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I'm very pleased today to present the speaker for our FA Hyack memorial lecture which is sponsored by Greg and joy Moore in both of whom are present Randal Holcomb is devote more professor of economics at Florida State University he received his PhD in economics from Virginia Tech and taught at Texas A&M University and Auburn University prior to coming to Florida State in 1988 dr. Holcombe is also senior fellow at the James Madison Institute at Tallahassee based think tank that specializes in issues facing state governments he's also a research fellow at the independent Institute and I'm happy to say an Associated scholar of the Mises Institute he served on governor a jeb Bush's Council of Economic Advisers in Florida from 2000 to 2006 and his past president of the public choice society and Society for the development of Austrian economics dr. Holcombe is the author of 15 books in more than 150 articles published in academic and professional journals his books include from Liberty to democracy the transformation of American government producing prosperity and political capitalism how economic and political power is made and maintained these primary areas of interest or public finance and the economic analysis of public policy issues dr. Holt pokum will address us this morning on political capitalism how economic and political power is made and maintained please welcome dr. Holcomb [Applause] thank you very much for that introduction Joe I am delighted to be here it's a homecoming of sorts for me because I was on the economics faculty at Auburn University for 11 years including when the Mises Institute was founded here in Auburn and actually in its early days the Mises Institute and the economics department at Auburn had a very close association we had a number of faculty members who were interested in Austrian economics we had a regular Austrian economics seminar with the faculty and graduate students had a great group of people there in that in that group so it was great to see the Mises Institute found it and and getting off to a bit of a start and it's really really rewarding to see how the Institute has grown and thrived and prospered over the years so I'm just I'm delighted to be here and as I say a homecoming of sorts because I was on the faculty here for 11 years before I took my current job at Florida State University and what I'm going to talk about today is the subject matter of my recent book political capitalism how economic and political power is made and maintained and in in the context of this is the Hayek lecture so let me start out by talking a little bit about Hayek's most popular book the Road to Serfdom which was written in the 1940s and you all will be familiar with the with his ideas Hayek thought that the road to serfdom was socialism and around the same time in the 1940s Joseph Schumpeter wrote capitalism socialism and democracy and Shu Pater who is a fan of capitalism nevertheless thought that it wouldn't survive that it would be displaced by socialism because Schumpeter said the strongest the the strongest beneficiaries the most the people who benefited the most from capitalism wouldn't stand up to defend it and so he saw that threat of socialism so here in the 1940s Hayek Jim Pater both saw socialism as a big threat to capitalism and if we move up into the 21st century people like Bernie Sanders Alexandria Ocasio Cortes keep that idea of socialism alive but what I'm going to suggest you today is that the biggest threat to capitalism doesn't come from socialists it comes from capitalists that capitalists tend to promote policies that undermine the capitalist system when you hear the term pro-business somebody's pro-business usually that means anti-free market what I want to do is explore that idea a little bit further and I want to discuss with you this what I think is a distinct economic system of political capitalism so political capitalism is an economic and political system in which the economic and political elite cooperate for their mutual benefit profitability of business is determined by political connections rather than the satisfaction of consumer preferences and this idea of political capitalism it's widely recognized widely opposed although not necessarily widely understood I mean from political left to political right people decry the problems of cronyism corporatism favoritism nobody likes crony capitalism fascism seems to be closed related and President Eisenhower as he was leaving office warned about the military-industrial complex so this idea of political capitalism it's widely recognized it's widely opposed but it's not widely understood lots of people see the symptoms few people see the causes political capitalism it's not a mixed economy it's not something that lies between capitalism and socialism it's a distinct and separate economic system so I want to talk a little bit about that explain some of the foundations of political capitalism where it comes from and maybe get some insight into why we don't often understand what's actually going on to undermine free-market capitalism if you go back to the 20th century a common course that was taught in economics departments all over was comparative economic systems a comparative economic systems mostly looked at capitalism versus socialism it was based on a cold war-era method of thinking where you go back to the Cold War era and we had the capitalist democracies on the one hand the communist dictatorships on the other hand there was a battle between them not only the Cold War battle but an intellectual battle also about the merits of these economic systems and lying in between capitalism and socialism were mixed economies some combination of capitalism and and central planning markets and and central planning and that cold war-era way of looking at economic systems more or less faded away after the collapse of the borough while in 1989 followed by the breakup of the Soviet Union in 1991 that Francis Fukuyama in his book the end of history saw capitalism as an economic system and democracy as a political system he called at the end of history that basically that's the final evolution of political and economic systems I'm not so sure that's true and I see some fundamental incompatibilities between capitalism and democracy then I'll come back to toward the end of my talk if you think about that 20th century way of looking at economic systems basically we had the idea that economic systems range from capitalism at the one extreme to socialism at the other extreme with mixed economies in between and economic and political systems were independent of each other so you had on the one hand democracy and on the other hand dictatorship and maybe some cases in between and not fully dictatorial but not completely democratic either and the 20th century way of looking at these things was that really political and economic systems were independent of each other so you know again thinking in the 20th century cold war-era method of thinking we had the capitalist democracies up here in this cell against the communist dictatorships the United States being the prototypical capitalist democracy the Soviet Union being the prototypical communist dictatorship but you could have all different mixes of political and economic systems democratic socialism a lot of people pointed toward Sweden as an example of democratic socialism I think that's problematic but I'm not going to really get into that at the moment I mean this is the way people tended to look at things in the in the 20th century and the fascism of mass Nazi Germany a capitalist system but but a dictatorship again I think that's problematic but I'm not going to get into it all I'm saying is this is the way that we tended to look at economic systems in the 20th century and we haven't fully left that behind so one result of that is that we do tend to think of socialism as the big threat to capitalism and as I'm going to discuss through the remainder of the hour I really think the bigger threat is political capitalism if we as we move into the 21st century this idea of comparative economic systems we've really left it behind we really don't even think about comparative economic systems anymore basically the way economists look at economic systems in the 21st century is the market system is the economic system and then there are various levels of interference with markets so we have taxes we have regulations and so forth that are interference with markets so we've left this comparative economic systems paradigm it's rarely taught in universities anymore it was so common in the 20th century rarely taught as a separate course anymore we teach about markets and we teach about interference with markets and so my argument to you today is we really need to go back to thinking about comparative economic systems and we need to understand political capitalism as a separate economic system and really the biggest threat to market capitalism now I said at the outset that political capitalism was widely recognized and I want to give you some examples of that starting with a couple of famous economists from the 19th century Marx and Engels here's what they had to say each step in the development of the bourgeoisie was accompanied by a corresponding political advance of that class the boost Razi has at last since the establishment of modern industry in the world market conquered for itself in the modern representative state exclusive political sway the executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie so that's a pretty good idea of political capitalism jumping ahead into the 21st century here's Tom Morello an interview this was an interview in Guitar World Tom Morello is a guitarist for Rage Against the Machine and Morello says the government basically has one function and that is to serve the interests of the people who own the country so we see again you know popular recognition of this idea of political capitalism but it really goes from one end of the political spectrum to the other here's Murray Rothbard in the Progressive Era increasing stative increasing state is amount of federal and state level can be better interpreted as a profitable alliance between certain business and industrial interests looking for government to Carta lies there industry how often do we find Rothbard and Marx on the same page and again from from Rothbart the Progressive Era recreated that age-old alliance between big government large business firms and opinion molding intellectuals power was shifted out of the hands of the masses and into the hands of a minority elite of technocrats and upper income businessmen so one of the things we want to try to understand in political capitalism is how it is that the elite are able to capture the policy-making process let me give you some additional examples here's Joseph Stiglitz I tend to think of Stiglitz on the left leading end of the political spectrum Stiglitz says it's one thing to win a fair game it's quite another to be able to write the rules of the game and to write them in ways that enhance one's prospects of winning and it's even worse when you can choose your own referees and at the other end of the political spectrum I tend to think of David Stockman is more leaning toward the right David Stockman says we have a rigged system a regime of crony capitalism in truth the historic boundary between the free market and the state has been eradicated and therefore anything that can be peddled by crony capitalists is fair game so it's kind of interesting you know if I'm right in characterizing Stiglitz as leading to the political left Stockland it's leaning to the political right it's interesting to see the commonality of their views and actually in these two books that were published around the same time until you get to the conclusions what the message that they have is is almost interchangeable now their conclusions as far as policy recommendations are different on the left somebody like Stiglitz you know think we need more government oversight we need more regulation and so forth on the right people like Stockman think government is the problem we need less government but until you get to those policy conclusions there's a huge amount of similarity between the ideas of people on the left and people on on the right as I say the problem was widely recognized if not widely understood your Stiglitz and Stockman again Stiglitz says you know when one interest group holds too much power it succeeds in getting policies that benefit itself rather than policies that would benefit society as a whole and Stockman at the other end of the political spectrum our government is no longer a system of democratic choice and governance it is a tyranny of incumbency and money politics the gangs of crony capitalism will fight tooth and nail to preserve their slice of an imperiled pie thereby disenfranchising even further ordinary taxpayers and citizens who have no voice in the Washington policy auctions so here you know if you just look at the popular recognition the general recognition of these issues everybody from political left to political right sees the problem there are an elite few who make public policy and they tend to make those policies for their own benefit and then there are the masses who are essentially disenfranchised they bear the costs of the policies that are passed by the elite so there are two groups of people the cronies and everybody else we give them different names the booze Rossi versus the proletariat the elite versus the masses and in the Occupy Wall Street language the 1% versus the 99% so how is it that this system is is able to exist how is it that it's able to perpetuate itself and so what I want to do is to try to build a theory of political capitalism so that we can understand what's behind it how this system works and the building blocks of political capitalism I'm going to gonna rest heavily on elite theory that tells us who benefits and public choice theory that explains how they benefit neither one of these theories by themselves does the whole job elite theory developed by sociologists and political scientists for more than a century the elite versus the masses that elite Theory tells us who benefits but it doesn't explain how they benefit public choice theory explains how some people are able to benefit at the expense of other we have theories of rent-seeking regulatory capture interest group politics that these aspects of public choice theory describe how it is that some benefit at the expense of others but it doesn't identify that there is a systematic group of people who always are the beneficiaries and the masses who typically bear the costs so elite Theory tells us who benefits public choice theory tells us how they benefit and one thing that's kept economists from really seeing seeing this theory of political capitalism as a whole is economists tend to take a very individualistic approach to social science in general it's individuals who act it's not groups who act it's individuals who act and I'm sympathetic with that but if as we push this idea what we do is we leave out the fact that individuals are members of groups and some groups are able to systematically work together for their own benefit now an example of that individualistic approach comes in James Buchanan and Gordon telex book the calculus of consent and so Buchanan and Tullock say they they reject any theory or conception of the collectivity which embodies the exploitation of a ruled by a ruling class this includes the marxist vision which incorporates the polity as one means through which the economically dominant group imposes his will on the downtrodden and and so basically what Buchanan and Tullock starting off this way in their book the calculus of consent was take off the table a possibility of seeing this theory of political capitalism because they take such an individualistic approach so let me talk a little bit about Elite theory and we can see in a lot of work in economics the foundations that lead us to understand how how elite Theory works we can see an economic foundation for elite theory we see it in Mansur Olsen's theory of group action where small concen rated groups have an advantage over larger groups even in Buchanan and telex book while while they reject this notion of group action do note that log-rolling and political exchange benefit the people who engage in exchanges and and one one key thing to understand here is that the idea of logrolling gets its political exchange it's sometimes it's vote trading but it can be more than that sometimes it's like a political IOU if you're in a city if you're a legislator you might just you know you vote for my bill I'll vote for yours but sometimes the transaction occurs over time so a legislator says will you support my bill another says ok I will but then an IOU is developed so later on the second legislator goes back and says remember when I supported your bill now I need your help it's political exchange and because there's a small number of people you keep track of those political IOUs and you have to pay your debts otherwise you'll be left out of those political exchanges in the future and it can't log-rolling occurs in other ways too you know we support my bill I need your support I don't know we can provide some money for your district to build such a system ok if we do that put that in the bill then I'll support it so that's those are examples of political exchange but those political exchanges can only occur among people where there are a low transaction cost so they're actually able to engage in exchange I'm guessing that most of you like me aren't in that group where we can engage in political exchange we just have to accept the legislation that's passed by the political insiders that's the difference between the elites and the masses now the Coase theorem provides a good economic foundation for elite theory this elite theory is rare to see it in economics it's common to see it in sociology and political science but there's a strong economic foundation for elite theory in the Coase theorem so many of you be familiar with the coast theorem let me just talk about it a little bit in the context of markets and then extend it to politics one way to look at the coast theorem is the coast theorem says in the absence of transaction costs resources are allocated to their highest valued use so let's think about what that means in the absence of transaction costs what does that mean means nothing is standing in the way of us making a mutually advantageous exchange the answers a transaction costs resources are allocated to their highest valued uses okay so nothing is standing in the way low transaction costs nothing is standing in the way of transaction costs resources are allocated to their highest valued uses because the people who value them the most are able to bargain to get them to buy them to engage in transactions to get them so the Coase theorem I mean there's a kind of a common sense explanation here to the coast theorem if nothing is standing in the way of mutually advantageous exchange then the parties to exchange can allocate resources to their highest valued uses because the people who value them the most can buy them so let me give you if we think about the Coase theorem a common example in economics is air pollution so let's say we have a steel mill and a steel mill is selling steel to an automobile manufacturer and so they engage in transactions so the steel is bought and sold there are low transaction costs so it's easy for the auto manufacturer in the steel manufacturer to get together and engage in exchange so they can maximize the value of that exchange to themselves and then but the air pollution example now here this steel mill is creating all of this air pollution and there are tens of thousands of people in the vicinity who are breathing polluted air but they are in a high transaction cost group it's difficult to get tens of thousands of people to organize to get together to bargain with the steel mill so the whole idea of an externality here right is the people in the low transaction cost group that's the steel manufacturer the auto manufacturer they engage in transactions that maximize the value of resources to themselves there are other people in the high transaction cost group those are the people who are breathing the polluted air they face high transaction costs they're not able to engage in a bargain to negotiate to reduce air pollution they suffer the externality the the resources that are allocated by people in the low transaction cost group the steel manufacturer the auto manufacturer impose costs on the people in the high transaction cost group that's just that's a theory of externalities that's that's common in economics and it's an application of the Coase theorem now let's apply that Coase theorem to politics we have a group of people who are in the low transaction cost group there are the people who make public policy in my earlier example it's like the steel manufacturer in the auto manufacturer but in politics its legislators its lobbyists it's people who have political connections those are the people in the low transaction cost group they get together they negotiate they maximize the value of resources to themselves but just like the people who are breathing the polluted air in my market example the masses most people most voters both citizens they're in the high transaction cost group they don't have anything to say about public policy right I mean you can vote I'm going to talk a little bit more about that later but yeah I mean your individual vote isn't going to make much of a difference those are the people in the high transaction cost group so if we just apply the Coase theorem to politics we see some people are in the low transaction cost group legislators lobbyists big businessmen who have connections with to the political system they're in the low transaction cost group they maximize the value of public policy to themselves most people are in the high transaction cost group they don't have any say in what policies are passed they're unable to go to the legislature and say hey you know here's something that would would benefit me they're in the high transaction cost group so the actions of the people in the low transaction cost group the cronies the insiders the people with political connections they maximize the value of public policy to themselves and just like the people who breathe the polluted air in the market example the masses often end up bearing the costs of those public policies and it's not just like in the externalities example it's not that the elite the insiders the people with connections it's not that they're trying to impose costs on the masses it's just that it doesn't matter to them I mean it's like the steel mill is making steel to produce for the auto manufacturer they don't consider the cost that they impose on other people in the process and the same thing is true in politics that the insiders the elite the people with political connections they do what's best for them and just like the people breathing the polluted air often the costs get imposed on the masses so we have two groups of people then and there's a good seed there's an economic foundation for elite theory and it's in the Coase theorem when the Coase theorem gives just as much of an economic foundation to elite theory as it does to the externalities theories where it is often implied so what we see then is that there are two groups of people there's the the insiders the bourgeoisie the elite the 1% and so who are they they're the people in the low transaction cost group and then the proletariat the masses the 99% group the 99% they're in the high transaction cost group so we have we have two crew people here we got the fat cats and then we've got everybody else and there's a solid economic foundation for this for understanding this elite theory so public choice theory explains to us you know how is it that people are able to benefit through rent-seeking through regulatory capture and so forth and the reason they're able to benefit is they are in the low transaction cost group now there's a discontinuity in political power some people are in the low transaction cost group they're able to participate in making public policy most people are in the high transaction cost group they know that their one vote doesn't count economists will say voters are rationally ignorant that idea comes from Anthony downs this book economic theory of democracy that's downs all the way on the far side and Ronald Coase is picture there in the middle so voters tend to be rationally ignorant because their one vote doesn't count it doesn't in an election it doesn't matter how you vote the outcome of the election is going to be the same either way so it's not that people are you know deliberately not interested it just doesn't pay to collect information a lot of people are well-informed just like people are well-informed about sports so here we are in March Madness and I heard before that my talk people talking about basketball games and so far they're interested some people are some people aren't interested so if you're interested you can learn a little bit but it's not going to help your team that you happen to be interested in in how they're doing you know and the same way in politics some people are interested in politics other people's not so but you know if I ask the students out here do you know the difference between a Big Mac and a whopper you know yeah there's a good reason to know the difference it can make a difference in the quality of your lunch but in politics do you know the difference between political candidates some people are interested but it doesn't matter how you vote the outcome of the election is going to be the same in either case you look at our somewhat controversial current president you know if you had voted a couple of years ago you voted for Trump who would be President today Trump what if you had voted for Hillary Clinton then who would be President Trump and what if you didn't vote at all then who would be president you see so voters know their one vote doesn't count so voters tend to be rationally ignorant rationally ignorant because whatever they do in when they approach the ballot box isn't going to make any difference to the outcome of the election so there's a discontinuity in political power like in economic power within economic power a dollar is a dollar and so some people have more economic power than others hardly see that blue line there some people have more economic power than others but there tends to be a continuity and economic power so if you have twenty dollars you've got twice the economic power of somebody with ten dollars if you got ten million dollars you got ten times the economic power of somebody with 1 million dollars and if you wanted to is there any way that you could get more economic power well if you think I don't have very much I'd like more maybe you could work overtime collect a little more money have a little more economic power maybe you could increase your skills and get a higher paying job and you could get more economic power let's maybe take a second job you could get more economic power but there's this continuity in economic power so that when you show up at Starbucks with your ten dollars that has the same economic power as when Bill Gates shows up at Starbucks with his ten dollars so certainly some people have more economic power than others but there's a continuity in economic power that we don't see in in political power that you can you can work a little more exert a little more effort build your skills and you can gain economic power but that's not the case with with political power with political power there's a discontinuity in political power most people the masses have almost no political power and a few people the elite have a lot of economic power now if you don't have very much political power how could you get more well I mean you could volunteer to work on a political campaign for a candidate you like you could make campaign contributions but it's still not going to affect the outcome of the political process so in economic with economic power you do a little bit more gain a little bit more economic power in politics you do a little bit more you don't gain any political power you still have no say in the political process now I've got a whole lot of money then you can gain some some economic power but for most people there's no adjustment at the margin here like with economic power with economic power work a little bit more earn a little bit more get a little bit more economic power with political power you know contribute a little bit more to campaigns do some volunteer work for political campaign whatever and you still have no political power so there's a discontinuity in political power unlike in an economic power and again that that plays into this whole idea of rational ignorance I mean citizens are rationally ignorant because they know that their actions in the political sphere are not going to have any effect on the outcome so rational ignorance it's just one manifestation of the discontinuity in political power so if we look at political capitalism to understand a little bit about the theory of political capitalism there are people in a low transaction cost group those are people who design public policy and they design it in order to maximize the benefit to themselves most people are in the high transaction cost group they're unable to participate in the policy-making process often they end up having costs imposed on them the economic and political elite cooperate for their mutual benefit and the profitability of business increasingly is determined by political connections rather than by the satisfaction of consumer preferences this is the threat to free market capitalism political capitalism isn't the welfare state I'm not a fan of the welfare state but that's not the big the big threat it's not big government it's not a mixed economy between capitalism and socialism and in fact the profits to the economic elite come from the fact that there's private ownership of the means of production political capitalism isn't defined by what government does but by how big but it's not how big it is but it's defined by what government does so how is it that political capitalism was able to ease its way in to displace market capitalism now I don't think we're all the way there but this is the threat that we need to recognize to free markets and to capitalism and how is it that the political process was able to evolve in such a way to enable political capitalism so if we think about market capitalism free market capitalism and political capitalism political capitalism probabilities based on satisfying market capitalism profitability is based on satisfying consumer preferences political capitalism it's based on political connections but both rest on the private ownership of resources both are based on a market for goods and services and here's a key point to think about some of capitalism's most vocal proponents support business friendly policies like tax breaks subsidies regulatory protections and trade barriers typically when you hear somebody say here's a policies of pro-business what they're really saying is here's a policy that's anti-free market so how has this political capitalism been enabled and it's progressive democracy is the political support the foundation for political capitalism if you go back to our nation's founding the we our founders viewed the role of government as protecting the rights of individuals and progressivism which emerged in the late 1800s expanded that vision of government so that not only is the role of government to protect our rights but also to look out for our economic well-being and progressivism was redistributed redistributed from the from it's very beginning if you go back to the late 1800s some of the big capitalists of the day the Rockefellers the Vanderbilts Carnegie those people often were referred to as robber barons and the idea was that they had concentrated economic power than they were taking advantage of people who didn't have so much economic power and so let's try to level the playing field through mostly regulation but eventually taxes imposed costs on some for the benefit of others now one key point that I want o get across is that progressivism from it's very beginning was redistributed from it's very beginning for the ideas behind progressivism said it's good public policy to impose costs on some for the benefit of others if we move into the 21st century now we're not necessarily targeting the robber barons I don't know maybe maybe you know some what we're looking at some of these new internet capitalists and and so forth but we don't even need that I mean basically 21st century progressivism continues that redistributive idea that it's often good public policy to impose costs on some for the benefit of others so you look at the transfer programs government transfer programs that we have and it's not really that we're singling out people you know we want these people to pay these taxes for these welfare programs it's just that progressivism justifies imposing costs on some for the benefit of others that's the ideology of progressivism and then we have the ideology of democracy now the ideology of democracy justifies the actions of a democratic government as carrying out the will of its citizens as revealed through a democratic decision-making process now there are two ways that we could look at democracy one is that democracy is a good system for deciding who holds political power and for peacefully replacing people who hold political power from from time to time that's one way of looking at democracy but the ideology of democracy looks at democracy a little bit differently that democratic government carries out the will of the people as determined by democratic elections so you combine these ideas the ideology of progressivism and the ideology of democracy and so the ideology of progressive democracy says it's okay to have policies that impose costs on some for the benefit of others and the ideology of democracy says when this is done through a democratic decision-making process its carrying out the will of the people as revealed by that democratic decision-making process so progressive democracy lays the political foundation for political capitalism capitalists are some of capitalism's biggest enemies Joseph Schumpeter and capitalism socialism and democracy asked can capitalism survive no I don't think it can and Schumpeter's reasoning on this was that the people who benefited most from the capitalist system wouldn't stand up to defend it that when you look at businesses approaching the the political process business interaction with the political process businesses aren't saying do we want free markets we like lazy fare they're saying give us tax breaks we want regulatory protection give us tariffs to protect us from foreign competition businesses don't stand up to support the market system businesses are acting in order to promote political capitalism they're one of the drivers they're the economic elite who are driving political capitalism here's Schumpeter again capitalism tends to wear away protective strata so as to break down its own defenses and to disperse the garrisons of its entrenchments we have finally seen that capitalism creates a critical frame of mind which after having destroyed the moral authority of so many other institutions in the end turns against its own and xu Pater again the capitalist process not only destroys its own institutional framework but also creates the conditions for another destruction may not be the right word after all perhaps I should have spoken of transformation but here again now you know Shoom Pater back in the 1940s is foreseeing a transformation from capitalism to socialism and meanwhile while we keep our eye on that try to rein in the the Bernie Sanders of the world political capitalism is encroaching upon free-market capitalism that's the the big threat to free-market capitalism it's happening right under our own eyes Schumpeter again the essential point to grasp is that in dealing with capitalism we are dealing with an evolutionary process it may seem strange that anyone can fail to see this obvious so obvious effect capitalism then is by nature a former method of economic change and not only never is but never can be stationary what we need to try to guard against we need to be on the lookout for this evolution from free-market capitalism to political capitalism ludwig von mises in human action he's talking about some of the failures of of social planners he says if social conditions do not fulfill the wishes of the Reformers if their utopia is proved done right realizable the fourth fault was seen in the moral failure of man social problems were considered ethical problems what was needed in order to construct the ideal society they thought was good princes and virtuous citizens with righteous men any utopia might be realized of course Mises thought this was the wrong way of looking at things but even you know if we if we look at politics in in the United States the last presidential election was kind of interesting that Donald Trump called Hillary Clinton lying Hillary and Hillary Clinton called the supporters of Trump a basket of deplorable 's so you know so if we go back and think about Mises you know that well the ideal Society they thought were good princes and virtuous citizens you know and so you know Trump is saying Clinton is not a good prince or a princess baby in this case and Clinton is saying the supporters of Trump are not virtuous citizens but we see that I mean that's that's not the problem he's his thought me sis's idea was that we need to understand that institutions matter that market institutions that there are laws of economics market institutions or what we need for a successful society it's not a moral failure of man but rather that we that we don't have good institutions so how can political capitalism be controlled and I could talk at length about this but in the interest of time I'm not going to go on too long but but let me let me just put put this in the context of the Occupy Wall Street language where I have some sympathy with the complaints of the Occupy Wall Street people what they were saying is government policy tends to favor the one-percent rather than the ninety nine percent in that particular case the fat cat Wall Street bankers instead of people being foreclosed out of their homes and so forth the policy bails out the fat cats and leaves the 99 percent on their own so I'm I'm pretty sympathetic with that viewpoint actually but then if you look at what they were proposing they wanted more regulation more government oversight we need more government to control the system but look who is it that designs that public policy it's the one percent so just thinking in that Occupy Wall Street language I mean what are people saying you know what what they're saying is we think that the 1% have designed policies to benefit themselves rather than the 99% so let's give the 1% even more power and hope that this time they'll use it for our benefit instead of their own so I mean I'm sympathetic with the widely-recognized problems of political capitalism but to cite Ronald Reagan we need to understand government isn't the solution government is the problem and when you give the 1% even more power we move even further toward political capitalism now some people have suggested to me they didn't like the name political capitalism because it gives capitalism a bad name ok so so is the name descriptive one thing I would point out too is the political capitalism is enabled by private ownership of the means of production and elite control of the political process so it's not socialism if you have a common means of ownership of the means of production then how are the economic elite going to be able to benefit it's private ownership the channel's resources back to them capitalism may have a tendency to evolve into political capitalism I think we see that as cronyism becomes increasingly evident and here's a big point that I would raise the biggest threats to capitalism are the policies proposed by pro-business capitalists proponents it's the people who claim that their supporters of capitalism who are undermining capitalism we need to understand the system in order to be able to control it so let me just sum up a few points here that elite theory explains how it is that the elite benefit who are the people who benefit it's the elite who are able to benefit and the Coase theorem provides an economic foundation for understanding elite theory elite theories it's been in political science and sociology economics not so much because we to take an individualistic view of things but looking at the coast theorem there's an economic foundation for political capitalism elite theory explains who benefits public choice theory explains how they benefit through rent-seeking interest group politics regulatory capture and the result is political capitalism it's a system where the economic and political elite cooperate for their mutual benefit so profit is increasingly the result of connections rather than producing goods that that consumers desire it's facilitated political capitalism is facilitated by the ideology of progressive democracy progressivism says the ideology of progressivism says it's not bad public policy if we impose costs on some people for the benefit of others and the ideology of democracy says when this is done through a democratic decision-making process it's expressing the will of the people it's carrying out the the will of the people as revealed by that democratic decision-making process so public policy ends up being designed by the elite they make the rules we should expect that those rules are going to work in their favor capitalist biggest enemies are its proponents the pro-business usually means anti-capitalist anti-free market political capitalism it's not the welfare state it's not big government it's not a mixed economy between capitalism and socialism it's a distinct economic system and we should recognize it as such it's the the the power of the political and economic elite they use that power to design policies that favor themselves we're not going to be able to control political capitalism unless we understand it the talk that I gave is based on my book political capitalism I noticed it's not available in the Mises Institute bookstore but if you're interested in getting a copy at a 20% discount I have some Flyers up here on the stage so and they tell you how you can go to the publisher and you can get a copy of the book at a 20% discount and we have about 12 minutes or so left so I'm happy to take any questions at anybody any comments people might have the question is comparing the Enron debacle with what went on in Wall Street in trying to see if there's any commonality there and for starters I would point out that Enron was engaged in fraudulent activity they were misrepresenting what they were doing to investors and a lot of people thought there's an example of the problems with the free market but I think just the opposite is true that Enron ended up going bankrupt and so you know you engage in fraudulent activity and eventually the market mechanism catches up with you so but anyways they were engaged in fraudulent activity now move up to the the financial crisis and the Wall Street bankers and so forth they managed to get the law on their side and so what they were doing was legal because they managed to get the political process on their side so that they got government support so the the wall street thing I think that's a good example of what I'm talking about political capitalism the Enron thing not so much I mean that was that was fraudulent activity what do you think of Mansoor Olson's thesis that the only way to break up political capitalism is war or violent revolution yeah that's a good question I I hope it's not true yeah that that Mansur Olson in his book the rise in decline of nations was published in 1982 talked about through war revolution those sorts of things you completely reset the political process you break those old political ties and so then you have a system where to get ahead people have to produce value for other people in a market system but as a political system matures there's an increasing connection between the economic and political elite and that leads to the decline of nations and I think there's a lot to that thesis and I'm a big fan of Mansur Olson's but I hope that's not the only way and when when you go back to the the original Enlightenment ideas from people like Adam Smith David Hume David Ricardo and so forth I think we see some evidence there that maybe the power of ideas can work without war without revolution so as you move into the 1800s we have increasingly free markets we have increasingly limited governments and so you know maybe I'm a little biased on this because I've been in academic my whole life but I think one of the key things as a power of ideas I mean that's one of the things behind the Mises Institute one of the things behind a lot of academics is that through the power of ideas we can keep these ideas about the virtues of markets about the virtues of limited government in the forefront and if people are thinking that way even though voters tend to be rationally ignorant if people are thinking that way and we can get those ideas across to our students get those ideas across to voters I'm optimistic that we can keep things under control and again let me just go back and think about the very pessimistic views of Hayek and Schumpeter in the 1940s and here we are 70 years later while we still see those ideas of socialism in the air they they really haven't come to the forefront so again I'm optimistic and that's one of the key ideas I'm trying to get across is as we've got our eyes on the threat of socialism what we're not keeping an eye on closely enough though those political connections the way that political capitalism is displacing free-market capitalism do you make a distinction between democracy as a procedure and democracy as an ideology because it seems to me that you said that the real problem is the ideology of democratic progressivism yeah I absolutely agree with that that that there is a problem with the ideology of democracy if we look at it as a method for peacefully replacing our the people who hold political power democracy is a good thing but if but sure it but but if we look at it as an ideology that democratic the democratic decision-making process reveals the will of the people and that policies designed through that democratic decision-making process embody the will of the people as determined by a democratic decision-making process that's a very dangerous idea but it's also an idea that our politicians have a big incentive to promote because it gives them more power so how often do you see people who are elected and then they say I have a mandate you know and you know I mean basically what they're saying is you know the Democratic decision-making process gives a mandate to the policies I'm advocating and it gives a certain legitimacy to the whole political process that's one reason why politicians like high voter turnout I mean what if what if nobody came out to vote it would be hard to say what I'm doing is the will of the people but politicians of all stripes like to get a high political turnout assuming they win because what that does is to further legitimize what they're doing so they can say am carrying out the will of the people I think that ideology of democracy is very dangerous you know people recognize that there's this problem of these de elites just running things and we don't have any say on both sides of the aisle of conservative and liberal voters now the conservative voters voted for Trump thinking that he was a champion of the 99% and he wasn't actually part of this ruling a lead what do you think you think that he's part of the elite and we're all being duped or what do you think's going on that's a complex question is a question about about president Trump and whether he's a part of that that 1% well I mean clearly by his wealth and his business activities you concede that he he is I think it's a kind of a mixed bag that he's done a lot of deregulation so that's a good for free markets he had he cut taxes that's good I don't see much in the way of reduction in government spen ing and especially in international affairs the tariffs the wall and and so forth he seems to be pretty elitist and looking out for the interests of the 1% so I don't know that I want to characterize him as you know entirely one way or the other but if you're forcing me to choose I'll put him in the 1% okay and now I'm told that my time is up but thank you very much I appreciate your attention [Applause]