Does Capitalism Work?

Here is a map depicting how each states' GDP compares to other countries around the world:

















What system can generate such a circumstance? How can comparatively small states like New Jersey can produce more than the geographical area of Russia? Is it merely that New Jersey has more natural resources than all of Russia? Or that the people of New Jersey are smarter than the people of Russia? Or is it related to each states' respective proximity to the natural state of liberty?

From the index of economic and political freedom:

"State involvement in economic activity remains considerable, and institutional constraints on economic freedom are severe. Non-tariff barriers add significantly to the cost of trade. Inflation is high, and prices are heavily controlled and influenced by the government. Virtually all foreign investment faces official and unofficial hurdles, including bureaucratic inconsistency, corruption, and outright restrictions in lucrative sectors like energy. Corruption weakens the rule of law and increases the fragility of property rights and the arbitrariness of law enforcement."

The answer is quite simple - the government acts as an obstacle to natural market activity. Price controls and excessive bureaucracy prevent individuals from disposing of their property how they see fit. A weakened rule of law and barriers to trade stifle risk taking and entrepreneurship. All of these things lower productivity. The truth becomes clear - it does not matter how many natural resources a country has, nor how intelligent the population is. If government will not allow people to trade freely with each other, guarantee the security of property and establish the rule of law, productivity and quality of life will suffer.

Thomas Jefferson, George Washington, and the rest of the founders took a different approach. They recognized both the economic and personal woes that emerge from a bloated State. The United States was founded on the principles of individual liberty and the rule of law, precisely what is lacking in Russia. Capitalism works, and one need to look no further than to compare New Jersey to Russia.

* It should be noted that New Jersey outproduces Russia despite being one of the most heavily taxed and regulated State's in the Union.

The confusion between right and left

I am generally intrigued by the misuse of language in American politics. In the popular consciousness liberals stand for big government while conservatives stand for limited government. Liberals believe in civil rights and personal liberty but favor high taxes and government services. Conservatives believe in free markets but have a poor record favoring government control of personal liberties. If the word liberal is derived from liberty, why are they the 21st century statists? How did the word "conservative" become associated with liberty and small government?

The following quotes come from a very interesting speech by Roderick T. Long, called Rothbard's "Left and Right": Forty Years Later, given at the Austrian Scholars Conference in 2006.

Rothbard:

[T]here developed in Western Europe two great political ideologies … one was liberalism, the party of hope, of radicalism, of liberty, of the Industrial Revolution, of progress, of humanity; the other was conservatism, the party of reaction, the party that longed to restore the hierarchy, statism, theocracy, serfdom, and class exploitation of the Old Order…. Political ideologies were polarized, with liberalism on the extreme "left," and conservatism on the extreme "right," of the ideological spectrum.

Herbert Spencer:

How is it that Liberalism, getting more and more into power, has grown more and more coercive in its legislation? For what, in the popular apprehension and in the apprehension of those who effected them, were the changes made by Liberals in the past? They were abolitions of grievances suffered by the people…. [T]his was the common trait they had which most impressed itself on men's minds…. [T]he welfare of the many came to be conceived ... as the aim of Liberalism. Hence the confusion. The gaining of a popular good, being the external conspicuous trait common to Liberal measures in earlier days (then in each case gained by a relaxation of restraints), it has happened that popular good has come to be sought by Liberals, not as an end to be indirectly gained by relaxations of restraints, but as the end to be directly gained. And seeking to gain it directly, they have used methods intrinsically opposed to those originally used.

Long:

In short, Spencer's analysis is that liberals came to conceptualize liberalism in terms of its easily identifiable effects (benefits for the masses) rather than in terms of its essential nature (laissez-faire), and so began to think that any measure aimed at the end of benefits for the masses must count as liberal, whether pursued by the traditional liberal means of laissez-faire or by its opposite, the traditional Tory means of governmental compulsion. In short, liberalism became the pursuit of liberal ends by Tory means.

Rothbard:

Libertarians of the present day are accustomed to think of socialism as the polar opposite of the libertarian creed. But this is a grave mistake, responsible for a severe ideological disorientation of libertarians in the present world. As we have seen, conservatism was the polar opposite of liberty; and socialism, while to the "left" of conservatism, was essentially a confused, middle-of-the-road movement. It was, and still is, middle-of-the-road because it tries to achieve liberal ends by the use of conservative means…. Socialism, like liberalism and against conservatism, accepted the industrial system and the liberal goals of freedom, reason, mobility, progress, higher living standards for the masses, and an end to theocracy and war; but it tried to achieve these ends by the use of incompatible, conservative means: statism, central planning, communitarianism, etc.

Originally liberalism was a movement whose goal was the promote the common good. The means of achieving the common good was through liberty, not through state control. Over time liberalism came to mean achieving the common good through state control. This is a confusion of means and ends, of indirect and direct, and ultimately of freedom and tyranny.