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Apr
28

Capitalism: You be the judge

One of the tenants of capitalism is that property rights need to be well defined and enforced. Each individual, for instance, must have a property right over their own labor. If people can forcibly be made to work for someone else or at a wage rate they don’t agree to, then that isn’t capitalism, it is slavery.

Economic actors, be they individuals or firms, can only enter into economic transactions voluntarily if they know what they own/ have control over. I might want to sell you swamp land in Florida, but I don’t own any, so I can’t.

This is where the practice of capitalism becomes reliant on government, particularly the judicial branch, to define and enforce property rights. While sound governments are needed to support capitalism, unsound governments can quickly strike at the capitalist system causing its destruction.

As evidence, even at high growth rates it will take decades for China’s economy to catch up (on a per capita basis) with the industrialized world. Yet, it only took a couple years for Robert Mugabe, Fidel Castro, Chairman Mao, and Hugo Chavez to destroy their economies. Put another way, demolition is much easier than construction.

In that light, it is most important to guard against the demolition of capitalism’s main pillars. As I have noted before, the US Supreme Court’s Kelo vs. New London decision that grants governments the power to use eminent domain for private business interests, strikes against those pillars.

President Obama will have the privilege of appointing another Supreme Court Justice this summer. In the April 22, 2010 edition of The Economist, in the article, “The Supreme Court and discrimination” they cite a leading judicial contender for the court, Judge Diane Wood, as having written opinions that indicate she believes that constitutional rights can be infringed upon as long as the state has a good reason.

Judge Wood is quoted as having written “that infringement may be justified if it is in furtherance of a compelling state interest”.

While The Economist article focus was on discrimination, the broader point is that if rights to free speech and freedom of religion aren’t going to be respected, what makes you think that property rights are? What if anyone’s and everyone’s property rights could be taken if it is in furtherance of a “compelling state interest”? That’s exactly what a command economy is.

A command economy (the opposite of capitalism and the type of economy employed by communist regimes around the world) is where the state, rather than the individual, owns property and then makes all the economic decisions for the “betterment” of the state. As we have seen, command economies only bring with them starvation, despair, and a loss of freedom.

A chain is only as strong as its weakest link. The weakest link of capitalism is that it is reliant upon governments to define and enforce property rights. The quickest way to destroy capitalism is through the court system. While the attention this summer will be on the social leanings of potential justices, we need to be equally, or more, concerned with their economic philosophies. Justice may be blind, but even blind men can bring down pillars – just ask Samson.

Permanent link to this article: http://wkubbtcenter.com/2010/04/28/capitalism-you-be-the-judge/