Ridley’s Case For Free Market Capitalism

05 Saturday Aug 2017

Tags

Capitalism, Corporatism, crony capitalism, Invisible Hand, Liberalism, Markets, Matt Ridley, monopoly, Profit Motive

Matt Ridley delivered an excellent lecture in July addressing a generally unappreciated distinction: markets and free enterprise vs. corporatism. Many don’t seem to know the difference. Ridley offers an insightful discussion of the very radical and liberating nature of free markets. The success of the free market system in alleviating poverty and increasing human well-being is glaringly obvious in historical perspective, but it’s become too easy for people to take market processes for granted. It’s also too easy to misinterpret outcomes in a complex society in which producers must navigate markets as well as a plethora of regulatory obstacles and incentives distorted by government.

I agree with almost everything Ridley has to say in this speech, but I think he does the language of economics no favors. I do not like his title: “The Case For Free Market Anti-Capitalism”. Free Markets are great, of course, and they are fundamental to the successful workings of a capitalistic system. Not a corporatist system, but capitalism! Ridley seems to think the latter is a dirty word. As if to anticipate objections like mine, Ridley says:

“‘Capitalism’ and ‘markets’ mean the same thing to most people. And that is very misleading. Commerce, enterprise and markets are – to me – the very opposite of corporatism and even of ‘capitalism’, if by that word you mean capital-intensive organisations with monopolistic ambitions.“

No, that is not what I mean by capitalism. Commerce, free enterprise, markets, capitalism and true liberalism all imply that you are free to make your own production and consumption decisions without interference by the state. Karl Marx coined the word “capitalism” as a derogation, but the word was co-opted long ago to describe a legitimate and highly successful form of social organization. I prefer to go on using “capitalism” as synonymous with free markets and liberalism, though the left is unlikely to abandon the oafish habit of equating liberalism with state domination.

Capital is man-made wealth, like machines and buildings. It can be used more intensively or less in production and commerce. But capitalism is underpinned by the concept of private property. You might own capital as a means of production, or you might operate an enterprise with very little capital, but the rewards of doing so belong to you. Saving those rewards by reinvesting in your business or investing in other assets allows you to accumulate capital. That’s a good way to build or expand a business that is successful in meeting the needs of its customers, and it’s a good way to provide for oneself later in life.

Capitalism does not imply monopolistic ambitions unless you incorrectly equate market success with monopoly power. Market success might mean that you are an innovator or just better at what you do than many of your competitors. It usually means that your customers are pleased. The effort to innovate or do your job well speaks to an ambition rooted in discovery, service and pride. In contrast, the businessperson with monopolistic ambitions is willing to achieve those ends by subverting normal market forces, including attempts to enlist the government in protecting their position. That’s known as corporatism, rent-seeking, and crony capitalism. It is not real capitalism, and Ridley should not confuse these terms. But he also says this:

“Free-market ideas are often the very opposite of business and corporate interests. “

Most fundamental to business interests is to earn a profit, and the profit motive is an essential feature of markets and the operation of the invisible hand that is so beneficial to society. Why Ridley would claim that business interests are inimical to free market ideals is baffling.

I hope and believe that Ridley is merely guilty of imprecision, and that he intended to convey that certain paths to profit are inconsistent with free market ideals. And in fact, he follows that last sentence with the following, which is quite right: capitalism is subverted by corporatism:

“We need to call out not just the worst examples of crony capitalism, but an awful lot of what passes for capitalism today — a creature of subsidy that lobbies governments for regulatory barriers to entry.“

And, of course, crony capitalism is not capitalism!

Now I’ll get off my soapbox and briefly return to the topic of an otherwise beautiful lecture by Ridley. He makes a number of fascinating points, including the following, which is one of the most unfortunate and paradoxical results in the history of economic and social thought:

“Somewhere along the line, we have let the market, that most egalitarian, liberal, disruptive, distributed and co-operative of phenomena, become known as a reactionary thing. It’s not. It is the most radical and liberating idea ever conceived: that people should be free to exchange goods and services with each other as they please, and thereby work for each other to improve each other’s lives.

In the first half of the 19th century this was well understood. To be a follower of Adam Smith was to be radical left-winger, against imperialism, militarism, slavery, autocracy, the established church, corruption and the patriarchy.

Political liberation and economic liberation went hand in hand. Small government was a progressive proposition. Insofar as there was a revolution during the Industrial Revolution, it was the weakening of the power of the aristocracy and the landed interests, and the liberation of the bulk of the people.“

Do read the whole thing!

Willing Exchange With Capitalists

18 Wednesday May 2016

Posted by pnuetz in Capitalism, Marxism

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Capitalism, competition, Free Markets, Gary Galles, Government Monopoly, Karl Marx, Labor Theory of Value, Legitimized Coercion, Leonard Read, Liberalism, Limits on Government, Market Power, Marxism, Misuse of Words, Patrick Barron, Robert Murphy, Social Organization, statism, The Beacon, Voluntary Exchange, Willing Exchange

Now and then I’m inspired to blog on the misshapen language of political discourse. I recently wrote about the misuse of words by the American left, including their use of the term “liberalism”. This time, the particular word in play is “capitalism”, which I use to describe the ideal laissez faire economic order. I have always viewed it as a force for good. Real capitalism means free markets, consumer choice, strong private property rights, rewards to private initiative, and competition among producers. Even under conditions of concentrated market power, capitalism is preferable to government monopoly. Nevertheless, Gary Galles writes at The Beacon that capitalism is an inferior description of the laissez-faire ideal than”willing exchange“, or alternatively, unforced or voluntary exchange. Perhaps he has a point.

Capital and labor are the primary factors of production and both must be compensated. Labor earns a wage and capital earns a profit. Generally, the more capital a worker has available on the job, the greater the worker’s productivity and the greater the worker’s wage. However, any profit or return to capital is viewed by the left as an undeserved rent. The question of compensation is quite aside from the valuable social role profits play in directing resources to their most valued uses. Robert Murphy’s drives this home in an excellent recent essay entitled “There’s No Such Thing As Excessive Profits“. Here, here! In another post related to the crucial social role played by capital and profit, Patrick Barron explains “Why We Need Private Property To Deal With Scarce Resources“.

Again, any return to capital, normal or extra-normal, is seen by the left as a reward that should flow to labor in a just world. That is the upshot of Karl Marx’s labor theory of value. Thus, owners of capital are characterized as “takers”. Galles notes the belief that Marx coined the term “capitalism” in order to:

“…falsely imply that the system benefited capitalists at others’ expense, when, in fact, workers have been the greatest gainers from all the productivity enhancements the system has generated.“

He quotes Leonard Read on the value of “willing versus unwilling exchange” as an effective way to delineate and contrast the positions of adherents of laissez faire and statism:

“Standing for willing exchange, on the one hand, or for unwilling exchange, on the other, more nearly accents our ideological differences than does the employment of the terms in common usage…there is a minimum of verbal facade to hide behind.

Willing exchange…has not yet been saddled with emotional connotations …Further, its antithesis, unwilling exchange…no one, not even a protagonist, proudly acknowledges he favors that; it does offense to his idealism.

If we cut through all the verbiage used to report and analyze political and economic controversy…much of it boils down to a denial of willing and the insistence upon unwilling exchange. …

The concept of willing exchange unseats Napoleonic behavior—all forms of authoritarianism—and enthrones the individual. The consumer becomes king. Individual freedom of choice rules economic affairs… [It] is for me, and a willing seller, to decide; it is no one else’s business!“

The hallmark of the state as an actor is coercion. After all, it derives its power via “legitimized” coercion. Individuals are bound under its authority to participate in involuntary exchanges and to make do with a constrained set of willing exchanges. As much as we might amuse ourselves with the notion that our Constitution keeps the state in check, it grows and grows, and where it stops, nobody knows. One wonders how strongly the demonization of so-called “capitalists” plays into this process.

I often refer to voluntary exchange in one form or another. The term recommends itself by virtue of its implication of mutual benefit among parties. Nevertheless, I would have a difficult time abandoning the term “capitalism” in my writing. Here’s the thing: capitalism and free markets have had tremendous success over the last two centuries in improving material conditions and ending human poverty around the globe. Meanwhile, Marxism as a philosophy, and collectivism as a form of social organization, have done nothing to recommend themselves to humankind. So the joke’s on Marx, though we haven’t heard the last of the efforts to besmirch capitalism.

Words of Weasels

26 Tuesday Apr 2016

Posted by pnuetz in Liberalism, Marketplace of Ideas, statism

≈ 1 Comment

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Access, Daniel Klein, David Harsanyi, Disenfranchisment, Emmitt Rensin, Full Rights, Kevin Williamson, Kyle Smith, Language of the Left, Liberalism, Loophole, Reason, Safe Spaces, Vox

1984 instruction-manual

Take a moment to consider some examples of the horrible misuse of words in political debates. David Harsanyi at Reason provides a few choice examples of the corrupted and misleading language used by Democrats:

the absence of a tax that “should” exist but doesn’t is a “loophole”;
failure to pay that tax is a “fraud”;
denial of “access” occurs when the state doesn’t give something to you for free;
“disenfranchisement” means you have to show an ID or wait in line;
“full rights” means the entire world must be a “safe space” for your actions or views, even if the rights of others are denied in the process.

These are all recent examples of mangled language from the two candidates for the Democrat Party nomination. But here’s a big one that Harsanyi overlooked: the misuse of the term “liberalism” to describe statism. In fact, he misuses the word “liberals” himself! In “Don’t Call Leftists Liberal; They’re Not!” on Sacred Cow Chips, I offered some thoughts on this bit of Newspeak practiced by so-called progressives. I can’t resist reposting the following quote of Daniel Klein quoting Kevin Williamson, which says it all (links are in the original post):

“Williamson [quotes] two leftist authors writing in The Nation, one decrying ‘unbridled individualism,’ the other ‘unfettered capitalism.’ Williamson concludes: ‘A ‘liberalism’ that is chiefly concerned with the many clever uses of bridles and fetters does not deserve the name. It never has.’”

The following quote from Harsanyi gives emphasis to the wrongful appropriation of “liberalism” by the left, though it relates more specifically to the misuse of the term “loophole”:

“Basically, all of life is a giant loophole until Democrats come up with a way to regulate or tax it. In its economic usage, “loophole” … creates the false impression that people are getting away with breaking the law. It’s a way to skip the entire debate portion of the conversation and get right to the accusation.“

Another behavioral characteristic of leftists is a certain self-righteous satisfaction that they hold the moral high ground on any number of issues. “The Smug Style in American Liberalism“by Emmitt Rensin in Vox takes a poke at this presumption. Of course, Rensin misuses “liberalism”. I find this review of the article by Kyle Smith an effective summary, and it’s even better because it skips what comes off as a long catalog of excuses by Rensin as to why leftists might be forgiven for patting themselves on the back. I give Rensin credit, however, for a good analysis of the origins of leftist “smug”, which he attributes to a backlash against defections from the Democrat coalition by working-class voters in the second half of the twentieth century. And I credit Rensin for his ultimate condemnation of undeserved leftist attitudes of superiority. Here are some difficult realities for the left cited by Rensin:

“Nothing is more confounding to the smug style than the fact that the average Republican is better educated and has a higher IQ than the average Democrat. That for every overpowered study finding superior liberal open-mindedness and intellect and knowledge, there is one to suggest that Republicans have the better of these qualities.“

Perhaps inventing new definitions for words in the service of rhetoric comes easy with pomposity. In the end, assertions that the left is more “caring”, “tolerant” or “peaceful” are balderdash. There are honest policy debates to be had about the best way to solve social problems and respect for the rights of others, but having experienced angry reactions in debate with befuddled leftists for myself, I wholly concur with this Kyle Smith observation:

“Ridiculing opponents is easier than arguing with them. Liberals don’t want debate, they want affirmation.“

Child Quotas: Family as a Grant of Privilege

05 Thursday Nov 2015

Posted by pnuetz in Liberty, Tyranny

≈ 1 Comment

Tags

Amartya Sen, Bret Stephens, Chinese Family Policy, Eugenics, Fertility rates, Liberalism, Limits to Growth, Nicholas Eberstadt, One Child Policy, Paul Erlich, Progressive Left, The Club of Rome, The Population Bomb, Wall Street Journal

How could any self-described liberal believe for a second that China’s “One Child Policy” was anything but repressive? By utterly failing to live up to liberalism! The policy was “reformed” last week after more than 35 years by a Beijing government trying to face up to the huge demographic and economic crisis posed by an aging population. But as Nicholas Eberstadt reports, now it is a “Two Child Policy“, which is less tyrannical only by degrees. (The link takes you to a Google search to bypass the WSJ paywall — choose the top result there.) Here are some of the awful consequences of the one-child policy noted by Eberstadt:

“First came alarming reports that female infanticide, an ancient practice, had once again erupted throughout the countryside. China’s 1982 census, released some years later, showed an unnatural imbalance in the sex ratio for birth-year 1981 on the order of hundreds of thousands of missing baby girls.

Infanticide was then replaced by mass sex-selective abortion, made possible in the late 1980s by increased rural access to ultrasound machines. China’s sex ratio climbed to nearly 120 baby boys for every 100 baby girls, where it plateaued around 2000. Although a war against baby girls is evident in other countries—India and Taiwan among them—leading Chinese demographers have suggested that half or more of China’s imbalance may directly result from the one-child policy.“

Bret Stephens discusses the support historically offered by the Left for the one-child policy. (This piece is also at wsj.com and it’s apparently a free link, but use Google if it doesn’t work.) Stephens rightly calls the policy “the ultimate assault on the human rights of women and girls.” He traces the Left’s penchant for central authority over family autonomy back to Paul Erlich’s “The Population Bomb” and the Club of Rome‘s discredited “Limits to Growth“, but it also descends from an earlier Leftist fascination with eugenics. The ideas live on today. Stephens notes the Malthusian connection to another great Lefist shibboleth, our purported climate change crisis:

“For much of the 20th century it was faith in History, especially in its Marxist interpretation. Now it’s faith in the environment. Each is a comprehensive belief system, an instruction sheet on how to live, eat and reproduce, a story of how man fell and how he might be redeemed, a tale of impending crisis that’s also a moral crucible.“

Amartya Sen asks whether the one-child policy really influenced fertility rates at all, but I question the reliability of the figures she cites. The high ratio of male to female births contributes to my suspicions. According to Eberstadt, a number of Chinese demographers have been warning against continuing the one-child policy for at least a decade. Other reports give the strong impression that it has been a binding constraint.

Economic growth provides a voluntary and effective brake on birth rates. The continuing agitation for restraints on economic growth to reduce carbon emissions short circuits this mechanism. Not only is the climate change “crisis” ill-founded, these measures hinder the development and diffusion of technologies that would be more efficient in reducing carbon discharge, instead imposing immediate remediation that is often uneconomic. The unimaginative solution offered by the progressive Left is central control over our progeny and our production of goods. Repression is always their best answer. That ain’t liberalism!

Don’t Call Leftists “Liberal”; They’re Not!

29 Wednesday Jul 2015

Posted by pnuetz in Liberty

≈ 1 Comment

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Collectivism, Daniel Klein, Governmentalization of Social Affairs, Intercollegiate Review, Kevin Williamson, Left wing, Liberalism, Modern Age, N-Gram Viewer, Neoliberalism, New Liberalism, Progressivism, Social Democracy, Socialism, Spontaneous Social Order, statism

Nor are statists, collectivists and socialists, but I repeat myself. The simple plea above is made by Daniel Klein in an essay appearing in the Intercollegiate Review and in Modern Age. He asserts that libertarians (and conservatives) fall into a semantic trap when they use the term as a pejorative for leftists. I have touched on the mangled, modern usage of “liberalism” several times on Sacred Cow Chips, but Klein brings some interesting empiricism into consideration and makes several points worth emphasizing.

First, Klein traces the historical record of appearances of certain words related to liberalism in published literature using the “n-gram viewer” on Google. He shows that the political use of “liberal” began around 1770. For the next 110 years, liberalism referred to a philosophy and policies associated with small government and individual autonomy. In the U.S., however, the term began to be co-opted by the political left in the late 1800s. Around the turn of the twentieth century, references to “New Liberalism” and “Old Liberalism” became more frequent. So the term was subverted in that time frame, a decade or two before the term “left-wing” came into use.

“The literature of the so-called New Liberals declaimed openly against individual liberty and in favor of state collectivism and socialistic reform.“

Today, the association of “liberalism” with the left is confined mostly to the U.S. and Canada:

“…when we step outside North America, we see that, by and large, liberal still means liberal (in the UK, usage is in-between). …

Where liberal still means liberal, such as in Europe and Latin America, leftists have no reluctance in calling their imaginary bogeyman ‘neoliberalism.’“

By way of suggestion, Klein reviews a few alternative labels for the left. In doing so, he notes that in general, the left supports the “governmentalization of social affairs”. For that reason, one of my favorite labels is “statism”. Oddly, Klein never mentions this as a possibility. (Klein concedes that the left supports liberty on a few issues, which happen to be issues upon which most libertarians are in agreement.) He does refer to the old standby “collectivists” in passing.

Klein likes the label “Progressivism” for the left, despite the positive associations some might make with that term. He argues with some merit that progressivism implies activist, goal-directed policy, as opposed to non-intervention and the spontaneous social order favored by true liberals.

“That collectivists should join together for what they imagine to be progress is perfectly fitting. For them the term progressive is suitable. By contrast, conservatives and libertarians look to, not progress, but improvement. …

Another fitting term for leftism is social democracy, which is standard in Europe. Social democracy is a compromise between democratic socialism and a tepid liberalism. The socialistic penchant is foremost, but a vacillating liberalism gnaws at the social democrat’s conscience.”

I fully agree with Klein that we should never refer to leftists as liberals. They are completely undeserving of the description, and doing so concedes a glaringly false premise. Every leftist I know advocates the increasing governmentalization of social affairs and a naive acceptance of an impossible proposition: that government can ever possess the detailed knowledge necessary to successfully regulate individual actors from above. And leftists are foolishly willing to place faith in the benevolence and wisdom of political agents and central controllers. Klein mentions a recent editorial by Kevin Williamson in National Review:

“Williamson ends the piece by quoting two leftist authors writing in The Nation, one decrying ‘unbridled individualism,’ the other ‘unfettered capitalism.’ Williamson concludes: ‘A ‘liberalism’ that is chiefly concerned with the many clever uses of bridles and fetters does not deserve the name. It never has.’”

Corporatists of the World Unite!

01 Wednesday Jul 2015

Posted by pnuetz in Big Government

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Benito Mussolini, Capitalism, Classical Liberalism, Corporatism, Edmund S. Phelps, Free Markets, Jason Brennan, Liberalism, Max Borders, Neoliberalism, rent seeking, Thayer Watkins, The Freeman

As a classical liberal, I’m fascinated by the ongoing confusion of the Progressive Left over the meaning of the word liberalism. To be “liberal” is to support individual autonomy, self-determination, and freedom from coercion by the state. True liberalism necessarily implies a minimal state apparatus because the state can only derive authority from its power to coerce. Confusion over the meaning of liberalism was covered in “Labels For the Authoritarian Left” on Sacred Cow Chips last year.

A similar confusion surrounds use of the word corporatism and its relationship to progressivism on the one hand, and liberalism on the other. I came across this excellent essay by Max Borders in The Freeman that begins with a discussion of the term neoliberalism. Lately this has been invoked as an derogatory reference to classical liberalism, except that the users don’t really understand the latter. In fact, as Borders points out, one prominent author describes free market advocacy as something more akin to cronyism, complete with state support and bailouts, which is contradictory on its face. But it is consistent with the doctrine of corporatism. Borders offers this quote from Thayer Watkins:

“In the last half of the 19th century people of the working class in Europe were beginning to show interest in the ideas of socialism and syndicalism. Some members of the intelligentsia, particularly the Catholic intelligentsia, decided to formulate an alternative to socialism which would emphasize social justice without the radical solution of the abolition of private property.

The result was called Corporatism. The name had nothing to do with the notion of a business corporation except that both words are derived from the Latin word for body, corpus.“

Sounds like innocent beginnings, but enforcing “social justice” within this framework demands a substantial role for the state and an intricate set of relationships between the state and private parties. That provides opportunities for accumulating economic power and wealth by manipulating any arm of government that legislates, adjudicates, purchases, licenses, regulates or levies taxes. That is, any arm of government! Such rent-seeking activity gives rise to a symbiosis between the state and powerful private economic actors, and that is the essence of modern corporatism as practiced by Mussolini, George W. Bush and Obama and their governments. Borders quotes economics Nobel laureate Edmund Phelps:

“The managerial state has assumed responsibility for looking after everything from the incomes of the middle class to the profitability of large corporations to industrial advancement. This system . . . is . . . an economic order that harks back to Bismarck in the late nineteenth century and Mussolini in the twentieth: corporatism.“

Borders closes with a discussion of Jason Brennan’s admonition: “Dear Left: Corporatism is Your Fault”, which dishes the bald truth.

“When you create complicated tax codes, complicated regulatory regimes, and complicated licensing rules, these regulations naturally select for larger and larger corporations. We told you that would happen. Of course, these increasingly large corporations then capture these rules, codes, and regulations to disadvantage their competitors and exploit the rest of us.“

Corporatism has nothing to do with the corporate form of business organization per se. Granted, limited liability is an artificial construct created by the state, and it is a hallmark of that form, so it’s fair to cite it as an example of corporatism. But corporatism in its systemic sense represents the larger web of non-market dependencies between the state and powerful economic actors, corporate in form or not. Both sides benefit from these relationships and, in many direct and indirect ways, compromise the integrity of the voluntary market mechanism and harm smaller actors who rely on it.

This is not a state of affairs that meets with the approval of classical liberals, free marketeers and fans of real capitalism, the so-called “neoliberals” of Leftist fiction. The Left purports to hate corporatism too, but they don’t understand its genesis and are fully oblivious to the real reasons for its progression. Instead, in their ignorance, they pass the blame onto “neoliberals”.

Labels For The Authoritarian Left

08 Monday Dec 2014

Posted by pnuetz in Uncategorized

≈ 1 Comment

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Adolph Hitler, Authoritarian, Benito Mussolini, Daniel Hannan, fascism, Godwin's Law, Left wing, Leninism, Liberal, Liberalism, Marxism, National Socialist German Workers’ Party, Nazis, Right wing, Socialism, Stalinism

Who said this? “I have put into practice what these peddlers and pen pushers have timidly begun … the whole of National Socialism [was] based on Marx.” And this? “What Marxism, Leninism and Stalinism failed to accomplish, we shall be in a position to achieve.” And this? “How, as a socialist, can you not be an anti-Semite?”

You probably know or can guess that it was none other than Adolf Hitler. But if you persist in thinking that the National Socialist German Workers’ Party was not really, truly a party of socialists, you are wrong. Daniel Hannan discusses the connection at length in “Leftists become incandescent when reminded of the socialist roots of Nazism.” Before you accuse Hannan (or me) of violating Godwin’s Law, read his piece. He’s simply noting an historical fact. He’s most sensitive about use of the term “right-wing” as a synonym for “authoritarian,” but in fact it may be authoritarian along some dimensions.

Still, it shouldn’t be much of a surprise to learn that the authoritarian Nazi regime was packed with socialists. Socialism is a philosophy based on the preeminence of society over the individual, emphasizing public provision of goods and services, and control (if not ownership) of the means of production. In such a regime, central authority must supplant decentralized decision-making to a significant extent. The word “authoritarian” is fitting. From Hannan:

“In fact, authoritarianism was the common feature of socialists of both National and Leninist varieties, who rushed to stick each other in prison camps or before firing squads. Each faction loathed the other as heretical, but both scorned free-market individualists as beyond redemption. …

Authoritarianism – or, to give it a less loaded name, the belief that state compulsion is justified in pursuit of a higher goal, such as scientific progress or greater equality – was traditionally a characteristic of the social democrats as much as of the revolutionaries.”

The Italian etymology of “fascism”, implying the strength of a “bundle” relative to individual pieces, also suggests the socialist roots of the totalitarian regimes in Nazi Germany and in Italy under Mussolini. Left-wing fascists or right-wing socialists? Take your pick. In a strong sense, the labels applied today make no sense, including the modern misuse of the term “liberal” to describe a preference for a strong central government. Perhaps labels are unavoidable, but words usually have meaning apart from the latest political usage. Unfortunately, distorting or co-opting words for political purposes has a long and dishonorable tradition.

Liberalism vs. “Progressivism”

20 Sunday Apr 2014

Posted by pnuetz in Uncategorized

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Liberalism

Here is “a statement of no surrender on the use of the word ‘liberal'”: Liberalism Unrelinquished. If you agree and you meet the qualifications, sign the statement. It’s astonishing that modern progressives think that granting ever greater power to government is “liberal.” It demonstrates a complete misunderstanding of the word, and of the dangers inherent in the democratic process, which were well recognized by the founders of our republic.