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What's so good about Market Forces, anyway?

  
  

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ONLY NICE THINGS
09:45 / 03.12.04
Orr asked:

Being pathologically leftie - by which I genuinely have difficulty sometimes in seeing a logical position within the right-wing viewpoint - and also cursed from shortly after birth with a sarcastic tone of voice and turn of phrase, I have never found a forum in which to ask the following without coming across as a smart arse. That may well be true, but in the spirit of honest befuddlement, can anyone tell me what, exactly, is so great about market forces or more specifically, competition? Particulaly in terms of public or governmental services.

I can grasp that one can posit a bloated, self-serving public bureaucracy versus a lean, hungry private company providing the same service. My problem is that somewhere along the line, the model appears to be plucking money out of nowhere. If an authority or government is providing a service directly then they assume the cost burden of administering and managing the infrastructure operating and providing said service. However, passing that responsibility on to a third party fails to negate those costs. The only source a private company has, surely, to meet these overheads is to pass it on back to the government in its pricing of that service. Additionaly, a private or comercial entity bears a responsibility to create a profit for its shareholders or investors which in this model has to be lower than the total savings to the public body. If the only way to lower the service cost to the government or authority is to cut staff or quality levels, then surely these 'savings' end up having to be covered by society anyway rendering a paper saving into an overall loss? For example, if privitising waste collection in a borough results in the sacking of half the binmen, then isn't the saving to the council at least matched by the rise in benefits payments caused by this action?

Where it comes to projects such as the building of new hospitals, I can see why avoiding a large investment from government could offer a 'cash-flow' benefit, but in the long term, isn't it little more than a high rate loan?

Sadly, I have no grounding and little grasp of the economics behind all this, but I'd dearly like to know where this 'extra' money is supposed to be coming from. Thanks.

jah replied:

In regards to the capitalism v. socialism (government) question, I think the austrian school of economics has the best grasp of the issues involved. The austrian school is (in my mind) the economic equivalent of gnosticism or any of the individual-minded religious/spiritual pursuits discussed on Barbelith.

the best places to start your exploration of free-market theory and libertarianism is mises.org and the sister site of lewrockwell.com.

There are both practical and moral reasons why the free-market (private ownership of means of production) is vastly superior to socialism (public ownership of the means of production, namely centralized planning by government).It would take some time to fully lay out the theories (and others have done a better job than I) but I will try to summarize. The moral reason is that socialism (government) is coercive and violent whereas pure capitalism is neither. The practical reason is that socialism is impossible.


Moral Reason:
Property rights and the free market are essential to individual liberty. All transactions are done voluntarily--each party to the transaction is better off otherwise they wouldnt have made the transaction. No one is holding a gun to your head making you buy a caramel macchiato at starbucks or endorsing walmart over the local mom & pop.
Marxism/communism/socialism/capitalism/fascism/totalitarianism/Statism and modern liberalism/democracy uses the coercive (violent) force of the State to make people do things against their Will--this is at best a zero sum game (someone wins, someone else loses--compare with capitalism in that capitalism makes BOTH parties better off). Always remember that at the other end of any governmetnal law/regulation/edict there is a gun (in the hands of the police force/army/etc) there to enforce it. Imagine the government holding a gun to your head making you buy coffee at starbucks. Now examine taxation, conscription (draft), national ID cards, etc. You have no choice but to follow their rules.

for more on this read:
The Road to Serfdom, FA Hayek
Socialism, Ludwig von Mises

Practical Reason:
von Mises proved that a mixed economy (public/private property) cannot exist in the long run so the choice is between capitalism and socialism. There is no "third way", or "hampered market economy", or "interventionism". Likewise, he proved that there can be no economic calculation without private property and the free market system and that socialism as a large-scale method of socio-economic organization is impossible in the long run (socialist/governmental central planners are economically blind).

The best works to read:
Socialism, by Ludwig Von Mises
Human Action, by Ludwig Von Mises
Man, Economy, and State, by Murray Rothbard
any other works by Mises or Rothbard


Then added:

Orr,

You have several misperceptions about economics (this is not intended to be a wise-ass response). Even if you had taken economics at the universities you still would not understand these issues since they are taught from a socialist ("leftie") perspective which is just plain wrong as applied to economics.

Your first misperception is that money comes from the government. THis is an understandable viewpoint as nowadays, all major economies use paper/fiat currencies (money by decree of the government) as opposed to "real" money such as gold which is NOT issued by the government.

Government itself has no money. Economically, it is parasitic. It has 3 options to raise money. 1) issue taxes (coming out of your pocket) 2) print money (inflation) which is economically equivalent to counterfeiting or a tax (it comes out of your pocket in that you pay higher prices and your standard of living falls) 3) issuing debt (which is again, backed by the taxing power of the government, so it is coming out of your pocket or your children's pocket).

A private company does not pass its costs along to the government (under pure capitalism). A private company has to meet a profit/loss test (which the government does not). The companies that best serve the consumers (you) in the most efficient way will be profitable and thrive. Those that don't go out of business. If you buy from the business voluntarily (no government forcing you to), it has added value to you otherwise you wouldnt pay for the good/service. Likewise, they will not sell something to you unless your money (or whatever you are bartering) is worth more to them than the good/service they are offering for sale. Under this scenario, value is added to both sides of the transaction and the total pie to society is enlarged. Both parties are now wealthier (from their viewpoint). Under a government regime (socialism), it is a zero-sum game (the pie has not been enlarged, you have just changed the distribution of the pie).

So, is that what's so good about a pure market-based society? Everybody gets to feel like they have exchanged their resources for resources they value more? It strikes me as a somewhat incomplete statement - if I have a ton of salt and no fish, and another guy has a ton of fish and no salt, neither of us necessarily believes that half a ton of the other's ware is more valuable, only that it is _necessary_. For all the claim that a pure capitalist exchange between us enlarges the pie, we begin with a ton of fish and a ton of salt between us and end likewise.

I would also question:

von Mises proved that a mixed economy (public/private property) cannot exist in the long run so the choice is between capitalism and socialism. There is no "third way", or "hampered market economy", or "interventionism".

Since such a mixed economy functions in most of the world, how long is the run we are talking about? In what sense is it proved?

Further, without any regulation, the goal of a capitalist enterprise is purely to offer a market what it wants sufficiently weel as to generate profit. So, for example, where is the incentive to pay coffee growers a decent wage, if the only concern is creating a desirable product at a desirable price point for the consumer? Arguably pure capitalism would allow all coffee growers to set a decent price, but that would be a cartel, would it not? The key relationship here is between the entity that sells a good and the individual who purchases it, and the welfare of those who produce it is relevant only if it is something that consumer wants. Do those without valuable labour to sell need to be protected? How would that be organised?

Water might be another example. If it turns out that the a fairly small number of people do not have the resources to pay for water supply, a good capitalist system cuts them off, yes? They have nothing the water provider considers valuable enough to exchange for water, and nothing anyone else wants enough to exchange it for something the water provider wants. What do you do with these people - the severely disabled, the mentally ill, say?

Of course, it is possible that ethical questions are irrelevant to economics, but jah has included a moral case for pure capitalism. What do you think?
 
 
_pin
10:12 / 03.12.04
The moral case for a market surely rest on the issue of choice (not explicitly mentioned, unless I am reading wrong, in jah's post, but still there as undercurrent, i.e. no gun), and yet markets lend themselves to mono- and polyopolies incredibly well. Yes, coffee growers setting a fair price would be a cartel, but then surely the current coffee producers (those that render the coffee saleable to the general market) are surely also functioning as a cartel insofar as they are all agreeing to take a profit from their produce at a rate that disallows the spending of money on improving the quality of life for those they are buying from? It is a more normative and diffuse cartel, yes, but the principle doesn't seem that far removed to me.

Also, how do they not hold a gun to the heads of those who are selling? How do Esso not interfere in the running of governments (if we take governments to be the embodiment of the wishes of the people who are having their resources taken form them by Esso) to ensure the perpetuation of their business practises?

And to extrapolate further, of course capitalism forces people to do things. To have enough money to live, people are forced to compromise ethical standards to buy foodstuffs cheap despite knowing about the unsavoury ways they were obtained simply because they are not paid enough to buy better. This is not actual tacit support for the system as is, but rather a self-perpetuating effect of market forces.

Markets only "don't force" those who wish to operate within markets, but people make ethical choices on grounds that are incompatible with the 'rational' thought processes demanded by markets. The sanctity of market-themed modes of thought denies the insurmountable subjective nature of many human decisions, the basis of which are largely formed by formative experiences in early communities.

These communities only survive within a non-state framework posited by Nozick to be the best way to ensure their survival if they are amenable to the market, yet there is no valid criteria by which we can come to the conclusion that this mode of life is in someway superior to any other, and so there is no way that it can be said to be the best way of determining who lives and who dies.

This is quite apart from the fact that government benefit schemes are the only way that companies could pay workers such low wages, and the government also builds and coordinates the infrastructure that businesses work within, and so surely they must owe a duty to the government? Also, I do not see how bureaucracy systematically leads to waste and inefficiency, and yet it seems obvious that a business’s profit motive will always lead to charging above cost, and this money will simply be absorbed back in to a structure and spent on peripherals such as branding and marketing and so this waste will be perpetuated.
 
 
jbsay
16:32 / 03.12.04
don't have time for a full response today but i take exception to most of your assumptions and analysis. namely

1) capitalism lends itself to mono and polo (did you mean ologopolies?)
2) that businesses under a private property regime(without the help of the govenrment) can force someone to do something.
3) that government is the embodiment of the will of the people (it certainly does not embody MY will)
4) that the market denies the "subjective nature" of human experience and focuses on rationality
5) that there is no valid criteria by which we can come to the conclusion that this mode of life is in someway superior to any other. (i agree for small-scale community, but it CAN--and has--been proven for an industrial economy).
6) your assertions about how businesses pay low wages

1) there is nothing inherent to capitalism that suggests that markets lend themselves to monopolies and ologoplies. consumer demand is what makes the markets function and drives business success and failure. you can only have a monopolistic structure under capitalism if that is the consumers demand--if they change their demand preferences the greatest monopoly can go bankrupt within a short period of time. on the other hand, the only true monopoly is that of the government (the monopoly of coercive force, the ability to counterfeit money, the ability to enslave you via conscription, the ability to steal from you via taxation, etc).

the market "failures" and monopolies that you see in today's system are almost always associated with the businesses being in collusion with the government. this is not a market failure, it is the inevitable result of the government interfering with the free market.

2) economics is the study of how individuals act to allocate scarce resources. i dont have time to go into the inflation debate, but suffice it to say that in a capitalist society, prices for the most part would go DOWN (standard of living goes up). the reason everyhting is so expensive is the goverment is printing money and diluting out your money, making your standard of living fall as prices rise. but regardless, no one is FORCING people to go to mcdonalds. they could allocate their wealth in other ways (e.g., cook at home, take an additional job, or cut back on housing/drinking/clothing/transportation expenses).

3) i do not believe that the government is the embodiment of the will of the people. dont believe the hype. did the jews really want to die in germany? the ukrainians under stalin? pol pot? mao? castro? etc etc etc

4)this is incorrect. the Austrian school of economics is based entirely on subjective valuation.

5) there is a big difference between organizing a small community (typically agrarian) and organizing a large-scale industrial society. socialism can work in the small-scale agragrain community. it is impossible for it to work in a society like ours, as mises and others have proven.

6) if you dont like the wage you are free to go to another business or not work at all. businesses can pay this much NOT because of government benefit schemes, but rather because that is what the workers are willing to work for.

no, you're talking about "public goods". this is a myth. the typical example is the lighthouse, which you need a government to operate. Coase showed that the private market did a great job of that until the government basically nationalized them. same argument could be applied to any of the other infrastructure

7) if a business always charged above cost, no one would ever go bankrupt. businesses do not set prices. consumers do.

p.s. Mises also wrote an entire book on bureaucracy that shows how it leads to waste and inefficiency, if you're interested.
 
 
jbsay
17:02 / 03.12.04
This might overview might help frame the debate better so everyone is clear on concepts and terms (and it's written much more effectively than what I can do in a one-off manner).

http://www.libertarianpress.com/rothbard/essential/toc.htm
 
 
HCE
01:41 / 04.12.04
"1) there is nothing inherent to capitalism that suggests that markets lend themselves to monopolies and ologoplies. consumer demand is what makes the markets function and drives business success and failure. you can only have a monopolistic structure under capitalism if that is the consumers demand--if they change their demand preferences the greatest monopoly can go bankrupt within a short period of time. on the other hand, the only true monopoly is that of the government (the monopoly of coercive force, the ability to counterfeit money, the ability to enslave you via conscription, the ability to steal from you via taxation, etc). "

While the way capitalism is sometimes portrayed supports your notions, what one is able to observe when capitalism is put into practice does not. What one observes is that capitalism is not sustainable for other than small groups, for short periods of time, and even then only when shored up by considerable external supports. Given an unregulated marketplace, producers find that it is in no way in their best interest to compete, it is far better to cooperate. If only consumers were so cooperative, then perhaps they would get better deals. If you meant to say that consumers vote for the abuses of capitalism by not rising up in some kind of revolution, and therefore we may conclude that in fact they are passively expressing their desire for predatory pricing, shabby quality goods, and low wages, then perhaps you have a point. But really, it's said much better here and here (no cheating! you have read the whole thing, not just the sexy bits) than I can say it in the five minutes I have left before I head off to dinner.
 
 
SMS
03:32 / 04.12.04
So, is that what's so good about a pure market-based society? Everybody gets to feel like they have exchanged their resources for resources they value more? It strikes me as a somewhat incomplete statement - if I have a ton of salt and no fish, and another guy has a ton of fish and no salt, neither of us necessarily believes that half a ton of the other's ware is more valuable, only that it is _necessary_. For all the claim that a pure capitalist exchange between us enlarges the pie, we begin with a ton of fish and a ton of salt between us and end likewise.

You place greater value on your first fish than on your fiftieth. Since you have no fish, but more salt than you need, etc. The term value, here, is used to mean value to someone.

The key relationship here is between the entity that sells a good and the individual who purchases it, and the welfare of those who produce it is relevant only if it is something that consumer wants. Do those without valuable labour to sell need to be protected? How would that be organised?

The relationships are between every voluntary exchange, including exchanges of labor. Those without valuable labor can be protected in a number of ways, depending on how they got to be in their unfortunate state. Insurance policies can help with many of these situations. Other organizations, such as religious or familial institutions (or something like the anarchist probably suggested, although I haven't read his book) that are designed to take care of their members might be of value as well. As long as people have the option to leave these organizations without fear of retribution, they would still operate within a free market but could serve to cushion its harsher effects. But still there will be those who do not belong to any kind of organization or those who have mishandled their money but still require food or those who are in the position Haus presents. These people deserve our sympathy and our assistance. But we should consider how it is that they might arrive at this assistance. In a democracy, we would vote on whether to force everyone to help pay for these folks' needs. If we assume that we can trust the majority to make these generous decisions, then we already have a large number of people that care about the poor and indigent and thus, place value on the needs of the poor. This means that, if these same people operate in a free market and include thier compassion for the poor in their assessment about how they should spend their money, then the poor and indigent will benefit, too. On the other hand, if we cannot assume that very many people care about the poor, then trusting in the democratic process to set up institutions for their welfare is folly.

Of course, one could point out that the democratic process is not quite a matter of simple majorities winning out. For one thing, the people are represented by elected officials, so perhaps we can count on them to be more compassionate than the people at large? And we have lobbying groups trying to influence the politician's decisions. Perhaps the best lobbyists are the most compassionate? If they are, are they only good at petitioning governments or could they petition the populous as well?

Another situation needs to be considered in which the majority of the people use the government to confiscate property from the wealthy few. In this case, I only know of an ethical argument against doing so. But you have to believe in rights, so I'm not sure it matters. The communistic principle from each according to his ability, to each according to his needs is self-contradictory, for a person cannot be given something except insofar as xe is made to be in possession of it. That is, it must be made hir property. But if it is followed that all material is distributed according to need, then the only entity that can be said to have property is the entity deciding what that need is (namely the government). If redistribution of wealth is not held to the absolute communistic principle, but only to a diluted version of it, then the problem is diminished but not fundamentally altered. If we add the phrase, "in matters of healthcare," for instance, then the healthcare services are owned and controlled by the government and the people are cared for according to its charity and mercy (or its fear).

One last point
people make ethical choices on grounds that are incompatible with the 'rational' thought processes demanded by markets.
To whatever extent people place value on ethics, it is compatible with the rational thought processes demanded by the markets.
 
 
Grand Panjandrum of the Pointless
10:24 / 04.12.04
Jah answering _pin, above:

(6) if you dont like the wage you are free to go to another business or not work at all. businesses can pay this much NOT because of government benefit schemes, but rather because that is what the workers are willing to work for

This ignores the disparity between the bargaining power of an individual worker and that of a capitalist or a corporation. If you possess capital you can hold out on a deal in an attempt to push your asking price up. If you are an un-unionized worker, and all you possess is your ability to work, you are obliged to strike a deal quickly in order to eat/maintain your current standard of living (depending on what type of capitalism you live under). The owner of capital can withold employment from the individual worker, but the worker can only withold hir individual work from the capitalist. Therefore, unless the worker's skill is rare or unique, the capitalist is in an unassailable position of power. In a developed capitalist economy this situation will obtain in virtually all kinds of work, so switching jobs won't help.
Are there any differences between this and coercion by a tyrannous centralised govt? The only obvious one seems to be that the rich don't get tyrannised under capitalism.
 
 
_pin
11:05 / 04.12.04
1) I meant polyopolies because I take ‘oligopoly’ to refer to a system where by the producers also interfere outside of their commercial remit, such as where their placemen are put within a government and run it to their own ends, much like a oligarchy, which is what we (largely) have now.

2) You seem to be assuming that all people have the capacity to make decisions about how much of any given resource (let’s say money, for ease) they wish to have, and are capable of pursuing that end, and where they choose to have not much, this is done in full willingness to accept the consequence of this. As I said about morality, people cannot always make choices about where they wish to work to get their money because they may have values that override their ability to carry out the tasks a job may require. This does not mean that they wish, or deserve, the consequence that they cannot afford running water or their heating bill. Hence capitalism forces them to go without one or t’other. Also, as Grand Panjandrum of the Pointless has said, inequalities of barganing power.

3) I don’t believe the hype that government is the people’s will, only that it is the only form I can think of that could possibly actually embody it, given that, as I have said about morality (this is important to my whole point, by the way, this view of community,* and to address Lional Wallace's point: no, they're not, gays who choose not to work in an anti-gay company, where gay people are beaten up when they comwe to work and the management gives money to the Conservative party cannot choose to work there, on gorunds deeper and more important then the money. Should they be punished for not working there? No. We are assuming this company opperates in a homophobic enviroment where people are willing to buy their products, or they are not homophobic but are unaware of these practises), the public contains people who cannot function in a market, as well as those who can. Even within Nozick’s thought there was an awareness that different people had different needs.

4) Again, only subjective within the bounds of the market which depends on a certain amount of rationality, where rationality refers to a full understanding of the consequences of our actions. People do not necessarily make the link between getting cheaper groceries at a supermarket and the loss of local greengrocers, but this doesn’t stop them minding when it happens.

5) May I suggest that Mises and others have an axe to grind? Capitalism is simply the result of a string of different theories (see: attacks by men like Capaldi on deviant forms of morality as a result of different, foreign forms of upbringing). There is simply a lazy racism in the thought that white, Protestant traditions have actually come up with the greatest way of thinking. What criteria can you use to judge this mode of thought as the best, except by looking at all other modes of thought and finding them to not be very white or Protestant (incidentally, this doesn’t mean that Protestants are the only form of capitalists, and their theories have been expanded and assimilated by others).

6) People are only willing to accept low wages because they are supported by the state in this end.

7) Water companies in London were terrible. Private health care provision was terrible for the nation’s health as a whole. Are lighthouses really the only example you can come up with? Is this because they mostly community-run enterprises to help out fishermen; this surely only backs up nightclub dwight’s point that it works in small communities

8) Consumers do not set prices, again as nightclub Dwight was saying, because there is no awareness among them as to what would be best for them. There is little market research conducted, etc. This happens because people have different priorities, making capitalism opposed to their way of life, and also they are all working crappy jobs at long hours to get enough money to pay for these things. You know, “because they choose to.” (By “these things,” I meant public services like water and electricity, by the way, not just luxury items)

And I’ve read the books on bureaucracy: again, axes to grind. The problems are these like funding, whereby money when needed is not forthcoming, so things are made up for the money to do, such as endless road repair schemes, so that if it ever is needed, it is there on tap. This is bathwater, however, not babies. That said, there is a certain amount of inefficiency built in, such as endless town planning rounds, but that’s because we live in a democracy and the only way to make sure people’s voices are heard is slow and inefficient, because people do not function as consumers.

* To address Lional Wallace's point: no, they're not, gays who choose not to work in an anti-gay company, where gay people are beaten up when they comwe to work and the management gives money to the Conservative party cannot choose to work there, on gorunds deeper and more important then the money. Should they be punished for not working there? No. We are assuming this company opperates in a homophobic enviroment where people are willing to buy their products, or they are not homophobic but are unaware of these practises
 
 
Lurid Archive
11:58 / 04.12.04
So, is that what's so good about a pure market-based society?

First thing is to note is that there doesn't exist a "pure market-based" society. All economies are mixed, though they have different emphases. This is important, because this is just one of the many points that libertarians and free-market fanatics like to obscure. The favourite example of the US doesn't do nearly as much as people want, since infrastructure, research, military and medicine are all supported by government money and market distorting legislation. Few people, as far as I can tell, actually believe in a free market. In my view, the purity of the free market is simply a euphemism for the removal of any kind of social safety net for the average citizen (and a denial of the validity of basic human rights). Moreover, this tends to be coupled with implicit assumptions of how market distorting influences are unremarkable when it comes to favouring corporations. On its own explicit terms, this type of postion is deeply suspect.

Part of this argument involves an odd sort of reverence for the supposedly hard headed science of economics, which I think anyone on the left should challenge head on, especially when the discipline is so often misrepresented. So the myth that economics unconditionally supports the purity of free markets and that the Austrian school uncontroversially represent consensus opinion is just barmy. One can dismiss all criticism as biased since it universally comes from the left wing, but that allegation works both ways. (One can, I think, also question the actual validity of economics as it is currently practiced due to some pretty shocking flaws with the way it is founded. Thats probably too much of a diversion, but I think one should hold on to some healthy scepticism.)

In the absence of a "pure" market based society, the US is often identified as coming closer to the ideal than anywhere else, and certainly closer than bad old socialised europe. But actually, the statistics are much more ambiguous than one might expect. For instance, while it is true that the US has the highest GNP, it turns out that the French are more productive. US workers work longer, but less eficiently. Next, social mobility is actually worse in the US than in the UK, say. This comes as no surprise to anyone who believes that the freeness of markets allow the domination of power, but is a poor advertisement for the efficiency of markets. Health and education are also worse by some measures in the US than in much of Europe. That is, high cost experimental health care is better in the US, but life expectncy is worse. Again, not a surprise, but hardly a clear success for the free market. Instead, one is left with the impression that it isn't clear which system is better economically, and that a choice must ultimately between them is ultimately an ethical choice. (This all assumes that the US is taken to be a close approximation of a pure free market. If it isn't, then the claims about the desirability of such a free market are rather more abstract and rather less self evident.)

I could go on listing the ways in which pure free markets are far from being well accepted as the best vehicle for efficiency. Look at the growth of countries in the EU, and you see that a lot of investment has produced some very healthy economies like Spain and Ireland, that would be hard to imagine otherwise. This somehow echoes the US investment via the Marshall Plan - if you really care, then you don't leave it to free markets. Stiglitz has a lot to say about this with regard to the actions of the IMF, which lead to similar conclusions.

As for the moral argument for libertarianism, well I've gone on for long enough, but suffice to say it is pretty circular. It is a reasoning that says laws which protect you in various ways are coercive, whereas companies that can proscribe you actions are not. Lots of loner types like this point of view but is for most of us fairly uncompelling.
 
 
jbsay
15:56 / 04.12.04
really good to see the debate getting going. i apologize but due to time constraints my ability to respond to all the points are limited.


as to why "interventionism" or redistribution can't work here's the best i can do towards a summary (much plagiarism from mises et al)

Interventionism (i.e. "hampered market economy" or "regulated
economy" ) is an impossible long-term method of socio-economic
organization

Private ownership of the means of production (market economy or
capitalism)
and public ownership of the means of production (socialism or communism
or
fascism or "planning") can be neatly distinguished. Each of these two
systems of society's economic organization is open to a precise and
unambiguous description and definition. They can never be confounded
with
one another; they cannot be mixed or combined; no gradual transition
leads
from one of them to the other; they are mutually incompatible. With
regard
to the same factors of production there can only exist private control
or
public control.

Interventionism must come to an end because interventionism cannot lead
to a
permanent system of social organization.

1) Restrictive measures always restrict output and the amount of goods
available for consumption. Whatever arguments may be advanced in favor
of
definite restrictions and prohibitions (e.g. "good of society",
"fairness",
etc), such measures in themselves can never constitute a system of
social
production.

2) All varieties of interference with the market phenomena not only fail
to
achieve the ends aimed at by their authors and supporters, but bring
about a
state of affairs which from the point of view of their advocates'
opinion
and valuation is LESS desirable than the previous state of affairs which
they were designed to alter. (e.g., setting a minimum wage increases unemployment; setting a price limit on milk takes the marginal milk producer out of service and thus leads to a milk shortage, etc). If one wants to correct their manifest
unsuitableness and preposterousness by supplementing the first acts of
intervention with more and more of such acts, one must go farther and
farther until the market economy has been entirely destroyed and
socialism
has been substituted for it.

3) Interventionism aims at confiscating the "surplus" of one part of
the
population and at giving it to the other part. Once this surplus (the "santa claus fund") is
exhausted by total confiscation, a further continuation of this policy
is
impossible.

Conclusion: There is no "third way" or "mixed economy"--the choice is
between laissez-faire capitalism and socialism.
 
 
jbsay
16:07 / 04.12.04
You wrote: May I suggest that Mises and others have an axe to grind? Capitalism is simply the result of a string of different theories (see: attacks by men like Capaldi on deviant forms of morality as a result of different, foreign forms of upbringing). There is simply a lazy racism in the thought that white, Protestant traditions have actually come up with the greatest way of thinking. What criteria can you use to judge this mode of thought as the best, except by looking at all other modes of thought and finding them to not be very white or Protestant (incidentally, this doesn’t mean that Protestants are the only form of capitalists, and their theories have been expanded and assimilated by others).

You may suggest this, but it would be an ad hominem attack, and not a particularly useful one at that. For instance, Mises and Rothbard (two of the most respected Austrians), were jewish. Mises was not a "capitalist". He was a teacher. In fact, he told his wife "while i may know a great deal ABOUT money, I will never MAKE much of it". He had also worked in the government bureaucracy and served in the army. His theory of money and credit as recommended to the austrian government almost singlehandedly stopped hyperinflation in austria while its neighbor the weimar republic (germany/hitler) underwent such bad hyperfination that it took a wheelbarrow of money to buy a loaf of bread. [as an aside...have any of you noticed your expenses going up recently? welcome to a new wave of inflation sponsored by your beloved government. buy gold]. Mises also successfully analyzed the atrocities of socialism--Stalin/Hitler/Mussolini--and all its various forms--fascism, communism, marxism, Statism, etc.-- and applied that to his life--he escaped the Nazis and fled to America. Don't forget that governments killed between 100-200million of their own people in the past hundred years (depending on who is counting, and whether you include wars or not). In america, he was systematically discriminated against by the socialist-led schools because of his beliefs and theories.
 
 
jbsay
16:12 / 04.12.04
I would add that I have been schooled in economics (bachelors and masters), work at a hedge fund, and teach investing part time. My hobby is socio-economic theories and history. I have read a wide spectrum of theories and history, ranging from Marx to Mises. So whhile it may seem that I am blindly worshipping Mises, this is not the case. I have carefully examined all the theories I can come across as well as the historical data, and found Mises/Austrian to be the best available (no, it is not perfect, but it is hands down the best that i've ever come across).
 
 
jbsay
16:21 / 04.12.04
Lurid--

Neither the EU nor the US is a "free market". For me (this definition varies for different people), it is impossible to have a free market if there is a central bank and fiat currency and fractional reserve banking. End of story. And any country that has such a structure is not "healthy" despite whatever statistics you may use or how things seem on the surface. The US for example seems intent on making the dollar worthless. The EU is not far behind.

The IMF/World Bank is an unmitigated disaster. It is basically a Ponzi scheme (steal/"redistribute" wealth from US etc to poor nations) with the most incredible moral hazard i've ever seen. You ever visit a country they've touched? THey're all basket cases. Basically you steal money from the citizens of rich countries to prop up corrupt governments abroad. Then, when they default on the loan, you give them MORE loans (hair of the dog, eh)? The "loans' never get repaid. It is de facto wealth redistribution, not a loan. Neither moral, nor practical. Lastly, anecdotal evidence suggests that the bulk of this money ends up in swiss bank accounts and mercedes dealerships (Jim Rogers said it best when he noted that there are mercedes dealers in these countries, even when there are not even paved roads).
 
 
Lurid Archive
16:52 / 04.12.04
jah. Just so we are clear. You are saying that free markets are best, even though no nation has them and they have never been tried. And that the Austrian school is the best, even though we have never seen any nation follow its recommendations.

OK. That isn't a fatal flaw in what you are saying, but is rather different from what I first thought you intended.

So what is your response to my examples of countries that have done well economically after the market distorting investment of the EU? Also, your characterisation of the IMF is debatable to say that least. Stiglitz makes a lot of the fact that the developing countries who have grown most robustly are precisely the ones that have shied away from freeing up markets too quickly, before the proper checks and balances are implemented (which presumably you think are bound to cause economic decline). Also, what would you say to the point that the corruption we both deplore in the IMF is actually a product of free markets with no controls?
 
 
jbsay
18:37 / 05.12.04
Lurid,

That is correct. The freer the market the better.


Be very careful when listening to economists such as Stiglitz. For instance, how does he define "growth"? This is nowhere near as trivial as it sounds. If US sells one apple for $1, and england sells one apple for $2, is the english economy "healthier" or "larger" than the US economy? Let's say the US claims its GDP grew 3%. What does this mean? You have to adjust for inflation. And you can't do this using CPI etc since that is not the true measure of inflation (i'd prefer to look at the growth of money supply and credit, since this is my definition of inflation). The government lies thru its teeth about inflation (see Boskin Commision/Hedonix indexing etc). Also, are you using Y=c+i+g+nx as your definition? if so, you are including government spending as "output", which is incorrect even tho mainstream economists think this way. Also, how much debt (consumer/business/government) does it take to produce "growth"? If it takes $3-$4 of debt to produce $1 of GDP growth (we're in that ballpark nowadays), that's not real healthy. Etc. etc. etc.
 
 
jbsay
18:41 / 05.12.04
Your question reminded me of something one of my favorite economic journalists, the Mogambo Guru wrote in response to someone

She continues, probably based on her many years and of experience and education in theoretical economics accumulated in her long 20-something life, "Despite occasional recessions and forays into the financial doldrums, the American (and world) economy has proven remarkably robust." Well, I agree that they world economy has proven "remarkably robust" because it has survived, although umpteen millions and millions of people, some of them also in the 20's, in Latin America, the Philippines, Mexico, Argentina, Malaysia, Thailand, Korea, Indonesia, Brazil, and a long list of other countries suffered paralyzing losses when their economies collapsed due to their own idiot debt-o-holic jackass governments pursuing the same debt-o-holic jackass economic policies that we are following. These economic emergencies have (the news just keeps getting worse and worse) transmogrified the IMF and World Bank into monstrous, gigantic transnational institutions doling out gifts of hundreds and hundreds of billions of dollars belonging to American citizens to foreign countries and their idiot leaders, trying to keep those selfsame countries from degenerating into the absolute chaos of bankruptcy and ruination. The fact that we Americans have wielded economic hegemony due to our monstrous size, and that we used that power to bail these weenies out time after time after time, is the only reason that they did not permanently collapse back into the stone age.

And when you adjust all this "remarkable robustness" by the fact that the United States dollar has been devalued by 98% from it's par value in 1913, the year that the monstrously evil Federal Reserve was created, you get a wildly different perspective on the meaning of "robust," as I am here to tell you that every cent of that devaluation of the dollar was paid for, all along the way, every day, by lots and lots and lots of people suffering the misery of not being able to buy as much stuff, buying less and less, week after week, spending every dime but only getting fewer groceries, fewer medicines, fewer clothes, fewer cars, fewer dinners out, fewer everything.

And furthermore I am afraid that this 20-something woman, despite her obvious genius, confuses the anomaly of the last 54 years with the last 5,000 years. And when one examines that historical record, one finds there has never been an economy that has proven to be sufficiently "robust" to permanently withstand the kind of economic, death-by-debt stupidity that we are exhibiting. They all failed, probably because they all had populations as greedy and stupid as we are here in America, but certainly because their politicians were as corrupt and stupid as ours. And that is why I wax indignant and incoherent; they destroyed their money, that destroyed the people, and the rest of their pitiful individual national histories are not very pretty after that happens. And that is exactly, and I mean exactly, the situation that we have right now.

And whither from here and all this robustness? Well, if you had asked Henry Hazlitt, one of the biggest of the big shots in Austrian economics, he could have pointed to a passage of his that reads "If the welfarist-socialist-inflationist- trend of recent years continues in this country, the outlook is dark. It is a prospect of mounting taxation, snowballing expenditures, chronic deficits, a budget out of control, an accelerating rate of inflation of the kind endemic in Latin America (at least for the last generation), a collapse of the dollar, increasing world currency chaos, and more and more ruthless price, wage, and exchange controls, leading toward a regimented economy and dictatorship. And if this trend is interrupted temporarily, it may be by riots, assassinations, and a breakdown of law and order.
 
 
jbsay
18:53 / 05.12.04
As for the IMF/World Bank. Their very charters are the definition of ponzi/transfer scheme replete with moral hazard (as with any welfare/social security type structure), and the results have been pretty predictible. How many of the target countries have defaulted on their loans and/or suffered currency collapses and/or other bad things happen to them? How much of the wealth transfer is lost to graft?

http://www.cato.org/economicliberty/imf.html

http://washingtontimes.com/upi-breaking/20041001-072250-2253r.htm

Overall, however, the IMF's bailout record is at best very mixed, and its activities in this field suffer from two enormous disadvantages: (i) they lead to "moral hazard" that hugely distorts the activities of the private loan market, and (ii) by providing a bailout for unsatisfactory economic policies, they delay economic failure until it will no longer be identified in the mind of a democratic electorate with the bad policies that caused it.

The IMF's "moral hazard" comes from two sources. One, well recognized by the IMF, is that private lenders to countries with an IMF program in place may rely excessively on the IMF's control mechanisms, thus lending more money than they should. There certainly seems to have been a good deal of this in bond market lending to Argentina in 1995-1999, when the IMF's approval of Argentine economic policies was heavily marketed to sell Argentine bonds of as long as 20 years' maturity, a preposterous term for lending to a country with such historic instability.

The second, and far more pernicious moral hazard comes from the operating methods of the international institutions. Private sector debt is effectively subordinated to their obligations in a restructuring, and new money may even be made available by them. Thus countries such as Russia in 1999 and now Argentina who wish to bilk their private creditors can do so, provided they remain on civilized terms with the IMF bureaucrats, without any threat of being cut off from international finance, as would be normal for a borrower that defaults.

This removes the private creditors' principal bargaining weapon and makes default to private creditors an only too attractive option for the populist and immoral such as Argentina or the simply ruthless such as Russia. The official representative of the German bondholders of Argentine debt was present at the IIE meeting; he didn't get anything like the level of sympathy and support he should have, although admittedly buyers of 20 year Argentine bonds in 1998 acted with positively dot-com-investor levels of stupidity.

The IMF's propensity to delay economic disaster is if anything even more serious than its creation of moral hazard. In Brazil, the debt problem's underlying cause was the socialist constitution of 1988, which locked in the jobs, earnings and pensions of the (relatively well paid) Federal and state public sectors at the expense of the rest of the economy. It was exacerbated by the country's exchange rate peg to the dollar, which was wholly incompatible with the sloppy populism of President Fernando Cardoso's first term in 1994-98. Had Brazil been allowed to default in 1998, therefore, and have suffered the hardships consequent on being cut off from international finance, there would have been a good chance that blame would have been placed where it belonged. Instead, if Brazil defaults in 2005 or after, blame will be placed by the right on Lula and by Lula on the free market, not something that has ever really been tried in Brazil, and of course on the IMF itself.
 
 
jbsay
21:11 / 05.12.04
Lurid,

Not sure how one could make an argument that IMF corruption is a failure of the free market since the IMF is (by its very definition) a non-free market, socialist institution. No free market lender would ever conduct business the way the IMF does, since the IMF is using confiscated money (via taxes) to redistribute in a Ponzi scheme fashion to others ("from each according to his ability, to each according to his need"), and does not have to meet a profit/loss test. See also the moral hazard stuff in my above posts. Any free market institution operating the way the IMF does would be out of business in a heartbeat.
 
 
Lurid Archive
22:20 / 05.12.04
Just a brief response,

That is correct. The freer the market the better.

Can you give me some examples of this in practice? I've outlined above why I think that this is debatable, to say the least. Your points seem to be a series of assertions, but I'm finding it hard to follow an actual line of argument. Moreover, if we are to take you seriously when you say, "There is no "third way" or "mixed economy"--the choice is between laissez-faire capitalism and socialism", then we have to conclude that you think all nations are essentially socialist. Which is a little quirky, but
is mostly confusing because I'm not sure what you mean by the "free market", precisely. Are we talking full on libertarianism, with no government at all?

As for the IMF/World Bank. Their very charters are the definition of ponzi/transfer scheme replete with moral hazard (as with any welfare/social security type structure)

...

Not sure how one could make an argument that IMF corruption is a failure of the free market since the IMF is (by its very definition) a non-free market, socialist institution.

Right. The IMF clearly is not an expression of a free market, but its policies are largely influenced by the demands of the US financial sector, which one might take as an expression of free market desires. You will dispute that point, but it does raise the question of how one checks the market distorting influences of private or corporate power in a pure and free market. (All assuming, of course, that one has thrown morality out of the window.)

So I agree, to an extent, when you say the IMF is a welfare type of institution, where that welfare is directed to corporations on the whole.

However, in its operation, the IMF is strongly coercive in liberalising the markets and financial sectors of the countries in loans to. In this, it is often successful, to disastrous results. In the absence of checks, balances and a regulatory framework, private enterprise is able to take advantage of the situation. You can blame the distorting influence of the IMF, as you do, but I think it is a toch selective not to address the fact that the mechanism for abuse occurs precisely via the freedom you are trumpeting.
 
 
jbsay
00:45 / 06.12.04
http://www.strike-the-root.com/4/smith/smith11.html
 
 
jbsay
01:07 / 06.12.04
You are right, it is difficult to present the views in a haphazard fashion like this. The best places to start would be with the primary authors (Mises, Rothbard, et al).

The above article is a summary of a book by austrian economist/historian DiLorenzo. SHould help clarfiy a bit. And yes, I define most current nations as socialist. Some more so than others, certainly, but for the most part all are socialist today. If you have a central bank, fiat currency, fractional reserve banking, social security/welfare, high taxes, public education, etc--it's tough to classify it as anything other than socialist or "well on the road to socialist". I don't think this is quirky--not the view of masses certainly, but after researching the theories it's the conclusion one comes to.

Again, see the article above. Do not confuse capitalism with business interests. Capitalists consider welfare for corporate interests at LEAST as counterproductive and evil as welfare for individuals. For instance, the financial sector wants a "central bank" and "fiat currency" and "fractional reserve banking", however i consider this socialist. To quote:

The Truth About the Robber Barons

The American economy has always had two kinds of entrepreneurs, market entrepreneurs and political entrepreneurs – or capitalists and neomercantilists. Simply put, we have a mix of “self-made men and women as well as political connivers and manipulators.”

Capitalists are market entrepreneurs; they sell new, better, or less expensive products on the free market without government subsidies of any kind, direct or indirect.

Neomercantilists are political entrepreneurs; they use government favors or handouts to get ahead financially.

A market entrepreneur makes a better mousetrap and tries to convince people to buy more of his and less of his competitors’. A political entrepreneur lobbies Congress to prohibit the importation of foreign-made mousetraps. Or if his chief competitor is a big domestic firm, he instigates an antitrust investigation.

Some entrepreneurs fit the label “robber baron” quite well. Leland Stanford, former governor of and U.S. senator from California, used political connections to have the state pass laws prohibiting competition for his Central Pacific railroad. It was a profitable monopoly scheme for Stanford and his business partners.

On the other hand, James J. Hill built a transcontinental railroad, the Great Northern, without any government aid, while opposing government assistance to his competitors. John D. Rockefeller built Standard Oil with his own money and by paying close attention to every detail of his business, always looking for ways to cut costs, improve his output, and expand his line of products. Both Hill and Rockefeller created thousands of new jobs in the process of developing their businesses.

Real robber barons spend their time wining and dining politicians to make sure the favors continue to flow; their patrons in government count more than the businesses they run. Unfortunately, most historians tend to lump market entrepreneurs with their conniving counterparts, calling them all “robber barons.”

Finally, how has the IMF ever liberalized (in the classical sense of the word) a market? I think we have a confusion of terms.
 
 
jbsay
01:28 / 06.12.04
About "mixed economy". This does not necessarily mean pure anarchy. Can be somewhere between anarchy and a limited republic, depending on the advocate. Rothbard (see below) is pretty much an anarchist (anarcho-capitalist), but he does make excellent points.

http://www.mises.org/content/mnr.asp

Mixed-Economy Myths

Conflict was the central theme of Rothbardian political economy: the state vs. voluntary associations, and the struggle over the ownership and control of property. He showed that property must be in private hands and owners must be free to control it as they see fit. The only logical alternative is the total state. There is no room for a "third-way" like social democracy, the mixed economy, or "good government," and the attempt to create it is always disruptive.

Power and Market, another enduring contribution, zeroed in on this conflict, and attacked every form of government intervention, confounding one anti-market cliche after another, and defending market competition as essential to social peace. Where others looked for "market failure," Rothbard found only government flops.

The book discussed the most common intervention in the market: taxation, the direct taking of someone's property by a group claiming a monopoly on coercion, i.e. the state. The taxing power defines the state in the same way that theft defines a robber.

He also showed that there can be no neutral tax, that is, one that leaves the market exactly as it would be without the tax. All taxes distort. And all taxes are taxes on production and hinder it, even so-called consumption taxes.

Taxation takes capital from private hands and prevents it from being used to serve private interests and the consuming public. This is true regardless of the tax. Also, the government spends taxes in ways that alter the production patterns of the market. If money is spent on market-oriented projects, it unjustly competes; if it is spent on non-market projects, it is economically inefficient.

Taxes are never "contributions," he argued. "Precisely because taxation is compulsory there is no way to assure -- as is done automatically on the free market -- that the amount any person contributes is what he would otherwise be willing to pay." As Rothbard said, it is not utopian to work for a society without taxation; it is utopian to think that the power to tax won't be abused once it is granted.

No principle of taxation, he argued, can equal a market system of fairness. A progressive tax discriminates on the basis of income; the rich aren't forced to pay more for bread than the poor. Even a flat tax forces that result, since higher incomes contribute a greater dollar amount than lower ones. The least harmful tax is a head tax or equal tax: a flat fee low enough for even the poorest to pay.

As a steadfast believer in free trade, Rothbard argued that peace between nations cannot rest on negotiations between state managers. Peace is kept by the network of exchange that develops between private parties. This is why he opposed false "free trade" such as Nafta and Gatt, which have more in common with neo-mercantilism, and he was the first to forecast the disaster Nafta has become.

Interventionists have long used the language of markets to advance statism. Consider anti-trust law enforced in the name of "competition." Rothbard showed that the only authentic monopolies are those created by law: the government subsidizes a producer at others' expense (public hospitals and schools) or forbids competition altogether (the postal service).

Other forms of monopoly include licensure, that is, deliberately restricting the supply of labor or number of firms in a certain industry. Government monopolies always deliver inferior service at exorbitant prices. And they are "triangular interventions," because they subsidize one party while preventing others from exchanging as they would in a free market.

He showed that unemployment insurance (actually, unemployment subsidies) increases the number of people out of work. Child labor laws, a favorite of unions and the Department of Labor, subsidize adult employment while preventing young people from gaining valuable work experience. Even eminent domain ("a license for theft") fails under Rothbard's property-rights strictures.

What about "intellectual property rights"? Rothbard defended the copyright as a contract made with consumers not to reprint a work, resell it, or falsely attribute the source. A patent, on the other hand, is a government grant of monopoly privilege to the first discoverer of certain types of inventions to get to the government patent office.

And under public ownership, he argued, the "public" owns nothing, and the ruling officialdom owns all. "Any citizen who doubts this," Rothbard suggested, "may try to appropriate for his own individual use his aliquot part of 'public' property and then try to argue his case in court."

The government sector focuses on the short run, he argued; there is no such thing as "public-sector investment." It is only the private sector, which is the real public sector, Rothbard said, where property owners take long-run considerations into account. Unlike government, they preserve the value of resources, and do not plunder or waste them.

His pioneering studies of private courts predated the increase in private arbiters (Rothbard wanted to abolish "jury slavery" and make courts pay a market wage). His work on private law enforcement predated the popularity of home protection and private security. His promotion of private roads predated their wide use in suburbs and malls. His promotion of private schools predated the anti-public school revolt.
 
 
jbsay
01:31 / 06.12.04
Rothbard on freedom and morality in the market

Freedom's Moral Foundation

Economists rarely talk about liberty and private property, and even less about what constitutes just ownership. Rothbard did, arguing that property acquired through confiscation, whether by private criminals or the state, is unjustly owned. (He also pointed out that bureaucrats pay no taxes, since their entire salaries are taxes.)

Ethics of Liberty was his moral defense. "Liberty of the individual," Rothbard wrote, is "not only a great moral good in itself" but "also as the necessary condition for the flowering of all the other goods that mankind cherishes": virtue, the arts and sciences, economic prosperity, civilization itself. "Out of liberty, stem the glories of civilized life."

Once we understand why private property should be inviolable, troublesome notions fall by the wayside. There can be no "civil rights" apart from property rights, because the necessary freedom to exclude is abolished. "Voting rights" are also a fiction, which -- depending on how they are used -- can also diminish freedom. Even the "right to immigrate" is phony: "On whose property does someone else have the right to trample?" he asked.

Thus, the Rothbardian social order is no ACLU free-for-all. The security of property provides lines of authority, restraints on behavior, and guarantees of order. The result is social peace and prosperity. The conflicts we face today, from affirmative action to environmentalism, are the result of false rights being put ahead of private property.

In defense of capitalism, Rothbard was uncompromising. But he did not see the market as the be-all and end-all of the social order. For him, capitalism was not a "system," but a consequence of the natural order of liberty. Neither "growth" nor "greed" is the capitalist ideal. In the free economy, leisure and charity are goods like any other, to be "purchased" by giving up alternative uses of time and money.

And with growing prosperity, the need for material goods falls relative to nonmaterial goods. "Rather than foster 'material' values, then, advancing capitalism does just the opposite." No society has ever been as grasping and greedy as the Soviet Union, although the left is still trying to convince us that state power equals compassion.
 
 
jbsay
01:50 / 06.12.04
Lurid--

As per your question about free market. It is based on private property. This means you control your property, can dispose of it how you like, etc. For defenses of this, and exposition, see Mises/Rothbard and all the other austrian economists. Private property rights provide most of the checks and balances and the regulatory framework you are looking for.
 
 
_pin
08:18 / 06.12.04
It is not the conclusion that “one” comes to, that all governments are socialist. It’s the conclusion that you come to. I get the feeling that me and Lurid know what you’re saying about markets, but that they don’t apply to us, because we have different priorities, assumptions, etc. Maybe we care more about the morality of a welfare state and the difference in life that it supports/can support then we do about efficiency. I know I do, and I’m sorry if I’m putting words in to yr mouth Lurid.

You’ve already said you studied economics in university. I’d never dream of doing that, because I see economics as making facile individualisms about people, and forcing a number of qualitative phenomena into quantitative sliding scales and binary definitions. It’s all a bit silly to me. We are different. All these thought experiments showing how capitalism works on a huge scale are based no the idea that all the people in the system think in essentially the same way. Hence destruction of subjectivity.

You may think it ad hominem for me to cite anthropological theories I come across all the time as to how Capitalism arose within European thought, but it’s important to the issue. It is not a universal phenomena, but culturally and temporally distinct. You are basically imposing one culture’s mindset on to all other cultures. Are cultures that place more stress on familial institutions rather then individualist patterns of social relations are (let’s say Islam) are invalid because they are different to you? I put it to you that yes, you are, and you need to own up to this.

And can you stop referring to socialism as fascism as everything. There are inclusionary and exclusionary concepts of the state, and you’re attacking exclusionary ones and ignoring that fact that this is all that a pure market would be; an exclusionary society. This is because you ignore the fact that people will always come to different conclusions. I’m not saying your view of the state is “wrong,” because there is no right or wrong. It is simply unhelpful. Even Hayek saw that states would have to exist to enforce market principles, and so its always there and so it will always do that growing thing so why not ensure it meets all interests?

Also; the state as nothing to do with capitalist demands? As nothing to do with property? The IMF not set up in an attempt to force people into free trade because it’s such a crappy plan no one wants it? These awful debt-happy dictators not put into place by capitalists to favour their interests? What, did you cook your history books and eat them?
 
 
No star here laces
08:49 / 06.12.04
If I can interject, Jah and Lurid, it strikes me that you are talking at cross purposes by pointing to examples of bad practice.

Jah states that the current system is a mixture of capitalist and socialist properties and that the end result is the abuse of the system by those in power.

Lurid states exactly the same thing, the difference being that Jah thinks a 'pure' capitalist system would be better, whereas Lurid prefers the 'pure' socialist option.

In other words, you both agree that current institutions are a mess, but disagree as to how to sort it out.

For me, returning to the thread title, I think there two main things that are good about market forces.

1.) Market forces in a theoretically pure free trade economy are the most efficient way to generate wealth through trade and to allocate goods where they are needed. And not only that, but they are a fantastically elegant and compelling way of doing so. I'm sure Jah can elucidate why this is far more completely than I can, but I think these arguments are very convincing.

2.) In a practical sense, our current system which is largely, but not purely, based on market forces, is in the context of historical, probably the best we've had yet (which is not to say we can't do better).

However saying "in theory" it's the most efficient possible system is not sufficient because a) "in theory" is far too big a qualification for anyone to accept and b) because "efficiency" is not the only factor we should weight up, as all the lefties upthread have been pointing out.

The main reason people hate capitalism is that as a system it guarantees inequality. The inequality will be meritocratic, so long as one defines "merit" as "the ability to profit from a capitalist economy". But that of course, does not make it moral. Why should a person who is of below average intelligence NOT have as good a life as someone who is a genius? There is no moral reason why... Meritocracy is a killer argument in politics, because no voter wants to admit that they are going to end up on the losing side, but as a moral argument it's a complete dud.

That is all, of course, assuming this pure state can be created. How can you have armed forces and a justice system without a central government, to name just one example?
 
 
ONLY NICE THINGS
09:10 / 06.12.04
No society has ever been as grasping and greedy as the Soviet Union

Could you substantiate that in economic terms, jah? It sounds a bit slogany to me...

I'm possibly struggling to get my head round how a pure capitalist world, without government or governance, would work.

Like, to be tpical, take Union Carbide. Right now, the capitalist element of Dow Chemical is the part that has concluded that it would be failing to offer shareholder value if it compensated the victims of Bhopal. Shareholder value is the thing here - the shareholders voted to merge with Union Carbide, but their interests, in the form of dividends and share value, is served by not admitting liability for Union Carbide's actions, which would harm profits and thus damage shareholder value. In a world where shareholder value is held as the highest good - a purely capitalist world - where would there be any compulsion to admit liability _ever_? Lionel Wallace suggests above that goodness is itself a consumer point - that is, that customers want a social good, and therefore it is presumably in the interests of shareholder value to contribute social goodness in order to create an attractive product and sell things successfully. However, at a certian point social good becomes uncompetitive. Dow has decided, in effect, that the halo effect of compensating the victims of Bhopal is outweighed by the damage to shareholder value. So, the only thing that could possibly secure compensation would be some form of regulatory compulsion, that is imposed by some external force such as government.

Now, I suspect that the answer to this may be that in the pure capitalist market Bhopal would never have happened, but I'm curious to know why not.
 
 
jbsay
12:10 / 06.12.04
Quick response. WIll write more later

The defense of the free market is not that it is the "most efficient" way. If this was the best that could be said about it, then the socialists side would hold water. What Mises showed is not that socialism is "less efficient", but that it is impossible.

Socialism not only abolishes the incentive of profit and loss and the freedom of competition along with private ownership of the means of production, but makes economic calculation, economic coordination, and
economic planning impossible, and therefore results in chaos. For socialism means the abolition of the price system and the intellectual division oflabor; it means the concentration and centralization of all decision-making
in the hands of one agency: the Central Planning Board or the Supreme Dictator.

Yet the planning of an economic system is beyond the power of any central
planning board: the number, variety and locations of the different factors
of production, the various technological possibilities that are open to
them, and the different possible permutations and combinations of what might
be produced from them, are far beyond the power even of the greatest
geniuses using all the computer power in the world to analyze.

The price system, arising out of private property exchanges, is the key to
calculation of profit and loss and therefore the best use of scarce
resources. Capitalism is an economic system planned by the
combined, self-interested efforts of all who participate in it (see also swarm theory, intelligent agents, complexity theory, etc). Economic planning requires the free cooperation of all who participate in the
economic system. It can exist only under capitalism, where, every day,
businessmen plan on the basis of calculations of profit and loss; workers,
on the basis of wages; and consumers, on the basis of the prices of
consumers' goods.

The failure of socialism (abolition of private property in favor of public
property) results from the fact that it represents not economic planning,
but the destruction of economic planning, which can exist only under
capitalism and the price system. Under central planning, the knowledge
embodied in the price system and the market process becomes inaccessible to
decision makers and therefore they are economically blind. Economic action becomes impossible in a socialist society
 
 
jbsay
12:18 / 06.12.04
Tannhauser--

Quick response. THe highest ideal in capital society is NOT shareholder value, but rather private property. This gets rid of most of the "negative externality" and "tragedy of the commons" type scenarios like the one you mentioned. If you infringe on or damage someone else's property then you are liable for the damages. I'd say Union infriged on the property of the good people of Bhopal (under capitalism, each individual's life is his own property) and is therefore liable, regardless of whether Union's shareholders are happy about it or not.
 
 
ONLY NICE THINGS
12:26 / 06.12.04
Surely the haighest aim of capitalism is *capital*?

But OK... so, how would that be enforced? Are we talking about a system whereby everybody collectively understands their responsibility and the appropriate redress, or, as Laces asks, do we have to start building bureaucracy back into the system here? Would there be a council of syndics, or would the people of Bhopal and Union Carbide negotiate it out? If the latter, why should Union Carbide not refuse to acknowledge the validity of the claim, or offer nugatory compensation? What compels them to behave well, even if the consequnece is the destruction of the company (because no longer strong and capitalised enough to compete) and the loss of its property and its shareholders' ability to purchase and retain property?
 
 
jbsay
12:26 / 06.12.04
Tannhauser--

Also that "slogan" about the soviet union was not by me--that entire passage was a quote from someone who wrote a biograph. Just to clarify.
 
 
jbsay
12:36 / 06.12.04
Tannhauser wrote:
Surely the haighest aim of capitalism is *capital*?

But OK... so, how would that be enforced? Are we talking about a system whereby everybody collectively understands their responsibility and the appropriate redress, or, as Laces asks, do we have to start building bureaucracy back into the system here? Would there be a council of syndics, or would the people of Bhopal and Union Carbide negotiate it out? If the latter, why should Union Carbide not refuse to acknowledge the validity of the claim, or offer nugatory compensation? What compels them to behave well, even if the consequnece is the destruction of the company (because no longer strong and capitalised enough to compete) and the loss of its property and its shareholders' ability to purchase and retain property?


Well, yeah, but capital is tougher term to get across to non-economists (and was coined by Marx).

Different people have different solutions, but yes, I'd agree that there would need to be a minimal bureaucracy with law enforcement capabilities to deal with property rights and enforcement (hard-core anarcho-capitalists would not agree with this). For instance, if someone steals your TV, or if a woman is raped, or if a company like Union Carbide poisons people in Bhopal. Under capitalism, they'd likely be less inclined to do another Bhopal because the liability would be clearer to them up front.
 
 
jbsay
12:48 / 06.12.04
The problem with socialism is that to someone who has never studied the issue in depth, it sounds incredibly attractive (who DOESN'T want everyone to be better off? who DOESN'T want homeless people taken care of, and children to be well fed?) but leads to a terrible outcome. Whereas capitalism sounds terrible (don't you just hate those greedy selfish capitalist? only out for themselves and for money) but leads to a good outcome. For the most part both sides want the same thing (except for the power-hungry politicians that do incredible damage in socialist countries), it's just a question of how to get it done. To be good at economics you have to be able to look beyond the short term (e.g. people need more money, so let's set a minimum wage) and look at the bigger picture over the longer term (e.g. minimum wage leads to higher unemployment so you made the problem worse than it was before).

Crying Inmybeerlaces wrote:

The main reason people hate capitalism is that as a system it guarantees inequality. The inequality will be meritocratic, so long as one defines "merit" as "the ability to profit from a capitalist economy". But that of course, does not make it moral. Why should a person who is of below average intelligence NOT have as good a life as someone who is a genius? There is no moral reason why... Meritocracy is a killer argument in politics, because no voter wants to admit that they are going to end up on the losing side, but as a moral argument it's a complete dud.

I agree 100% that this is why people hate capitalism. The analysis however is incorrect.

Von Mises demonstrated that competition under capitalism is of an entirely
different character than competition in the animal kingdom. It is not a
competition for scarce, nature-given means of subsistence, but a competition
in the positive creation of new and additional wealth, from which all gain.
For example, the effect of the competition between farmers using horses and
those using tractors was not that the former group died of starvation, but
that everyone had more food and the income available to purchase additional
quantities of other goods as well. This was true even of the farmers who
"lost" the competition, as soon as they relocated in other areas of the
economic system, which were enabled to expand precisely by virtue of the
improvements in agriculture. Similarly, the effect of the automobile's
supplanting the horse and buggy was to benefit even the former horse
breeders and blacksmiths, once they made the necessary relocations.

In a major elaboration of Ricardo's Law of Comparative Advantage, von Mises
showed that there is room for all in the competition of capitalism, EVEN FOR
THOSE OF THE MOST MODEST ABILITIES. Such people need only concentrate on the
areas in which their relative productive inferiority is least. For example,
an individual capable of being no more than a janitor does not have to fear
the competition of the rest of society, almost all of whose members could be
better janitors than he, if that is what they chose to be. Because however
much better janitors other people might make, their advantage in other lines
is even greater. And so long as the person of limited ability is willing to
work for less as a janitor than other people can earn in other lines, he has
nothing to worry about from their competition. He, in fact, outcompetes them
for the job of janitor by being willing to accept a lower income than they.
Von Mises showed that a harmony of interests prevails in this case, too. For
the existence of the janitor enables more talented people to devote their
time to more demanding tasks, while their existence enables him to obtain
goods and services that would otherwise be altogether impossible for him to
obtain.

On the basis of such facts, von Mises argued against the possibility of
inherent conflicts of interest among races and nations, as well as among
individuals. For even if some races or nations were superior (or inferior)
to others in every aspect of productive ability, mutual cooperation in the
division of labor would still be advantageous to all. Thus, he showed that
all doctrines alleging inherent conflicts rest on an ignorance of economics.
 
 
_pin
12:59 / 06.12.04
But it isn't the best because it arbitarily leaves out people who will not interact with it, and their reasons for this are not something you can make a value call on.

Meritocracies are incredably exclusionary, in ways both outlined in 'laces post above, and other ways besides. Again, you are reducing all people to a single sliding scale of ability, which was my cahrge laid at economics above adn which you haven't delt with.

And even if the shitty janitor wins the competition, what if he can't live on the wages he won, but has no choice because it's better then living off nothing at all and the only alternative now that you've taken away the welfare state is the sporadic, undependable and moralising charity of others, who took away the welfare state because it was harming the precious precious souls.

And what if the only reason the janitor had to settle for such low wages was because he did not feel he was capable working within companies that had business practises he didn't agree with. What if he was the only person in his polity to disagree with fur-farming? Or child brothels? Market forces say these things are good, adn so they must be good, and so choosing not to work there must mean he is bad, and he has made a concious decision to not live with enough food to eat because he has rationally weighed up the pros and cons of his own morality against his own physical well-being.

How can you demand someone make that choice? (This is a question for jah and 'laces, because it seems to be touching on what the later said about maritocracy, as noted above).
 
 
jbsay
13:08 / 06.12.04
Pin wrote:

It is not the conclusion that “one” comes to, that all governments are socialist. It’s the conclusion that you come to. I get the feeling that me and Lurid know what you’re saying about markets, but that they don’t apply to us, because we have different priorities, assumptions, etc. Maybe we care more about the morality of a welfare state and the difference in life that it supports/can support then we do about efficiency. I know I do, and I’m sorry if I’m putting words in to yr mouth Lurid.

That is what I said. It is the conclusion I came to, since I have studied the matter more in depth than you have.
Has nothing to with morality or efficiency. Socialism is economically impossible. You and I both want the same outcome, your way just isn't possible (in the long run) in this universe or any other parallel universe.



You’ve already said you studied economics in university. I’d never dream of doing that, because I see economics as making facile individualisms about people, and forcing a number of qualitative phenomena into quantitative sliding scales and binary definitions. It’s all a bit silly to me. We are different. All these thought experiments showing how capitalism works on a huge scale are based no the idea that all the people in the system think in essentially the same way. Hence destruction of subjectivity.

Again, because you've never studied it, you have certain biases and incorrect assumptions. The economics I learned in school is much the way you describe it. However, it is for the most part based on Keynes, who was (inserting gratuitious ad hominem attact), a Fabian Socialist and a pedophile buggerer. The Austrian school solves pretty much all of the problems you have with economics (as espoused by Keynes/neo-keynesians/neo-classicists and the like). For example one of the very TENETS of the Austrian school is subjectivity (i.e., that different people value things differently, and you cannot quantify their valuation). If you really want I can get into a discussion about valuation and the theory of money and credit, but I dont want to bore you with the theory since it's pretty complicated.

You may think it ad hominem for me to cite anthropological theories I come across all the time as to how Capitalism arose within European thought, but it’s important to the issue. It is not a universal phenomena, but culturally and temporally distinct. You are basically imposing one culture’s mindset on to all other cultures. Are cultures that place more stress on familial institutions rather then individualist patterns of social relations are (let’s say Islam) are invalid because they are different to you? I put it to you that yes, you are, and you need to own up to this.

No, the background of an idea and the person espousing an idea is irrelevant. That is why ad hominem attacks are not useful for debating ideas. It is useful to KNOW where the idea comes from, but this alone does not make the idea correct or incorrect. If Newton was a Ku Klux Klan member would that mean F does NOT equal MA?


And can you stop referring to socialism as fascism as everything. There are inclusionary and exclusionary concepts of the state, and you’re attacking exclusionary ones and ignoring that fact that this is all that a pure market would be; an exclusionary society. This is because you ignore the fact that people will always come to different conclusions. I’m not saying your view of the state is “wrong,” because there is no right or wrong. It is simply unhelpful. Even Hayek saw that states would have to exist to enforce market principles, and so its always there and so it will always do that growing thing so why not ensure it meets all interests?

No, since I have studied the issue and come to the conclusion that fascism is a sub-group of Socialism, I won't stop calling it that. You can call it whatever you like, but a rose is a rose is a rose.
My view of the state in unhelpful to whom? What does that mean?

Also; the state as nothing to do with capitalist demands? As nothing to do with property? The IMF not set up in an attempt to force people into free trade because it’s such a crappy plan no one wants it? These awful debt-happy dictators not put into place by capitalists to favour their interests? What, did you cook your history books and eat them?

This makes no sense to me, I think you are confusing your terms and lumping capitalists into a group (those who use the coercive force of the state to do business, versus those who use cooperation on the free market). Forcing people into "free trade" is an oxymoronic concept. The IMF was set up by confiscating private property, so by definition it is socialist and not capitalist.
 
  

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