February 9, 2006
From the desk of Jane Galt:Capitalistic Thought for the Day
Capitalism is prey to excesses, self-evidently, and it creates, or leaves unattended, a host of problems that decent societies must address by other means. Even so, the prevailing culture of suspicion and disappointment is at odds with the facts. Mainly, what is missing is awe. Premodern scholars (Karl Marx is an exception) could scarcely have imagined the material advance that capitalism has delivered. Certainly Adam Smith never dreamed that his "invisible hand" would arrange things so well.In the late 1980s, as Mikhail Gorbachev embarked on his perestroika program of economic reform, Soviet officials were sent abroad to see how things were done in the West. One visited London's main vegetable market. He asked how the market was organized, and how prices were set. He was told that the individual traders bought whatever quantities they wished, and set their own prices, and that these fluctuated throughout the day as the balance of supply and demand changed. At this, the Soviet visitor laughed. He said he understood that this was the official line--but, please, how did the market really set prices?
That, in fact, was the reaction of an intelligent man. It is fantastically improbable that markets work, at scale, as well as they do. It is astonishing that in an economy of Americ's size--to say nothing of the world economy as a whole--a limitless variety of goods and services is continuously offered at prices people are willing to pay, without persistent gluts or shortages, entirely without central direction. That the system also calls forth an endless flow of innovation and improvement is a miracle. The man from Moscow was right to be incredulous.
From the ever-brilliant Clive Crook, who is greatly missed at his old employer.
Posted by Jane Galt at February 9, 2006 4:15 PM | TrackBack | Technorati inbound linksIt is both an underestimation and/or resentment of the ability of the free markets to create wealth, and an overestimation of the effectiveness of central planning. Envy and Ego.
Justification for most government programs comes down to, "Here's Mr. Jones who we helped", with absolutely no mention of the five other people from whom the money for Mr. Jones was taken, or the five people the government had to employ to help Mr. Jones.
"a host of problems that decent societies must address by other means"
I see this kind of claim on a regular basis, but the "problems" in question are never described. So what, exactly, are they supposed to be? Most of the non-purely social problems I'm aware of in capitalistic societies result from government intereference in the market.
As two noted commentators remarked in 1848:
The need of a constantly expanding market for its products chases [capitalism] over the entire surface of the globe. It must nestle everywhere, settle everywhere, establish connexions everywhere.
[Capitalism] has through its exploitation of the world market given a cosmopolitan character to production and consumption in every country. To the great chagrin of Reactionists, it has drawn from under the feet of industry the national ground on which it stood. All old-established national industries have been destroyed or are daily being destroyed. They are dislodged by new industries, whose introduction becomes a life and death question for all civilised nations, by industries that no longer work up indigenous raw material, but raw material drawn from the remotest zones; industries whose products are consumed, not only at home, but in every quarter of the globe. In place of the old wants, satisfied by the production of the country, we find new wants, requiring for their satisfaction the products of distant lands and climes. In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal inter-dependence of nations. And as in material, so also in intellectual production. The intellectual creations of individual nations become common property. National one-sidedness and narrow-mindedness become more and more impossible, and from the numerous national and local literatures, there arises a world literature.
[Capitalism], by the rapid improvement of all instruments of production, by the immensely facilitated means of communication, draws all, even the most barbarian, nations into civilisation. The cheap prices of commodities are the heavy artillery with which it batters down all Chinese walls, with which it forces the barbarians' intensely obstinate hatred of foreigners to capitulate. It compels all nations, on pain of extinction, to adopt the [capitalist] mode of production; it compels them to introduce what it calls civilisation into their midst, i.e., to become [capitalists] themselves. In one word, it creates a world after its own image.
[Capitalism] has subjected the country to the rule of the towns. It has created enormous cities, has greatly increased the urban population as compared with the rural, and has thus rescued a considerable part of the population from the idiocy of rural life. Just as it has made the country dependent on the towns, so it has made barbarian and semi-barbarian countries dependent on the civilised ones, nations of peasants on nations of [capitalists], the East on the West.
[Capitalism] keeps more and more doing away with the scattered state of the population, of the means of production, and of property. It has agglomerated population, centralised the means of production, and has concentrated property in a few hands. The necessary consequence of this was political centralisation. Independent, or but loosely connected provinces, with separate interests, laws, governments, and systems of taxation, became lumped together into one nation, with one government, one code of laws, one national class-interest, one frontier, and one customs-tariff.
[Capitalism], during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of Nature's forces to man, machinery, application of chemistry to industry and agriculture, steam-navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalisation or rivers, whole populations conjured out of the ground - what earlier century had even a presentiment that such productive forces slumbered in the lap of social labour?/blockquote>
I had much the same experience. As a student I had the chance to host a group of Moscow University students around for a week or so. The things we thought would impress them like the Houses of Parliment didn't. The things that did were supermarkets and all night kebab vans. As in why all this choice in the former? and how come the latter existed?
What are we to make of the huge advances made by the industries in Imperial Germany in the decades before WW I? This was one of the most remarkable episodes of technological progress in history. And while it wasn't exactly socialism, it was also pretty far from the unbridled competition of prototypical capitalism, with industries organized into large cartels and a prominent role for the state. Can we really credit "capitalism" alone with the remarkable economic growth over the last two centuries?
(See: "The Company : A Short History of a Revolutionary Idea" by John Micklethwait)
What are we to make of the huge advances made by the industries in Imperial Germany in the decades before WW I?
That imperialism isn't a sustainable way of building your economy, as World War I and II demonstrated. Capitalism is less impressive than the "take what you want" strategy in the short term, but in the long term it works a lot better. :)
This is off topic, but can you guys fix the problem whereby your quotes and dashes show up as series of symbols instead of their intended characters? For example, the "invisible hand" comment comes through as "...never dreamed that his “invisible hand” would arrange...", with those Euro symbols, and hatted A's, etc.
I believe that the problem is that your web server claims the page is encoded as 8859-1 (ISO Latin-1), while in fact it is encoded as UTF-8. That's just a guess.
"a host of problems that decent societies must address by other means"
"I see this kind of claim on a regular basis, but the "problems" in question are never described. So what, exactly, are they supposed to be? Most of the non-purely social problems I'm aware of in capitalistic societies result from government intereference in the market."
Child labor
Pollution
Unsafe working conditions
Etc. The market produces all those things, and gov't regulate them by not allowing child labor, by limiting amounts of pollution, and by forcing companies to make working conditions safe. Many companies pursuing the bottom line don't really seem to care about pollution or safe working conditions. As as an example see the behavior of U.S. coal mining companies, (http://www.geotimes.org/dec01/NNcoal.html, current mine safety scandals), so the government has to force them to have good safety and environmental standards or deal with dead coal miners and environmental disasters.
Amy, thanks for bringing the uninformed leftist opinion to the table (alkali is the informed and malicious leftist opinion).
If you go over the history of those issues, they tend to be mostly solved by the time government brings in laws. If they are a serious problem, they have too large of a constituency to stop, and if not, it's a sop to the leftists to make them "illegal".
Child labour is useless in a modern corporation, where it's illegal. In small businesses and small farm operations where it's useful and sometimes essential, it's a prefectly accepted part of our culture (kids helping out the family business or farm being a celebrated cultural touchstone, rather than the dreaded evil child labour).
You also see this in terms of the social and political acceptance of pollution and dangerous jobs. There's also the point that it is in the employers self interest to be as low polluting and safe a workplace as possible, as it helps you pay people less, keeps your productivity higher, and you waste less of your inputs. Remember that despite your beliefs, no one wants to pollute, as they'd ideally turn all of their inputs into productive outputs. A given level of technology can only be so efficient, but that wastage is one of the major drivers of corporate researc and innovation.
Great example is Canadian tar sands: they aren't as economic as Saudi oil wells, but the producers are pouring millions and millions (and hiring all sorts of engineers and engineering students) to refine and improve their processes, so that they can spend less on inputs and get more in outputs. There is a reason why so many people who think on it long and hard become libertarian and objectivist, and why so many shout "greed is good" without any irony.
You'll also note that in countries that follow alternate economic systems, pollution, worker safety, and child labour were and are much more significant problems in both absolute terms compared to the US as well as compared to the US at similar levels of development.
The awe and mystery of capitalism is much the same as the emotion a thinking person feels when looking at a rain forest, or a coral reef, or even a prosaic pond. "How are the prices set" is such a classic statist question. One might as well ask "How do the algae know how much sunlight to absorb?", "how do the trees know how many branches to create?", "how do the coral polyps know how which minerals (and in what quantities) to take from the water?". Of course, viewed this way, the question is stunningly ignorant, and a reflection of the mechanistic view of society that so many on the left adopted in the 19th century.
Why people in the 21st century insist on looking at an ecologic, self-organizing system like an economy as if it were a huge steam engine with levers, valves, whistles & so forth is a mystery to me. Do they also attempt to analyze a modern jet engine using the phlogystin theory of combustion, I wonder?
Thank you, hey, for bringing in uninformed right wing opinion. Corporations did not solve pollution problems before they were forced to by regulation. You state "Remember that despite your beliefs, no one wants to pollute, as they'd ideally turn all of their inputs into productive outputs.". Well, the truth is that while they did not want to pollute they did pollute as a side effect of their industry and they had no desire to lower profits by spending money on clean up or researching alternative methods to produce their products. They did not eliminate child labor before being forced to by government. Pretty much your whole post is nothing but right wing propaganda and misrepresentations.
No, Randy, it is a simple recognition that capitalism is not perfect and will not produce wealth for everyone. Even Smith recognized this. Only religious fanatics think that their favorite system is perfect.
A friend of ours hosted two Soviet schoolgirls on exchange visits to the UK back then. She took each to Sainsbury's (a supermarket). The girl from Moscow was over-awed; she'd just seen a jaw-dropping miracle. The girl from Siberia said that of course they had shops like that in Moscow.
Hey Jim, how about just one citation of someone on this thread, or anywhere else, saying capitalism is perfect? Huh? Pretty please?
You're doing pretty well for this thread -- one post full of nothing but "Nuh UH!" and a couple of strawmen. Keep it up. You've got a rep to defend!
asg,
The first two posts in this thread attempt to deny that the free market has any weaknesses. While that is not what they explicitly say it's pretty close.
""a host of problems that decent societies must address by other means"
I see this kind of claim on a regular basis, but the "problems" in question are never described. So what, exactly, are they supposed to be? Most of the non-purely social problems I'm aware of in capitalistic societies result from government intereference in the market.
Posted by Jason Bontrager at February 9, 2006 04:50 PM"
Isn't this a post that when it comes down to it is attempting to deny that capitalism fails to address some social ills? Yes, it is.
Remember that despite your beliefs, no one wants to pollute, as they'd ideally turn all of their inputs into productive outputs.
Now THERE is a load of crap, hey. There are MANY cases where it is easier to pollute than deal with the byproducts. Come visit the Colorado Rockies sometimes and you can witness miles of streambeds discolored from the direct discharge of sodium cyanide and other noxious chemicals by the gold and silver mines of the late 1800s to early 1900s. Fortunately the chemicals themselves are long since disharged into the ocean, so bring your fly-fishing gear; but the visible legacy of vast pollution remains.
Or, you can visit a coal-fired powerplant sometime and see the stack filtering and corresponding emissions-monitoring gear required to run one of the things within EPA boundaries (at the risk of multiple-hundred-thousand dollar fines for even minor violations). It would be a lot cheaper to spit those waste gasses into the air, y'know...
Correct, anony-mouse. Since the government requires it, they put in expensive equipment. Before government regulation they didn't.
Jim S,
The problem here is the use of the word "capitalism". What we're really talking about are "free markets". Free markets exist in even the harshest of social environments and produce 100% of the wealth, because wealth is created only in value for value transactions. Capitalism is a product of free markets, not the cause.
The role of government. To the extent that government participates in value for value transactions, it is a part of the free market. To that extent that government participates in redistributive transactions, it is dependant on the wealth created in the free market.
You want social programs? That's fine, so do I. Just keep in mind that these programs are dependent on the ability of free markets to create wealth. Don't bite the hand that feeds you.
... alkali is the informed and malicious leftist opinion ...
That has always been my aspiration. Thanks.
I'm with you, hey, on child labour. I would rather that be addressed with plain old child-abuse laws than through labour regulation. And I don't think they make a difference today, as you explain. What job is going to exploit children nowadays, while still being legal according to child-abuse and child-neglect laws? And indeed, so long as we steer clear of child abuse, isn't it a *good* thing for kids to help out the family business, or bag groceries at the grocery store, or deliver pizza, etc. ?
On the other hand, I don't see how all forms of pollution can be stopped if each participant is a free player. There are ways to set up the preconditions so that it is better to have a regulation for lowering the pollution, increasing costs, and decreasing freedom, because individual agents would not have a sufficient incentive to lower their pollution. Google for "tragedy of the commons".
Granted it's a lot of preconditions. Most environmental proposals do not match all of them. In Western politics today, you can sell just about any policy to the masses if you point out an environmental improvement because of it. I deeply wish that voters would also consider (a) the cost to industry and thus to prices and economic growth, and (b) the loss in freedom, a sweet sweet part of life.
'hey' is correct on child labour, but bullshitting on the two other issues.
'hey' needs to be reminded that this blog's name is 'asymmetrical information'. The employee usually does not know how much damage the job will bring to his health, while the employer doesn't even want to research it. Think asbestos, coal lung dust, mercury poisoning, etc.
Randy,
My argument is not with free markets but with the pretense that they are virtually perfect and do not create any social problem that they won't fix on their own. It just isn't so.
daublin,
Actually it's not that great an idea having kids delivering pizzas. Looked at the stats on young driver accidents lately? Also it's actually questionable whether you want them taking time away from being persuaded to study harder in order to work at menial jobs. I'd rather they didn't have the time. In other words one of the things I think we really need in education reform is more time spent on learning.
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