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1. The Age of Crony Capitalism
David Stockman and Crony Capitalism: An Overview
Dr. Robert Batemarco, Fordham University
Mises Academy, November 12, 2013

2. This Week’s Readings
1. The Age of Crony Capitalism (Sundown in America: The Keynesian
State-Wreck Ahead on LewRockwell.com or ZeroHedge.com) , October
7, 2013
2. My review of the Stockman book at http://www.fee.org/the_freeman/
detail/the-great-deformation-the-corruption-of-capitalism-inamerica#axzz2k4mPcPEf, October 3, 2013

3. Crony Capitalism in a Nutshell
"The proposal is frequently made that the government ought to assume the
risks that are 'too great for private industry.' This means that bureaucrats
should be permitted to take risks with the tax payers' money that no one is
willing to take with his own.
Such a policy would lead to evils of many different kinds. It would lead to
favoritism: to the making of loans to friends, or in return for bribes. It would
inevitably lead to scandals. It would lead to recriminations whenever the
taxpayers' money was thrown away on enterprises that failed. It would
increase the demand for socialism: for, it would properly be asked, if the
government is going to bear the risks, why should it not also get the profits?
What justification could there possibly be, in fact, for asking the taxpayers to
take the risks while permitting private capitalists to keep the profits?“
Henry Hazlitt, Economics in One Lesson

4. A Case of Mistaken Identity
 Free Market Capitalism – a profit and loss system
̶ Losses are painful but necessary
 Crony Capitalism – a private profit and public loss system
̶ Only the well connected, i.e., the cronies of those in power are shielded
from their losses.

5. Crony Capitalism’s Long and
Dishonorable History
 Rothbard in Anatomy of the State, shows how crony capitalism (“creation of
vested interests”) is one way the state maintains power.
 Mercantilism was a crony capitalist system. Cronies of those with power in
government would try to block innovations that threatened their interests.
̶ Controlling them helped spark the Industrial Revolution in UK – as opposed to
government-backed guilds on the continent
 US – economic nationalism – Henry Clay’s American System
 Progressives brought it back with a vengeance
̶ Control of monetary system
̶ Proliferation of laws that could be selectively enforced
̶ Regulatory capture
̶ Military industrial complex
̶ Dealing with crises

6. Stockman’s Morality Tale
 Crony capitalism in Stockman’s telling revolves around money,
specifically easy money.
̶ Easy money is a fertile field in which crony capitalism can thrive.
̶ To understand crony capitalism, we need to understand the monetary
environment that facilitates its most recent manifestations.
 Stockman explicitly rejects Keynesian and monetarist views of money.
̶ Both see money as a policy tool.
 He implicitly seems to accept the Austrian view of money.
̶ A creation of the market
̶ Capable of generating cycles and bubbles

7. What’s a Morality Tale Without
Heroes and Villains?
 There are a lot more villains than heroes and the heroes had a lot of
flaws.
 Heroes
̶ Carter Glass
̶ Henry Morgenthau
̶ Harry Truman
̶ Dwight Eisenhower
̶ William McChesney Martin
̶ Paul Volcker
̶ Sheila Bair

8. What’s a Morality Tale Without
Heroes and Villains?
 There are so many villains we might as well list them by class:
 Academics
 Politicians/Central Bankers
̶
̶ John Maynard Keynes
̶ Irving Fisher
̶ Milton Friedman
̶ George Warren
̶ The “New “ Economists
̶
Walter Heller
̶
̶
James Tobin
̶
̶
Gardner Ackley
̶
̶
̶
̶
̶
̶
̶
̶
Franklin Roosevelt
Arthur Burns
Lyndon Johnson
Richard Nixon
John Connally
George Schultz
Caspar Weinberger
Alan Greenspan
George W. Bush
Ben Bernanke
Henry Paulson
 Businessmen
̶
̶
̶
Leo Melamed
John Mack
Jeff Immelt