Because most philosophies that frown on reproduction don't survive.

Tuesday, May 27, 2008

Why Capitalism and Free Markets?

Last week I ran across an interesting post on The American Scene, which was in turn a response to a Wall Street Journal opinion piece by Thomas Frank (of What's The Matter With Kansas fame) whose purpose was to shed a few crocodile tears for the plight of beltway libertarians whose success in promoting cut throat free market ideology was making their lives as non-profit employees untenable.
Selling out is not a threat to the market order; selling out is how the market gets its way. Just look at the city in which all these remarks were made. Private-sector Washington is one of the wealthiest places in America. Public-service Washington lags considerably behind. The chance of ditching the one for the other is what accounts for everything from the power of K Street to the infamous "revolving door," by which a public servant takes a cushy corporate job after engineering some extravagant government favor for the corporation in question – or its clients.

The libertarian nonprofits that line the city's streets often serve merely to rationalize this operation after the fact, giving a pious shine to the policies that are made in this unholy manner.

To their credit, the nonprofit libertarians I watched the other night did not ask for sympathy. Their own doctrine won't permit it. Having spent years urging lawmakers to wreck the social order that once made occupations like theirs tenable, they will cling stubbornly to their free-market idol all the way down.
Frank's piece is, to be honest, not the most coherent you will ever read. There are two arguments I think one might take from it, and it's unclear whether he means to make one or both of them:

1) The triumph of a libertarian agenda (promoted by non-profit libertarian think tanks) in Washington is creating an environment in which non-profit entities will cease to exist.

2) Said triumph of libertarian agenda results in people making more money in the private sector than they do working for non-profits.

However, leaving aside which of these Frank is actually arguing, there are some interesting windows on the standard critiques of capitalism to be found in this piece. Indeed, this underlines for me that one of the biggest problems in the debate between those who think capitalism is bad for society, and those who don't, is that supporters of capitalism generally do not believe what their critiques believe them to.

Describing pro-capitalist think-tank employees he writes: "He is subsidized, in other words, to hymn the unsubsidized way of life. Rugged individualism may be his creed, but a rugged individual he ain't."

Now perhaps I'm very much mistaken, but my impression is that entities such as the Cato Institute, Heritage Foundation, American Enterprise Institute, etc. are supported by donations, not by government subsidies. Either way, however, what exactly is the different between a "non-profit" and a private company? In both cases, the entity seeks to provide some sort of service (whether a product, a publication or research) which is of sufficient value to others that it receives enough money to keep doing what it's doing. The only different with a non-profit is that it does not, at the end of the year, expect to have a surplus net income to distribute to its owners.

So how is it that free market advocates are wrecking the social order that once made occupations like theirs tenable? If Frank's argument is 1) that I listed, it's very hard to see how this is the case. There's nothing about a capitalist free market economy that prevents people from donating money to support research/advocacy organizations that they like. And so it's not clear to me how the agenda of free market advocacy groups serves to destroy the social order that made them possible.

If, on the other hand, his argument is primarily 2), then perhaps one could argue that increasingly free markets would make professionals of equal skills in the private sector able to make more money than those at non-profits might reasonably expect to make. In other words: free market advocacy might benefit those in the private sector much more than the amount of "trickle down" to the non-profits themselves benefits the advocates.

What I think we're seeing at the root of all this, however, is the worldview of a certain critique of capitalism, in which it is held that capitalism is essentially the deification of "profit" and that profit is simply another word for greed. This explains the comment that supporting capitalism will destroy the social order that makes non-profits possible: In a completely capitalistic order everyone would be so greedy that no one would donate any money to anything -- and they would make themselves feel good about it by insisting that those freeloaders who don't make a profit don't deserve any money anyway.

This characterization is certainly well designed to create feelings of righteousness in the hearts of those who believe that the only way anything good will ever be done is if smart and virtuous central planners do it for us, but it doesn't necessarily correlate well with what most free market advocates actually think and do.

The real people who advocate capitalism do not generally do so out of a belief that profit and the accumulation of wealth are the highest metaphysical and moral values in the universe, but rather out of the much more innocent conviction that generally the best person to decide what to do with resources is the person who created them.

Capitalism, like democracy, is a compromise resulting from our confused and fallen state. We advocate democracy not because there is some inherent value in a decision simply by virtue of a majority of voters approving it -- rather, history is full of wrongs which were lauded by the majority -- but rather because we lack the confidence that most people know what is really the best thing to do in any given situation. Democracy thus has the virtue of providing people with the government they deserve.

If the right thing to do in every situation was obvious and well known, then surely we would do well to support some more efficient form of government, perhaps an oligarchy or benevolent dictatorship.

As with power, so with money. I, for one, have a great skepticism that oligarchs or central planners really know where it would be best for all of society's resources to be allocated, and so it seems to me best that each person in society control the fruits of his labor, and allocate them as he sees best. At least that way we may hope that many people manage to do what is right, and if they fail to, they shall be getting the economy and society they deserve.

11 comments:

Zachary said...

"Capitalism, like democracy, is a compromise resulting from our confused and fallen state. We advocate democracy not because there is some inherent value in a decision simply by virtue of a majority of voters approving it -- rather, history is full of wrongs which were lauded by the majority -- but rather because we lack the confidence that most people know what is really the best thing to do in any given situation. Democracy thus has the virtue of providing people with the government they deserve.

If the right thing to do in every situation was obvious and well known, then surely we would do well to support some more efficient form of government, perhaps an oligarchy or benevolent dictatorship."

Good stuff!

This is only tangentially related, but have you ever read any William T. Cavanaugh? If so, any thoughts?

I've been looking over some of his material and I seem to, at least superficially, agree with some of his critiques of capitalism.

I bring this up because your article articulates my fundamental rejoinder to the socialists(of whatever stripe) - capitalism as an economic system is the best out of a bunch of bad choices.

LogEyed Roman said...

Well said, Darwin.

I don't have my copy of "The Holy City" handy, but I recommend it to you and to others who wish a Catholic discussion of property etc.

The Church advocates the protection of private property in part for a very pragmatic reason related to what you said: She believes that the owner of property will be most likely to want to take care of it and not squander it.

Private owners have hardly had a stellar history of stewardship, but the real prizes in waste and greed have always been by those who disposed of wealth produced by others. This is whether they got hold of the wealth by legislative confiscation or by the more frank and robust method of armed plunder. (Though of course the confiscation of private property via taxation etc. is always supported by armed force in the end anyway.)

Decades ago, my sister and my father had an argument about this. My sister had lived a little too long in the People's Republic of Berkeley and was trying to say taht all the unfairness etc. would be fixed if we had socialism. My father simply asked why the managers of society would be any more moral under socialism than under capitalism? I would say that the history of the 20th Century gives a resounding negative on this. Moreover, while the actual producers of resources are not necessariy more moral than the liberal government or Mongol horde who want to take them away from them, the tend to understand them better and will at least not make the incredible boneheaded mistakes which produce the spectacular failures we have seen under planned economies.

I spoke to some people who worked with exchange students. One a woman who was part of the community who housed them; another who worked at a major university and was involved in administering their schooling. The both agreed that, overwhelmingly, the most childish, selfish, immature, undisciplined students were from the elites of socialist countries. By a huge margin.

LogEyed Roman

Darwin said...

Zachary,

No, I don't think I've read any Cavanaugh. What of his have you been reading?

Katherine said...

I, for one, have a great skepticism that oligarchs or central planners really know where it would be best for all of society's resources to be allocated, and so it seems to me best that each person in society control the fruits of his labor, and allocate them as he sees best.

Not a bad view, but one that still leave capitialism open to much criticism. The Catholic Church has a long history of questioning capitalism's ability to always guarantee that "each person in society control the fruits of his labor."

The just fruits of one's labor and the wage an employer gives a worker are not the same, the Church has long held. A man works to provide for himself and his family the basic needs of life. It is not unjust that some work is better rewarded than other. But if a man performs even unskilled labor, offering his employer only the brawn of his back and the sweat of his brow, 8 hours a day, five days a week, 52 weeks of the year, justice demands that work be organized in way where that man can be compensated justly.

Man is also social in nature, so it is just that provisions be made for vicissitudes of life that are unavoidable. Therefore it is a sign of a wholesome social solidarity to have social insurance programmes for sickness, injury, unemployment, disability and old age.

That same sense of wholesome social solidarity leads man to build fraternity among those of a common craft or trade. And the agents of that fraternity are the best means for advancing a protection of their just rights and legitimate interests.

Lastly, the state has a obligation to promote the common good as well as the protection of the weak and powerless. Workplace safety, pure food and drugs, the protection of intellectual property, and enforcement of honesty in commerce are all legitimate obligations of the state.

Darwin said...

Katherine,

I'm certainly open to the argument that, for a variety of reasons, capitalism may often not reward someone very justly. Quite frequently it doesn't. It's just that in my opinion either socialism (the political system, not the rhetorical accusations) and collective bargaining of the modern American union variety are even less likely to get it right.

Katherine said...

Dear Mr. Darwin,

It is so wonderfully refreshing to hear of a man interested in making a real critic of socialism rather than just using it as an accusation and rhetorical tool. May God bless you!!!!

Let's come back to socialism later, which we can define as the policies and programmes of the political parties that make up the Socialist International and the mllions of people who follow those parties.

But I am interested in your view that collective bargaining through worker organization is less likely to "get it right" than the unregulated free market. If you would like to reference the Church's social teaching on this, it would be helpful to me, but not essential. I would also be interested in your broad overview of social insurance for injury, sickness, old age, unemployment and disability.

Darwin said...

At the broadest possible level, I would say that society is most likely to be just when it is based on the individual interactions and relationships between people.

In regards to trade and employment, these are most likely to be just when transactions are fairly individual. The more commoditized a labor or product market becomes, the more likely it is that some people will find themselves the victims of some sort of persistent injustice. Collective bargaining is essentially a way to try to confront commoditized labor markets. I think it is at certain times necessary (as in turn are professional organizations of skilled tradesmen which seek to enforce quality) to engage in labor organization -- but as in anything else power structures often become self perpetuating, and it seems to me that in our current day and age most labor unions in the US have become organizations that exist primarily for their own self-perpetuation, and do so by protecting mediocre workings while slowing exceptional ones.

I would say the ideal, though, is always one of individuals reaching their own individual agreements over the price of goods and labor -- based on long term relationships of interdependence.

On the issues of social insurance you mention: I think that all of those are important, but that to a great extent our current perceived need to achieve them through very large scale government means is the result of the fragmenting of familial and community obligations. I'd say that in a healthy society, those things are dealt with at the most local and personal level possibly -- by which I mean both administered and paid for, not simply that a local federal office deals with the hand-outs. The ideal would be that all money that you and I give for social benefits such as that would go to other people within a local community of no more than a few thousand families -- such that you always knew who you were caring for and who cared for you. It is in that way, it seems to me, that we preserve the bonds of relationship which make that kind of action not only a duty but a virtue -- and something which further knits the community together.

Katherine said...

Dear Mr. Darwin --

I think you make some very valid and important points. I deeply appreciate your kindness in responding to me. Let me comment on your first point, which is the item of greater interest to me. I understand the principle of transactions being from individual to individual. But, is not the corporation a collectivization? The great majority of trade and commerce in modern society would be by collectivized capital and management. Few workers truly have the opportunity to relate, bargain, negotiate and develop relationship with another individual, instead, it is with the corporation.

There certainly is a certain appeal from a Catholic standpoint of the "small is beautiful" philosophy that maintains relationships on such a direct, interpersonal plane. But such a social system is not capitalism. Capitalism requires the state to recognize the corporation as a legal person (and you thought only God could create a person! :) ).

This legal person is of great advantage to capital. They are sheilded from libility and are invested with many of the rights of natural, God-made persons.

It seems to me that if we allow and even promote association on one side, it is appropriate for the other.

I find great appeal in your proposition that:

The ideal would be that all money that you and I give for social benefits such as that would go to other people within a local community of no more than a few thousand families -- such that you always knew who you were caring for and who cared for you. It is in that way, it seems to me, that we preserve the bonds of relationship which make that kind of action not only a duty but a virtue -- and something which further knits the community together.

This seems to have both merit and flaws. Small communities of 2000 people allows for interpersonal relationships, but given the reality of economic segregation in our society, where hundreds of thousands live in ghettos and impoverished neighborhoods creates problems. Bergen County would be a great place to be in a pool of 2000. Watts would not.

One of the problems we suffer today with socialization of risk without universalization is that people try to 'game the system' by trying to find the pool where they have the highest risk.

However, your proposal would work quite well with Senator Obama's health care plan. Rather than the present day, where families health insurance is chosen by their employer with little worker input (at least in non-union situations), the Obama proposal would allow the creation of just such of the communities you suggest and give families the ability to select them as their health care provider.

This is actually quite stimulating matter for discussion.

Darwin said...

Ah, some more discussiong just in time for lunch...

A couple brief thoughts. I hope you won't think I'm failing to fully engage -- but it seems to me that these topics have enough depth in them that it would be easy to rat hole.

On capitalism: At the most basic level, capitalism basically just means that things are owned by individuals (rather than by the community or state) and that because both labor and goods are individually owned, the price of labor and goods are set by the willingness of those who currently own them to part with them for a given price. The development of "corporate persons" is one way to allow capitalism to scale beyong the very, very small level, but I'm not sure it's necessarily intrinsic to it.

That said, I have difficulty being bothered by the existence of the corporate person. In part, this is because it has at certain times protected me. For several years I ran a very small web development company in partnership with a friend. Eventually we were both totally burned out at the workload (and as a result of some poor decisions on our part) and so we found new homes for all our clients and closed up shop. Especially during the closing up period (and a couple other rocky ones -- people can get very angry with you when you're running something which is essential to them and yet they don't understand), I took a real degree of comfort in knowing that if someone decided to sue us, they could only take away all our business assets, not my family's home and personal savings.

In working for companies, both small (20 employees) and large (Fortune 50), I've similarly found myself quite able and free to decide whether to work for a given company based on what they want me to do and what they pay me, and to negotiate those questions. So I've never really felt that corporate personhood allows others to gang up on individual workers or customers. That said, I do think that there have been times and places in history when worker collectivization was needed in order to protect workers. I just don't think that modern middle class US workers are generally in that situation.

In regards to health care -- I'd agree with you that inequalities of different areas would make that sort of very local solution difficult.

Another thing -- and I think the irony of this underscores how difficult the health care problem is -- is our desire not to impose strict consequences on people who opt out. One of the things that makes insurance costly is that people who think themselves unlikely to need coverage can easily go without or get very minimal coverage. This saves them money (and I did that as a college student and took my chances) and at the same time means that the pool of people who are insured (or want to be) are in poorer health than the average.

Now there are two ways to deal with this:

The free will method is to impose heavy costs on opting out, thus incenting people not to opt out.

The top down method is to simply force everyone to be in whether they want it or not.

However, we as a society recoil both at forcing people to do things (option two) or locking them out of the system for past mis-behavior (option one) and so we end up incenting behavior which in the end makes things more difficult.

Katherine said...

Ah, some more discussiong just in time for lunch...

A couple brief thoughts. I hope you won't think I'm failing to fully engage -- but it seems to me that these topics have enough depth in them that it would be easy to rat hole.


No, I appreciate your thoughtful responses. Certainly it is a big a broad topic. I’m also sorry to interrupt your lunch.

On capitalism: At the most basic level, capitalism basically just means that things are owned by individuals (rather than by the community or state) and that because both labor and goods are individually owned, the price of labor and goods are set by the willingness of those who currently own them to part with them for a given price. The development of "corporate persons" is one way to allow capitalism to scale beyong the very, very small level, but I'm not sure it's necessarily intrinsic to it.

Yes, you are right, but while the corporation may not be intrinsic to capitalism, certainly in our modern society it would be a radical change to do without.

That said, I have difficulty being bothered by the existence of the corporate person. In part, this is because it has at certain times protected me.

Yes, I would agree. And I must confess that at times, labor organization has protected me. That is the purpose of organization. Certainly some entrepreneurs choose not to incorporate and others do. It would seem though if this is an option for capital, it should not be precluded as an option for labor.

In working for companies, both small (20 employees) and large (Fortune 50), I've similarly found myself quite able and free to decide whether to work for a given company based on what they want me to do and what they pay me, and to negotiate those questions.

I think that is more often the situation with small employers and with supervisory or highly skilled professionals. For production workers in large companies, I find that is rarely the case. Hiring officials have very little latitude to negotiate.

In regards to health care -- I'd agree with you that inequalities of different areas would make that sort of very local solution difficult.

Yes. Small plans with the interpersonal relationships so long as they were not based on small geographic zones. Some of the union sponsored plans for a local of a particular trade (Bricklayers, electricians, etc) accomplish this. Again, the Obama health care plan would also accommodate this as well.

One of the things that makes insurance costly is that people who think themselves unlikely to need coverage can easily go without or get very minimal coverage. This saves them money (and I did that as a college student and took my chances) and at the same time means that the pool of people who are insured (or want to be) are in poorer health than the average.

Very true.

Now there are two ways to deal with this:

The free will method is to impose heavy costs on opting out, thus incenting people not to opt out.

The top down method is to simply force everyone to be in whether they want it or not.

However, we as a society recoil both at forcing people to do things (option two) or locking them out of the system for past mis-behavior (option one) and so we end up incenting behavior which in the end makes things more difficult.


I guess it would be unseemly of me to suggest people of my generation tend to make wise decisions as to electing to opt out or not of Medicare part B (which is voluntary) while some of the young kids seem to recklessly take chances with health care. Senator Kennedy (and may God be with him as he recovers from his surgery) helped pass what I think was a very good bill last year which allowed employers to automatically enroll their new employees in the 401(k) plans but with an opt-out, rather than the previous law which required new employees to opt in to the retirement plan. A simple change, but it is being found to substantially increase participation in the retirement plan.

I hope you had a good lunch.

Myron said...

We advocate democracy not because there is some inherent value in a decision simply by virtue of a majority of voters approving it ... Democracy thus has the virtue of providing people with the government they deserve.

This type of argument, saying "if we don't make good decisions, at least it's because we're doing what everyone asked for and they'll suffer the consequences of their own stupidity" misses an important point about why democracy (when it operates as it should) beats monarchy/ogliarchy.

Democracy (even representative democracy) manages to integrate more information into the decision-making process than other forms of govnerment. When done properly, freedom of speech, freedom of the press, and the associated ability for anyone to put forward an idea mean that the smartest ideas will float to the top. An open debate and dialog among every intelligent person in a society who has information relevant to a particular decision will produce decisions that are far superior to the decisions made by any individual, because no individual has the ability to understand the amount of information that is the sum of our collective knowledge. Effectively, having the power of government decentralized with freedom of information means that whoever has the knowledge to make the best decision in a given situation will be the one to make that particular decision (indirectly, by presenting an opinion which has greater merit than others, and thus gets accepted as the basis for that decison).

Why does decentralized (market-driven) economics work better than central planning? Because the owner of a factory that makes shoes knows a lot more about the shoemaking business than any central planner, and in a free market that is who gets to set the price for shoes. No matter the effort that goes into planning, centralized planners could never match the level and detail of information that is exchanged through market prices.

Properly run democracy (where information exhchange is promoted and systems are built so that no one person has too much power to go with their own ideas rather than those presented and accepted by others) works similarly for governance.

Of course, that's all very nice in theory. In practice, distortion of information, the misunderstanding that democracy = the majority knows best (rather than "everyone has a chance to put forward their ideas, and thus a voice in governance if their ideas make sense"), and concentration of power, are constant problems. But understanding the theory behind the kind of democracy which would lead to good government (not just "the government the mob deserves"), and why, can allow us to push for the strengthening of those institutions that will make it possible. The point isn't that the opinion of the masses is better than the opinion of the smartest individuals (it isn't - of course rule by an intelligent elite would be better than majority rule) or that in democracy we get what we deserve. It's that decentralized power and promotion of information exchange can work the same in the political sphere as they do in the economic sphere.