I’ve kept this archive of comments and e-mails I’ve written over the years. I’m sure there are more, but these are probably the best ones anyhow. I present these one-sided conversations for your consumption. Many of these were written while I was a minarchist, so the use of “capitalism” was meant to convey free markets, not the bastardized state capitalism under which we toil.
Capitalists do not claim that specialization should be forced on anyone. To the contrary, we claim that the division of labor, the highest form of cooperation, is naturally occurring and cannot be centrally planned. I don’t know how I logically could claim to support free trade and then turn around saying that someone shouldn’t be able to freely trade his or her labor.
That is the very type of state planing the classical economist railed against. And it’s the very reason that free traders consider these agreements (NAFTA, ect.) as nothing more than impersonations of the real thing. They attempt to gain controls over imports and exports, exchange rates, and any number of regulations. They’re a start, but genuine free trade wouldn’t be in the form of international agreements. It would look like the trade that exists among the 50 states.
I’m interested in reading McNally’s book, although I suspect I won’t agree with his conclusions. We can both agree (I think) that prosperity and peace are unattainable without the corresponding protection of private property and the rule of law. If nothing else, McNally’s book could go to show just how meaningful and often overlooked those last two are in developing countries.
DarkStar, you’re right that the 40-hour work week is a new phenomenon. For thousands of years, people had faced starvation even during the good times. Now critics blame laissez-faire capitalism for giving people more than they need. And this is with only a partial adoption of capitalism for some of its citizens.
And if you look to history of labor unions, they have been the biggest supporters of discrimination, and not only in terms of race. That is because it is in their best interest to keep the labor supply very small in skill jobs. A business faces the exact opposite incentive. They want to have the largest, most open work supply possible.
The core principle of laissez-faire capitalism is political freedom, not competition. Sure, competition may result (depending on the nature of the product), but it comes only as the result of the freedom to produce and consume.
But the more important lesson is that Darwinism does not say the weak are eliminated through competition.
Instead, they are eliminated by force, one killing the next. That is far different than a third party, a consumer, voluntarily picking among competitor for his favorite slice of pizza. And as for saying someone is irrational because they work for less money, that is nonsense.
Even as an outsider, I can see that people working for SW have a lot more going for them than just salary: namely, more job security than any other airline can offer.
One last thing, laissez-faire capitalism doesn’t seek to drive emotion out of human beings. In fact, the emotion of motivation is one of the prime factors for the material and aesthetic pleasures enjoyed today.
Are you saying that companies should be “forced” to compete? If so, I’m impressed by how you got around from saying just that. But unfortunately, you’re not advocating laissez-faire capitalism, but some form of mercantilism, which Republicans and Democrats seem to agree with. Capitalism allows for people to flourish, but also fail. And consumers decide who does which.
Capitalism causes war
One of my favorite economic fallacies is that laissez-faire capitalism promotes and is dependent on warmongering or an interventionist foreign policy. But on the contrary, war (and the preparation for it) is wasteful and would only be done when absolutely necessary in a capitalist country to defend the nation from attack or an imminent attack. But still in that case, the country would still be worse off even if it won.
During a war, the productive sector of an economy is devoted to things precisely designed for the destruction of society. For sure there are war profiteers (defense contractors, for example), but the majority of people are worse off, if not killed, no matter what the reason for conflict.
But the ones who control whether or not war takes place are politicians, the biggest winners in all this. They turn laissez-faire capitalism on its head, with merchantilist policies (devaluation of money, protective tariffs, corporate welfare) that only antagonize other countries.
But you also said that laissez-faire capitalism destroys “basic values,” which I assume to mean yours. But people are free under laissez-faire capitalism to do what they want and screw what others think, aren’t they?
What is freedom?
We seem to be having a disagreement over the meaning of freedom. I take it that you mean freedom from want, when it actually means freedom from the initiation of force.
Laissez-faire capitalism is, ultimately, an expression of freedom, protecting the weak against the strong, granting choice and opportunity to those who once had no choice but to live in a state of dependency on the politicos and their enforcers. The high value placed on women, children, the disabled, and the aged- unknown in the ancient world-owes so much to laissez-faire capitalism’s productivity and distribution of power.
Ethics and fraud
“All people want to be loved and needed and respected.” I generally agree. But they have to deserve to be loved, needed or respected. They don’t have it by default. They gain it or lose it by there actions.
Further, you are criticizing how people are treated. It is a question of ethics — would exist no matter what economic/political system was in place. I’ll tell you why.
Every society experiences fraud and theft. But let them rear their head under socialism and it goes unnoticed or is attributed to the capitalist thinking. Let these vices appear in a largely free economy, and the cry goes out: punish us all and put the state in charge!
Yet, I’m still more interested in what alternatives to laissez-faire capitalism you endorse. I doubt it will be socialism, probably something about making capitalism transparent — saving it from itself. Oh, how thoughtful?
Mr. Bishop, I whole heartedly disagree with some premises in the article “Peace and Sacrifice are One In The Same.” From the reading, you were saying that the soldiers should consider it a sacrifice to end a brutal, tyrannical regime. There is no question that Americans and Iraqis are better off now that Saddam is out of power.
But that is also no reason to consider those actions a sacrifice. After all, what does it say about a soldier who considers it a personal sacrifice to save his family by taking a threat out of power?
Just because something is difficult and a victory is not guaranteed, that does not mean it is a sacrifice. The liberation of Iraq and the broader war on terror is in every moral American’s best interest. You shouldn’t be afraid to defend those people and things you love.
Contradictions of capitalism
Laissez-faire capitalism is built on the principle of individual rights. And one of the corollaries of owning your own body is the freedom of speech — and yes, even for speech that seeks to undermine that freedom altogether. You can’t stomp out an idea; it has to be refuted on the intellectual battlefield.
Jak, you think laissez-faire capitalism created inequality? It inherited it.
In feudal Europe, what separated people was who ate and who starved. Now the divide is who drives a Benz and who drives a used Ford, who eats steak and who eats quarter-pounders.
It is a mistake to look at income as the measuring stick for equality. Instead look for what you can actually buy with that income. When ever you find a an high-priced product, there is bound to be a much cheaper alternative.
But you are right in one regard. There are two sets of people: those who serve the needs of consumer and those who don’t.
And if you wish to discuss slavery, then understand that it was the mechanization of agriculture under capitalism that exposed the inefficiencies and wastefullness of involuntary servitude.
Capitalism leads to discrimination
I don’t get it. How is capitalism tied to patriarchy and racism? Capitalism increases the costs of discriminating on any factors that’s unrelated to productivity. Strip clubs are one exception, I guess, but the overwhelming number of times race and sex aren’t related to productivity.
Show me a business discriminating on the basis of race and sex, and I’ll show you a business down the street with a competitive advantage over its competition.
In a legitimate capitalist economy, businesses make their profits by voluntary market dealings. “Public-private partnerships” in which the government gives some businesses special benefits by violating the rights of other people are characteristic of a corrupt economy, not a free one.
Socialism great in theory?
“Socialism is great in theory, but in practice it cripples the main incentives for productivity, innovation, and trade.”
Socialism is doomed because without the private ownership over the means of production, economic calculations are impossible to make. Socialism can still provide incentives, but its planners cannot know how much to give.
That is not to say errors and judgment can’t occur under capitalism. Prices can only provide a tool for deciding on means and ends. That would not be possible if not for their origin in private property.
Balance of power
“However, it [capitalism] can lead to destructive imbalances of power such as monopolies.” So how does a company become so powerful that it controls the market? In an unhampered market, they do it by satisfying the most consumers, by meeting people’s needs better than anyone else.
But in the overwhelming number of times, this is not how monopolies are formed. In most cases, a company is issued protective privileges (guaranteed loans, bailouts, import restrictions, or bans of competition all together, for example). So the solution to prevent monopolies is to keep the government from handing out special favors.
And under capitalism, powers are divided much more evenly. The richest man in America controls less than one-half of one percent of the total wealth. In Eastern Europe, the divide that split the poorest and the richest was deciding who ate and who starved. Today, we ask who drives Mercedes Benz and who drives a used Chevy, and who eats prime ribs and who eats a quarter-pounder?
Is capitalism the enemy?
What most people don’t distinguish is that it wasn’t capitalism that was the danger, but instead the intervention of government, the mixed economy, that encouraged all the trouble.
The multinational wasn’t trying to develop goods and services to sell to consumers, but giving political contributions and gaining governmental influence to get its way.
But I think you said it. “… the real culprits seem to be in the corporate boardrooms and legislative cloakrooms.”
War good for the economy
War is the destruction of capital? be it human or mechanical. In a war, the resource of a country are diverted to destruction, not production.
Take it from William Sumner during the Civil War: “The mills, forges, and factories were active in working for the government, while the men who ate the grain and wore the clothing were active in destroying, and not in creating capital. This, to be sure, was war. It is what war means, but it cannot bring prosperity.”
Trade agreements like NAFTA are, in fact, nothing more than mercantilist policies. Free trade wouldn’t require 14,000 pages of regulation. And it cannot exist until the government ends farm subsidies and the like.
Mutual trade is the best recipe for peace and prosperity. People don’t kill their customers (on purpose).
The case for free markets didn’t begin and end with Smith.
If you read “The Wealth of Nations,” then you’ll find some faults with his ideas: the labor theory of value, especially. He also gives little importance to uncertainty and the role of the entrepreneur. And yes, he did consider tax redistribution a means to benefit the public. But that is nonsense. Taxes are taken by force. The hidden costs (lost opportunities) of taxes weren’t considered by Smith.
Richard Cantillon is more aptly the founding father of modern economics, not Smith. If you want to get “up to date,” then read “Capitalism” by George Reisman. That will give the best ideas behind it.
But if you propose that there is a “third way” (a mix of capitalism and socialism), then read FA Hayek’s “The Road to Serfdom.”
Road to serfdom
It is about explaining why the best people “get on top” under capitalist and the worst “get on top” under socialism.
A corporation, or any other entity formed by individuals, has rights on the basis of the individuals who make up the corporation. True of a corporation, a marriage, or a social club, they have freedom of speech, association and ownership of private property whether a government recognizes it or not. They are inalienable rights.
People have the inalienable right to form a marriage with any consenting adult who wishes to join. The government may restrict that right or may not recognize it. But it cannot be taken away, much less granted.
And if you dislike the corrupt people who run corporations, then understand that under capitalism those people are punished financially and criminally. But in the absence of corporations, those same people would most likely enlist in government and then have the police power at their calling and be exempt of prosecution.
The overwhelming amount corporate corruption that takes place exists because they are granted privileges by government at the expense of restricting the rights of others. So precisely because laissez-faire capitalism does not exist, what under normal circumstances would be considered criminal action (like using eminent domain to seize property and build a casino, Donald Trump, or a superstore, Wal-Mart) is condoned.
What you’re calling consumerism is one of the most unappreciated aspects of capitalism. It’s even criticized.
In precapitalists societies, it would take decades or centuries for the luxuries kings had come to enjoy to be used by the poorest subjects. Now, with only a partial adoption of capitalism, that time span is almost non-existent.
In a short amount of time, luxuries limited to the richest soon become adopted by the majority. You would think people who call themselves progressive would like that.
Conservatives not capitalists
It’s a mistake to call the religious right in fact capitalists. They support statism as much as their opponent on the left.
Both sides are nuts. Walter Williams puts in best: “Republicans and right-wingers support taking the earnings of one American and giving them to farmers, banks, airlines and other failing businesses. Democrats and left-wingers support taking the earnings of one American and giving them to poor people, cities and artists. Both agree on taking one American’s earnings to give to another; they simply differ on the recipients.”
I was reacting to an overall message of consumerism in the original post, so I could have missed some other points you made. Anyhow, consumerism is not a problem. I told why in the first post. This criticism stems from contempt for the independent actions others.
When I said, “In a short amount of time, luxuries soon become adopted by the majority,” I had actual physical consumer goods in mind.
I sometimes don’t like what’s on TV too. You may not like the outcome, but blame the consumer?who is in charge?not the system. When someone says commercialism decreases our sense of community, what they mean is it decreases our control over others. Some people don’t like that. And those are who commercialism is at the expense of.
Capitalism and slavery
Regarding slavery, capitalism and involuntary servitude of any kind is incompatible with the social system of capitalism for denying the rights of individuals held in bondage. Understand that despite what Marx said, capitalism has only existed as an economic model since the late 1700s. It was after mercantilism and feudalism, just to name a few. The point is, slavery had long existed even before the age of modern civilization.
Meanwhile, capitalism exposed the wastefulness and inefficiencies of bandage for various reasons, including a lack of incentive for a slave to improve production. The mechanization of agriculture, which couldn’t have happened without entrepreneurs and capital accumulation, made slavery unworkable. Capitalism killed slavery.
Regarding the environment, the human nature is that people care more about what is theirs than what is not. That is perfectly fine. From the lessons of public property, this bears out. Former Soviet natural resources are some of the most polluted in the world.
I readily admit that a free-market solution is not as successful when unaccounted externalizes enter the picture. But the lessons of capitalist economics has something to say about how to solve the problem.
Benefits of outsourcing
The best real world example is in every commuter’s home. Each day at work, most Americans companies outsource at least some of their labor from different cities. Now, this is what happens, only on a larger scale, among each city, each county, each state, each country. They are all political borders. An even more micro-study could be made of the outsourcing and trade deficit in each person’s home. (Chevron’s trade deficit with me is very lopsided, for example, but I don’t propose making my own gasoline because of the opportunity costs of doing such).
Think what would happen if you were restricted to only working in your own city. Your options would be severely restricted to what occupations you could take up. And if any businesses activity still existed in the city, how much less power would you have in setting the terms of employment? And with a smaller pool of qualified employees, how many high-skill jobs would go unfulfilled?
One of the greatest ideas of the Founding Fathers was to set up this free trade zone in America, the largest in the world and as a result the riches as well. And if actual free trade existed among nations, America is what it would look like. There would be no need for the 10,000 pages NAFTA and GATT regulations. The government would simply drop all restrictions and declare any agreements null and void.
But Tom, you’re glossing over the point of why people work in the first place. For example, we all would like to own a car, but not all of us would enjoy the actual job of building a car. In fact, we (happily) pay others to do that. We’re after the fruits of the labor, not the labor itself. It’s important to keep this in mind because without outsourcing, your dollar wouldn’t go as far.
The hard facts: According to the Bureau of Labor Statistics, professional jobs will grow by 30% by 2012. In the past 20 years, manufacturing has increased 93%. Superior productivity by employees has been the reason for a decreased base in manufacturing workers. Output in manufacturing has increased over 100% in 20 years. So goods are getting cheaper and better for the consumer. Despite outsourcing, IT jobs are expected to grow by 30% by 2012. The technology that allows for outsourcing to India also proves for increased productivity and growth. The result: wealth and health.
A wealthier nation can more afford to fight a global war on terror. And remember free trade promotes peace; people don’t bomb their customers.
No. Sorry. Wrong.
Censorship is the use of force (or the threat of it) to prevent free expression. Governments have done this all the time. In some cases, individuals have censored others by threatening someone’s property or self.
It is not censorship when that free expression harms a person’s status or when a person looses his job. That is the free expression of the person doing the firing.
Your question stems from your own misunderstanding of what a commodity is. In the most basic sense, they are goods. And because of that, people pay for them. Just because something has demand and supply does not make it a commodity.
In the case of a job, the person doing the demanding is who gets paid. With a commodity, the person demanding is who pays. In the case of a job, the person doing the supplying is who pays. With a commodity, the person supplying is who gets paid. Simple enough.
As for infinite needs, you are discounting the needs of future generations.
Having established that jobs are not goods, it is proper to say that a job is the act of creating a good. Only goods and services (labor) can be exported.
You should really consider getting off that Keynesian booster seat before you hurt somebody.
You forget that waste is in the mind of the individual.
To most, a leaky faucet is wasteful. But to someone who can’t afford a plumber, it would be more wasteful to hire someone to fix it. They conclude that they could spend the time and money in a better fashion.
In fact, it is private ownership that allows for someone to judge the cost/benefit problem. But to someone who doesn’t own that property, it is impossible to figure costs. However, benefits can be estimated somewhat.
I read your “Vote Anti-Capitalist Sam For Mayor” press release on the web. And I was surprised to learn that for all the work they do, the wealthiest 187 in the country increased their bank accounts by less than $5 billion in the past year.
That is a sign that people like what they have to sell. I only wish this year they can do better. Their wealth is the result of the buying power of the masses at work. And I say good job.
I think back to precapitalist times and see that the divide separating the richest and the poorest was who at and who starved. Now with only a partial adoption of capitalism, the divide is who eats steak and who eats hamburgers. Not so dramatic after all.
Your mistake is measuring how much people take home after work. But you’ve failed to look at what they can actually buy with their income. And capitalism has done more to provide even the poorest people a low cost alternatives to what the wealthiest enjoy.
Yes, it does undermine his argument. The assumption in his argument is that more jobs create more wealth. He had said, “One easy solution to fix a sluggish economy is to give people descent jobs that pay a living wage.” I was trying to show that it is not a job in and of itself that creates wealth, but the results of a job. If there the cost of providing that job does not outmatch the benefits, then it has done nothing but waste resources.
Carried to the end conclusion of what he said?that more jobs creates more wealth?then politicians should pass a law demanding the destruction of all bridges, for example.
Just imagine all the new jobs that would spring up to ferry people across rivers. But would the nation as a whole be better off than before. Frederic Bastiat satirically petitioned to outlaw the sun because all the good-paying candlemaker jobs that the sun had put out of business.
Now if these laws were passed, some people would be better off. But it would be the poor who didn’t get those jobs that suffered most because of those laws. They would lose out on all the jobs that weren’t created or vanished altogether.
But then again, I would be satisfied if Brian had just used the term “shifted” instead of “exported.” But that would spring up a whole new set of questions about how the government has artificially increased the cost of employing someone in America.
Brian, my above critique applies for when creating any job through government intervention. Though, there are cases that jobs created to protect citizens from danger can be helpful.
Spending doesn’t stimulate the economy anymore than a shot of caffeine gets you through a day. The initial shock is seen, but the crash from that high is much worse. You’ll find that even New Keynesians agree with that.
What increases wealth is increased productivity by way of well-timed capital investment. New Keynesians won’t agree with that.
The problem is the Federal Reserve. As it is now, savings rates are artificially lowered, so credit expands to build capital-intensive goods. But the artificial rates also encourage consumers not to save. All is fine until the Fed slows down credit expansion due to the increased inflation, and businesses find that consumers don’t have the money or the credit to afford the big-ticket items.
Credit is tapped out from before, and there is a mismatch of supply and demand. More and more business fail and more and more people lose their jobs. That is why manufacturing is hit the hardest, and light consumer goods are always strong.
Bailing out airlines or extending unemployment increases the recession’s impact. Tax cuts makes the opportunity costs of investing cheaper, but we still face the same Fed problems as before.
Private property rights/Hernando de Soto
On balance, de Soto has a good book. But he uses a circular utilitarian/social contract argument for his defense of private property, which he not once offers a formal definition of.
This leads him into some errors, especially those half-dozen pages of praise on Marxist class conflict theory. I also disagree with him that prosperity will naturally follow from respect for private property. What it does do is allow for the best possible chance of growth.
Wealth creations only possible with mind
Mr Krugman, I understand that there is not much physical labor in investing money, yet investment income is no less earned. Choosing where to invest, for how long, and for how much are all decisions that each investor must answer. And this requires the use of the mind, or at least enough intelligence to know who to hire on your behalf.
Writing and teaching — your professions — are by themselves no more exhausting than digging ditches, yet they can be much more valuable. The same is true of investing.
So by downplaying the importance of the mind in creating wealth, you’ve done a disservice to you colleagues and yourself. So go get a shovel.
Well, good news. You can form any voluntary association you wish under capitalism, which is what is taking place at the Olympics. The only reason I can think you must hate that is if you have your own plan for how to run the world.
From the line “we can do a much better job of organizing humanities endeavors,” I think you do. Please, just don’t implicate me with the use of “we,” as if though I would have a choice.
Creation of property rights
He talks about why they are important in the case of distribution of resources, with labor being one of them. But he has the best explanation for the creation of property rights. He said that if you own your own labor, then you should also own whatever you combine it with. So when Neil Armstrong landed on the Moon, he couldn’t claim ownership for himself or on behalf of the United States. Only the portions on which he applied his labor (purposefully altered the land for some benefit) and defined a property line (fenced off) is what he could claim.
If you sell your labor, then the person buying the labor gets the property. Therefore, people claiming to sell land on the moon are illegitimate. To make a long story short, that is why the world is not shared.
Even if limited liability were eliminated as a characteristic of a corporations by government. A business could still take up contracts with its debtors and creditors to allow for limited liability. It would just be more costly. That’s not even addressing the overwhelming merits of LLCs.
As for the shareholder idea, employees are already stakeholders. Considering an employees aversion to risk and other preference, wanting a company to do good now is much more rewarding than a claim on future profits. And combined with your first idea, I can’t see how anyone would even consider going to work for the majority of American business if they face such downsides. But then again, maybe that’s your goal.
I could go on, but those three suggestions aren’t trying to free people from the coercion of government. Instead they are binding them to it.
Phil says “society has the right.” But let’s get one thing straight, for starters. The concept of society is a metaphor, not an actual acting entity. Only individuals act, independently or in cooperation. Now to the major point:
If rights can be given and then taken away by the whims of society, based on a false collective conscience or for any excuse, then those are no rights at all. Instead they are permission slips. His claim is that a majority can rescind the rights of an opposing minority. Yet that is precisely what the political functions of rights are meant to prevent. As for myself, my existence is not up for public debate or compromise.
Jean-Jacques Rousseau, who wrote “The Social Contract,” said, “Whoever refuses to obey the general will shall be compelled to do so by the whole body. This means nothing less than that he will be forced to be free.”
He didn’t consider freedom to be independence from the state, rather a complete obedience to it. I contend that rights are provable requirements (actions that must be protected by the government) for a person to live among other people. I have the same rights as any Iraqi or Iranian, and as any man or woman, whether a government recognizes them or not. The purpose of forming this government was to see that it does.
If nothing else, Phil has exposed his true intentions with the line “Of course we will not all agree, so we need a mechanism to reach a compromise.” Yea, a firing squad; that’s the mechanism. The only debate will be over which caliber to use.
Origin of Property Rights
To clarify, this is Rothbard’s ethical argument for the origins of property rights, not his economic argument for their use.
I would agree that Rothbard uses too many assertions in the argument. Nonetheless, it is the best starting point I know of.
The one mistake I see you’ve made is starting from a belief that labor or anything for that matter has intrinsic value. The labor theory of value is an intrinsic theory.
Coal buried in the side of a mountain has no value if no one knows it’s there, for example. It only achieves value once someone attempts of retain it or claim it. In the case of labor, it may have no value if it is used improperly. In fact, it could possibly have a disvalue when used in error. If I go digging for gold in my backyard knowing full well that there is none, then that labor is useless.
Also, value is a subjective, not objective as an intrinsic theory would state. To say something has value, assumes then that there is a valuer and the valuer’s goals. To say otherwise is to claim that a good has value and more must be better, no matter the context. On its face this is not true. The right amount of oxygen (about 20% in the atmosphere) is good, but too much oxygen in the environment can be deadly.