One of the major challenges of our age is that there are a lot of words everyone uses as if we're all talking about the same thing but actually mean entirely different things. Case in point: "capitalism" gets thrown around a lot but it means something totally different to the Chicago School of Economists, Behavioral Economists, the Austrian School of Economics and to Adam Smith. Today, Hunter interviews Peter Schiff one of the most prominent voices in the libertarian movement, a word that has so many different meanings that it's hard to criticize as a whole. We can, however, look at what one man believes in this interview. What and how does Peter Schiff think?
Well, I've got to say that I don't think that Peter Schiff's worldview makes much sense either internally, with what we know about human thinking, the historical record or what Adam Smith and America's Founding Fathers taught. In short, I don't think the cargo cult Peter Schiff is proposing will deliver prosperity for humanity. It will, however, deliver prosperity for him.
In any evolutionary system, parasitism will emerge as a strategy and the same is true in human societies. You can create a following peddling a plausible-sounding worldview and then extract both money and political power from your followers. Usually, people think of this behavior only in terms of religion but, in fact, you can do it any arena. It applies to self-help. It applies to financial advice. It applies to political promises that gain you power but are so out of touch with reality that they have no chance of delivering your followers prosperity.
So, let's look at what I took away from this. Firstly, there's where Peter and I agree. Wall Street has severe problems. It has lost touch with capitalism and confused self-interest with short-term greed that will line the pockets of bankers while destabilizing society as a whole. And I'm quite sure that Peter can help his followers make money by shorting the market. However, in that sense, he is little different from the people he criticizes. He profits while potentially destroying the system that allows him to profit.
America's Founding Fathers believed in checks and balances. Nowhere is this laid out more clearly than in Federalist Paper 51 where James Madison writes "Ambition must be made to counteract ambition." The key lies in setting the ambitions of men against each other. You make people compete and check each other's behavior. In the same way, the free market is not about a free for all. As Adam Smith, Capitalism's Founding Father wrote, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” And one of the things that merchants of drugs or ideas like Peter will do if left to their own devices is peddle things that enrich themselves while harming the people to whom they sell. Ambition must be made to counteract ambition.
As I mention in this podcast, one of the reasons why the FDA was given increased powers was because of the case of Eben Byers. At the time, one of many patent/quack medicines was Radithor. It was water filled with radium. People drank radioactive water which was marketed as "Perpetual Sunshine." Eben Byers' doctor prescribed it to him (in part because he was getting kickbacks) and Eben Byers ended up becoming riddled with cancer and with holes forming in his skull. He became so radioactive that he had to be buried in a lead-lined coffin. As The Wall Street Journal titled an article about his death ""The Radium Water Worked Fine until His Jaw Came Off."
Now, Peter Schiff had never heard of this story. As far as I can tell, he never bothered to try and understand why the FDA or any other government bureaucracy was founded. As I explained to him, I understand that too much government regulation is a problem. That's why I brought Luigi Zingales on to talk about A Capitalism for the People. It's also why I'm such a huge fan of Hernando DeSoto's Other Path. However, I don't know that no government regulation is the answer because that is simply removing the checks and balances. Further on in Federalist 51, James Madison pretty much nails it:
"The interest of the man must be connected with the constitutional rights of the place. It may be a reflection on human nature, that such devices should be necessary to control the abuses of government. But what is government itself, but the greatest of all reflections on human nature? If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself. A dependence on the people is, no doubt, the primary control on the government; but exper