Capitalism: Yes and No
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Note: This article originally appeared in the February 1985 issue of The Freeman.
Some terms and phrases are well suited to lucid discourse and even debate. This is generally the case when they have a commonly accepted meaning, when they are generally used–or are capable of being used–with some precision, and when they are not overloaded with connotations. The fact that people differ as to the value or desirability of what the terms signify does not disqualify them. Otherwise, debaters would have to employ different terminology, depending on which side they were on. For example, it seems to me that “free market” meets the criteria of a phrase well suited to discourse and debate.
That is, “free market” has a commonly accepted meaning, can be used with precision, and is not overloaded with meaning so as to be value-laden. A free market is a market open to all peaceful traders, one in which sellers are free to sell to the highest bidder and buyers are free to buy what they will from whatever seller they will. Or, to put it another way, it is a market in which buyers and sellers are free to contract without obstruction or interference from government.
Thus when government intervenes in the market so as to restrict the number of sellers or buyers, to set prices, or to prescribe quality, it is not a free market. It is possible to oppose or favor such a market while agreeing as to what constitutes a free market. Nor do differences as to the extent of freedom entailed necessarily rule out the use of the phrase in discourse.
In a similar fashion “free enterprise” and “private property” generally meet the tests as terms of discourse. Enterprise is free when all who can and will may produce and dispose of their goods to willing buyers. The opposite of free enterprise would be government-granted monopoly over any field of endeavor, or the restriction of it through franchises, licenses, or other devices which exclude some enterprisers. The phrase can be used both by those who favor and those who oppose it, though those who oppose it might prefer other language. Private property is simply property that is privately owned, and the owner is protected in his enjoyment of it by government. I have not, of course, exhausted the distinctions nor covered all the areas about which disagreement may exist for any of these phrases, but it was my purpose only to make a prima facie case for them as terms of discourse.
Capitalism: A Value-Laden Word
The same does not go, however, for capitalism. It does not have a commonly accepted meaning, proponents of it to the contrary notwithstanding. As matters stand, it cannot be used with precision in discourse. And it is loaded with connotations which make it value-laden. Indeed, it is most difficult for those who use it from whatever side not to use it simply as an “angel” or “devil” word, i.e., to signify something approved or disapproved. Meanwhile, what that something is goes largely unspecified because it is hidden beneath a blunderbuss word.
My considered opinion is that capitalism is not a descriptive word at all in general usage. Dictionary-like definitions may give it the appearance of being descriptive. One dictionary defines it as “a system under which the means of production, distribution, and exchange are in large measure privately owned and directed.” On the face of it, the meaning may appear clear enough. We can come in sight of the difficulty, however, if we turn the whole thing around and look at what is supposed to be signified, shutting out of our minds for the moment the word used to signify it. Suppose, that is, that we have a set of arrangements in which the means of production, distribution, and exchange of goods “are in large measure privately owned and directed.” I am acquainted with such arrangements, both from history and from some present-day actualities.
But why should we call such arrangements capitalism? So far as I can make out, there is no compelling reason to do so. There is nothing indicated in such arrangements that suggests why capital among the elements of production should be singled out for emphasis. Why not land? Why not labor? Or, indeed, why should any of the elements be singled out? Well, why not call it capitalism, it may be asked? A rose by any other name, Shakespeare had one of his characters say, would smell as sweet. That argument is hardly conclusive in this case, however, nor in others similar to it. Granted, when a phenomenon is identified it may be assigned a name, and in the abstract one name will do as well as another, if the name be generally accepted. In the concrete, however, the name should either follow from the nature of the phenomenon or be a new word. Otherwise, it will bring confusion into the language.
Marxist Derivations
Capitalism, as a word, does not conform to these strictures. Its root is capital, an already well established word in economics, used to refer to one of the elements of production. Moreover, capitalism gave a form to the word that already had a more or less established significance. When an “ism” is added to a word it denotes a system of belief, and probably what has come to be called an ideology. It is highly unlikely, if not linguistically impossible, for such a formulation to serve as a neutrally descriptive word for the private ownership of the means of production, and so on.
But we are not restricted to theory in our efforts to discover whether capitalism is simply a neutrally descriptive word. It was given currency in the highly charged formulations of Karl Marx and other enemies of private property. Marx’s fame hardly stemmed from any powers he may have had for neutral description. On the contrary, he is best known for his extensive efforts to reduce all of reality and all relationships to the point where they fitted within the ideological scheme of class struggle. He had the kind of mind that reduces everything to a place within a single dominant system. Thus, the private production of goods is a system, a system reduced in his scheme to capitalism.
In discussing the dictionary-like definition of capitalism, I dropped the word “system” used in the dictionary and substituted the word “arrangement” for it. I did so because it seemed to me that a society could have arrangements in which the production of goods would be privately owned without this constituting a system. Arrangements for distinguishing between claimants of property and protecting such claims are necessary in society. But “system” is ominous when linked to capitalism on the one hand and the production, distribution, and exchange of goods on the other.
Private ownership of the means of production does not dictate any particular mode of production. In point of fact, a great variety of modes of production do occur under private ownership. A man may own his own land and cultivating devices and produce what he will by his own efforts. Many have, and some do. Or, to take the other extreme, production may be organized in great factories by intricate division of labor and under extensive supervision and direction. Between these two extremes, there are in fact a great range of ways in which production and distribution have been and are carried on. Indeed, it is only where private property is the rule that this variety is possible.
In Marx’s mental world this variety and diversity could not exist, or, if it did, it could not last. It must all be finally reduced to a single system–capitalism. And capitalism led to greater and greater concentrations of wealth until all was in a few hands. Then, of course, the apocalypse must come, the revolution, in which an impoverished proletariat would rise up in its wrath and seize the instruments of production, and so on and on through the whole Marxian scenario. The word capitalism still carries the overtones of this Marxian analysis. For example, the dictionary from which was drawn the earlier definition gives as further definitions of capitalism: “the concentration of capital in the hands of a few, or the resulting power or influence,” and “a system favoring such concentration of wealth.” Another dictionary says, “The state of owning or controlling capital, especially when tending to monopoly; the power so held.”
The High Cost of Salvage
In sum, capitalism gained its currency from Marx and others as a blunderbuss word, misnames what it claims to identify, and carries with it connotations which unfit it for precise use in discourse. Even so, there has been a considerable effort to reclaim the word for discourse by some of those who are convinced of the superiority of privately owned capital in the production, distribution, and exchange of goods. It is a dubious undertaking. For one thing, Marx loaded the word, and when all that he put into it has been removed, only the shell remains. For another, linguistically, it does not stand for private property, free enterprise, and the free market. It is false labeling to make it appear to do so. Capitalism means either a system in which capital holds sway, which is largely what Marx apparently meant, or an ideology to justify such a system.
It is not my point, however, that it might not be possible to use capitalism as a label for private property, free enterprise, and the free market. Indeed, I think it has been done at what I call the bumper-sticker level of discourse in the United States. Undoubtedly, if enough effort were put into it the name of roses could be changed to “tomatoes.” But I doubt that the game is worth the candle. Moreover, there is no real discourse, nor discursive reasoning, at the bumper-sticker level. Bumper stickers assert; they do not reason or prove. So do titles of books, for example. But labeling is an inferior art, and name-calling is a form of propaganda. Thus the problem of discourse with a word such as capitalism remains.
It is not my intention, however, to suggest that we should discard the word capitalism. Far from it. Rather, I see the need for the use of the word in its inherent sense in serious discourse. A word, certainly a word formed with an “ism” suffix, is governed by and takes its meaning from its root. Granted, words sometimes slip their moorings in the course of time and lose all connection with earlier meanings. This is apt to happen, I suspect, when the root word has fallen into disuse. That has by no means happened in the case of capital. Capital itself is as important today as ever, and the word is still in widespread use to describe it with considerable precision. Moreover, something that I would like to see correctly identified as capitalism is widespread, if not rampant, in the world.
Keeping in mind that capitalism, because of the “ism,” is ideological in form, it means most basically an ingrained preference for capital over the other elements of production. That is, it means an imbedded preference for (or commitment to) capital over land and labor. Considered as a system, capitalism is the establishment of that preference by the exercise of government power. To put it into more precise economic terms, it is the forced transformation of some greater or lesser portion of the wealth of a people into capital. In political terms, it is the legalization and institutionalization of a preference for capital.
State Capitalism
Ironically, in view of Marx and socialist doctrine generally, capitalism is most rampant in communist countries. It is there that the most extreme measures are taken to accumulate capital. The Soviet Union, for example, has long used slave labor to mine gold in forbidding climes. It has done the same for cutting timber in the arctic cold of Siberia and for reaching other hard-to-get natural resources. The basic aim of much of this is capital accumulation to foster industrialization. There is perhaps no better way to visualize the preference for capital over labor than political prisoners (slave labor) working in gold mines. But it does take other forms. There is confiscatory taxation, in which most of the wealth of all who produce is taken away for use by the state. The capital hunger in Third World countries is ravenous today, as they reach out to try to obtain it from countries in which there is more wealth. The thrust is for industrialization, and the industries are usually owned by the government.
Some writers who have noted this penchant of socialist and communist countries for capital have called it state capitalism. While the phrase is not objectionable, it may well be redundant. If my analy-sis is correct, all capitalism is state-imposed capital-ism. Otherwise, it is most unlikely that there would be an established preference for capital over land and labor.
Granted, some people in their private affairs do evince a preference for capital over other sorts of expenditures. I have known men, for example, who were much more given to buying tools and various equipment than clothes. But then the same men often spend more on automobiles, not usually capital expenditures, than on either. Nor is it likely that businessmen, however enamored they may be with machinery or computers, will make so bold as to ignore the market for long in determining the mix of the elements of production. Only governments, because they spend what they have not earned, can afford to do that or have the power to require others to ignore the market. Capitalism is a will-of-the-wisp unless it is established by the state.
A Red Herring
The notion that the conflict in the world is between capitalism and socialism is a Marxian red herring. Whether Marx deliberately conceived a perverse term to designate the conflict or not, it has had remarkable success in confusing the issue. In Marxian terms, capitalism is not simply the private control over the instruments of production. It is the effective ownership and control over the instruments of production by a few men with vast concentrated wealth at their disposal. In Marxian terms, again, this great wealth was obtained by the ruthless exploitation of workers. To argue the opposite position is to risk falling into a fairly well-laid trap. At the most obvious level, it is to take on a variation of the old conundrum of whether or not you are still beating your wife.
Thus the defender of capitalism begins by granting that, sure, nineteenth-century capitalists were a hard lot. But that has all changed in the twentieth century, he maintains; humane legislation and genteel businessmen have changed all that. To sustain this argument, he grants more and more of the Marxist, or at least the socialist, case and justifies the increasing government control over private property. Those who argue in this wise have taken the socialist bait and rushed headlong into socialism with it.
But the heart of the difficulty is that the word capitalism as it is employed is a semantic trap. On the one hand, it makes it difficult to keep the issues in focus, because it is used in a confusing and misleading way. On the other hand, it blocks from our view a mass of phenomena which we need to see clearly and which capitalism used in its root sense would help to do. The issue is not between capitalism and socialism. There is an issue about private versus public ownership of the means of production, but there is no logical connection between that and capital or capitalism.
Whatever Marx may have thought about capital–all too little apparently–there is no substantial difference among the leaders in the world today over the necessity for and desirability of capital to aid in both agri-cultural and industrial production. If anything, socialist countries are more determined to get their hands on accumulated capital and concentrate it than what remains of so-called capitalist countries.
Every device, ranging from the most sneaky to the most openly confiscatory, is employed in this quest. I nominate as the most sneaky the monetizing of debt, by which wealth in private hands is sopped up by a process of monetary debasement. There exists now a vast series of banking-like mechanisms by which this money is sopped up and transferred to countries around the world where governments more or less own and control the instruments of production. Capital is what much of this is about, and if we could call it by its proper name, it would be called capitalism. As matters stand, however, we are denied the use of the very word that could help to bring all this into focus.
Freedom Versus Tyranny
The issue, I repeat, is not between socialism and capitalism, in any meaningful sense of the words. In the broadest sense, it is between freedom and tyranny. As regards capital, it is between whether men shall be able to keep the fruits of their labor and dispose of accumulations of it as they think best, or have it confiscated and used for politically determined ends. It is between the free market and the hampered market. It is between free enterprise and state-controlled activity under the direction of a vast bureaucracy. It is between dispersed wealth under individual control and concentrated wealth used to augment the power of the state. It is between the right to private property and the might of centralized government thrusting for total power. There are other dimensions, moral and social, to the contest, but the above are the major economic ones. Capitalism, as currently used, tends to act as a red herring to draw us off the scent and draw attention to largely extraneous issues.
So, I conclude, as regards the use of the word capitalism, sic et non, or, in English, yes and no. No, to take that part of the equation first, the word cannot be effectively used in discourse and debate in its Marxian or socialist sense. It cannot be used with precision because it is a loaded word, loaded with Marxian ideology. It has been severed from its root and made to connote what it does not clearly do. Nor does it have a commonly accepted meaning, or set of meanings, for Marxists and non-Marxists. Its use obfuscates the issues and conceals a major aspect of socialism (i.e., its capital hunger).
No, capitalism is not an apt word for the use of defenders of private ownership of the means of production. Linguistically, it does not mean private ownership, nor does the case for private property hinge upon its potential use as capital. The right to private property is grounded in the nature of life and labor on this earth, and it is, therefore, a gift of the Creator. Its use as capital is one of the possibilities of property. To defend private property from the perspective of the advantages of privately disposed capital is to approach the matter wrong end to. In any case, capitalism is still a misnomer for what the defenders are discussing; their flanks are exposed to the adversary because it is his chosen ground; and when the defenders have loaded the word with their own meanings it does not have a commonly accepted meaning for use in discourse.
Socialists Seize Capital to Achieve Industrialization
Yes, there is a place for the word capitalism in the language. There is an ideology and there are practices which cry out to have this word stand for and identify them. The ideology is the established preference for capital over the other elements of production. In practice, it thrusts to the use of government power to concentrate capital, to promote its accumulation, and to confiscate the wealth necessary to that end. Used in this way, the word capitalism helps to identify and bring into focus developments which are otherwise difficult to construe.
We can see clearly that capitalism is a disease of socialism, not the offspring of private property. It is not a system in which the instruments of production are privately owned, but one in which private property is taken to provide capital for publicly owned industries. Perhaps the most dramatic examples of it at the present time are the grants and loans to Third World and communist nations by which wealth from the United States and European countries is being appropriated for their industrialization. That, by my understanding, is capitalism, and it should bear the name and onus.
Comment by Sheldon Richman on 29 April 2009:
Submitted by Bettina Bien Greaves:
I should like to rescue the word “capitalism” from the Marxians and Clarence Carson. In spite of Carson’s claim … that it is a value-laden word describing an economic system that leads to “greater and greater concentrations of wealth” in the hands of a few, I maintain that it is a suitable term for describing the free market private property economy.
Clarence Carson was primarily an historian, author of many good books about U.S. history, ideas, communism, and the socialist trend in the world. Most were serialized pre-publication in The Freeman. But he was a “classical” economist, not a Misesian or an “Austrian.” He did not understand modern, subjective value, marginal utility economics.
Along with Adam Smith and Karl Marx, Carson accepted the “classical” separation of the factors of production into three distinct categories – land, labor and capital. Thus he defines capitalism in the Marxian value-laden sense as a system of mass production which used “capital,” i.e. tools and machines, together with “the exercise of government power” forcing the “transformation of some greater or lesser portion of the wealth of a people into capital.”
It is useless to argue about the definition of any word. A writer, speaker, or economist can use any term as he wishes, so long as he defines it and makes his meaning clear. Mises was wont to say that “An economist is no more willing to use another economist’s term than he is to use his toothbrush.” However, some definitions of words are more suitable than others.
Capital, as a concept, represents the calculation of the value of all capital goods in monetary terms. Capital goods embrace not only industrial tools and machines but all factors of production – produced and semi-produced factors of production, also nature-given factors of production (land and natural resources), labor, time, and even techniques, recipes and ideas used in production. Thus, capitalism is a perfectly good word for describing the economic system based on the use in production of “capital,” i.e. capital goods.
Granted, the term “capitalism” was first actually used by Karl Marx in a pejorative sense. However, I would argue that “capitalism” is a suitable word for describing the voluntary market system, process, or arrangement, of production, exchange and trade of privately owned property, accumulated capital, i.e, capital goods. Defined in this way, it is a neutral, non-value-laden term for describing the cooperative market system on which everyone depends on everyone else. Under capitalism, everyone has the right to serve consumers; private property is protected; savings and investment expand; wages and living standards rise, production and wealth increase. Capitalism embraces the protection of private property and individual rights. Capitalism is the source of our economic prosperity, rising living standards, growing population figures.
In spite of Carson’s statement that capitalism is a system which depends on government preference for capital over land and labor, government has nothing to do with capitalism — except as it protects all privately-owned property equally and assures the peaceful adjudication of disputes concerning ownership and contractual arrangements.
Mises’s name for our current capitalistic system was “loophole capitalism.” Rather than being pure unadulterated capitalism, the outcome of completely voluntary trades, exchanges and transactions worldwide, today’s economy is a mixed and constantly changing system, shaped and modified as entrepreneurs consider, adjust and adapt to countless government interventions, controls, regulations, subsidies, taxes, and especially to government’s interference with interest rates and the quantity of money.
Comment by H.N. Orndorff III on 30 April 2009:
While I would like to be sympathetic to your project of saving the word ‘capitalism’ from both Marxists and Carson, I simply must disagree with your reasoning. You state “It is useless to argue about the definition of any word. A writer, speaker, or economist can use any term as he wishes, so long as he defines it and makes his meaning clear.” Unfortunately, this is patently untrue. Definitions do matter and scholars spend a great deal of time delineating them for specific analytic purposes. I myself have spent much time understanding the concept ‘democracy.’ If a common vocabulary was unnecessary then most of the time of academia has been wasted – which I think it has not. It is an important undertaking.
While I agree with the point on subjective value and its necessity in an economic system, attempting to continue to use the word capitalism when it comes with such political and historical imagery and definitions is a needless definition. Indeed, capitalism as a word comes originally from Marxist thought; to attempt to save it would be like to save contract theory as a term from liberalism. You can reinvent the word and hope to convince, but you might be better off coining a more accurate term (i.e. free markets). And, even if we doubt the accuracy in the sense you have argued, I wonder if it is worth saving the term from the values associated with it. Capitalism is embedded with capitalists, whereas free markets are embedded with private owners.
Word selection and term definition are important points. And giving up on the definition of words can be a bad thing; however, I think your argument and criticism are misplaced. Due, primarily, to your assumption that definitional terms (and their historical development) are unimportant. Free yourself of this claim, and the argument that Carson is missing the point vanishes. Free markets are clearly the better phraseology in the context of which we are speaking. I think Carson had this one correct.
Comment by Daniel Shapiro on 29 September 2009:
I rarely use the word capitalism for most of the reasons the author stated. Instead I use “free enterprise” which is a non-political and natural concept of positive human interaction. Probably the best term is “liberalism” but we all know how the usage of this term has been distorted through various political-philosophic frauds. Liberal literally means freedom.
Comment by James Madison Fan on 29 September 2009:
I think Mr. Richman has a point.
Are we abandoning the word because it is inaccurate or are we abandoning it in favor of a word that is less accurate but more agreeable? The Dems aren’t “Liberal” they are “Progressive” and this changes every time their moniker gets besmirched.
Every time someone suggests changing terms in an effort to distance itself from itself Orwell’s ghost appears on my shoulder and starts whispering “See. I told you so.”
I think Carson has some points. So did Marx. Wealth does tend to pool in the hands of a select few and this tends to unbalance the market. They are right. Are we going to pretend like Capitalism is perfect and these men did not share a clue between them? Our critics are our best friends because they tell us when we are wrong.
Capitalism has its flaws. I accept that. It does not need to be perfect. It only needs to work. We can tweak the imperfections as we go along. The only question is if we have the wisdom to back track when we make things worse instead of better.
Comment by Daniel Shapiro on 29 September 2009:
The real problem are these James Madison fans who think they can tweek from the top-down. There is 220 years of history to unequivocally prove that political market tweeking is the real problem. The market tweeks itself through the natural law of supply and demand. Anybody who thinks they can tweek free-enterprise and free-markets from the top is trying to play the role of an Olympian god. Through natural competition the market protects producers and consumers from both common and political criminals. Sorry James Madison side-line fans we don’t want or need your advice, rules, coercive meddling, and other obstacles that impede liberty and the attainment of freedom. Grow up, get a life, and mind you business!
Comment by Sheldon Richman on 30 September 2009:
Madison Fan, I should clarify that I submitted the comment above on behalf of Bettina Bien Greaves. It is not my comment. I avoid the word “capitalism” because most people do not take it as I meant the term when I used it. Most people think the U.S. economy is capitalist today. It is futile to tell them they are wrong. Historically, “capitalism” has not meant strict free enterprise or laissez faire. It has meant a market order with various degrees of intervention, often on the side of business.
I think the word is best avoided because it is beyond salvaging. We cannot distinguish radical free-market philosophy from corporatism — a critical task, in my view — if we stick with that word.
Comment by James Madison Fan on 30 September 2009:
Mr. Shapiro,
Did you want to discuss economics in a rational manner or are personal attacks the only thing you are interested in? It is obvious you have opinions. I wonder if you have the intellectual courage to examine them?
Mr. Richman,
My intent is more Socratic in nature rather than an attempt to change your mind since I am not convinced of the superiority of either stance.
While I disagree with Ms. Greaves about the futility of defining a word, I think she has a point in that abandoning a word because it has become a pejorative due to historical indiscretions seems disingenuous. It would be like Communists changing their name to Labor Enthusiasts in an effort to escape the weight of their unfortunate history which is far darker than that of Capitalism.
While I can understand your desire to differentiate between the two ideologies I have difficulty with the concept. It seems to me that abandoning the word “capitalism” is like calling the period prior to 1865, “Proto-USA” or some such designation separating it from post slavery “Novo-USA” in an effort to distance ourselves from an unsavory part of our history. This is who we are, warts and all. Rather than being ashamed of our past, I think we should be proud that we overcame it.
By extension I would offer that while Capitalism has the specter of the 16 hour work week for slave wages, four-year-olds working in mines and textiles, as well as disgusting slums filled with filth and disease we finally overcame these problems and created a market that was able to out produce the rest of the world combined in World War II and resulted in the highest average standard of living this planet has ever seen. Rather than being ashamed of Capitalism’s past, we should be proud that we overcame these issues.
I really do not see how you get a truly laissez faire system without corporatism or something similar like the “Robber Barons.” The money tends to pool. Monopolies and Oligopolies form and the “Invisible Hand” is shackled by those that can manipulate the market. It is inherent in the system. Anti-Trust and other laws (theoretically) put an end to monopolies, collusion, and black listing so these practices morphed into something that does the same thing while avoiding the laws that dismantled its predecessor. In the 1900’s 1% of the nation owned 90% of the wealth. In the 70’s the rate was around 60% and here in 2009 it is nearly 90% again. What’s the solution if not the “tweaks” that Mr. Shapiro finds so offensive because I do not see a free market solution to Smith’s warnings against excessive greed.
Comment by No King But God on 30 September 2009:
JM Fan – it is not surprising that you do not see how it is governments, not free-markets (i.e., private property and liberty), that allow corporatism and “Robber Barons.” Government interventions are insidious – we tend to become so used to them that we soon fail to even perceive their very existence, much less to remember their origin and to ascribe their unintended consequences to the correct cause (at least we hope their consequences are unintended, although history indicates otherwise).
First, money does tend to pool – but not for long. Wealth and profits are the reward for he who best serves the consumer – why is this wrong? But as the truism states, most wealth is wasted by the third generation. When you no longer serve the consumer better than your competitors, money flees from you. Unless you can obtain government privilege and protection, that is. Most monopolies are either the most efficient way of serving the consumer (despite government and marxist rhetoric to the contrary) and thus should not be interfered with, or are created by unseen government intervention and thus cannot be blamed on the free-market. Anti-trust laws then only serve to strike at the monopolies which have become politically unpopular. Doesn’t sound like a very desirable system to me.
Second, no one can shackle and manipulate the market like the government. Why do you fear robber barons and profiteers and thank your lucky stars for our benevolent government that tweaks the system and saves us? At least private profiteers are putting their own capital at risk – if they do not serve the consumer, they will eventually run out of capital. Governments, on the other hand, can confiscate your own capital and use it against you. How many speculators lost their shirts shorting the bank stocks in the current crisis? Seemed like a sure bet (and it actually served a social good by exposing weak banks and making the market more efficient), but then government steps in with capital confiscated from those very same speculators and reverses the market’s allocation of losses (does not serve a social good to divert capital from strong firms to weak firms and also thereby create boatloads of moral hazard).
Third, I love it when socialist sympathizers try and scare us with claims that corporatism is the inevitable result of laissez-faire free-markets. I have heard so many times that if we didn’t regulate the economy, the corporations would rule our lives. Really? Anyone remember who created corporations? Corporations are creatures of the state created by government grants of the privilege of limited liability. That artificially serves to encourage, among other things, excessive risk-taking and excessive pooling of capital into “too-big-to-fail” giants. Do you think owners of companies would take some of the risks they do if their own personal capital was on the line? Would AIG have grown so unnaturally large if every individual stockholder was liable for losses? No. And don’t protest that taking away state-granted limited liability would hamper true economic growth (e.g., accumulation of capital, free transferability of shares on exchanges, etc.). Individuals given complete liberty and protection of private capital have ample incentive to come up with creative ways to foster these innovations in a sustainable manner that actually serves the consumer (think indemnity provisions, ownership of derivatives based upon company profits rather than actual holding of shares, etc. – the list is endless even if my meager suggestions have no merit).
Finally, I would be interested to see the source of JM Fan’s numbers on concentration of wealth in 1900, 1970, and 2009. I’m not so sure those are accurate. But even if they are, I would much more suspect unseen government intervention, rather than the free-market, to be the cause of those numbers. And further, who says that income/wealth inequality is so bad if everyone’s actual standard of living is increasing? Do I care that my neighbor the CEO can afford to have his healthcare delivered on a golden platter so long as the innovations exist to give my child the lifesaving surgery they need?
Let liberty reign. No one but God has the ability to impose His will from the top-down and actually improve things, and even He saw fit to leave us our own free will.
Comment by John Anello on 30 September 2009:
Great post No King,
Anti-Trust law is nothing more than government picking winners and losers. Monopolies function like government bureacracies, expensive to maintain and inefficient. Without government support, they will eventually collapse in on themselves like black holes. They are not as dangerous as some would have us believe.
Comment by Daniel Shapiro on 30 September 2009:
I suppose my previous post was rather provocative though I stand by every word of it. From reading James Madison fan’s last email I really am reluctant to engage in a discussion with a Constitutionalist for the same reason I would avoid a discussion with a fundamentalist Christian. I suggest he reexamine his beliefs and conclusions regarding sweatshops, monopolies, greed, and human nature. Free enterprise is not the source of sweatshops – it eliminated them. Sweatshops were imported from Europe. Monopolies are natural transient phenomenon and pose no threat unless they are coercive as in the case of the political state which forces the citizens living on it’s “turf” to use it’s so-called “services”. Greed is simply an emotional label applied to those who charge more than you want to pay. Free-enterprise is the only means of human interaction that fits man’s nature and any rational concept of liberty and freedom.
Looked upon as a 220 year old social-political hypothesis, the US Constitution is a total failure at producing the institutions necessary to provide security and justice. From my observations, over time, it has diminished the efficacy of these vital social functions. The spectacular progress that was made in the 19th century in America occured not because of, but in spite of political meddling. Scienists, technologists, and entrepeneurs managed to create productive organizations that generated property faster than the state could seize it. Predictably, the tide has turned.
I suggest that you read Mises, Hayek, Rothbard, etc. to gain a deeper understanding and rational analysis of American economic history. Start with von Mises’short work “The Middle of the Road Leads to Socialism”.
Comment by James Madison Fan on 1 October 2009:
I’m the one arguing in favor of Capitalism and I get labeled “Socialist?” WTF?
Mr. Shapiro,
Many of my opinions may well be set in stone but that only lasts until someone finds the proper logical chisel. I invite anyone interested to hammer away at their leisure.
I am sorry if being a Constitutionalist vexes you. I am committed to what works. Show me a freer more prosperous nation with a superior founding philosophy and document and I would be happy to join your revolution to revisit it.
“It has been said that democracy is the worst form of government except all the others that have been tried.” – Winston Churchill
NKBG and Mr. Shapiro,
Let me start off by explaining that I misquoted Wolfe’s data. The statistic was that the upper 1% currently owns more than the lower 95% combined instead of the upper 1% owning 90% of the wealth.
You both seem to be annoyed with me for pointing out what I perceive as flaws in Capitalism. Just because I can admit that something is not perfect does not mean that I do not support it. I love ice cream but it makes you fat. That does not mean I am anti-ice cream. It means I can take a step back and say, “This is great but it could be better.”
While I agree that in government intervention has gone too far in many cases I think Smith would support anti-trust laws because they break up Monopolies and Oligopolies which he included in his list of “factions” (special interests).
As to your first point the economy is like a river. When wealth pools it stagnates. When you take water out of a river it shrinks. It needs to be spent. It needs to be invested. It needs to flow. The more money that is spent the larger the economy grows. The best way to do this is to reward employees for going the extra mile not giving it to figurehead CEO’s, VP’s and upper management that provide nothing that is even remotely commensurate to their astronomical paychecks. Your average illustrator did more to make Disney money than Eisner ever did but the disparity in their paychecks is as broad as it is ridiculous and unjustified. I do not mind Eisner getting rich but if Disney has that much money to throw around how about sharing it with the people that actually earned it.
My vision of Capitalism is akin to the unfortunately named “Welfare Capitalism” proposed by Henry Ford. I think a better name would be “Incentive Capitalism” though you might offer this name is redundant. The problem with the current mode of thinking is it assumes lower pay for employees is equal to more money for the business. This kind of thinking is flawed in that the employee is the “consumer.” The greatest period of economic expansion came when labor laws allowed the Workers a taste of the Wealth they create. This is not Marxist unionist propaganda it is a Capitalist fact.
If the core of Capitalism is self interest (greed) why should the worker be any less greedy than the Capitalist? Marx wanted some sort of Utopia where fuzzy bunnies and happy kittens frolic and people work all day for the good of the collective. Screw that. I’m in it for me. I’ll work my rear off to make you rich as long as you take me along for the ride. I am not pro-union because I think Socialism Rocks. I am pro-union because I think Capitalism Rocks and I am as greedy as the next guy. Maybe more so. I am not working to make you rich. I am working to make me rich and I want my share of the wealth I earn for you. Capitalist Greed. Consumer Greed. Worker Greed. It is all Capitalism to me. I am not going to give away money I deserve just because someone calls me a “Socialist.”
My problem is the trend for at least a decade now is for new CEO’s to “downsize.” So I go from doing X work to 1.25X work and he gets rewarded for this “brilliant” idea with a multi-million dollar bonus. What do I get? Nada. So he leaves and some new yahoo shows up with his MBA and does the same thing. So now I’m doing 1.5X work and the new genius gets another multi-million dollar bonus while I get squat. Meanwhile these CEO’s pocket scads of cash for doing something anyone that has run a McDonalds could figure out. Fire employees. Payroll drops. Brilliant. Where do I pick up my Masters of Business Administration?
Here’s an idea. How about giving the money to the people that generated it instead of some mega bureaucrat that uses accounting tricks to justify a bonus he’s going to “earn” by firing my friends and loading me down with extra work. He gets 30 million and my secretary gets 30 thousand when she does more work than he does and doesn’t waste my time having meetings about synergistic manure in an effort to snow me into thinking that doing his work is a “learning experience” so he can play more golf on the company dime.
Monopolies and Oligopolies are not efficient. They occur in portions of the market that require a large amount of capital to startup and maintain. Smaller startup and overhead means a higher chance of competition. The higher the startup and overhead the less likely an increase in price will result in an increase in competition. You can compete with Fed-Ex to a limited extent with a bike but you cannot compete with Intel with a soldering iron and this is especially true if a company holds a patent or copyright on the product.
Even if you do start competing with Fed-Ex using your bike they can take back whatever market share you seize by dropping prices in your area so it isn’t worth your time, supplementing this loss by raising prices in another area, and raising prices once you give up. Creating and maintaining a monopoly is easy if you have sufficient capital relative to your initial competition and potential startups. Carnegie, Rockefeller, Morgan, and others were able to capture entire industries for decades.
Why is this a problem? If I am a consumer I am forced to purchase steel from Carnegie no matter what he charges. If I am a steel worker I have to accept whatever he pays no matter how little. The invisible hand is shackled because there is no choice and this cannot change because the startup for a new steel mill is ridiculous. Even if I did get the necessary capital for a startup once I go into production Carnegie simply drops his prices so low I cannot compete, I go out of business, he buys my mill for pennies on the dollar, and he jacks up price again. I am not a socialist for pointing this out. It is simply a flaw that needs to be “tweaked.” Don’t like to get fat? Don’t eat so much ice cream.
Once the government passed anti-trust and labor laws the market adjusted, wealth was distributed, prices dropped, people started buying washing machines, dryers, radios, tv’s, ovens, and the economy expanded beyond anyone’s wildest dreams. It takes money to make money. That is not a Socialistic axiom, it is a Capitalistic axiom.
The question is what formula works best? Does Capitalism work best when the Worker/Consumer works 16 hour days for slave wages while living in a slum or does it work best when the Worker/Consumer spends 8 hours a day making a reasonable wage so he can buy the products and services offered by other business that also employ Worker/Consumers that want to buy your products?
If you were to talk with the average industrialist he would think I had lost my mind. In fact that is what they told Henry Ford in regard to “Welfare Capitalism.” It seems to me the economy post labor revolt compared to the economy pre labor revolt proves Ford was right.
All work and no pay makes Jack a dull boy as well as a terrible consumer. You will not find that in Das Kapital, the Communist Manifesto, or Mao’s Little Red Book.
Comment by Daniel Shapiro on 1 October 2009:
“I’m the one arguing in favor of Capitalism and I get labeled “Socialist?” WTF?”
Face it you are a socialist and a statist. You believe in an invisible hand when it suits your fancy and then want to put a gun in the hand of the state when the price of oil goes up or someone has more than you do. It’s time to grow up and stop relying on a mama-papa state to solve your problems – it only compounds them.
“I am sorry if being a Constitutionalist vexes you. I am committed to what works. Show me a freer more prosperous nation with a superior founding philosophy and document and I would be happy to join your revolution to revisit it.”
Sorry the Constitution doesn’t work – it laid the ground work for tyranny. History cannot be denied! I guess you have to have it right in front of you eh? Are you familiar with principles? This country was founded upon a few that were eloquently stated in the first few sentences of the Declaration of Independence. The 1787 Constitution negated these principles. I wonder if you would have defended monarchy in 1776 even after reading Paine’s “Common Sense”. You need to get off the fence. The real choice is slavery or freedom – you can’t have it both ways.
“Once the government passed anti-trust and labor laws the market adjusted, wealth was distributed, prices dropped, people started buying washing machines, dryers, radios, tv’s, ovens, and the economy expanded beyond anyone’s wildest dreams. It takes money to make money. That is not a Socialistic axiom, it is a Capitalistic axiom.”
This is a total myth! This expansion was not caused by anti-trust and labor laws. It was (and still is)the result of new technology, investment, risk taking, and free enterprise. Labor laws cause unemployment and instability. Anti-trust laws allow the state to decide who can be in business. Where do get this shit?
The only thing you brought to light is a problem caused by basing payment on the false labor hypothesis of value. A rational payment for services rendered should be based upon performance, not time, and the subjective theory of value per voluntary contract. A CEO running a company that looses money should be paid zip and fired. Same for everyone one else. No mama-papa state to bail them out. Life requires effort and knowledge – get used to it.
I’m not going to argue with you anymore. I have better things to do than untie the knot in your emotional conceptions of economics and skewed history through some dilectic argument. You need to read and think beyond what you learned in the state run schools and the editorial pages of the newspaper.
Read F.A. Harper’s “Why Wages Rise” – it ain’t because of unions or minimum wages laws.
Best wishes
Comment by No King But God on 2 October 2009:
JM Fan – yes, a socialist sympathizer. When you see a spade, call it a spade. You argue for government “tweaks” to the system. You pepper your arguments with emotional language and arrogate to yourself the right to decide what others are entitled to do with their money, their companies, their labor, etc.: referring to differences in pay as “ridiculous and unjustified” (decided by you, the almighty and allknowing and always beneficent wage expert), “I don’t mind Eisner getting rich (so kind of you to pass judgment and deign to allow him to keep the compensation he has freely contracted for), contrasting “slave wages” with a “reasonable wage” (decided, again, by you, instead of by the laborer who just might be able to decide for himself when a wage is worth accepting or is too low and so he should instead move on to his next best alternative).
So yes, socialist is an apt word, as painful as that may be for you. I know that you see yourself as a defender of “capitalism” and that you are merely arguing for reasonable limitations imposed by wise and well-meaning bureaucrats, such as suggested by our dear Constitution. But as the thinkers who are not afraid of logical consistency have always maintained, the middle of the road inevitably leads to greater socialism (such as Hayek, Mises, and Rothbard). Government is like the Devil – give it even a toehold and it will slowly and imperceptibly eat you alive.
And yes, I am annoyed, but I will be patient with you because it was not all that long ago that the scales were removed from my eyes. Before then, arguments such as yours would have sounded reasonable to me too. Almost all of your complaints against “capitalism” have some validity. The only problem is that the complaints are caused not by free-markets, but instead by unseen government interventions into the free-market. Again, you must remember that government interventions are insidious and very hard to recognize unless you know how and where to look for them. We tend to take such government depredations for granted as simply institutions that are an inevitable and necessary part of life. For instance, those big corporations you attack (like Disney) are generally only allowed to grow so big because of government privilege and protection (don’t believe me? ever heard of regulatory takeover?). It is only when they become politically unpopular that anti-trust steps in to arbitrarily bust them up.
And as for castigating Mr. Eisner, have you ever actually run a company of any size? Do you have any idea what is involved in running a company of the size of Disney? Who are you to say whether his contributions are of more value than an average illustrator? Also, there are unseen government interventions that pump up his paycheck, of course. Know anything about the tax code? Or about monetary policy? Well, the US government (not the free-market) has mandated that a “reasonable” salary (note the socialists and statists are using that same word you seem to favor – “reasonable wage”) is limited to one million dollars. The tax code considers anything above that to be “unreasonable.” So what do companies do? Human action. They find a way around it. So they pay him one million dollars in salary, and then the rest in stock options and similar derivatives. So far so good. But what about monetary policy? Well, stock options gain in value when the stock price rises, of course. What drives stock prices up more than anything else? Loose monetary policy (again, carried out by the government and not the free-market) encourages and enables inflation, harming the poor masses but helping Mr. Eisner make a killing off of his stock options (making much more than he would have made if he had been paid in straight salary, which again was driven by ). And you wonder why wealth inequality continues to grow. Your final complaint against Mr. Eisner and his ilk are that they are getting paid millions to do common sense stuff. I hear this all the time from those who would seek to “tweak” the market. Short answer – if that is the case then put your money where your mouth is. Start your own company and crush Disney. Or wow the Disney board with your business acumen and take over as Disney’s CEO. Can’t? Then I guess that Eisner must have at least a little something about him to justify his pay.
As for the predatory pricing bugaboo you talk about, I know it sounds good and seems convincing, but it has actually never really occurred in practice. Even Wikipedia agrees – http://en.wikipedia.org/wiki/Predatory_pricing. More rigorous scholarship is available at http://books.google.com/books?id=ltSIOnW6XLsC&pg=PA97&lpg=PA97&dq=predatory+pricing+thomas+woods&source=bl&ots=sWbvsUeEBq&sig=XFA42HOVDXileSvHd-9JdPClZwE&hl=en&ei=4yfFSrTZHczM8QaMneg3&sa=X&oi=book_result&ct=result&resnum=4&ved=0CBcQ6AEwAw#v=onepage&q=&f=false (a great Tom Woods source) and even on the Freeman itself http://www.thefreemanonline.org/featured/herbert-dow-and-predatory-pricing/. Really, the case of Herbert Dow referenced in all three links above destroys the case for predatory pricing. In short, I know it is popular to think that big rich fat cats have unlimited capital and can manipulate a market at whim (at least this is the meme promoted shamelessly by our statist betters in government to legitimate their depredations), but the simple truth is that they are much more vulnerable to the whims of consumers than us peons are led to believe. Two more things. First, you mention patents and copyrights protecting monopolies – again, these are inventions of government! Do not blame government interventions on the free-market! Second, even when monopolies might appear in the free-market, they sow the seeds of their own destruction. Holding a price artificially high (whatever that means)? In a free-market, this simply unleashes some unknown entrepreneur to create the technology to make that monopoly obsolete. Think of internet media versus traditional print media.
Then you get into ranting about how money should go to the people who generate it rather than being diverted to (confiscated by) some “mega bureaucrat” who didn’t really generate it. JM Fan, you are so close to the truth! But you are forgetting that it is government bureaucrats, not corporate ones, who pose the biggest risk! Corporations must still serve the consumer or they lose their capital and their bureaucracy dissolves. If governments don’t serve consumers, then we hear that they must need more money, or more power, or that we will just have to learn to lower our expectations – after all, these wise and well-meaning government bureaucrats are doing their poor little best and we should not whine and question our betters! You are on the right track, JM Fan, but just still blinded to the ultimate conclusion by your lifelong indoctrination and brainwashing by our statist culture. You are correct that wealth generators have the right to keep the fruits of their labor. This is a God-given right, not one graciously given to us by the government.
Finally, your ice cream analogy is a bit off. An analogy closer to the truth would be someone who eats ice cream in a bowl with a spoon and concludes that eating food from a bowl with a spoon is what makes them fat, not the ice cream (the ice cream being government intervention and the bowl and spoon being the free-market, of course). Your intentions are good; you are simply getting your causal analysis a little confused.
Sorry for the absurdly long post. Just wanted to clear things up.
Comment by Daniel Shapiro on 2 October 2009:
I must complimen you Mr. No King But God on you last post to the JM fan. Very well said! I’m afraid I’m losing patience. I discovered true liberalism 30 or so years ago. There are so many enlightening books out there thanks to some excellent observers and thinkers. Internet blogs are no substitute for education.
The JM fan said: “Many of my opinions may well be set in stone but that only lasts until someone finds the proper logical chisel. I invite anyone interested to hammer away at their leisure.”
All I can say to this is: Check your premises! Induction always preceedes deduction. If your premises are non-general your inferences based upon them are very likely to be false and misleading.
Best wishes!
Comment by James Madison Fan on 2 October 2009:
NKBG and Mr. Shapiro,
I fail to understand your frustration. I have yet to offer anything that is inappropriate or insulting. In fact I think I have been quite respectful and agreeable in the face of posts that would have resulted in flames from most others. At least I am trying to make a logical and accurate case rather than calling you names and being arrogant, dismissive, and condescending.
If you feel discussing these concepts is a waste of your time that is your decision. I could just as easily take the same stance by offering that arguing against “jingoistic Capitalist purists” is a waste of my time and dismissing your posts. The danger in such behavior is this limits me to those that believe the same way I do reinforcing that which I already believe rather than challenging me. The end result is commitment to a doctrine rather than a logical commitment to the truth. The irony being my intent is to avoid being the fundamentalist you accuse me of being when you are the ones displaying the classic symptoms or fundamentalism such as intolerance in the face of inquiry. If you cannot respect my desire to engage in a Socratic examination of a topic then I am indeed sorry to have wasted your time.
If you could answer one question before you give up on me, I would like to know if Libertarians with an advanced intellectual capacity such as yourselves have such difficulty talking rationally to someone that is as reasonable, educated, well spoken, and sympathetic to your stance as I am, how can you ever hope to sway the masses that keep electing idiots like Baby Bush and Obama? Are you happy trading posts with the indoctrinated ad infinitum as part of a “fringe political group” or did you actually want to be relevant one of these days?
I’d like to keep discussing this. I have found it educational and insightful but I do not want to waste your time and I have no desire to trade ad hominem. Your choice.
Comment by Daniel Shapiro on 2 October 2009:
James Madison fan:
First of all I’m not a libertarian – this is a political party. I believe that societal freedom (i.e. universal liberty)is the way forward. Secondly, my appologies if I came on a bit strong. I didn’t mean to attack you personally, it’s some of your premises that are flawed. In fact you seem very articulate and curious which I respect.
I strongly recommend that you do some reading and remain intellecually honest. Any of the authors and titles I mentioned in my previous posts are good. “Why Wages Rise” by F.A. Harper is a short book that you can read on-line. The same is true of a classic by Frederick Bastiat “The Law”. Also Ludwig von Mises: “The Anti-Capitalistic Mentality”, “Bureaucracy”, and “The Middle of the Road Leads to Socialism” (a pamphlet) are excellent.
These rational ideas will challenge some basic premises you appear to have regarding economics, the individual, society, and political government. Once you transcend the political dialectic and some of the common myths and fallacies that we all have been exposed to, the world should appear more coherent and rational solutions forthcoming.
I’ve come to clearly realize and understand that “political solution” is an oxymoron.
Best wishes to you sir!
Comment by No King But God on 2 October 2009:
JM Fan – I did not say you were being insulting and I did not say that this is a waste of time. In fact, I stated that I can identify with your position – I used to be sympathetic to such ideas as yours too, before I learned to spot how government interventions cause the very faults so frequently blamed on free-enterprise.
And I thought that my posts were challenging you, as you say you want to be challenged. I tried as much as I could to address most of the points in your posts and merely show that you are generally correct in your criticisms, you are just assigning blame to the wrong party. I would enjoy having you do the same and respond with substantive rejoinders.
If you take offence to your arguments being termed socialist, I cannot help that – they meet the definition. If I argue for faith in Jesus Christ, I do not take offense to being called Christian – I meet the definition! Getting back to the theme of the article above, I think we may have a difference of opinion as to what socialist means. To me, someone who recommends government “tweaks” and interventions into the market is making a socialist recommendation. Call a spade a spade (so long as we agree on what a spade is).
Finally, I may not like having my political, economic, social, and religious ideas be termed “fringe,” and I may not like that my beliefs may not be seen as “relevant,” but I refuse to bend my principles to whatever the popular idea of the day may be. I seek truth, not popularity, and when someone recommends a course that involves coercion of me and my family (as all socialism does!), and I know it to be wrong, I will speak out against it. I do, however, hope I have not come across as “arrogant, dismissive, and condescending.” As Mr. Shapiro said, you seem to be very intelligent and passionate. And as I said above, you are getting close to the truth when you talk about how wealth generators should be able to keep the fruits of their labor without it being diverted to some bureaucrat – now just carry that thought out to its logically consistent conclusion! Mr. Shapiro is right – you just need to reevaluate some of your basic premises that lead you into buying the common socialist myths and memes promoted by our statist culture to legitimate the state’s monopoly on force and coercion. His book recommendations are also sound, especially the Mises and Bastiat books.
Please, continue this discussion, but just point out what you believe to be the flaws in my reasoning.
Comment by James Madison Fan on 6 October 2009:
NKBG and Mr. Shapiro,
No offense or obfuscation intended on my part. If your counter arguments had been less interesting I wouldn’t have bothered trying to avert a flame war but I am intrigued and I do intend to respond to your previous posts in kind but did not see the point if it was frustrating you to the point you did not want to continue.
The link to “The Politically Incorrect Guide to American History” was interesting and appears to be contrary to what I was taught. I intend to examine this with greater care to determine if Mr. Woods is being intellectually honest in his assessment or if he is “cherry picking” the good in the same way he accuses history books of selectively reporting the bad. I tend to find the truth resides somewhere between any two extremes and I get even more suspicious when what he is offering seems to contradict Smith’s warnings about monopolies and oligopolies.
I do not mind admitting that I might have socialist leanings in regard to certain topics or having them labeled as such, what I do mind is having my entire paradigm summed up in a single word especially when the majority of my opinions do not fall under that banner.
Do I agree with Workers Rights? Yes because I do not think economic tyranny is preferable to governmental tyranny. I think the concept of Worker Greed is every bit as legitimate as Employer and Consumer Greed but there is a double standard in place. If the Companies or Consumers are greedy, that’s okay, but when the Workers get greedy it is time to pull out the Marxist Label Maker and start tattooing Socialist and Communists on their foreheads.
The fact is I am no more interested in giving money to some business via substandard wages than I am to the State via taxes. I have noted that people tend to get target fixation when they focus on the government but fail to see that Big Business can be every bit as tyrannical.
I will go back and address your previous posts in a substantial manner. I wanted to put this up so you know that I have not abandoned the topic and will hold up my end as soon as possible.
Comment by No King But God on 6 October 2009:
Your response is much appreciated, JM Fan. I will also revisit our discussion as much as I can. Again, I believe you are close to seeing the truth about liberty and private property.
Just remember one thing – if you are worried about monopolies, the biggest and baddest monopoly around is the state with its monopoly on the initiation of coercive force. That is the reason for the “target fixation” on government rather than “Big Business.” There is no problem with any of your three groups (Workers, Companies, & Consumers) pursuing their own ends and interests, so long as they do not seek to impose their will by initiating force unilaterally or by convincing the government to do so on their behalf.
There is no such thing as “economic tyranny” if we allow individuals their God-given rights to liberty and protection of private property b/c each party simply enters into a transaction or he doesn’t enter into it, solely according to the directions of his own conscience. For workers, this means take the job and its offered wage or refuse it and seek your next best alternative. For business owners, this means hire the worker at the going rate (determined not by the mere whim or dictate of “tyrannical” business owners, but rather bid up by competing business owners to the marginal productivity of the workers available and also bid down by competing workers to the opportunity cost of their next best alternatives) or refuse the worker and lose out on additional production.
Just to make it absolutely clear, I have no problem whatsoever with unions or workers collectives or whatever you want to call them. The only problem with them arises when they seek to use violence to extort extra compensation, or use government coercion to extort extra compensation. No party, whether worker, business owner, or consumer, should be able to initiate force to coerce someone’s property away from them. Take away the union laws and union violence, and unions and workers can feel free to bargain collectively all day long if they wish. But don’t get mad and seek government protection and privilege when business owners hire other workers willing to sell their labor for less. In the same way, business cartels can feel free to collude on prices all day long if they wish. But don’t get mad and seek government protection and privilege when either cartel members cheat or some young entrepreneur is willing to enter the market and sell his products for less.
Let me know what you find with regard to the history of predatory pricing. I have great respect for Tom Woods (very much enjoyed Meltdown) and I think that you will find him to be pretty accurate, but I know no writer or thinker is infallible. As you said, his refutation of predatory pricing is also contrary to what I was taught, but I’ve found that most of what I was indoctrinated with by our statist culture is contrary to the truth. But those with ears that hear and eyes that see can find the truth if they seek it.
Comment by Daniel Shapiro on 6 October 2009:
JM fan and NKBG:
I’ll check in to read what’s being discussed and add my 2 cents if it can add some clarity or depth. You’re in good company with NKBG. From his statements thus far he clearly recognizes the fundamental difference in the modus operandi of business and the state. One is voluntary and contractual, the other is compulsive and coercive.
Comment by James Madison Fan on 14 October 2009:
NKBG and Mr. Shapiro
I hope you will forgive how long it has taken me to put this together. I wanted to be thorough. In addition to this I am preparing to go on vacation next week so I have been trying to get enough padding so I do not come back to a deluge.
With your permission I am going to address each topic in an individual post you can comment on before I move on. I am hoping this will keep my post from being so long it is unreadable. I understand if you would prefer a faster pace and am prepared to examine the issues at whatever speed you find most desirable.
In regard to the claims of Socialism because I advocate “tweaks” to the free market, you are not arguing against me, you are arguing against Smith himself. He was skeptical of government intervention but felt it necessary in some cases, as Herbert Stein wrote:
“He [Smith] viewed government intervention in the market with great skepticism … yet he was prepared to accept or propose qualifications to that policy in the specific cases where he judged that their net effect would be beneficial and would not undermine the basically free character of the system.”
In “Wealth of Nation” Smith wrote in regard to the repetitiveness of division of labor under industrialization:
“. …this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.”
He also wrote the following about taxation:
“The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.”
In addition to this he also advocated “discriminatory taxation to deter improper or luxurious behavior.” (pooling of wealth).
Smith himself did not believe that Capitalism was without flaws and felt government intervention, from time to time, might be unsavory but necessary. If you are going to label my opinions on “tweaks” as “Socialist” then it would appear I stand in fairly good company.
To be clear, I am not advocating massive government intervention but the study of Economics is essentially an examination of how to “tweak” the economic engine in such a way that it works better and forecast the results. I am not supporting Johnson’s Great Society rubbish or endorsing Obamacare, I only support government intervention when the market does not have a remedy per Smith.
Comment by James Madison Fan on 14 October 2009:
My apologies for the formatting above. It was readable when I did my cut and paste but the site seems to have decided to invoke its own format without consulting me first.
Comment by Daniel Shapiro on 16 October 2009:
JM fan:
“In regard to the claims of Socialism because I advocate “tweaks” to the free market, you are not arguing against me, you are arguing against Smith himself. He was skeptical of government intervention but felt it necessary in some cases…”
As it turned out (i.e. history) Adam Smith was right about some things and wrong about others. His main thesis regarding improving the overall wealth of a nation by increased investment in productive enterprise was right and history demonstrates this clearly. His invisible hand essentially refers to natural law – man’s innate nature to sustain and advance his life (or his subjective “pursuit of happiness” to use Thomas Paine’s words). The invisible hand also relates to the law of supply and demand.
Smith made a number of errors regarding the dynamics of society and economics. Probably the most infamous was the labor theory of value which is patently absurd and observationally false. Value is not derived from the quantity of labor but rather is subjective to the individual. The Austrian economist Karl Menger recognized this error and asserted the subjective theory of value around the middle of the 19th century. Smith’s error (actually the concept was not original to him) wouldn’t have been so bad except that dipshit Marx lifted it out of context and built his entire exploitation of the masses nonsense on this erroneous premise. Clearly no one has benefited more from free-enterprise production and technological innovation than the consuming masses – political dialectics notwithstanding.
It is absurd to believe that a person or committee can establish by edict an objective value for any product or service. The only circumstance in which subjective value is objectified is when an actual market transaction occurs by accord. And even then it is only valid for the parties who make the specific transaction.
It is impossible to tweak the market from the top down in order to produce positive effects. This is not only unnecessary but ultimately detrimental to all members of a society (except perhaps the politicians who create new sets of problems to solve later on). Hayek clearly demonstrated this based upon lack of adequate information. The market regulates itself through the natural law of supply and demand based upon the complex dynamic of actual producers and consumers who make self-interested decisions. There is no way to circumvent this (or any other) law of nature. The effect of any top-down coercive political intervention predictably causes instability, disruption, and chaos. History clearly demonstrates this cause and effect relationship. Of course most people don’t see the real cause and blame these negative effects on the producers. Then (due to popular demand) the politicians go back to their drawing board and the degenerative cycle continues.
Comment by James Madison Fan on 27 October 2009:
Mr. Shapiro,
“It is absurd to believe that a person or committee can establish by edict an objective value for any product or service. The only circumstance in which subjective value is objectified is when an actual market transaction occurs by accord. And even then it is only valid for the parties who make the specific transaction.”
I agree but this does not mean the government cannot or should not set rules that regulate these transactions to ensure they are not destructive to the economy or nation. Also, while I agree that a governmental committee should not have the authority to establish value by edict I do not think the private sector should have the authority to establish value based on collaborative price fixing, black listing, or similar manipulations.
The goal of government should be to promote the general welfare so everyone has similar opportunity to pursue happiness instead of a select few setting up rules that ensure they remain at the top of the pyramid while condemning the rest of us to the bottom of the pyramid ad infinitum. I do not want to be a CEO’s serf any more than I want to be a dictator’s subject.
For instance according to Drew, Nakashima, and Faiola the current economic downturn is due in great part to Greenspan’s failure to regulate derivatives, specifically Mortgage Backed Securities (MBS) speculation. The good news is that FDIC insurance kept people from making a run on their bank ala 1929, but the damage was only a matter of degrees. Meanwhile we spent billions bailing out these banks.
So how do we keep this from happening in the future? Regulations. Is that intrusive? Yes but when you prove you cannot be trusted with a right then it gets taken away. As Oliver W. Holmes said, “The right to swing my fist ends where the other man’s nose begins” and we are all walking around with bloody noses Big Money inflicted.
What’s worse is letting the market sort it out would have hurt the “Little Guy” for the idiocy of the “Big Guy.” I am supposed to watch my neighbors lose their banking jobs because some CEO with a cranial-rectal inversion wasn’t satisfied with his company making a billion a year so he decided to go “all in” with his chips so he could squeeze out another 100 million and ended up going bust? Accountability in the Board Room? What’s that?
My question is; “At what point is self interest not in your self interest?” At what point does corporate greed end up destroying the market they are trying to exploit? We keep testing that limit and every so often we go over the edge. It isn’t unrecoverable for the economy or nation as a whole but that is not true when we look at the people that have lost their jobs, homes, and lives to corporate gamesmanship. When the voters get tagged they scream at the government to reign in business. If business didn’t act like a bunch of nutters the people wouldn’t keep asking the government to sew stronger straight jackets.
Comment by Daniel Shapiro on 2 November 2009:
JM Fan:
You wrote: “I agree but this does not mean the government cannot or should not set rules that regulate these transactions to ensure they are not destructive to the economy or nation.”
Obviously they do this – but should they? Absolutely not! How could anyone possibly make such a determination on any rational basis? The fact is that this is impossible and if you think about it any attempt to do so is invasive, disruptive, and counter-productive which is the exact opposite of the stated end. What possible interest could the political government have in my voluntary contractual exchanges of property with other like-minded individuals other than to take a cut or to act as a doting parental surrogate? Anyone who depends upon a political government to protect them is living in a fools paradise.
Only the individuals directly involved have a real interest in the outcome of their exchanges. Political government is a compulsive, unnecessary, and meddling 3rd party. If the individuals involved in a transaction or a contract want to protect themselves they can voluntarily hire profit seeking services available in the market place such as escrow, insurance, credit history, etc. and others that can be innovated and further developed if there is a market demand. Political government mechanisms are a protection racket and an obstacle, failure, and perversion of liberty, security, and justice.
Now really, how can voluntary production and voluntary consumption be destructive to a nation? Au contraire! These are both constructive and necessary to the health and prosperity of the individuals that are the sovereign basis of and raison d’être of society! You need to examine the real effects of political intervention to discover the real cause of the real destruction, disruption, death, and chaos. Political government has a proven record of failure and is clearly not a protector but an opportunistic exploiter. The big popular myth and contradiction, that most people believe, is the necessity of what amounts to a protection racket.
You wrote: “The goal of government should be to promote the general welfare so everyone has similar opportunity to pursue happiness instead of a select few setting up rules that ensure they remain at the top of the pyramid while condemning the rest of us to the bottom of the pyramid ad infinitum. I do not want to be a CEO’s serf any more than I want to be a dictator’s subject.”
You have confounded a number of ideas in this statement. I’ll try to untangle this mess of emotion and orthodox political dogma.
“The goal of government should be to promote the general welfare ..”
This sort of “mission statement” is gleaned from the 1787 Constitution. First of all, what does “general welfare” really mean? Can it be qualified or quantified? – I think not in any meaningful way. Society is composed of unique individuals each of which by man’s very nature pursues happiness. “General welfare” is an abstraction that has no real identifiable meaning and as such can be easily manipulated through political sophistry and a priori conjectured crises. No one can possibly make this determination as to the general welfare of 300 million individuals on any rational basis. What would you think if I was to unilaterally determine what your welfare should be? How about we mind our own business?
These sort of specious concepts are typical traditional political nonsense. The fact is that each individual is an authority regarding himself and knows best what is in his/her best interest and personal welfare and promotes this quite naturally through his/her pursuit of happiness by voluntarily interacting with other like-minded individuals in both production and consumption, as well as personal relationships. Political government can only promote welfare by force to favor selected allies (national, corporate or otherwise) at the expense and peril of everyone else thus creating hardship, disruption, and future crises.
“The goal of government should be to promote the general welfare so everyone has similar opportunity to pursue happiness instead of a select few setting up rules that ensure they remain at the top of the pyramid I do not want to be a CEO’s serf any more than I want to be a dictator’s subject.”
It is the political government that is the dangerous monopoly!! It is based which upon legal force and in effect dictates downward from the top of the pyramid. This traditional hierarchical structure based upon a false, misleading, and crude authority of might makes right (i.e. majority rules) and a coercive constitutional contrivance which continually interferes with the pursuit of happiness for most in the short-run and all in the long-run. Essentially, the 1787 Constitution replaced the prevailing paradigm of monarchical structure per divine right with a crypto-aristocratic structure per vox populi vox dei. This political apparatus prevented the attainment of the worthy liberal goals stated in the 1776 Declaration of Independence.
No one wants to be a CEO serf or a dictator’s subject. Please note that as a CEO serf you have a choice and can seek more satisfactory working conditions and learn something from the experience.
You wrote: “At what point is self interest not in your self interest?”
Did you mean: At what point is someone else’s self-interest not in your self-interest? The simple answer is when they attack, interfere, or plunder you or your property. If the political government does this legally per the Constitution and you have no recourse, this fits the definition of tyranny. The real problem is how to protect yourself from coercion (political or otherwise) without resorting to coercion. This is the only way out unless you believe that two wrongs make a right. It is through innovation, free-enterprise, and free-market that this is possible.
You wrote: “At what point does corporate greed end up destroying the market they are trying to exploit?”
This is a typical socialist idea containing emotive words such as “greed” and “exploitation”. Corporations adjust the price of their goods and services to maximize profit. This tends to balance supply and demand. If you or a corporation raise the price too high profits will decrease because sales will decrease more rapidly. This is reality! A corporation or an individual for that matter has no interest in destroying their market, injuring their customers, or their friends. This is contrary to self-interest. Corporations rely on repeat sales to remain profitable and viable. Political organizations have no such requirement because they are a coercive monopoly and there is no feedback mechanism to measure customer satisfaction. This is why bureaucracy is so repugnant. Some corporations go to Washington to get special privileges in an attempt to get an edge on their competitors which is ultimately injurious to everyone. It is the political government that makes this possible and sanctions this sort of political-special interest fascism.
In fact the statement you made above is descriptive of political intervention which has a long history that is injurious to both producers and consumers: “At what point does political intervention end up destroying the markets they are trying to regulate and exploit?”
The answer to this reformed question is that any political intervention is injurious and over time, through additional political “corrections”, ultimately further weakens producers and consumers to a point where the political government steps in, bails out, or takes over. We can observe this in the crisis du jour of health care reform. Most people it seems have forgotten what occurred in 1965 when Medicare was foisted on Americans and the political government began practicing medicine more aggressively.
It is my firm belief that everything that they are working on in the Congress and in the local legislatures are fixes and tweaks to problems previously created and compounded by their politcal predecessors or else new economic or military crises of their own making.
I know you’re a fan of James Madison, but the 1787 Constitution after 220 years is a proven total failure at providing security and justice for good reasons. And in regards to freedom – it renders this lofty goal an impossibility unless you’ve been so far misled into believing that living in a secure prison is freedom.