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Thursday, May 31, 2018

Capitalism and the Free Market

Many people are under the false impression that "free market capitalism" is the only kind of capitalism there is. This is, of course, absurd.
"Capitalism is an economic system where private entities own the factors of production. The four factors are entrepreneurship, capital goods, natural resources, and labor. The owners of capital goods, natural resources, and entrepreneurship exercise control through companies." 
Capitalism is about the private accumulation of capital, and that's it. 
Supporters of capitalism insist that true capitalism requires small government, but that's not true. Consider how capitalism works. It is a given that if we have a truly free market, then some people will be more skilled at accumulating capital than others. Those more skilled people will accumulate more capital than the less skilled people. The more skilled people will soon discover that, in most cases, cooperation is more efficient at accumulating capital than competition is. The more skilled capitalists will find ways to cooperate with each other in order to increase their individual stashes. 
Thus, they will necessarily create a governing body, or series of governing bodies, to build their wealth. This is the point of creating everything from "industry standards" to cartels. These governing bodies cut down on competition and increase capital accumulation for the participants. Obviously, if there is an already existing governing body, the more skilled capitalists will co-opt it, because that "governing" body helps them cooperate efficiently. Besides, it is more efficient to take over an existing body than it is to re-invent the wheel, and capitalists are all about efficiency.
So, when I point out that capitalism necessarily co-opts government and increases its size, people deny this. They deny it despite the fact that we can see the revolving door between government and business in operation every day. This revolving door is a necessary consequence of capitalism at work - the successful capitalists use every means at their disposal to accumulate wealth, and one of those means is cycling their employees through government offices in order to control the rules and thereby increase their wealth.
Not only do people deny this perfectly obvious natural consequence, they then attempt to refute the big government point by saying big government is not conducive to capitalism because big government takes capital from people by force or threat of force via taxes. Well, sure it does. That's the point. But violence and the threat of force is not antithetical to capitalism. The point of capitalism is to accumulate capital. That's it. How you get the capital is a matter of indifference. 
This is the point people don't seem to get. They insist a free market is necessary to capitalism. That's simply false. A free market might be inherently capitalistic, but capitalism does not require a free market. While a free market is often the most efficient way to gather capital, it is not always the most efficient way to gather capital. Capitalism just cares about capital accumulation. How you get that capital is a matter of complete indifference. Just get it. 
There are endless examples of violence being an efficient way to gather capital. For instance, people forget that one of the reasons the US and the Soviets did so well economically after WW II, is that the winners STOLE virtually every industry that war-time Germany built. Now, obviously, the US did better economically than Soviet Russia, but Soviet Russia bought itself another four decades by being on the winning side, and that was due in no small part to successful use of violence. As part of WW II war reparations (yes, Germany had to pay WW II reparations), the Germans were forced to make in-kind payments to the US of $23 billion in 1945 dollars. This was paid in machinery and manufacturing plants. That's right. We got free machinery and manufacturing plants of leading German technology, factories dis-assembled in Germany, re-assembled in the US and used for decades by the US to increase our manufacturing capacity at Germany's expense (the Soviets did the same). Does anyone really want to argue this activity did NOT increase American capital accumulation? Seriously? War or peace, capitalism works fine, regardless. 
If an entrepreneur can find a way to get everyone to pay a portion of their income to him, then he accumulates capital, he is a successful capitalist. Whether the people WANT to hand over the money is completely irrelevant to the successful capitalist. Whether the threat or fact of violence is involved is also completely irrelevant. As Clausewitz rightly points out, war is just the continuation of politics by other means. The corollary is obvious: violence is just the continuation of capitalism by other means. This is why capitalists have no serious objection to war. It is also  why the US has been involved in nearly continuous conflict since pretty much its inception.
Now, is socialism any better where violence is concerned? No, obviously not - in fact, it is MORE violent. But, from a capitalist point of view, the problem with socialism isn't its violence as much as it is the fact that socialism just isn't very good at accumulating capital.
Socialism uses economic tools (whether those be violent or not) inefficiently. Efficient use of violence is perfectly in harmony with capitalism, and whoever uses the various economic tools available most efficiently (which is defined as, whoever accumulates capital most efficiently) is, by definition, a great capitalist. Sometimes violence, or its threat, is going to be the most efficient way to build capital, as the corporate use of government to gather funds via taxes clearly demonstrates.

So, capitalism breeds big government. Government, big or small, is a perfectly legitimate economic actor. A free market is not necessary to the accumulation of capital, so arguing that government taxes interferes with the free market may be true, but it has no bearing on the discussion. Insofar as big government efficiently accumulates capital, every good capitalist will want his or her corporation to be a line item in big government's budget so s/he always get a cut of the accumulated capital in the pot.

The free market may lead to capitalism, but efficient capitalism does not lead to, or even necessarily want, a free market. Anyone who insists on having both at the same time, by that fact, necessarily insists on HINDERING one method to accumulate capital. In that sense, "free market capitalism" is a contradiction in terms. 

1 comment:

cwby said...

Unfortunately there is a tendency to believe that corporations and companies love free markets. They don't and they never have. Even Adam Smith acknowledged it

Businesses want a market that skews to their favor. Duh.

Their incentive is to create environments favorable to them. Of course this is bad. And it happens when we allow or encourage a larger and larger government.

Hong Kong did well up until it was reabsorbed by China. They resisted the big government tendencies and a country with almost no resources was extremely prosperous with its free market

It looks like you define capitalism as allowing private property. The example of capitalists produces more capitalism is flawed since it pretty much ends with fascism, where the state controls what businesses and corporations. This does not necessarily produce more capital, it just controls everything.

Capitalists don't want war. Some do, but to put them all in the same boat is crazy. The military capitalists like it. But what about others where the value add is greater, where the market for these goods is greater?

Instead, the government through war has chosen its winners and losers. Don't you understand that businesses compete for these same resources? Government chose war and guess who gets the resources!! All businesses are not the same.

This is possible when governments are allowed to grow and infringe or even eliminate personal freedoms for the greater good.

The question is where the line in drawn between a free market capitalism and everything else. Free markets are the most economic system that I have studied.

Successful businesses want to stay in business and become more successful. they will do what ever they can to ensure it.

We know that.

The question is what do we do about it.

We have a Constitution that protects our individual freedoms and a Declaration of Independence that explains it to a certain extent. Our country was based on Locke for a lot of its ideals

One thing is to elect representatives that believe in free markets and small government. Small government is important. they are not the independent non partisan actors that they advertise themselves to be. They have their own incentives that pervert the system.

Another is education. Schools continue to teach about the wonderful things that government does to grow the economy. they really don't. they hinder it with ill advised programs and actions.

A good lesson is to contrast FDR with Calvin Coolidge. Both had economic corrections except Coolidge's was worse. With one, almost no one noticed. With the other, we got the Great Depression

General lesson. Government programs make things worse