Not Capitalism

Let's consider the following from Jerry Mander's The Capitalism Papers: 

In the popular movie Avatar. . .a gigantic mining corporation travels
to a fictional distant planet where the valuable mineral “unobtanium” has been discovered in large supply. Alas, however, the mineral is located on the traditional lands of the Na’vi people, who live in a magnificent, wild, ancient forest. The corporate armada arrives in spaceships and includes immense military forces, fully equipped to invade and overpower these innocent and remarkable people if they don’t agree to move off their lands and yield control of these resources to the corporation. In the real world today, this scenario is entirely routine and has been played out literally thousands of times on every continent, without big Hollywood movies to illuminate the struggles. (43)

It seems Mander believes this fiction depicts important aspects of capitalism. But why is this capitalism? The story here involves the use of force because the corporate armada includes "immense military forces." This story seems to be a story that fits the history of imperialism by countries like Great Britain, Holland, Belgium, and Spain. It seems like the typical story told in textbooks of world history by which our kids learn about conquests and more conquests. Capitalism is the opposite of conquest. It is not predation. If this were capitalism, the corporate armada would not threaten force but offers deals for "their" lands instead. 

Of course, I know there are some who include imperialism in capitalism, but I say this is mistaken because doing so does not aid understanding. We cannot understand social interactions if we decide to say that taking and dealing characterize the same system of political economy. Predation and cooperation as fundamental aspects of the same system of political economy makes no sense to me. The human actions and interactions are different when predatory and when they are cooperative. Capitalism is cooperative. It involves voluntary exchange and making deals.

Professor Davies has a short video on this point that I think is worth watching.

PLUNDER

Frederic Bastiat:

It is absolutely necessary that this question of legal plunder should be determined, and there are only three solutions of it:

1. When the few plunder the many.

2. When everybody plunders everybody else.

3. When nobody plunders anybody.

Partial plunder, universal plunder, absence of plunder, amongst these we have to make our choice.  The law can only produce one of these results. [THE LAW, 61]

I believe this is correct.  Partial plunder seems to characterize most of history.  I say we should choose the third alternative, absence of plunder.  The United States Constitution was a good beginning for a system of political economy that might approximate the third alternative.  Alas, over time the Constitution has been lost [see Barnett, Restoring The Lost Constitution], and our system of political economy seems to have become an excellent illustration of universal plunder.  As you might guess, neither partial plunder nor universal plunder offer paths by which prosperity can be enjoyed by all.

Humankind's Natural Propensities

Peter Boettke:

I often tell students that humankind has demonstrated two natural propensities--to truck, barter, and exchange (as Adam Smith taught); and to rape, pillage, and plunder (as Thomas Hobbes taught us)--and which propensity is pursued is a function of the institutional framework within which individuals find themselves living and interacting. The life experience can be a virtuous cycle of wealth creation and healthier and wealthier lives, or it can be a nasty and brutish hell on earth.  So while economics cannot give us exact point predictions, it can, as a science, inform us of tendencies and directions of change as well as the wealth-creating or wealth-destroying capacity of the political economic system. [Living Economics: Yesterday, Today, and Tomorrow, p. 385]

Economic History of the World

Here we have the economic history of the world in one picture, as summarized for us by Gregory Clark in A Farewell to Alms:

The basic outline of world economic history is surprisingly simple. . . . Before 1800 income per person--the food, clothing, heat, light, and housing available per head--varied across societies and epochs. . . . the average person in the world in 1800 was no better off than the average person of 100,000 BC.  Indeed in 1800 the bulk of the world's population was poorer than their remote ancestors. . . . Life expectancy was no higher in 1800 than for hunter-gatherers: thirty to thirty-five years. . . . average welfare, if anything, declined from the Stone Age to 1800.  The poor of 1800, those who lived by their unskilled labor alone, would have been better off if transferred to a hunter-gatherer band.  The Industrial Revolution, a mere two hundred years ago, changed forever the possibilities of material consumption.  Incomes per person began to undergo sustained growth in a favored group of countries.  The richest modern economies are now ten to twenty times wealthier than the 1800 average.  Moreover the biggest beneficiary of the Industrial Revolution has so far been the unskilled.  There have been benefits aplenty for the typically wealthy owners of land or capital, and for the educated. But industrialized economies saved their best gifts for the poorest. [Introduction, pp. 1-3]

In other words, for most of human history and in most places in the world, almost all people lived very near subsistence.  But, something happened around 1800 in some places, and the masses of people in those places began to break away from subsistence living and to prosper.

This is the Great Fact of history, as Deirdre McCloskey refers to it in Bourgeois Dignity.  This Great Fact seems to be something most people are unaware of, even among the people who are living in those places in the world where most people live far from subsistence.  It is a fact which seems to be missing from the curricula materials in our schools.  It even seems that this missing fact contributes to many people taking our own prospering for granted.  So, I suppose it should be no surprise that many people seem to believe ideas that are inconsistent with the explanation for why, in some parts of the world, the masses of people began to prosper and continue to prosper today.

What explains the Great Fact of history?  I was reminded of this question earlier this morning while finishing Hayek's The Political Order of a Free People:

However little it may often appear to be true, the social world is governed in the long run by certain moral principles on which the people at large believe.  The only moral principle which has ever made the growth of an advanced civilization possible was the principle of individual freedom, which means that the individual is guided in his decisions by rules of just conduct and not by specific commands.  No principles of collective conduct which bind the individual can exist in a society of free men.  What we have achieved we owe to securing the individuals the chance of creating for themselves a protected domain (their 'property') within which they can use their abilities for their own purposes. [pp. 151-152]

There are lots of specific details we might pay attention to in answering this question, but the simple bottom line seems to me just what Hayek writes here, i.e., individual liberty.  Unfortunately, our system of political economy today seems to move farther and farther away from a society of a free people.

McCloskey on Markets & Government

Deirdre McCloskey has posted a wonderful short essay over at Bleeding Heart Libertarians.  You should read the entire piece because there is far too much good stuff in the essay for me to make not of here.  However, I will make note of her summary of the master narrative of High Liberalism:

The story is, in a few brief mottos to stand for a rich intellectual tradition since the 1880s: Modern life is complicated, and so we need government to regulate. Government can do so well, and will not be regularly corrupted. Since markets fail very frequently the government should step in to fix them. Without a big government we cannot do certain noble things (Hoover Dam, the Interstates, NASA). Antitrust works. Businesses will exploit workers if government regulation and union contracts do not intervene. Unions got us the 40-hour week. Poor people are better off chiefly because of big government and unions. The USA was never laissez faire. Internal improvements were a good idea, and governmental from the start. Profit is not a good guide. Consumers are usually misled. Advertising is bad.

McCloskey finds this narrative to be factually mistaken.  I agree.  So, now, click through to the essay and read her defense of the conclusion that this narrative is mistaken.

You should also read the interchange of comments to follow the essay.  She writes some remarkable responses there are well.  Here is one response I especially like:

Dear Jason, Your sober and sophisticated words are correct. As I said, some state action is desirable. I lived in England in 1959 as the laws against soft-coal burning were taking effect, and there is no entity but a state that could have achieved such a good compulsion. But good compulsions are much rarer factually than people think who talk of "services" or congresspeople who talk of "programs," and that's most people these days. It is why I lean against. It is wrong to put the issue at the "cosmic" level. That after all was my point: let us get down to the facts, if facts is what we are assuming. But this much is true in the cosmos: states have monopolies of violence, and use them; markets and gifts do not. Of the three realms of state, market, and grace, I want every time, acknowledging in the style of Ronald Coase that we can't do this analysis on a blackboard, to see the actual evidence that violence is necessary before I sign on to using it to achieve "actual consequences." I have a bias towards markets and what Boulding called the grants economy ("grace" I am calling it here, theologically speaking: caring for children, loving your friends, feeding the poor), and I have a bias against monopolies of violence, so easily tempted to be used to enrich ones friends and tyrannize over the poor and weak. I repeat what I said to Brian: I do not understand the reflex to defend the massive modern state. As Hayek said, the more complicated the society the worse is the argument for top-down Reason as the way to organize it. Sincerely, Deirdre McCloskey

I tell my students all the time that when thinking about government and public policy it is important to recognize that social interactions involve either voluntary behavior and cooperation or they involve force and compulsion.  Government operates in the realm of force and violence, while the market process is what emerges from the realm of voluntary human interactions.  I suggest that the way McCloskey has described the use of government force in this comment is the best way to think about government and policy issues.  I too have a bias against the use of violence and a bias toward the use of markets and grace.  I suggest that voluntary social interactions should be the normative default position, and to move away from the default position should require some good evidence that a proposed act of government violence is necessary.

North or South, What's The Difference?

I took this image from Google Earth.  I think it is interesting because of the contrast between the "north" half of the picture and the "south" half of the picture.  The upper portion of the picture seems to me to depict a standard of living that is much greater than the standard of living in the lower portion of the picture.

Can you guess where this is?  Can you guess what explains the difference between the upper and the lower portions of the picture?

I hope you won't cheat and check out the following links before trying to answer these questions.  Daron Acemoglu and James Robinson can help you understand the difference.  So can Mancur Olson.

Or (shameless plug), if you live close to Colorado Springs you can take my course next Fall Semester to learn the answer.

Some of the Predators of Mali

DON BOUDREAUX:

This report in yesterday’s New York Times offers evidence of the extent to which “Progressives” will go to stop progress – evidence of the filth and pollution that flesh-and-blood individuals are obliged to endure when economic growth is forcibly halted – evidence of the utter arrogance and selfishness of rich-world elites, and of their propensity to treat other human beings as objects for amusement.

Kind of gets your attention, eh? The news report Boudreaux points to is interesting and well worth reading, especially if you were in my Power & Prosperity course last semester. The deal is that the city the news report is about is a World Heritage site and that has important implications:

"When a town is put on the heritage list, it means nothing should change,” Mr. Maiga said. “But we want development, more space, new appliances — things that are much more modern. We are angry about all that."

From the news report it seems to me that, as Boudreaux alludes to, there has recently been some development and progress going on in this city. After all, the people reported on seem to have at least some money available to spend on new wants and desires with respect to the way they live. Unfortunately, it also seems that there are predators from without who want to keep these people from using the gains they have made for their own purposes.

“If you want to help someone, you have to help him in a way that he wants; to force him to live in a certain way is not right,” he said, before lying on the mud floor of a windowless room that measured about 6 feet by 3 feet.

Well said. Put the power of government behind what a person wants to do for himself and good things will emerge in the future.

You can learn more about the necessary conditions for Mali prosperity by checking out the information at the INDEX OF ECONOMIC FREEDOM. While Mali officially has a democratic form of government, the protections for private property are weak and corruption is prevalent.

Economists Used to Believe This

PETER BOETTKE has a very interesting post about the conceptual context for the work of Israel Kirzner. Students in economics classrooms today may be interested in the history of economic thought that Boettke describes in his post. I think there is a significant delay between where economic analysis is currently and what is presented in undergraduate textbooks and course work. Thus, as you read Boettke's history you may recognize that much undergraduate economics is consistent with a conceptual economic framework that was the foundation of the economic discipline some decades ago. I think this is especially true with respect to the analysis of entrepreneurship, public policy, and prosperity.

Economists on Government & This Recession

JOHN B. TAYLOR:

Some argue that we need more deficit spending—another stimulus package—to boost the economy. I agree that the economy needs a boost, but not in the form of increased deficit spending. In my view, the economy is being held back by high deficit spending and related policy uncertainties. The large deficits are causing the federal debt to explode, raising concerns about how it will be financed.

VERNON L. SMITH:

So what has been the government’s response in the current crisis? Besides spending stimulus, it was tax incentives for new home buyers and cash for clunkers if you bought a new car. All three are programs for borrowing output, homes and cars from future production and sales. Using subsidies to pump up home sales beyond what people could afford was the problem that led to the crisis. Now the problem is touted as the solution.

Tax Increases & The Economy

Ever wonder about the idea that tax increases can be bad for the economy? Well the TAXPROF BLOG points out that apparently the Chair of the Council of Economic Advisers has just published research which "indicates that tax increases are highly contractionary":

Christina D. Romer (Chair, Council of Economic Advisers) & David H. Romer (UC-Berkeley, Department of Economics) have published The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks, 100 Am. Econ. Rev. 763 (2010). Here is the abstract:

This paper investigates the impact of tax changes on economic activity. We use the narrative record, such as presidential speeches and Congressional reports, to identify the size, timing, and principal motivation for all major postwar tax policy actions. This analysis allows us to separate legislated changes into those taken for reasons related to prospective economic conditions and those taken for more exogenous reasons. The behavior of output following these more exogenous changes indicates that tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes.

Since the lead author is an adviser to the President, I'm wondering why the President, and members of Congress as well, are interested, especially in a period of recession and high unemployment, in letting tax cuts during the Bush Presidency expire. Hmmm. . . .tax increases "are highly contactionary." Maybe these elected representatives think the Romers aren't very good economic researchers? Maybe these elected representatives think there is good reason to believe things will be different this time around? Maybe these elected representatives have other goals than seeing the economy pull out of this recession?

Enough Money?

TOM SOWELL on politicians and enough money:

"One of the many shallow statements that sound good-- if you don't stop and think about it-- is that 'at some point, you have made enough money.'

The key word in this statement, made by President Barack Obama recently, is "you." There is nothing wrong with my deciding how much money is enough for me or your deciding how much money is enough for you, but when politicians think that they should be deciding how much money is enough for other people, that is starting down a very slippery slope.

Politicians with the power to determine each citizen's income are no longer public servants. They are public masters."

You should read the whole piece.

Taxing Incomes & Estates

Ludwig von Mises:

If the present American methods of taxing incomes and estates had been adopted fifty years ago, most of those new things which no American would like to do without today would not have been developed at all or, if they had, would have been inaccessible to the greater part of the nation. (Theory and History, p. 238)

Profit & Loss

Ludwig von Mises:

“Profit is the difference between the higher value of the good obtained and the lower value of the good sacrificed for its obtainment. If the action, due to bungling, error, and unanticipated change in conditions, or to other circumstances, results in obtaining something to which the actor attaches a lower value than to the price paid, the action generates a loss. Since action invariably aims to substitute a state of affairs which the actor considers as more satisfactory for a state which he considers less satisfactory, action always aims at profit and never at loss. This is valid not only for the actions of individuals in a market economy but no less for the actions of the economic director of a socialist society.” (Theory and History, p. 210)

Here is President Obama commenting on profits for Wall Street businesses.



It seems to me that the best way to think about "profit" is the way Mises explains, and of course this view of profit does not support the President's view. It is always a time to profit, or to make profit, and never a welcome time when loss is made instead.

The President seems to believe that in a time of recession businesses should not be earning profits. The implication of this is that instead, in a time of recession, businesses should earning losses, because profit and loss are terms that characterize the opposite results of human actions. But this is a perverse view isn't it? After all, businesses can only earn profits if their efforts to produce and sell goods and services sufficiently predict consumer desires in the future.

Mises's view of profit and loss is also informative about the President's actions in encouraging us to believe that now is not the time for Wall Street businesses to earn profits. The President's actions in politics can either serve to gain a state of affairs he regards as more satisfactory (profit) or a state of affairs he regards as less satisfactory (loss). Thus the President is acting as though he believes he will personally profit by castigating the efforts made by others to profit themselves by supplying consumers with goods and services they want. Oh, and incidentally, when consumers are able to buy goods and services they want, the consumers gain profit for themselves as well.

In the freedom of voluntary market exchange, the actions of businesses and consumers to profit themselves is positive sum. It is indeed possible for buyers and sellers to choose well their personal courses of action in face of an uncertain future, and both buyers and sellers can profit from exchange.

The President seems to see the situation as zero sum. He seems to be suggesting that profits for Wall Street businesses necessarily mean losses for consumers. But, while a business or a consumer need not choose well and thus profit from their choices, on the whole the realm of free and voluntary exchange is positive sum. It is in the President's world, the world of politics in which the struggle between competitors is over which will win the opportunity to determine the way that force will be used in the lives of others, that we should be prepared to expect to find a zero sum (even a negative sum) world. So, it seems, the President is apparently thinking that he will personally profit by encouraging his listeners to believe that they will also profit if there is greater reliance of the zero sum realm of politics instead of the positive sum realm of market exchange.

I'm pretty sure the view the President encourages will not profit me, but I also fear that because of the nature of politics it may well profit him.

The President & Prosperity

Yesterday PRESIDENT OBAMA SPOKE before the Business Roundtable and said this:

Whatever differences we have in this country, all of us have a stake in meeting the same goal, which is an America in which a growing prosperity is shared widely by its people.

Of course, the President goes on to talk about how this growing shared prosperity can be achieved through his favorite government policies. I agree with the goal of a growing shared prosperity. I wonder how this goal should be pursued?

I think we can discover the answer to this question by reading LUDWIG VON MISES:

“. . .there is only one way a nation can achieve prosperity: if you increase capital, you increase the marginal productivity of labor, and the effect will be that real wages will rise. (p. 88)”

If you read all of the President's speech, and/or if you follow the President's policy proposals, I think you will be forced to the conclusion that the President seems to know very little about how the country's prosperity was achieved, and very little about how the country's prosperity can be sustained.

Oh, and if you have some time, you will learn many more valuable lessons by reading the entire set of lecture by Mises, than you will from following all the speeches and policies of the President. I would go so far as to suggest that if you study these seven lecture by Mises the result will be that you will be one of the most economically literate voters in the country.

A Paralyzing Presidency

KIMBERLEY STRASSEL:

The U.S. economy ought to be flying out of recession. Yet bank lending is sluggish. Companies refuse to hire. Business is going elsewhere to raise capital: China last year outstripped the U.S. as a center for initial public offerings. The market gyrates on Washington's latest political drama.

A venture capitalist recently remarked to me that the uncertainty the administration has created is "nothing short of paralyzing." Nobody will invest in an industry that might be the next to be overtaxed, overregulated, or publicly disemboweled.

Add to that uncertainty the administration's new populist bent, and it's a recipe for a continued capital freeze. "People in the economy are thinking about whether to invest or take risks when what they are seeing are early signs of Hugo Chávez economics," says Wisconsin GOP Rep. Paul Ryan. . . .

It seems to me this is a reasonable observation. Investing in the creation of new productive economic activities is a risky business. Uncertainty about what Congress and the President might do that would further burden business means that creative new productive economic activities looks even more risky. By the time someone is able to realize in some future moment the fruits of a commitment today to new economic activities, the opportunity to earn a profit may have been burdened away by new actions and new policies of the President and the Congress.

A Thousand Central Planners

MATT WELCH & NICK GILLESPIE write to President Obama:

"A thousand central planners before you have learned it the hard way: Prosperity isn't something the government creates, it's something the government, in the best case, can enable, mostly by establishing a set of simple rules and getting the hell out of the way."

Wise advice, don't you think?

Latest Index of Economic Freedom

The latest INDEX OF ECONOMIC FREEDOM is out. It reflects a downward trend over the past year for 8 of the top 10 countries with the greatest economic freedom. Only Switzerland and New Zealand, among the top 10, show an upward trend in economic freedom over the past year. The United States fell to #8 and is no longer characterized as "free" but only "mostly free." I'm not surprised.

TERRY MILLER offers commentary and this summary of the reasons for the decrease in economic freedom in the United States:

The U.S. lost ground on many fronts. Scores declined in seven of the 10 categories of economic freedom. Losses were particularly significant in the areas of financial and monetary freedom and property rights. Driving it all were the federal government's interventionist responses to the financial and economic crises of the last two years, which have included politically influenced regulatory changes, protectionist trade restrictions, massive stimulus spending and bailouts of financial and automotive firms deemed "too big to fail." These policies have resulted in job losses, discouraged entrepreneurship, and saddled America with unprecedented government deficits.

Chinese Tire Tariffs & The President

WSJ:

"The White House leaked word late Friday evening that the U.S. will impose heavy tariffs on imported Chinese tires used by millions of low-income Americans. We wonder if President Obama understands the political forces he's unleashing with this blatant protectionism.

[ . . . ]

As a candidate, Mr. Obama courted union support, and the United Steelworkers filed the tire case anticipating he would pay them back. Some in the business and policy communities thought Mr. Obama didn't really mean it, and that like Bill Clinton he would stand for the national economic interest in open trade once he became President. Mark that down as another misjudgment. In his first big trade test in the White House, Mr. Obama has allied himself with the protectionists, and the world will see his political surrender and rush to exploit it."

Well, I guess that's okay since I like paying higher prices for tires.

President To Speak To Your Kids On September 8

PRESIDENT OBAMA is going to speak to all the nation's school kids on September 8. What do you think about that?

I think the President is a politician, and this President seems to think he is pretty special and awe inspiring. So, of course, if the President asks the nation's youth to study hard, then I'm sure they will. But, because the President is a politician I'm afraid this is truly intended to be another one of his political events. I may be wrong. I think this is a very bad idea because it seems like something from one of the other counties in the world which has little use for individual liberty. Then again, a President who thinks redistributing wealth is good seems not to have high regard for individual liberty to begin with. Maybe the recent election is some measure of how far this country now falls short of holding liberty in high regard?

If you click through on the link above you can find another link to "resources" to help teachers figure out what they should teach their students about the President's address to them. Here is one of the suggestions for talking with students before his speech:

"Why is it important that we listen to the President and other elected officials, like the mayor, senators, members of congress, or the governor? Why is what they say important?"

Let me take a stab at answering. It is important to listen to those in government because they are the men and women who use force in our daily lives. Government uses force in our lives properly when it functions basically as the "protective state," which means it uses force to enforce private property rights and voluntary contracts, and it means government uses power and force to protect us from attack by people living in other countries of the world. It is important to listen to those in government because it seems these days that most of the people in government do not understand this. Instead, most of the people in government today support public policies that use force in ways that are predatory on activities of all of those outside of government who every day try to do the best for themselves and their family by being productive. Therefore, it is important to listen to those in government because if we don't pay close enough attention (and remember the old adage "watch what they do, not what they say"), then those in government will become ever more successful predators and the prosperity we enjoy today will be foolishly lost to ourselves and the very kids the President will speak to next week.

How many kids do you think will offer this answer? I think not very many because it seems to me our schools are no longer very good at teaching a curriculum for a prosperous republic.

The President's Art Endowment For Health & The Environment

JIM LINDGREN directs our attention to commentary by Patrick Courrielche with this quotation:

"Artists shouldn’t be used as tools of the state to help create a climate amenable to their positions, which is what appears to be happening in this instance. If the art community wants to tackle those issues on its own then fine. But tackling them shouldn’t come as an encouragement from the NEA to those they potentially fund at this coincidental time.

And if you think that my fear regarding the arts becoming a tool of the state is still unfounded, I leave you with a few statements made by the NEA to the art community participants on the conference call. “This is just the beginning. This is the first telephone call of a brand new conversation. We are just now learning how to really bring this community together to speak with the government. What that looks like legally?…bare with us as we learn the language so that we can speak to each other safely… “

Is the hair on your arms standing up yet?"

Jim warned of this last summer, and relevant portions of that warning are also a part of his posting about the NEA. I encourage you to read the whole thing.

Some of the things I took notice of: the idea of helping to lay a new foundation for growth, the idea of promoting a more civically engaged America, and the idea that we all celebrate the arts for positive change (perhaps one day there can even be a national holiday to celebrate the arts for positive change). Did you know there was a White House Office of Public Engagement? If you are curious about the mission of such an office, follow the link and see for yourself. While you are there be sure to download you very own copy of "Citizens Briefing Book." Right up front in that document you will find that "out of the tens of thousands of submissions, these ideas found the most support; here they are, unvarnished and unedited." "Unvarnished and unedited" is credible, right?

Oh, my, I think my posting yesterday on social engineering and planning is worth considering along with Lindgren's posting of today.