The Argument for Capitalism

It seems to me that a feature of capitalism on the consumer side is that decisions and price signals are made up by many different people, as opposed to a Communistic approach where a large monolithic organization (i.e. the government) tries to predict what the market should do.

It also seems to me that we have abandoned this on the producer side – we have large monolithic organizations in place just about everywhere, from Google to the eyeglass maker Luxottica.

Most people’s favorable view of capitalism is not a vision of several large monolithic corporations producing/selling goods for the masses. It is of many different merchants producing and selling goods to many different people.

I think that should be the vision we pursue when we talk about capitalism, and we should see variance from that vision as “not capitalism”.

That means we are currently very deep into “not capitalism”.

Ian, I differ with your definition of capitalism–I think what you defined above is better called “a free market economy”.

Capitalism is actually hostile to free markets, as you have said in the past, because free markets drive profits down to pennies on the dollar. Capitalism is similarly hostile to independent entrepreneurship, entrepreneurship that can’t be co-opted or bought out, for the same reason. Capitalist advocates have done a great job of false advertising, of conflating capitalism with other things it is actually not and in many cases is hostile towards.

Capitalism I believe is better defined as an economy system where people who have “capital” (usually money, but it can be other forms of wealth) have the decision-making power over what is and what isn’t made, and where the rewards from production should flow. It’s the triumph the large investor class over all the other components of the economy, including the people (innovators and workers) who actually create and produce things or deliver services. This is why, as Tony wrote in a previous post, once an economy goes full-bore ‘capitalist’ and the investor class takes over–an investor class largely ignorant of how things are actually made and a class fixated on short-term cashing out–that decisions get made that strip the domain of the ability to make stuff for the short-term profits of those who manipulate money. That’s been the result everywhere it’s been implemented; capitalism’s track record is not one of heroic success but–in the absence of strong countervailing government policy–the opposite. My former college landlady would say “if you want to turn a place into a desert, irrigate it’, and likewise if you want to turn an economy into a wasteland, ‘capitalist it’.

Was my comment disappeared? Or is it stuck?

I would distinguish between capitalism as an historically emergent system of political economy — almost the civilization in which we live, the civilization of the industrial revolution(s) that has risen since roughly 1450 and began taking its recognizably modern shape during the 17th century — and the ideologies of liberalism (including the recently dominant neoliberal variant) that have rationalized and apologized for capitalist civilization. The most important surviving, formal ideology of capitalism is neoclassical economics, which provides an intellectual and rhetorical foundation for neoliberalism. Classical economics and its predecessors previously provided some of the philosophical foundations for liberalism from the 17th thru the 19th centuries, alongside parallel or entangled evolutions in political, scientific and legal thought. (Adam Smith’s Wealth of Nations is recognized as founding classical economics as a social science.)

I am not sure why people get confused about the difference between the emergent forces of civilization on the one hand and the influence of ideas and changing cultural consensus on the other, but they do, perhaps because we are ourselves embedded in our culture, and our culture insists we understand, while we are overwhelmed by the forces building and driving the machinery of civilization, which we cannot possibly understand fully.

Neoclassical economics, which emerged in the Marginal Revolution of the late 19th century in academic study and teaching of economics that displaced classical economics, has at its core a narrative of how the economy (note the omission of “political” from “political economy”) operates as a system. That narrative imagines a decentralized system of markets operated by people blessed with sufficiently complete information and formally and abstractly considers the “social welfare implications” while deftly side-stepping judgments on individual taste or outcomes. It is a remarkable performance, as intellectual construction and substrate for cultural consensus, as it papers over the yawning gap between what we understand in our own local experience and what we understand of the looming, burgeoning, increasingly complex civilization driving modernity from a distant horizon into our midst, generation after generation.

For people who have studied neoclassical economics — and a great many have, as it is a doctrine taught in college as well as a litany recited by journalists — the tension between feeling that one understands political issues and can speak intelligently about them in the vocabulary of economics and the frustration of confronting the stupidity of others trapped in the same doctrines and vocabularies highlights the entrapping power of ideology without furnishing superior social science.

I think almost all the “ism’s” sound good on paper. When they are pushed down to the people of course they are no longer the simple “ism’s” they once were but corrupted and mutated in the interests of a small group of oligarchs. Every time we discuss capitalism the billionaire ruling class do high-fives because we are still discussing the ideas, not the implementation. Capitalism or Communism, either could serve the citizenry, but so too can they be twisted into a horrible tools of oppression. When discussing the “ism’s” the outcomes are implied, but never guaranteed (or met). Most often they aren’t even listed as goals. Even in Ian’s description there is no mention of the basic needs of people being met, only that others may provide if the price is right.
There’s nothing in there that says that farmers must sell their crops to the rich. It could be a double edged sword against the elite, but of course it’s not. Further, there’s nothing in that simple description of capitalism hinting that there will be elites hoarding vast amounts of resources, supposedly from all of the goods they provided and passed down like aristocracy nor of the starving peasants who can’t manage the marginal cost of food. So when we discuss the “ism’s” we end up discussing simplified fairy tales of things promised but never delivered.
It’s not necessary to discredit capitalism, It’s probably better to not even mention it. Instead focus on how we were conned by the elites and their henchmen. How they strayed from the ideology that they sold us like a used car dealer who promises a Mercedes but delivers a Pinto.

i am uncomfortable with the capitalism v socialism meme, or the notion that socialism failed in some definitive test, because the communist Soviet Union and its empire fell apart, losing in its long rivalry with the Anglo-American empire. (Update for the 21st century: Surprise! The Russians are back, reinvented as capitalists. go figure.)

Nothing stays the same: the labels, “capitalism” or “socialism”, designate no fixed thing or concept. In Ian’s original post, the sentence I object to most strongly is this one:

But those forms of economies appear to break down in time, as the post world-War II liberal (not neoliberal) economy did.

I object not to the factual assertion, which is plainly true enough, but to the perhaps unintended implication that it would be reasonable to aspire to some principle or system of social organization that did not “break down” in time. “Capitalism” qua system has not been one well-defined and stable thing; it has continuously morphed. The dynamics and the “crises” of capitalism, indeed, are a defining feature according to Marxist critiques.

In an earlier comment, i wrote about the important distinction between an ideology, which consists of arguments to rationalize and apologize for what has been done or how it is being done, and the actual, emergent institutionalized system, the principles of which may or more probably may not be revealed in the arguments of the ideology that apologizes for it or rationalizes it.

Ian, as I understand it, basically said that the strongest argument for capitalism is that it works better than any other system that’s been tried.

I do not believe that Ian thinks that argument is true, or valid or persuasive — whatever criteria you apply to judge an argument — and neither do i. i think capitalism fails and is failing humanity pretty dramatically.

That said, the pragmatic argument — “pragmatic” means judging the “truth” of an argument by a criteria that emphasizes “what works” in practice — fits with the simple and historically accurate observation that “capitalism” is the system of political economy we have and what we have is what has emerged out of a historical process of trial and political contest.

Reactionary conservatives like to rationalize “capitalism” with bastard evolutionary arguments that falsely suppose that our present arrangements have emerged from a fair and continuing trial of alternatives, with virtue triumphant in the outcomes. This isn’t ideology so much as it is just bovine excretions, but it is a type of argument that can be dressed up academic finery and thus be clothed as an ideology. What it deliberately misses in the processes of social emergence is the roiling chaos of the continuing political contests between rival individuals and morphing factions, alliances and mass coalitions — reactionary conservatives are determined to honor established hierarchies of political power and make the politics of social and economic class disappear into a pretence of happy acquiescence by those who know and love their place.

If you are not a reactionary conservative, as I am not, then the pragmatic argument has to be qualified, but it still has power. Dr. Pangloss explaining the system is usefully exposing that there is a system and that it works as well as it does according to identifiable principles of architectural design and managerial policy, even if his conclusion that “we live in the best of all possible worlds” is ridiculous.

The qualifications I would apply to the pragmatic argument are two-fold: one is just the observation that there is a political contest on-going, a perpetual struggle over the distribution of income, wealth and power and those with an excess of power may well find it in their interest to make the system somewhat dysfunctional overall. The political equilibrium (if we allow that there may be something of that kind) of system functioning is unlikely to be socially optimal. The political contest itself consumes considerable resources, no matter what the outcome — and allocating more resources to the disputes does not necessarily improve the outcome. Moreover, allocating more resources to dispute is unlikely to improve system stability (though the balance of probabilities may vary with circumstances, obviously). The prevailing ideologies of capitalism tend to offer the simplifying comfort of “equilibrium” or end-state framing, but the base reality of political processes are dynamics verging on chaos.

The other qualification I would apply to the pragmatic argument is uncertainty. The narrative of neoclassical economics — of a decentralized system of markets enabling consumer sovereignty and efficient revelation and use of private information for the general good — is predicated on sufficiently complete information. Perfect information as it were. Rational expectations.

Uncertainty turns the whole intellectual apparatus of neoclassical economics on its head, reveals it to be a Big Lie, in Goebbels’ sense. There are very few markets, because it is simply not possible in the face of uncertainty. Instead, the rapid advance of technological knowledge in the face of general uncertainty results in an economy structured around sunk-cost investments administered by bureaucracies and an on-going political struggle to contain the externalize the uncontrollable costs of waste and error.

It is unfortunate in a way that we have an ideology of capitalism that prattles on about “markets” as in “free markets” when the actual economy is organized by bureaucracy. It certainly does blunt the pragmatic effectiveness of any critique employing the frames and vocabulary of mainstream economics that mainstream economics has so little that is realistic to say about either money and debt or control by schemes of political hierarchy (aka bureaucracy).

Neoliberalism as an ideology of the political classes seems to have drawn power from its very ignorance of the actual system it administers. Pretty much any critique or protest can be channelled away, almost effortlessly, at least as far as the contest of ideas is concerned. Inequality? Ah, you see there’s “a market” for management talent resulting in a Hollywood-ization of “compensation” for executive stars, or a skill-biased technological advance driving up the returns from education.

It has brought us to the present moment in human history, a moment when the political classes (the elite politicians and their advisers regarding public policy and the pundits who comment for public consumption) seem particularly clueless about the systems for which they prescribe policy and the architecture of which they supposedly govern in contests and arguments most of us can barely fathom.

Brexit furnishes the clearest spectacle of elite incompetence: the Parliament flounders about with near meaningless policy labels — “hard Brexit” “customs union” “backstop” “Norway+” — and no grasp of how these might translate into administrative reality and infrastructure, let alone long-term consequences.

It is hilarious in a way to see pious economists faithfully projecting how much UK GDP might decline compared to a base trendline (always sloping upward, curiously) over one year or ten years, even though most of them within memory missed the advent of the GFC and none of them contributed much of anything toward designing a socially practical Euro.

And, all this against the background of a nearly opaque European Union, thoroughly neoliberal but defended in popular discourse as an icon of cosmopolitan political culture against the deplorable racism of the disaffected.

bruce wilder makes the important point that all political systems will “break down”, and their change or replacement is not a measure of the value of the system.

Capitalism looks a lot less successful if you were sold down the river to work in the deep South cotton fields or if you were a Lakota watching government agents slaughter the buffalo so you would starve or if you watched grain being shipped out of Ireland to the English markets while your children starved or if as rangoon78 pointed out you lived in the Congo while Leopold’s claims were honored or if you suffered the Victorian famines in the Far East. Has there been a successful consumer society with a capitalist economy that didn’t rely on seizure of lands, goods, and services from the less powerful?

Re the alternative:
A centrally planned economy does not work. Why?: Too much power in too few hands. This is also the problem today in capitalist societies. It is the primary societal evil and must be eliminated in any way that we can with the tools of the era.
The solution today is a centrally planned economy but in a pure democracy where people can (if they want) vote on every little decision and also propose laws. Until recently such a utopian ideal was impossible. Not so anymore with internet.

bruce wilder: Switzerland? (maybe there was something going on indirectly) Finland?

Switzerland did it as the fences for elite kleptocrats. Finland maybe. The ones I could think of that came closest are the Far East after WWII– Japan, Korea, maybe some others, but when you become a successful consumer society based on sales to markets whose wealth comes from exploitation, I’d argue that you’re an economic participant in the exploitation.

Re “An ideology which can make it look like it is the only way to do things is a powerful ideology.

” Brilliant! Was this idea stolen from the churches?