“The most basic question is not what is best, but who shall decide what is best.”
– Thomas Sowell
August 18, 2025 — When we left you earlier this week, we were reckoning over a paradox… a contradiction in terms… a riddle wrapped in a mystery tucked inside an oxymoron.
The malformed figure of speech: “State Capitalism.”
Like a fire-breathing Chimera, the phrase sprang forth from an article in The Wall Street Journal:
The U.S. Marches Toward State Capitalism With American Characteristics
The article went on to detail how the United States Government, under the stewardship of Donald Trump II, has come to engage more and more directly in not only the broader economy, through tariffs, taxes and the like, but individual companies therein…
… from pressuring Intel to fire its CEO (and later backtracking after a private meeting in the Oval Office)…
… to the government carving out a “Golden Share” in US Steel as part of a takeover by Japan’s largest steelmaker, Nippon Steel Corp. …
… to arranging for the state to take a cut of Nvidia and AMD’s chip sales to China…
… to issuing an Executive Order to establish a U.S. sovereign wealth fund (SWF), similar to those operated by petro-welfare states like Norway, the UAE and Kuwait.
And plenty more besides…
Inquiring minds were set to wonder, “If it doesn’t look like capitalism, and it doesn’t smell like capitalism, and it doesn’t quack like capitalism…”
Command Economics
As we noted at the time, this is by no means the first time the federal government has presumed to know the inner workings of the market better than the hundreds of millions of individuals actually participating in it. Indeed, most of the 20th Century was spent wasting other people’s money on one whacky, centrally-planned idea after another, usually under the guise of emergencies brought about by The State itself.
Continued the Journal…
The federal government has often waded into the corporate world. It commandeered production during World War II and, under the Defense Production Act, emergencies such as the Covid-19 pandemic. It bailed out banks and car companies during the 2007-09 financial crisis. Those, however, were temporary expedients.
Former President Joe Biden went further, seeking to shape the actual structure of industry. His Inflation Reduction Act authorized $400 billion in clean-energy loans. The Chips and Science Act earmarked $39 billion in subsidies for domestic semiconductor manufacturing. Of that, $8.5 billion went to Intel, giving Trump leverage to demand the removal of its CEO over past ties to China. (Intel so far has refused.)
Biden overrode U.S. Steel’s management and shareholders to block Nippon Steel’s takeover, though his staff saw no national-security risk. Trump reversed that veto while extracting the “golden share” that he can use to influence the company’s decisions. In design and name it mimics the golden shares that private Chinese companies must issue to the CCP.
Biden officials had mulled a sovereign-wealth fund to finance strategically important but commercially risky projects such as in critical minerals, which China dominates. Last month, Trump’s Department of Defense said it would take a 15% stake in MP Materials, a miner of critical minerals.
Doomed to Fail
One of the main problems with “State Capitalism” is functional. That is to say, it doesn’t work.
The reasons for this are manifold, the primary one being what Friedrich Hayek called the “Knowledge Problem.”
Hayek demonstrated that, in the real world, information is not concentrated, but rather dispersed among myriad individuals, thereby making it impossible for central planners to possess the specific knowledge needed to manage an economy from the top down.
The market, on the other hand, relies on signals from the aforementioned participants, each pursuing his own ends, thereby creating what Hayek termed Spontaneous Order; a system where vital information – price… time… supply… demand… quantity… quality… velocity… momentum… trend… etc. – is conveyed and interpreted in a way that no central politburo could ever hope to master.
(Little surprise, then, that whenever the state does intervene in otherwise free markets, it creates such a predictable tsunami of unintended consequences… a Note for another time.)
The other problem with “State Capitalism” is definitional… as in, it doesn’t exist. That is to say, there is no such thing as “State Capitalism.”
To understand this, we have to engage our old friend, Semantics.
What’s In A Word
To the chagrin of big state apologists on the left AND on the right, capitalism isn’t “the rich getting richer while the poor get poorer.” Nor is it “profits over people” or “greed is good” or any of the other mealy-mouthed misdirections and empty sloganeering employed by meddlers and do-gooders advocating for more public disservice and state intervention.
Neither is capitalism some nebulous, esoteric concept… vague enough to find a place in a sophomore gender studies essay… subjective enough to carry no objective meaning at all.
It is, quite simply, an economic system in which:
- Private individuals own and control the means of production and
- Prices are set by the free market (i.e., through voluntary exchange; absent coercion).
That’s it. Nothing more. Nothing less. Or, to put it in the memetic language of marketing copy:
“For every free and voluntary exchange of privately owned goods and services, there’s Capitalism. For everything else, there’s The State.”
Like the “living dead” or an “original copy” or an “honest politician,” the very term “state capitalism” is, itself, an oxymoron, a contradiction in terms. Likewise, there is no “hybrid” between socialism and capitalism, any more than there is a hybrid between being free and being incarcerated; either you can leave… or you cannot.
Which brings us to capitalism’s opposing force: The State.
Equal and Opposite
In his famous 1919 lecture Politics as a Vocation, the German sociologist and political philosopher, Max Weber, defined The State as:
“A human community that (successfully) claims the monopoly of the legitimate use of physical force within a given territory.”
Debates over the “legitimate” use of force aside, we can see here that The State cannot, by definition, act as a participant in something that relies on voluntarism as a core operating principle.
The very moment The State enters the economy in any way, shape or form – to tax one group and subsidize another… to set the price of a single good or service… to impose itself on a single contract… to claim a monopoly on the production of money, to demand its fiat be used, and that others be prohibited… to require a license, permit or other permission… to put its flabby finger on a single scale… – is to simultaneously render property contingent and the market subject to force.
Where Capitalism ends, The State begins… and never the twain shall meet.
But where does that leave us, dear reader? Why, right here of course… at the end of today’s word count.
Cheers,
Joel Bowman
Notes From the End of the World & Grey Swan Investment Fraternity
P.S. from Addison: Twinged by a bit of nostalgia over Woodstock, Grey Swan member Richard P. wrote in last week to remind us that Paul Volcker, back in the 1970s, did his job with brutal honesty.
Volcker jacked up rates to 20% because inflation demanded it. He didn’t worry about whether Washington could afford the interest bill — he worried about the dollar’s purchasing power.
That’s what’s different now.
Jerome Powell, facing a similar burst of inflation, only managed rates a bit above 5%. And unlike Volcker, he’s got a White House breathing down his neck.
Mary Daly, president of the San Francisco Fed, offered a subtle but important reminder when speaking with Maria Bartiromo on Friday: “A softening labor market, an economy that’s slowing but not stalling, as weighed against inflation that is still above the Fed’s goal, all ‘would warrant a couple of cuts sometime this year.’”
But then she added the caution Powell surely shares: “What I don’t want to do is be so worried that inflation might come up again or be persistent that we wait for that clarity and don’t support the labor market.”
Translation: the Fed can ease, the Fed can tighten—but the Fed cannot fund Congress’s spending habit. That’s up to elected officials.
We’ll keep tracking this week as Powell and Daly head to Jackson Hole for the annual gathering of central bankers.
Powell, as is customary for the Fed chair, will give the keynote address.
We expect he’ll address the following concern in some esoteric, academic way: is the central bank still independent… or has it already become Washington’s shadow financing arm?
Tick, tock. The mid-term Congressional elections are only 441 days away. The Fed’s independence is unexpectedly playing a key role in the Trump Great Reset strategy.
Thank you, if you, too, have written in the past week. We have made the commitment to read all of the emails that hit our inbox.
Many member emails include insights we haven’t yet considered. Some include suggestions for guests on upcoming episodes of Grey Swan Live!
Most have anecdotes relating to the writer’s life and times as an investor, “family man”, business owner, entrepreneur, scientist, engineer, career military… even some who’ve spent a few years in Congress.
While we have to admit we’re a little behind in responding to every email. And haven’t shared as many as we’d like here in the Grey Swan emails, we do appreciate the effort you make to write in – especially when you disagree with us! So keep ‘em comin’.
Your thoughts? Please send them here: addison@greyswanfraternity.com
