Op-Ed: Cryptocurrency: The Free Market’s New Last Line Of Defense Against Crony Capitalism

Executive Brief

Many people paint a mental picture in their heads of crony capitalism as a room full of old rich guys, smoking cigars, watching the ticker, and counting piles of money freshly squeezed from peasant folk. In reality, crony capitalism is more about the government wielding their monopoly of unquestionable force to choose which private businesses are winners, and which ones are losers. Some might compare crony capitalism to fascist style control over the private sector. Mega corporations and unions have very deep pockets and can buy favors such as subsidies or favorable regulation that can give them an almost monopolistic advantage over small businesses. Governments should instead be championing small businesses and all the real economic benefits they bring to the country, because without a fair and level playing field, many of these small enterprises will fail.

Cryptocurrency can play a role in ending this cycle, helping free markets thrive once again.

Read the full story below. 

Crony capitalism disrupts natural business cycles and doesn't allow excesses to be purged. This results in bloated, inefficient companies that end up suffocating small businesses. Instead of businesses being deemed 'too big to fail', we should call them what they really are, 'too big to succeed without handouts from taxpayers'. Promoting lower costs of entry for individuals wanting to start small businesses encourages competition, which in turn spurs innovation. If a business does not innovate at a pace comparable to the rest of the industry, it will be left behind, and is likely to fail.

Increases in the minimum wage may sound like it is for the benefit of the average person, but it actually hinders small business growth in favor of large corporations. These corporations are typically in a better position to absorb the added overhead and they have the required capital needed to automate their workforce or move the jobs overseas. Setting aside all fuzziness about helping low income individuals with a government mandated pay raise, forcing employers to pay unskilled workers more, will decrease the amount of workers hired. This is basic supply and demand.

Mandated minimum wages also decrease upward mobility; just ask Ontario, Canada, who has seen their low wage workforce grow by 94% in the last 17 years. The share of Ontario workers earning minimum wage has risen sharply from 2.4% in 1997 to 11.9% in 2014. A continual increase in minimum wage has had the opposite of its intended effect, instead of lifting people up out of poverty, it's created more minimum wage earners, and moved the poverty line above many individuals. Yet this old mantra of raising minimum wages still remains the go to standard of many. It's been said that "crazy is doing the same thing over and over again while expecting different results", which certainly rings true here.

Paying two people $5/hr for entry level unskilled jobs is a greater net gain for society than paying one worker $10/hr. By employing two workers, you are providing double the work experience, and these two members of society are both developing their skill sets, instead of only one. These former unskilled workers can take their newly developed skill set and start new businesses, increasing competitiveness and ensuring consumers receive the highest quality goods for the lowest price. Had these hypothetical $5/hr workers leveraged their earnings in Bitcoin over the last couple years, they would have fared roughly the same financially as a $10/hr earner. Low income living is much more feasible with a currency that isn't designed to lose value and punish savers.

Instead of being low wage earners, more people could start successful small businesses if minimum wages weren't dictated, and more jobs would be available to young people looking to gain work experience. There is no such thing as a "living wage", because somewhere along the line, supply meets demand, and they will be gouged. Increased wages will eventually inflate other costs, whether it be in food, housing, power, water, etc...

Any country with a minimum wage has unwittingly embraced a fascist-like ideal of regulating the majority of the labor force. They have also inadvertently created a workforce entry barrier for young people looking to gain work experience, because they are forced to compete with unskilled adults. Historically when authoritarian governments have exerted excessive control over the private sector, they failed abysmally. The downfall of the Soviet Union occurred because the government thought they could control the economy, while ignoring basic free market principles. The unwillingness to relinquish central control, ultimately led to its demise.

Freedom of contract is the freedom of private or public individuals and groups to form contracts without government restrictions. Freedom of contract, such as how much an employer pays a worker, could be protected by a decentralized blockchain platform like Ethereum, who has devoted much of their time to creating so called "smart contracts", automatic contracts between two parties which only execute when all terms and conditions are met.

In Allgeyer vs Louisiana, 165 U.S. 578 (1897), the U.S. Supreme Court for the first time invalidated a state law as a violation of liberty of contract. The court held that Louisiana violated the due process clause when it penalized a domestic company for contracting for maritime insurance with a New York company. Cryptocurrency makes it all but impossible for governments to freeze funds, or enforce fines by garnishing wages, meaning individuals can create contracts with whoever they please, including work agreements below the mandated minimum wage. Although collective bargaining groups would have you believe otherwise, minimum wage standards are in direct violation of freedom of contract. It is up to both parties in the contract to set the terms and conditions, not the government.

How does cryptocurrency fit in? Government policy has minimal effect on cryptocurrency prices, as demonstrated by countries like China "banning" Bitcoin every other week in a vain attempt to stem their horrendous capital flight problem. Cryptocurrency continues to steamroll as fiat currencies flounder, and aside from propaganda, there is little they can do to change this at the moment.

Groups of bright individuals from around the world are creating financial networks which themselves act as a medium of exchange, store of value, and unit of account; all 3 requirements of a currency. These networks operate outside of any government and do not belong to a single entity or person. Ultimately each of these financial networks decide their own policy and are self governing, leaving no room for crony capitalism.

Governments who attempt to ban cryptocurrency will reap no rewards from the economic stimulus provided by a burgeoning new industry. On the other hand, citizens bringing global cryptocurrency wealth into their local economy, will boost consumer spending on domestic goods and services. It is important to begin fostering a mutually beneficial relationship, because it could be what's needed to restore fiat currency purchasing power, and promote local business success.

The views expressed by the authors on this site do not necessarily represent the views of DCEBrief or the management team.

Author: Brandon Cheliak

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