Can We Please Try Capitalism? Just Once?

Capitalism is under attack. Charlatans in every corner cry for more state intervention. Trump is even in on the attack.


Enough is enough. I have had enough of people attacking capitalism as if they have the faintest clue what they are talking about.

The latest example of total cluelessness comes from Mariana Mazzucato, Professor of the Economics of Innovation at the University of Sussex.

Mazzucato asks, Is it time for the state to be entrepreneurial?

As you might have expected, she answers that question, wrongly, in Economic Myth: Private Sector Works Well and the Public Sector Just Gets in the Way.

Academics do not live in the real word. They live in some fantasyland world where benevolent governments make wise choices on how to spend money.

Amusingly, Mazzucato calls the US government investment of $465 million in Tesla S (through a guaranteed loan), as a "remarkable success".

Is it? Even if Tesla survives, how the heck would one know? It's impossible to say because we do not know how many other business startups we may have had had government funding not been given to Tesla.

The same applies to all subsidies. Keeping zombie corporations alive stifles competition and innovation. "Look at Concorde! Look at Solyndra!" mocks Mazzucato.

Yes, precisely, and in context, ironically.

The best thing government can do is get the hell out of the way.

Invisible Hand

I had Mazzucato's lame story on my screen for days trying to figure out the best way to reply.

I now have it, thanks to Stanley F. Druckenmiller who wrote an op-ed for the Wall Street Journal called Where’s the Invisible Hand When You Need It?

I traced the article back to the original source. It was a speech Druckenmiller gave at the 2018 Alexander Hamilton Awards Ceremony at the Manhattan Institute.

Druckenmiller received the award.

Kenneth Langone made the into. Langone noted, "He [Druckenmiller] believes in capitalism, he believes in free markets, free trade, limited government, and the rule of law. He almost sounds like Alexander Hamilton. Among other things, Stanley has an enormous heart. He is generous with his time, with his talent, and with his treasure. His commitment is total. He is also chairman and a founder of Blue Meridian, an organization committed to moving the needle in social problems in America. And he has made a major, major financial commitment to that cause."

Stanley Druckenmiller on Capitalism

What follows is most of the speech by Druckenmiller. It is a superset of the WSJ article but there is a even more in the awards link above.

I will dispense with blockquotes, noting the end of his speech.

Emphasis is mine.

Stanley Druckenmiller: I am humbled to stand before you tonight and accept an award named after Hamilton, Alexander Hamilton.

But seriously, amid all the vitriol and divisions in our countries, there can be no debate about one thing: Alexander Hamilton is the most important non-president to shape the contours and the character of what would become the greatest nation in the history of civilization.

And let me say this: The institute’s promotion of free markets, free trade, limited government, and the rule of law have never been more important than today, never.

​Unfortunately, I am old enough to remember when the Soviets were building a strong economy with central planning and then it crumbled, and the wall came down. And then I remember when the Japanese were supposedly eclipsing the U.S. economy with their system of keiretsu and affiliate industrial companies partnering with the government and then the Japanese Lost Decade became two. And now there is China. And it is their turn, with their new leader for life, centralized decision-making on economic matters through 2025 and beyond.

In each of these cases, illiberal statists in our own country are most impressed by the top-down designs of foreign powers than our own track record of free market capitalism here at home, sort of a Wizard of Oz trumps the invisible hand narrative. But I actually believe it is an unfair comparison.

Capitalism is under attack, but we have been moving further and further away from capitalism with each passing presidential administration. [loud clapping] So, my advice is simple. Can we try capitalism? Real capitalism. Give it a chance. Not the increasingly bastardized version we have been practicing the last two decades. And then let’s just see whether a capitalist economic system is the most effective way to bring about broad-based prosperity and the flourishing of human dignity.

For eight years I watched the Obama administration disparage the efficacy and fairness of capitalism, the influence of government increased in every aspect of our lives, the cost of regulation doubled, corporate America was attacked in the name of social equality, and our healthcare system, hard to believe, was made even more inefficient. Now, I did not support Donald Trump. But, after he was elected, I was at least hopeful that it would represent an inflection point in the trend away from capitalism. And while there has been some relief on the regulatory front, and of course we have gotten a corporate tax cut, some of the more egregious trends away from capitalism are continuing and, frankly, new elements that violate the principles of capitalism have been added.

For starters, free trade is under assault, but I see no need to lecture the people in this room on the merits of comparative advantage. Next, Hamilton had a very deep respect for the rule of law as opposed to the rule of man. The best tech companies in the world are in the U.S. because of a mix of education, immigration, finance, and meritocracy. The central pillar that bolsters this mix and makes our economic system successful is a respect for the rule of law. Is there a better example of this than Amazon? Its founder is a Hamilton-inspired adopted son of an immigrant who is literally revolutionizing the way business is done. It is no coincidence that Amazon was built in America, no surprise that governments, foreign governments, envy its origin, and no question that legacy incumbents impugn its name but mimic its tactics.

Capitalism is intolerant of high-cost providers, rent-seekers, middlemen, and those who extract more value than is their due. Amazon’s biggest backers are not people in elevated positions of power, it are their customers. Well, and a few investors too. The President’s personal view of Amazon should have no bearing on its future success. If intervention is enacted based on his feelings, we will be no better than other countries in the world where corruption and rent-seeking become the main reasons for stagnation and mediocrity. Regarding a continuing trend away from capitalism, Adam Smith would be distraught to know that we are expending an ever-increasing amount of our national resources on government transfer payments.

I spent two years of my life going to liberal and conservative universities to try and get young people energized about the looming explosion entitlements as well as their looming decreasing share of the economic pie. I even asked Geoff Canada to go with me so the students would show up. I got incredibly enthusiastic responses from ultra-liberal Berkeley to conservative USC. I even did a TED talk, and I was so effective in terms of the national debate that the only thing that Donald Trump and Hillary Clinton agreed on was that entitlements shouldn’t be touched. Good going, Stan.

But then we missed the golden opportunity to offset some revenue loss and address generational equity when Congress passed tax reform. Instead, government debt, which has doubled over the last decade, is set to increase to levels only reached during World War II over the next decade, so we will have sacrificed our future during a relatively peaceful economic period with no postwar reduction simply because politicians can’t say no. This does not exactly measure up to spending to defeat fascism and defend the world’s freedom. Finally, let me address a distortion that is one of the greatest threats to a properly functioning capitalist system. For years now a mix of central – sorry – for years now a mix of financial repression and central bank intervention has made long-term interest rates largely determined by government fiat.

Bond-buying by central bankers, commonly referred to as QE, has become so engrained in current thinking that it is now in the Fed’s conventional toolkit, a tool once reserved for a depression or financial crisis is now to be used at the first inkling of the next recession. For those of us old enough to have seen the dangers of price controls, they led to shortages, wasted resources, and disincentives to invest in what consumers want. They inevitably led to an allocation of resources by political actors in another great afront to capitalism. So, it is most surprising that forty years after wage and price controls were sadly rejected by every economic textbook and policymakers, today we have settled to allowing the most important price of all, long-term interest rates, to be regularly distorted by public intervention.

The excuse of this radical monetary policy has been the obsession with a fixed 2.0% inflation targeting rule. The decimal point shows the absurdity of the exercise. Anything below 2.0% was a failure and risked deflation, the boogeyman of the 1930s, to be avoided at all costs. This has meant that years after the Great Recession ended the Fed has not only kept interest rates below inflation but have accumulated an unprecedented $4.5 trillion on their balance sheet by doing QE. Global central banks, in part to keep their currencies from appreciating of these overabundant dollars, have followed with $10 trillion of their own. Now, the irony of this is over the last 700 years inflation has averaged barely over 1% and interest rates have averaged just under 6%. So, we are seeing an unprecedented, ultra-monetary, radical monetary expansion during a time of average, average inflation over the last number of centuries. Moreover, the three most pernicious deflationary periods of the past century did not start because inflation was too close to zero. They were preceded by asset bubbles.

If I were trying to create a deflationary bust, I would do exact exactly what the world’s central bankers have been doing the last six years. I shudder to think that the malinvestment that occurred over this period. Corporate debt has soared, but most of it has been used for financial engineering. Bankruptcies have been minimal in the most disruptive economy since the Industrial Revolution. Who knows how many corporate zombies are out there because free money is keeping them alive? Individuals have plowed ever-increasing amounts of money into assets at ever-increasing prices, and it is not only the private sector that is getting the wrong message, but Congress as well. I have no doubt we would have not gotten such a big increase in fiscal deficits if policy had been normalized already.

Of all the interventions by the not-so-invisible hand, not allowing the market to set the hurdle rate for investment is the one I see with the highest costs. Competition is a better tool than price control for protecting consumers. That applies to Amazon and the bond market. The government should get out of the business of manipulating long-term interest rates and canceling market signals. One final thought: During Obama’s tenure, I was disheartened by the lack of criticism from the Left. Frankly, I think it would have carried a lot more weight than criticism from the Right.

Today I see a similar situation. I am discouraged by the timidity of the criticism of our present direction by many Conservatives. Now, there are many in this audience who have the power of the pen, and I also see a few who have the power of the purse. If you share the principles I have laid out tonight, I encourage you to articulate a better course for our country, a course for which Hamilton would be proud, and assure that America’s best days are ahead of us. Thank you for this wonderful award.

Stanley Druckenmiller

Mish Comments

Wow. That is the best speech on capitalism I have ever seen.

Unfortunately, those with vision are increasingly drowned out by charlatans who believe government can lead the way.

And when does it stop?

The answer is: it doesn't. "I am old enough to remember when the Soviets were building a strong economy with central planning and then it crumbled, and the wall came down," said Druckenmiller.

More Government? No Thanks!

How is it and why is it that "more government" is the answer?

Compare France or the EU to the US. There is a reason Amazon, Google, Apple, and Microsoft are US companies.

The reason is that socialists and big government advocates in Europe would have destroyed those companies before they even started.

Capitalist charlatans like Mazzucato beg for more government. We desperately need less government.

More Specifically

  • We need to try capitalism, not phony capitalism
  • We need to try free trade
  • We need to try a free market in money

The problems Mazzucato and others point out are precisely because we don't have enough capitalism, not because we have too much of it.

Deflationary Outcome

I want to finish with an important theme of mine: deflation.

"If I were trying to create a deflationary bust, I would do exact exactly what the world’s central bankers have been doing the last six years," said Druckenmiller.

That has been the primary theme of this blog since its inception in 2003.

We had a bout of deflation in 2008 when the housing bubble collapsed, and it's coming again.

Hardly anyone sees deflation coming because they do not know what it is.

Inflation Scare Now, Deflation Coming

It's pretty clear we are in the midst of an inflation scare right now.

Given the amount of global financial leverage, I strongly suggest a deflationary bust is the most likely outcome looking ahead.

Deflation? Really?

Yes, really.

This topic is always a hair-raising event for inflationistas who really do not know how inflation works in the real world.


  1. "Inflation is an increase in money supply and credit, with credit marked to market".
  2. "Deflation is an decrease in money supply and credit, with credit marked to market".

That is how the real world works in a fiat credit-based system.

In 2008, those with myopic views thought oil was going to $200, then $300. Instead, the price collapsed with the housing bust.

Austrian economists with a focus on money supply alone also missed the boat.

Asset Bubble Debt Deflation Coming Up

Those who understood the importance of bank credit that could not be paid back were the ones who got the picture correct. For further discussion, please see:

Mike “Mish” Shedlock

None of that ever works. Anarchy

There is a role for governmentour republic was a good start but it has declined. It needs to be fixed. Check out the convention of States movement

“Can we please try Capitalism? Just once?” Capitalism already exists to some degree in many economies and that is a good thing. I am a fan of Capitalism. It has created tremendous benefits for the entire world, and has allowed for progress that most likely could not have ocurred in any other system. However, Capitalism is not perfect, and it cannot exist by itself in the manner proposed. The world is a complex place, full of complex problems. You are suggesting that Capitalism is a “simple answer” to complex problems. That idea is flawed (even though it is often successfully used by politicians). We need governments, just like we need Capitalism. The fact that government is often at odds with Capitalism is just something that we have to live with. The key is to find the best balance.
The same thing goes for your free trade argument. Yes, free trade is something we should try to achieve. But it needs to be negotiated by the governments that you”wish” would get out of the way. Sorry, but that’s not reality. Reality is that the world is full of complex problems, and there are rarely simple solutions.

Mish and Bernanke agree
-- deflation is the bigger risk.

“Real capitalism would not have done the financial bailouts.” ~ ridderbos

Now Mel Watt is bringing back 3% down mortgages with Freddie Mac as bagholder. Real capitalism is not about GSE’s playing games with their Uncle’s checkbook.


Mish - you want to know why no one will try real capitalism? Just read some of the comments on this thread.

You say "real capitalism" and people get all apoplectic about things they - at the end of the day - really know little to nothing about. 99% of them have never, and will never actually run any kind of business. They've never been places where real oppression and evil exists - but they want to feel like they have so they make it up as they go along using stuff they've read or seen on television.

It's like asking someone who's never even stuck their toes in the ocean to describe sharks. They can tell you everything they've read or seen in books, magazines, the web, YouTube, television, the movies - all of that... But if you ask them what real-life experiences they've had - well they'll tell you that's not really important. Other people - trustworthy people - who have had the experiences and seen them firsthand have told them everything about sharks. And that's all they need to know.

Saw a lot of this kind of behavior in college back in the nineties before I walked out. I enrolled fresh out of a stint in the military where I spent six years traveling around the world seeing the dark underbelly of reality viewed through my own eyes and not the lens of a television camera or SLR or through the words of some reporter. It was quite the eye-opening experience for an eighteen-year-old kid. Flash-forward five years and I'm in college having seventeen and eighteen year old morons whose only experience outside the US was spring break trips to Cabo or the Bahamas or something trying to tell me how the world works. They're protesting to shut down clothing factories in countries where the $10 a week that kid was paid by the "EVIL CAPITALIST CORPORATION" was the only money his family was going to see. And when the students succeed and the factory is shuttered? Thousands of people go hungry; and they eventually turn to local warlords and start fighting among themselves for natural resources. Now you have the ten-year-old who was - six months ago - making shirts for Nike instead carrying an AK-47 and lighting his rivals on fire to feed his family.

Do they know that part? Do they think about that part? Nope. But hey - sticking a knife in the eye of capitalism makes them feel good. And that's what's important.



Capitalism The Unknown Ideal; Ayn Rand, 1971, two doz pgs; has never been <b>allowed</b> to exist. The philosophers who, if they told the truth about their bloodthirsty rulers, would have been "Socratized".

Do all the believers in the Guv Death Cults have to die first? Yes. Market Anarchy constrained by reason and philosophy probably requires an avg IQ of 125. And it will take a couple centuries of advanced parenting to get there. By then, they will arguably be a different species. Homo Superiorus, contrasted with the Homo Subhominus inhabiting the present Middle East.

Mr. Mish I do not think that Hamilton is good person to use to defend capitalism.

Americans have been led to believe that Hamilton’s economic dream is somehow free market capitalism ordained and established by the founding documents.

Except the Hamiltonian or American system was not free market anything. It was corruption and crony capitalism of the highest order. Certainly some people became filthy stinking rich because of it, but they did so because the general government unconstitutionally began picking winners and losers through higher protective tariffs and federally funded internal improvements like road, canals, and later railroads.
Anyone who thinks American taxpayer support for Elon Musk’s Tesla brand is a terrible idea can thank Hamilton’s crony capitalist system. The same can be said for virtually every Gilded Age railroad magnate. Government corruption stuffed their pockets.
Hamilton wanted it that way. He once told Thomas Jefferson and John Adams that corruption is what made the British constitution the best in the world. Hamilton then did his best to ensure that corruption found its way across the pond often through artful lying. Only nationalism made that possible. If you love political and economic corruption, Hamilton is your guy and nationalism is your standard.

When this collectivist mess finally goes in the tank, it’s the few Capitalists still operating in the grey market environment who will be the ones who provide. The nonproductive will need to be re-educated in the ways of the world.

In theory, yes. However, it looks like military decisions will shape our future world more than anything else. Being away from the conflagration of war will be the first step to success.

I was also a bit surprised by Hamilton of all people being held up as some kind of paragon of free markets - he was the big government type of his time, eager to make America a copy of the centralized British imperialist merchant state, only without a king.

What an uninformed comment. What do you think the definitely non-profit communist states were ruled by?

I would add to this: if the big banks that were de facto bankrupt had been allowed to go belly-up, it would have been a salutary event. Distressing in the short term for many people, but the economy would have been left with a much stronger foundation if these companies had been liquidated. Instead we keep hearing the fairy tale that the biggest "mistake" was to let Lehman go under. It has barely been talked about, but the creditors of Lehman actually got back everything when the wind-up process was finished.

If only Stockman and Druckenmiller ran the Fed and the White House. What a world it might be

The problem with any financial system is they are all human constructs and as such will be perverted because humans are flawed. Capitalism has been shown to be the best system so far. I doubt anybody can even define what pure Capitalism is but we are a long way from what Capitalism was originally intended to be. On Hamilton, I agree that he should not be held up as a pillar of free market systems.

What a great article, thanks for posting!

Speaking of the very UN-capitalistic bailouts in 2008. I still can’t believe the Buffett owned company Moody’s got away scot free. With the complete level of incompetence and likely fraud that led to them labeling complete toxic garbage AAA, there should have people jailed and massive lawsuits. That that didn’t happen is so crooked and a absolute travesty. In my opinion Moody’s was at the very CENTER of the whole bust. If they had been doing their job, excesses could have been curtailed much earlier. Buffett had major stakes in banks that would have been killed had there been no bailouts, and Berkshire would have taken a major hit. I wonder if he made some calls????