Mammon or Leviathan?
The criticism that capitalists have an irrational faith in the free market is often heard from their critics. While I think the confidence to which this criticism refers is neither irrational nor fideist, the criticism itself hides an irrational faith in the government to fix the alleged failures of the market. Confidence in the free market is not a blind assumption that individuals will work in the best interest of others. In fact, capitalism assumes that individuals will act according to their own interests, whether they be altruistic or selfish. Neither is confidence in capitalism a naive assumption that the free market will right all wrongs.
The confidence resides in the knowledge that when private property is protected and the division of labor allows individuals to specialize and trade according to their comparative advantages, the general welfare is improved beyond the condition that would prevail if private property was not protected and individuals did not specialize and trade. Capitalism is not utopian. No one is claiming that capitalism results in a Garden of Eden or a New Heavens and a New Earth. Given the human condition, the free market benefits society better than any other economic arrangement.
The advocates of Socialism and various forms of government interventionism are not satisfied with the results of the free market. Inevitable inequalities of wealth are even blamed on the free market, despite that fact that such inequalities have existed in every economic regime in the history of man. These advocates believe the State can resolve these inequalities despite the fact that market regulation and wealth redistribution have consistently caused more problems than they solve.
However, even this failure is blamed on the free market. For instance, when employers were prohibited from raising wages during WWII, they began offering health care insurance in order to compete for labor. This insurance removed the awareness of price from the consumer of medical services. The result was a rise in health care costs. This is a natural consequence of the free market. If demand remains the same at a higher price, suppliers will raise the price. Nevertheless, this was regarded as price-gouging, which called for more government intervention. One government intervention leads to more government intervention.
IMO, the worst injustice is done when the government attempts to solve the problem of poverty. The irrational faith in the State to conquer poverty leads to more poverty and a decline in general welfare and the ability of voluntary charitable organizations to address extant poverty. The Mises Institute published today a section from Henry Hazlitt's 1973 work The Conquest of Poverty. They even offer the entire work in PDF. I highly recommend these free resources to anyone who cares for the condition of those in poverty.
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Externalities?
Good post Marc. I generally agree with much of what you wrote.
I am interested in how the problem of externalities (e.g., pollution, the most popular example) fits into your thinking, or the Austrian School’s, with regard to government intervention?
Internalizing Externalities
The anarcho-capitalist branch of the Austrian School (the late Murray Rothbard, Walter Block, Hans Herman-Hoppe, et. al.) would argue that complete privatization and the principle of homesteading would resolve most negative externalities.
According to the homesteading principle—very briefly—if a landowner built a factory that polluted the surrounding land before it was owned by others, the future owners of the surrounding land would have no claim against the factory owner. If, however, the factory went up after this land was owned, the owners of the polluted land would have a property damage claim against the factory owner.
I would start with Block since he has done the most work on externalities.
thanks
I will check out Block when I get the chance.
Another Way
The language of Marc's post is misleading. It conflates the libertarian free market stance with all of capitalism and identifies socialism as the wrong-headed alternative. There are plenty of variations of capitalism that take less strict stances on regulation and intervention.
It is also misleading to suggest that the only options are unfettered markets or government control, although Marc is right to indicate that the discourse on this subject often comes down to those two positions. But there is a third way.
In this month's newsletter of the Center for a New American Dream, entrepreneur (and advisory board member of the Center) Peter Barnes presents what he calls Capitalism 3.0. This is drawn from his new book of the same name. Barnes emphasizes the importance of what he calls the Commons Sector (or Common Wealth). Barnes's point is that we have to recognize that in addition to our private lives and private property, we also have public lives and shared public assets that merit protection. This common wealth, alongside government and business, can serve as the backbone for a healthy democracy.
Barnes's introduction highlights the importance of nuanced thinking on this issue:
"For years the Right has been saying that government is flawed and that only privatization, deregulation, and tax cuts can save us. For just as long, the Left has been insisting that markets are flawed and that only government can save us. The trouble is that both sides are half-right and half-wrong. They're both right that markets and state are flawed, and both wrong that salvation lies in either sphere. Is there a missing set of institutions that can help us? I think there is, and that these institutions lie in the realm of common wealth."
He identifies some elements of the common wealth as "air and water, habitats, and ecosystems, languages and cultures, science and technologies, social and political systems, and quite a bit more." The problem with this list is that it misses the institutional focus that he seems to want in other parts of the essay. I would suggest some institutions of the common wealth might include: education, culture and the arts, heritage and history, the media and press, religion, science and technology, and healthcare. The point isn't that these institutions are entirely separate from either business or government, but rather that we have an investment in them that goes well beyond what business or government can protect. When welfare programs contribute to the persistance of poverty and when drug companies refuse to search for cures that might not be profitable, then these sectors have failed to protect our interests as citizens and consumers.
What we need is a system of checks and balances, a system of accountability. Those who defend unfettered capitalism argue that purchases provide enough accountability. Those who defend strict government interventionism argue that votes provide that accountability. Neither is accurate. Accountability from within is never sufficient. We need a systems approach that does not yield social authority to a single system or a single ideology; one that does not provide unwarranted trust in a particular power center. I think Barnes's notion of the common sector is strong step in that direction.
Dustin Kidd
New Way or Old Third Way
Dustin,
I've downloaded Barnes' book and will give it a whirl. Thanks for the reference.
While I did use the term socialism, I also included "other forms of government interventionism". In fact, it was the less-than-pure-socialism form that I briefly criticized.
Barnes' "new way" sounds like the old Third Way of mixed economies, which fail because interventionism begets more interventionism.
Ahead of me
Wow, you've downloaded already? You move quick. I've only read the essay. I think you're at least half right that it sounds like the old mixed economies but I can't agree that such things fail. I don't know that and I don't think that's a straightforward conclusion. Intervention may breed intervention--though I'm not really sure what that means--but I am not sure by what standard intervention fails.
The media is the example that I am most familiar with. People on both sides of the political spectrum complain about bias in the media. But the real bias held by the media is toward the massive corporations that control the media and link it to other business interests. Now I don't want my news coming from the government, BUT I would love to have the government break up the media oligopoly so that some good old fashioned capitalist competition could actually happen again. AND I absolutely want the government to continue regulation media ownership and to stop the deregulation process initiated by the Telecommunications Act of 1996. And in the meantime, government subsidized media in the form of the CPB provides an authentic alternative that unfettered capitalism has failed to produce.
Thank you, government intervention. Yet strangely, that intervention is not increasing exponentially. On the contrary, the trend is in the other direction.
Dustin Kidd
Violence Inherent in the System
Dustin,
I'm not going to get into a discussion about the "real bias" of the media, but you must be aware that is a controversial point with which I'm not likely to agree.
The main point I am attempting to make in the above post is that criticism against capitalism (laissez faire, unfettered markets, Libertarianism, classical liberalism, or whatever you want to call it) is often based on an irrational faith in the government to improve society beyond the modest gains we can achieve on the free market. The only advantage the State brings to the achievement of ends is the legitimated threat and use of violence. Where there is no practical (or moral) need for forceful coercion, there is no need of the State.
That so many are willing to endorse physical coercion for all kinds of ends that have no moral or practical need of violence seems to me to be the product of a blind dogmatism. Do we really need the threat of fines and incarceration (or worse) to ensure we have an authentic alternative in the mainstream media? That strikes me as a bit bizarre and contrary to any intuition one might have with regard to the principle of liberty.
Inherent?
There's nothing inherent in a social institution. They are defined through social practices which are highly variable. That's as true of government as it is of the market. So the notion that the only consequence of state action is the legitimate use of violence is simply false. Among other things, democratic states allow for the possibility of collective action, whereas markets are merely the sum of a set of individual actions. And with corporations, we're not talking about physical coercion because the "person" of the corporation has no body. We're talking rather about policies, which are very different from threats and violence. The current free market oligopoly of the media is certainly not a model of liberty.
Dustin Kidd
Truth and Consequences
I'm not quite sure how your view of "social institutions" fits into the topic here, but I have defined the state as a peculiar institution whose existence is predicated on the use of violence to achieve its objectives. Any social institution that does not have legitimate recourse to violence is not the State. This is not the same thing as saying "the only consequence of state action is the legitimate use of violence". To put it that way is to confuse the essence of the State with the actual results of its actions.
Any social institution that is funded by taxes essentially relies on the threat of violence for its income. Whether or not violence is actually manifested is a completely different issue.
Weber
You're invoking Max Weber's conceptualization of the state as the legitmate use of force, which is certainly profound and influential, but which is by no means the only way to think about states. A focus on democratic systems should look to Habermas as an alternative to Weber, and think in terms of states that are formed and defined through participatory practices, and not through legitimated violence.
Dustin Kidd
Weber or Porlier, the Song Remains the Same
Frankly, it doesn't matter who I am invoking. I have defined the State thus and the critique against the messianic pretensions for the use of force proceeds according to that definition.
Oppenheimer
(And I had Oppenheimer in mind, not Weber.)
That's pretty circular
That's pretty circular logic. You define the state as an inherently violent institution--a definition that only allows you to see its violent or otherwise vile outcomes--and then you critique others, who don't hold that narrow definition, for their capacity to see the positive outcomes of democratic state action. You claim that they grant the state some sort of messianic power. It seems to me that you are treating the market as messiah and the state as the devil, when we would all do better to abandon this kind of religious tone altogether in favor of something more practical and empirical. You started this thread, I thought, to challenge the assertion that libertarian approaches to markets are based on irrational faith, but the language and the definitions used here only reproduce that notion. And if you are setting narrow definitions and restricting the dialogue to your terms, then this conversation was closed before it started.
Dustin Kidd
So then let's discuss this
So then let's discuss this notion as to whether the state by definition is a body that uses force as opposed to "participatory democracy" as you put it. I'm not sure how you can avoid the issue of force as every single law that government passes is ultimately upheld by the force of government, be it at the end of a gun barrel or at the threat of confinement.
Explain how "participatory democracy" comes into play regarding the IRS or enforcement of drug laws.
"Circular", you say?
No, that is not what a logician would regard as circular. All you have done is to say that the State has been defined in other ways without giving any regard for why I have defined it as the legitimate use of force. To be technical, I have provided one necessary condition for the State qua State in this analysis. I have not provided the sufficient conditions, but I don't have to. They are not germane to the discussion.
What is the essential difference between the free market and the State? The former consists of voluntary action from which the latter is differentiated by the use or threat of violence. (btw, I happen to think the concept of "collective action" is incoherent, but that will have to wait for another post.)
How you jump from there to this tu quoque about treating the market as messiah is utterly beyond me.
Yes, let's have a discussion. For starters you might want to at least give some more regard for the reasons I have given for defining the State as I have. You claim that I am closing the conversation with my narrow definition, but you already closed it off by dismissing the definition without warrant.
A simplistic answer
How's this: we, the people, elected the legislators who created the IRS and enacted the drug laws, and established the drug enforcement agents, and... created the various systems by which we restrict our own freedoms. We elect to restrict our own freedoms and until we elect people who will change the system previous elected legislators put into place, we are stuck with what we have. Various bureaucracies that seemed like a good idea at the time, become onerous with time. We put the gun barrel to our own heads, or rather, our voting predecessors did.
Who's "We", Kimosabe?
Kate,
I appreciate your answer and it's fine as far as it goes.
However...while democracy makes euphonious sounds about the "will of the governed" and "rule of the people", it is culpably silent about the tyranny of the majority and the inevitable rule of demagogues.
Kemo Sabe
Marc,
I think that would be spelled "Kemo Sabe" although it might be from the imagination of the Lone Ranger scriptwriters, so who cares? http://www.straightdope.com/classics/a4_061.html is the most entertaining source of information on that I have seen this morning.
But to the point - my point also is to indicate the problem of the tyranny of the majority, or even the past majority, with whose political decisions we must live with, apparently forevermore.
I hope the rule of demagogues is not inevitable. The tyranny of the majority can be plenty unpleasant enough. This is why the founders of the country desired a republic, with legal restraints on the demos. My complaint inherent in what I wrote above is that in doing what seemed like a good idea at the time, we end up with something democratic that is inimical to individual freedoms. Maybe I mean this in a democratic/legislative way as Holmes meant when he said: "Great cases like hard cases make bad law. For great cases are called great, not by reason of their real importance in shaping the law of the future, but because of some accident of immediate overwhelming interest which appeals to the feelings and distorts the judgment."
One era's feelings and distorted judgment might be regrettable in another era.
Utility and Justice for Some
Well said.
I think we agree on the problem of law that has outlived its usefulness, although depending on which specific laws you had in mind, I might add that some of them (e.g., the Income Tax) were only useful and never just.
Thanks for the spellcheck. :)
Oh...you already said that
I didn't need to add anything. I think you were saying the same thing regard usefulness and justice. Sorry...
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