, uh, a plumber who solves your biggest problem. Or a software company that builds a product that people voluntarily pay for. That is the essential heart of capitalism. Commercial businesses and commercial enterprise, not financial markets. And the key ingredient in all of it is competition. Without competition, capitalism starts to become something else entirely. So let's start with the word capital. In everyday conversation, people often mistakenly substitute the word money for capital. That's because society has become hyper financialized. We've adopted Wall Street's practice to confuse capital for investment funds or ownership claims. But in a deeper economic sense, capital is not money sitting in an account or a stock certificate changing hands. Capital is productive capacity. It is the collection of tools, equipment, systems, uh, the knowledge and infrastructure and finally determined organization that allows people to produce goods and services over time. A profitable commercial enterprise is true capital, not the financial means we use to come up with some monetary value for it, some momentary monetary value for it. It's the restaurant that can serve customers every day, pay its workers, cover its costs, and earn a profit. That is capital. Or some trucking company that moves goods efficiently, a machine shop with skilled employees and reliable customers. That is capital. They create the real value in the real world that financial markets attempt to trade. Now compare that with someone buying and selling shares of a company 10 times a day. That activity may affect prices. We call it value. It may provide liquidity and help financial Markets function, but the act of trading a stock is not the same thing as building a business, producing a good, serving a customer, or maintaining that profitable enterprise. Financial markets conserve capitalism, but they are not capitalism itself. They are an add on and at best they help the commercial system become more productive and therefore better at what it does. At worst, they become a casino detached from reality, extracting value rather than adding something to it. So if capital is an enterprise, then what is the free market? Well, again, it's not simply a place where financial assets are traded. A ah, free market is a commercial environment where buyers and sellers can voluntarily exchange goods and services, where employers and employees get together and then become Adam Smith's miraculous invisible hand. This exchange is where prices emerge from supply and demand, where businesses compete for customers, and where bad decisions carry consequences. Or at least they should. In a real free market, the customer has power. If you charge too much, provide poor service, or sell a bad product, they can go somewhere else. If you innovate, if you lower costs and improve quality or serve people better, you can gain business and gain staying power, all the while elevating the living standards of everyone, whether they're directly involved or not, whether they even realize it or not. If you have a retirement account, and if you've ever wondered whether crypto belongs inside of it, Block Trust IRA is something worth looking into. Now, most crypto IRA platforms are self directed. 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Crypto is volatile and may lose value and past performance is no guarantee of future results. Plus, terms do apply. That dynamic is what makes capitalism so powerful and it has been so incredibly successful. It's almost impossible to describe. Not because business owners are morally superior or that commercial markets are perfect. They are certainly not. This is and always will be a messy process. There are informational errors and bad judgment, honest mistakes, and let's face it, not so honest mistakes. But because competition forces businesses to serve others in order to survive, the overall system advances, just not in a straight line. For all the leaps and bounds, there are pockets of, let's call it volatility, not in the financial market sense, but times when success seems not quite as successful. And in those periods, it's innovation that provides the pathway out of them. Um, a business can't simply declare itself successful. It has to convince customers it has to earn revenue. And it has to do that while facing alternatives. This is why competition is not a minor feature of capitalism. Competition is the key, the central mechanism. If there is no competition, prices stop carrying honest information, customers lose choice, firms become lazy and Sovietized. Innovation slows down to the point it can seem like it just vanishes. Costs go up even as quality falls. And businesses, they start spending more energy protecting their position and than improving their product. A market without competition is not really a free market. It's just a private power with financial numbers thrown on top. And that private power can become just as abusive as public power. So anyone who genuinely supports free market capitalism must also support the preservation of competition. Which brings us to an uncomfortable subject for many people, and that's a guy by the name of Teddy Roosevelt. A lot of people make this same strange mistake. They assume that being pro capitalism means being pro big business. But that's not true. Capitalism and big business are not the same thing either. There can be and there ought to be large firms in a free market system. That's simply because most of the time big businesses become big because they serve customers well, they innovate and they operate efficiently. That's not the problem. Scale itself is not automatically evil or inherently destructive. A smaller firm becoming a big one is where the vast majority of economic growth and employment actually comes from. The problem begins when large firms use their size, their political influence, or their control over infrastructure to block competition. When companies collude to fix prices, or when a dominant firm uses predatory tactics to destroy competitors and then raises prices once competition is gone. That is not free market capitalism. Big corporations which can lobby government to write regulations that smaller competitors can't afford to comply with, that's not the free market. Especially when those governments grant special privileges, subsidies, bailouts or legal protections to politically connected firms. That's moving away from the free market. That's corporatism and crony capitalism. That's More like a hybrid system where private profits are protected by public power. Teddy Roosevelt understood this distinction better than most modern defenders of capitalism. Roosevelt he he was not against enterprise or success. He championed wealth created through genuine production and productivity. So he recognized that trust and monopolies could strangle the competitive process. Trust busting was not an attack on capitalism. It was an attempt to save capitalism from being captured by concentrated power to rebalance. If capitalism requires competition, then anti competitive behavior is anti capitalist. And that means a serious defender of free markets can't simply say, let business do whatever it wants. Because businesses like governments, they definitely seek power, they seek protection. They look to write the rules which benefit themselves at everyone else's expense. A real free market position is not big business good, government bad. A real free market position is more nuanced, more realistic. Competition matters first and foremost, voluntary exchange and open entry. No institution, part public or private, should ever be allowed to rig the game. Now this is where the conversation needs to be practical. We can't afford to romanticize or idealize free markets and free market capitalism. We have to understand people are imperfect. The system itself is imperfect. Yes, it has created more prosperity than human beings have ever considered and had ever imagined in previous generations. But that doesn't mean it's perfect. There is no such thing as a truly free market. Practical experience and pragmatism are paramount here. Even the most market oriented society still depends on laws, property rights, contracts, courts, and some basic rules of exchange. If someone sells you a product based on lies, or violates a contract, or steals your property, you need some system for resolving all that. So the real question is not whether government is involved. The question is what kind of involvement, how much and and for what specific purpose. A pragmatic free market approach should aim for the minimum government interference that's necessary to protect the competitive process, because it will never be zero. That does not mean government should manage the economy. Far from it. We aren't looking for politicians to pick winners and losers. We sure as hell don't want bureaucrats micromanaging every industry. But it does mean government will have a role in mandating transparency, punishing fraud, enforcing contracts, uncovering anti competitive practices, and where absolutely necessary, taking action against monopoly power or collusion. The goal should be simple. Keep the playing field open. Government should not be a partner to giant corporations or some shield for failing firms. It shouldn't turn markets into political allocation machines. The best government practice is to act as a referee. A referee is very different from being a player. A referee doesn't decide who wins? A referee makes sure the game remains playable. That's the ideal. Limited, transparent, predictable rules that are designed to preserve competition and punish deception. Now, of course, we also realize that giving people power corrupts them. Um, bureaucracies don't ever die. They creep and expand. So we also have to be vigilant and take action when called for. In the public sector, it is always, always going to be a constant game of watching the watchers as much as the watchers have to watch competitive market practices. We don't want to give government that first inch. But people are not angels. And free markets will never truly be perfectly free. So we make a limited deal with the devil and never stop demanding limits on both sides, public and private. So where do financial markets fit in then? Well, financial markets can be incredibly useful. In fact, they have been incredibly useful when they don't just take over. We don't become hyper financialized. They help us allocate savings. They provide investment opportunities. They help circulate money and become more productive engines for free market capitalism. Financial markets are where businesses go to raise money and expand asset prices. They help investors evaluate risks. And these markets provide liquidity, which makes it easier for people to buy and sell their ownership claims. Those are not inherently bad. When functioning well, finance supports commerce. A business needs money to build a factory, to buy equipment, to hire workers and develop a new product. Money becomes capital. And let me say that again, money becomes capital. Banks and investors can help provide that money. And in that role, financial markets can make the real economy more efficient and more competitive. But notice the direction finance is supposed to serve. Productive enterprises. It's supposed to be a means, not an end. The problem is that modern financial markets have often become the end themselves. Instead of asking how can finance help businesses produce more value? The system often asks, how can financial players generate returns from financial activity itself? Churn and volatility. That shift matters. When finance becomes detached from the commercial economy, it can become extractive by rewarding leverage, complexity and speculative short term gains over long term productive capacity. A stock market boom m does not necessarily mean the real economy is healthy. A rising index does not automatically mean workers are more productive, that businesses are more competitive, or or customers are better served. Sometimes asset prices rise because of cheap credit speculation or expectations of government support. Or because the world was convinced that equities were the key to everyone's retirement. And once that happened, Wall street swooped in to cement its newfound central place in everybody's lives by giving them a story about stocks and stock markets. Wall street says they are capital. They provide valuable insight into Main street. And it's all marketing bullshit. That is financialization, not free market capitalism. It's a transformation of an economy from one focused on producing goods and services into one increasingly focused on trading claims, managing leverage and protecting asset prices. That's why equating capitalism with Wall street creates so much confusion. If Wall street does well, while commercial markets become less competitive, especially when small businesses struggle and innovation slows down, when the politically connected firms, they gain protection, that's not a triumph of capitalism. It may be a sign that finance has lost its way and its true place. Of course, back in the financial markets, there is a ton going on right now. Curves are being reshaped, they're being twisted, they're crashing, they're frowning. And as an investor or portfolio manager, you need to know what they're saying. You need to know what that information means. So join me for my live webinar on Sunday, this coming Sunday, June 28th at 5:30pm Eastern Time, where we're gonna break down how to unlock all this secret market information that very few people follow and and even fewer truly understand how to fit everything into a disciplined all weather investment strategy. All the deeper looks at this stuff that we can't get into here on YouTube. So don't just react to the markets. Learn to read what they're already telling you. So again, join me this coming Sunday, June 28, 5:30pm Eastern Time. There's a link in the description to sign up, it's free to sign up, it's free to attend and I'll see you this coming Sunday. Now, one of the clearest examples of this confusion and anger is the bailout. Now bailouts, they can have a, they have a place under very limited circumstances, very limited circumstances. But by and large, bailouts aren't what they're supposed to be. Bailouts tend to end up in the crony capitalist camp rather than being somehow some part of protecting the free markets. When a major financial firm takes enormous risk and it earns private profits during the boom and then receives public rescue when those risks collapse. People have been told to call that capitalism, but it's not. Bailouts are not necessarily free market capitalism. In a capitalist system, failure matters. Losses are information. Bankruptcy is part of the process because bad investments should be written down, poorly managed firms should be restructured, sold, or just taken out back and eliminated. Now that doesn't mean the failure is pleasant. It is painful. People lose their jobs, investors lose money, communities can be affected. But failure, failure, if it's not allowed, then the market can't discipline bad behavior. A system that privatizes gains and socializes losses is not capitalist. It is a form of political protection and one which is anti competitive. Now, defenders of bailouts often argue that financial firms are different because their failure can spread through the entire economy. They point to the Great Depression and say bank failures can trigger catastrophic collapse. And there is some truth to that concern. But the deeper issue is not that every financial institution must be saved. The deeper issue is really, as we know here at Eurodolla University, the robustness of the monetary system itself. In the modern economy, money is ledger money. Bank balance sheets form the plumbing of commerce. And if that plumbing collapses, ordinary businesses, they can't make payroll, customers can't pay their bills and trade freezes up. That was 2008. So yes, the monetary system does matter. But but that does not mean that bank executives, shareholders and bank bondholders must be rescued from the consequences of their bad decisions. A better principle is protect the functioning of the monetary system, not the owners of failed institutions. And you don't have to have the one to get the other. Keep payments working, protect ordinary depositors within clear rules, use orderly resolution. But let equity be wiped out, let management be replaced and creditors, they have to take losses when appropriate. For failed firms should fail. The problem is, by allowing all that to happen, it gets to be painful. People suffer, jobs are destroyed, people's savings are wiped out. But the long run consequences of not doing this are far, far worse. As we've been discovering over the last couple of decades, the goal should be to prevent systemic collapse without rewarding recklessness. And that's a very different philosophy from simply bailing out powerful institutions because they're large and politically connected. Allowing failed institutions to survive, especially because of their size, prevents the next smaller one with better ideas and better processes from taking its rightful place in the free market. The potential to contribute to the rising living standards never gets unleashed because of arbitrary bailouts. Failure is not a bug in capitalism, it's a feature. Now that may sound harsh, but it's absolutely true. It's absolutely necessary. There is a process at work here. The reason why free market capitalism works so, so well and has worked so well for so long m is because information processing, innovation, these all require competitive practices. Competitive practices, which means sometimes there's going to be winners and sometimes there's going to be losers. Commercial markets are discovery processes. Nobody knows perfectly what customers will want, which technologies are going to work, which business models will succeed, or what investments are going to Pay off entrepreneurs, they take some risks. Some of them are right, many of them are wrong. And when a business fails, the resources are released back into the system. Workers move, equipment gets sold, buildings are repurposed, and capital flows elsewhere. New firms come along and they try newer ideas. This is what economists call creative destruction. Old methods are replaced by better ones. Inefficient firms lose ground to efficient firms. Products improve, the costs fall, and innovation spreads. But only if creative destruction is allowed to work. If every incumbent is protected, the economy becomes stagnant. If every politically important company is rescued and bailed out new competitors, they don't get their fair chance. If a failed business model is kept alive by subsidy regulation, a, uh, bailout, resources get trapped in unproductive uses. This is one of the great ironies of modern economic debate. Some people defend bailouts in the name of saving capitalism, which when bailouts often prevent capitalism from doing its job. Capitalism requires profit and loss, not just the profit. Loss is what tells us when something went wrong. Loss is what forces adaption. Loss is what clears space for new innovation. A system that allows profits but forbids losses is not a market system. It is a privilege system. So the next time someone says capitalism and points to Wall street, pause for a moment. Wall street is not the whole story, or even the main character in it. Brokers and investment funds are, or they should be the supporting cast. They're bit players. Financial markets may support capitalism, but they are not its heart. The heart of capitalism is the commercial marketplace. People building, producing, exchanging, competing, adapting, and always improving. Capital is not some financial instrument. Capital is productive enterprise. But remember, a free market also can't be some lawless jungle. It's a competitive commercial order with rules against fraud, coercion and anti competitive behavior. The system must respect contracts as sacred and therefore provide a way to solve the inevitable disputes and sort through the messiness. That means a pro capitalist position is not automatically pro corporation, pro bailout or pro finance. In fact, if you genuinely believe in free market capitalism, you should be willing to oppose monopolies, oppose cronyism, yes, hate the damn bailouts and but support trust busting when concentrated power threatens competition. Because competition is the engine, failure is the discipline, innovation is the tool. And gigantic social progress is everyone's reward. Because productive enterprise is the entire point. That is what most people miss. And that is why capitalism, properly understood, is not Wall Street. It's the freedom to build something spectacular and useful, but also with the responsibility to be able to survive the competition. We look at the private credit boss. There are arguments for both sides. Is private credit a necessary component of a badly struggling commercial system, or did the financialization take it too far and looking at too far in the video link below? As always, thank you very much for joining me. Join me this coming Sunday for a webinar. There's a link in the description to sign up your Dallas University members and subscribers. Can't thank you enough. And until next time, take care.