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Forum Post: Free Market Capitalism: It's Fraud and Oxymoron

Posted 2 years ago on Aug. 10, 2012, 11:54 a.m. EST by agkaiser (1329) from Fredericksburg, TX
This content is user submitted and not an official statement

“This perverse dynamic has a name that is well known among good economists, white-collar criminologists, and financial regulators – a “Gresham’s dynamic.” That phrase was used in the economics literature over forty years ago in a famous 1970 article that led to the award of the Nobel Prize in Economics to George Akerlof in 2001.

'[D]ishonest dealings tend to drive honest dealings out of the market. The cost of dishonesty, therefore, lies not only in the amount by which the purchaser is cheated; the cost also must include the loss incurred from driving legitimate business out of existence.' “Akerlof’s 1970 article discussed control frauds aimed against customers. His title used the term 'lemons' because he explained the fraudulent sale of poor quality cars passed off as high quality cars as his most famous example. Perceptive observers recognized the same perverse dynamic centuries ago. 'The Lilliputians look upon fraud as a greater crime than theft. For, they allege, care and vigilance, with a very common understanding, can protect a man’s goods from thieves, but honesty hath no fence against superior cunning. . . where fraud is permitted or connived at, or hath no law to punish it, the honest dealer is always undone, and the knave gets the advantage' (J. Swift, Gulliver’s Travels). “Read more at http://www.nakedcapitalism.com/2012/08/bill-black-eduardo-porters-folly-why-we-must-end-the-race-to-the-bottom.html

For more on dysfunctional economy and culture see: How Does That Work? https://www.createspace.com/3852916



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[-] 8 points by shadz66 (19985) 2 years ago

"Bad money drives out good" & 'fiat debt money' is fraud and 'virtually' all bad in Modern 'High Finance / Low Morals' Bankster Crapitalism !!! Great post and links 'agk' !! The USUK 'Libertarian Free-Market Economics Model' only puts the 'moron' in 'oxymoron' !

verum ex absurdo ...

[-] 7 points by agkaiser (1329) from Fredericksburg, TX 2 years ago

If my four children many others could see the ironies and 'truth of absurdity' of Ayn Rand and Milton Friedman spawned delusions, my four grandchildren and many others might grow up in a better world than we did. The light I see at OWS forum is hopeful and encouraging.

And the counterpoint is intelligence, in the military sense.

See: How Does That Work? https://www.createspace.com/3852916

[-] 8 points by shadz66 (19985) 2 years ago

I really dug your link. Re. your forum-post, I particularly liked :

  • ". . . It is the imaginary, non-linear elements of the [economic] system and especially the attempt to exploit them, that are our problem. While the economy is made to appear confusing or incomprehensible, it is made up of simple transactions. It's better understood as a secondary school level algebraic equation. But the con artists who profit the most from the efforts of the community, obscure their looting with a pseudo calculus of derivatives and flawed integration of profits under an imaginary growth curve."

You end the link a touch bleak, cantankerous & dark so ... 'enlightenup' dude :-)

at spes non fracta ...

[-] 7 points by agkaiser (1329) from Fredericksburg, TX 2 years ago

I need to look at the blurb at CreateSpace. Perhaps I'll rewrite it to better reflect the book it describes. “How Does That Work: A View From the Bottom,” while it wants to be honest and real, and is certainly dark in places and cantankerous throughout, isn't, I think, in the end all that bleak. Hope is not broken. At least not intentionally.

I've long been guided in my search for enlightenment by the Taoist “I Ching.” My reading encourages me to develop a clear, strong and autonomous mind that may embrace the truth of reality and myriad thoughts without losing its center.

Unlike Buddhists, stillness and serenity are not for me an end in themselves. The Ching tells me they're means that can lead to the attainment of truth. I believe most people already know the truth. Unless like the master cons, there's no sincerity or honesty in them, they just need to be encouraged to face it. My book strives to lighten up with humor, mostly irony and sarcasm. Most of all it tries to open minds to the truth.

Have you read “Tales of Power?” Carlos Castaneda's 'informant,' Don Juan, uses psychotropic substances to shock his unwitting acolyte into awareness. I've attempted to use confrontational dialogue in “How ...” to displace the internalized corporatist propaganda. I don't know how successful I've been but I'm hopeful. And I'm still searching for openings.

Read “How Does That Work” https://www.createspace.com/3852916

[-] 3 points by shadz66 (19985) 2 years ago

Consider, "stillness and serenity" have their moments and are arguably prerequisites for those who seek 'The Dao' !!! Maybe 'Heart Centred' thought is our only salvation !! Could it be that "Love" is all we need ?!

I know of Castenada's work & a li'l of the techniques he alludes to & we must learn 'to see' deeper. ~*~ .

pax, amor et lux ...

[-] 2 points by agkaiser (1329) from Fredericksburg, TX 2 years ago

We all and always need more peace, love, light and serenity.

[-] 3 points by Nevada1 (4851) 2 years ago

Good Post

[-] 2 points by Karlin (350) from Nelson, BC 2 years ago

There is more problems than fraud in the capitalist system. The extremes to which our version of capitalism has gone were bound to happen because of the creation of the super-wealthy class. "Capital" accumulates for those who have some, and there is a brainwashing effect where the wealthy have to live in denial to justify their wealth, their guilt would overcome them otherwise. Similarly - The energy industry executives have to deny the harms they do. The health care industry has to deny they do harm {"first do no harm" became "first do harm and you will have customers"!!} and so on.

[-] 7 points by agkaiser (1329) from Fredericksburg, TX 2 years ago

Capitalism is fraud and usury is the heart of it. That's why Moses banned it and declared, like other Mesopotamian leaders, cyclic or occasional debt forgiveness. M called his Jubilees. The lawgiver's version employed minor adjustments and resting the land every 7 years, and wiping the slate clean every 49th. See Leviticus. There's much truth in the stories of the Torah.

Other authorities of the age operated on schedules of their own. All of them realized that debt led to concentration of wealth and slavery that stifled the economy in the end. They acted to prevent the inevitable. We're too civilized to accept reality and do what needs to be done to continue to survive. They were barbaric by comparison but capable of putting life ahead of greed. They weren't idiots.

[-] 2 points by arturo (3169) from Shanghai, Shanghai 2 years ago

I think that the "fraud" in our current system is that we have imperialism masquerading as capitalism. The original American System of capitalism:


is quite different from our current economic system.

[-] 2 points by agkaiser (1329) from Fredericksburg, TX 2 years ago

For those who can't put 2 and 2 together, individual greed and disdain for the collective is not merely stupid, it's self destructive. To hoard what we must work together to produce is to harm the productive capacity your avarice burdens. It's not individual hard work that makes one rich. It's the hard work of the community that's appropriated. Home, family business (without non family employees) and personal belongings are the only true private property. Anything beyond that scale belongs to the community it takes to produce it.

[-] 1 points by hchc (3297) from Tampa, FL 2 years ago

And yet humans go there over and over and over again. Self destructive yes, the natural state of humans, yes.

[-] 4 points by agkaiser (1329) from Fredericksburg, TX 2 years ago

Not natural!!! Humans survived for millions of years with leaders who protected the community because everyone contributed to survival. Survival of the individual and leadership for personal gain is corruption of social instinct. It's not natural! It's abomination of Human nature!

The greed that dominates our societies today is devolution. We must eliminate it one way or the other. I don't care who does it. I don't care why they do it. I care only that they do it and that they be stopped by whatever means are necessary to eliminate the threat!

[-] 1 points by hchc (3297) from Tampa, FL 2 years ago

Well it seems to be the natural state of humans today. Like here, get a flat tire. See how many people drive by with no concern of whats wrong whatsoever.

[-] 4 points by agkaiser (1329) from Fredericksburg, TX 2 years ago

I should have specifically stated what those who allow themselves to see it know: We've been going down for as long as ten thousand years in places. It started with the coming of civilization. The knowledge of good and evil might be understood as the realization of the desire of the earliest priests and kings to have for themselves what it takes a community to produce. Greed and the self interested leaders that implemented it in our culture are original sin and sinners.

A clan of hunter gatherers would have killed or banished (also a death sentence) a leader who abused his or her power by the corruption of social instinct and the abomination of Human Nature that lives in today's leaders. And we call what we have progress. . . .

[-] 2 points by hchc (3297) from Tampa, FL 2 years ago

I would love to be able to elect that clan of hunters to go clean up the mess...

[-] 2 points by darrenlobo (204) 2 years ago

Except that the problems described are caused by govt regulation not some nonexistent free market. It is the free market that will solve these problems when it replaces the controlled markets. Nice try at evading the failure of the govt's intervention in the economy. 2 step anyone?

[-] 2 points by jrhirsch (4714) from Sun City, CA 2 years ago

A completely free market is crueler than nature's law of survival of the fittest. An animal feeds until he is full. But the human animal feed continuously, and on their own kind.

[-] 0 points by darrenlobo (204) 2 years ago

That's true only if you think that people dealing with each other on a voluntary basis, IE no violence or force, is cruel. Only if you think affluence & plenty are cruel. & now back to North Korea the land free of free markets & everything else for that matter.

[-] 3 points by jrhirsch (4714) from Sun City, CA 2 years ago

Yes. I do think the affluence & plenty created by our free and unfair market are cruel when the top 10% have received all of the plenty for the last 40 years.


[-] 0 points by darrenlobo (204) 2 years ago

Then blame the welfare/warfare state that the progressives created not some nonexistent free market. The chart at your link clearly shows the disparity growing worse since the implementation of the Great Society in the '60s.

[-] 3 points by jrhirsch (4714) from Sun City, CA 2 years ago

The Johnson years showed 61% of the increase in wealth going to the lower 90%.


Here are a few of the causes responsible for wealth inequality since 1968 regardless of party or economic philosophy. We have an economy that looks partially socialist on the outside but really isn't on the inside.

Declining minimum wage since 1968:


Stagnant wages for decades:


Non progressive tax rates:


Decline in union membership:


[-] 0 points by darrenlobo (204) 2 years ago

& what does your post prove? It shows that the progressives' mixed economy doesn't work.

[-] 3 points by jrhirsch (4714) from Sun City, CA 2 years ago

What it shows is that both parties are working for the 1%. It should be no surprise, the majority of Congress are 1%'ers too.

It's not a war between conservative and liberal. It's a battle for power and wealth.

They probably have you convinced welfare and food stamps, medicare and social security are the cause of stagnant economy. When you look at the hard fact that the top tenth of one percent takes 12% of all income, while the income for the lower 50% of Americans is $26,000 or less, it becomes clear where the money is really going.



[-] -1 points by darrenlobo (204) 2 years ago

The inequality is partly caused by the 1% using the govt to mess over the 99%. The welfare and food stamps, medicare and social security are just crumbs tossed to the people to buy their loyalty. These things are definitely part of the problem. Social Security alone is costing us 5% GDP growth every year! It causes poverty, it's not the solution to anything.

The other part of the puzzle is explained by the Austrian Business Cycle Theory (http://wiki.mises.org/wiki/Austrian_Business_Cycle_Theory). The unsustainable boom (which the mainstream economists think is a healthy economy) inevitably leads to the bust. Trying to "stimulate" life back into the boom is at best a temporary solution, though it hasn't worked well at all during the present recession.

[-] 2 points by jrhirsch (4714) from Sun City, CA 2 years ago

"Social Security alone is costing us 5% GDP growth every year"

Do you have any facts to support your argument?

[-] 0 points by darrenlobo (204) 2 years ago

Reduced National Saving

The loss that results from labor market distortions is not the only adverse effect of an unfunded Social Security system or even the largest one. Current and future generations lose by being forced to participate in a low-yielding, unfunded program—i.e., by being forced to accept a pay-as-you-go implicit return of 2.6 percent when the real marginal product of capital is 9.3 percent. Even though capital income taxes now prevent individuals from receiving that 9.3 percent on their personal savings, the public as a whole does receive that full return; what individuals do not receive directly, they receive in the form of reductions in other taxes or increases in government services.

The extent to which an unfunded Social Security system causes a decline in national capital income and economic welfare depends on how individual saving responds to Social Security taxes and benefits and on how the government acts to offset the reductions in private saving. Let's look at some facts.

An individual who has average earnings during his entire working life and who retires at age 65 with a "dependent spouse" now receives benefits equal to 63 percent of his earnings during the full year before retirement. Because the Social Security benefits of such an individual are not taxed, those benefits replace more than 80 percent of peak preretirement after-tax income. Common sense and casual observation suggest that individuals who can expect such a high replacement rate will do little saving for their retirement. Such saving as they do during their preretirement years is more likely to be done as a precautionary balance to deal with unexpected changes in income or consumption. Not surprisingly, the median financial assets of households with a head of household aged 55 to 64 were only $8,300 in 1991, substantially less than six months' income. Even if we look beyond financial wealth, the median net worth (including the value of the home) among all households with a head of household under 65 years of age was only $28,000.

To get a sense of the order of magnitude of the annual loss, it is helpful to begin with the simplest case in which each dollar of Social Security wealth reduces real private wealth by a dollar. The forgone private wealth would have earned about 9.3 percent, whereas the unfunded Social Security system provides a return equal to about 2.6 percent. The population incurs a loss equal to the difference between those two returns. The annual loss of real income would be 6.7 percent of the $9 trillion of Social Security wealth—an amount equal to $600 billion or 8 percent of total GDP.

Of course, each dollar of Social Security wealth does not necessarily replace exactly a dollar of real wealth. To the extent that Social Security induces earlier retirement, individuals will save more than they otherwise would. Social Security also affects private saving by providing a real annuity. And there are some individuals who, because they are irrational or myopic, do not respond at all to the provision of Social Security benefits. A number of research studies have been done on the extent to which Social Security wealth depresses saving and replaces real wealth.[8] Although none of these is a definitive study that establishes a precise measure of the substitution of Social Security wealth for other household wealth, taken together these studies do imply that the Social Security program causes each generation to reduce its savings substantially and thereby to incur a substantial loss of real investment income. Even a conservative estimate that each dollar of Social Security wealth displaces only 50 cents of private wealth accumulation implies that the annual loss of national income would exceed 4 percent of GDP.


[-] 0 points by jrhirsch (4714) from Sun City, CA 2 years ago

You misinterpreted the statement "Social Security alone is costing us 5% GDP growth every year"

"Conservative assumptions imply that Social Security privatization would increase the economic well-being of future generations by an amount equal to 5 percent of GDP each year as long as the system lasts"

They aren't saying GDP will rise, instead, the increase of return on privately funded retirement savings would equal 5% of GDP. And at an overall rate of return of 9.3%. Not very likely.

[-] 1 points by darrenlobo (204) 2 years ago

Please reread the piece. I stand by my assertion.

[-] 0 points by jrhirsch (4714) from Sun City, CA 2 years ago

Copying and pasting someone else's words is not your assertion. Please explain your assertion. So far you haven't.

[-] 1 points by darrenlobo (204) 2 years ago

Let me copy & paste my own words "Social Security alone is costing us 5% GDP growth every year! It causes poverty, it's not the solution to anything."

[-] -2 points by yobstreet (-575) 2 years ago

You perhaps do not realize how true your statement actually is: historically, ancient man was not only an "omnivore," he was a cannibal.

[-] 2 points by jrhirsch (4714) from Sun City, CA 2 years ago

The wealthy still prefer the "upper hand".

[-] 2 points by agkaiser (1329) from Fredericksburg, TX 2 years ago

The free market must devolve to the lowest common denominator of morality and scruples.

'So, if you are “even the most saintly C.E.O.” you will commit accounting fraud because of “market pressure” – not “greed.” If you respond to “competition, a primal force of capitalism” you are not motivated by “greed.” No CEO can resist a “primal force?” 'Let’s review the bidding. Porter concedes that accounting control fraud occurs when CEOs “inflate sales, mask debts or embellish profits.” He also concedes that accounting control fraud is a sure thing that invariably leads to the CEOs “enhancing their own incomes.” But these explanations require us to examine why Shleifer claims that accounting fraud produces a Gresham’s dynamic.' “Andrei Shleifer, an economics professor at Harvard, argues that if unethical behavior drives down corporate costs, rivals will be compelled to do the same just to stay in business. In other words, companies will find the cost of ethical behavior too high.” “Read more at http://www.nakedcapitalism.com/2012/08/bill-black-eduardo-porters-folly-why-we-must-end-the-race-to-the-bottom.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29#37LZPkaz0dEyJ6HK.99

Read about dysfunctional economy and culture: How Does That Work? https://www.createspace.com/3852916

[-] 3 points by alterorabolish1 (569) 2 years ago

Thanks for this great post.

[-] 2 points by Underdog (2971) from Clermont, FL 2 years ago

One only has tor remember ENRON to know that truer words have never been spoken. My dad worked for ENRON, but fortunately retired before their infamous freezing of employee 401k accounts which plummeted under the criminal activity that went on before the government stepped in. Those poor people lost all their retirement they were counting on.

Absolutely sickening.


[-] 2 points by agkaiser (1329) from Fredericksburg, TX 2 years ago

"When a Gresham’s dynamic persists bad ethics drives good ethics out of the markets and fraud becomes endemic. The Gresham’s dynamic so distorts market incentives that that they become perverse."

Read more at http://www.nakedcapitalism.com

For more on dysfunctional economy and culture see: How Does That Work? https://www.createspace.com/3852916

[-] 1 points by bensdad (8977) 2 years ago

We can do what 80% of Americans say they want
We can do what 1,900,000 Americans signed
We can do what 363 local & state resolutions call for
We can do what 1,309 American mayors endorsed

Virtually every OWS goal –
jobs, taxes, government honesty, energy, environment, economy
all go back to EXACTLY one place

And there is EXACTLY one first step:


A constitutional amendment to
Overturn Citizens United and Corporate Personhood


▬► http://corporationsarenotpeople.webuda.com ◄▬


For a complete analysis of the amendment issue,

and the text of all amendments,
and our comparison of all of the amendments,
and the Citizens United case transcript,
and the Citizens United decision,
and the Buckley decision,
and analysis of corporate personhood,
and analysis of Article III,
and the ABC News poll on CU / CP,
and the PFAW poll on CU / CP,
and 70+ videos on CU / CP from

Chomsky, Hedges, Witchcraft, Reich,
Warren, Lessig, Hartmann, Maher, Sanders, Hightower, etc.

and our voting bloc petition & plan.

no password or signup

JOIN our OWS Working Group:

Wednesdays 5:30-7:30PM @ 60 Wall St – The Atrium

[-] 1 points by elf3 (3103) 2 years ago

DESIGNED FAILURE is back and bigger than ever - yeah didn't there used to be laws against that?

[-] -1 points by CitizenofAmerika (-71) 2 years ago

You know what? You are so right! Non capitalistic economies have provided for the masses so much better!