Capitalism, the Free Market,

and the Duties of Property and Contract

(after Ludwig von Mises, Karl Popper, & Friedrich A. Hayek)

Respect for the interests of person seems very different from respect for interests of property and contract. There has also been historic dispute about the latter. Socialism and anarchism ("property is theft") advocate no respect for private property; and even when rights to private property are conceded, there is dispute about just what such rights are. Contracts, especially concerning employment, now tend to be heavily regulated by law, usually on the paternalistic principle that contractors cannot protect their own interests through free agreements, or perhaps don't even know what their true interests are. Duties of property and contract have developed historically, where at some time most things counting as property or concerning contract didn't even exist. The best approach, then, is to provide for the peculiarities of these duties in a separate polynomic domain, the morality of things, with a somewhat attenuated force of duty, the jussive. Jussive moral duties are based on respect for property and contract even as imperative moral duties are based on respect for persons. Since persons tend to get excited about people messing with their property, breaking the contracts that they agree to, or forcing them legally into deals they don't like, there is a clear connection between jussives and imperatives.

The morality of property and contract is the bridge between imperatives and hortatives and must do two things: 1) it must presuppose and protect the morality and so the autonomy of persons, and 2) it must further the general interests, i.e. the wealth and well-being, of those persons as they judge it themselves. It is arguable that only rights of property and contract can really protect the autonomy of persons. That would base jussives directly on imperatives. That would leave their moral force unproblematic. However, although it leaves the real question of justification more obscure, the more utilitarian justification of Hume, Mill, and Hayek opens the issue up in relation to hortative goods. According to F.A. Hayek, the morality of property and contract is falsifiable, i.e. its principles are not self-evidently true but must be pragmatically evaluated as to their effect on the autonomy of persons and the promotion of general wealth and well-being. Thus, Hayek says:

The institutions of property, as they exist at present, are hardly perfect; indeed, we can hardly yet say in what such perfection might consist. Cultural and moral evolution do require further steps if the institution of several property is in fact to be as beneficial as it can be. [The Fatal Conceit, The Errors of Socialism, University of Chicago Press, 1988, 1991, p.35]

The laws of property become constructed over time, but Hayek sees this process not as a grand design of lawgivers, the result of a "constructivist rationalism," but as emergent order of often unintended consequences, where deliberate decisions are made at the level closest to those with the best knowledge of economic transactions, the ones who also bear the costs of any mistakes and so have the strongest motives to get things right. This is then a form of "cultural and moral evolution" that mimics the emergent and unintentional characteristics of organic evolution, without, however, the sense of "social Darwinism" that the "unfit," i.e. actual citizens, should simply die in a sort of social law of the jungle. Critics of Capitalism never notice that what we want to fail and disappear are unproductive, inefficient, and unwanted businesses, whose elimination is a benefit to consumers. Somehow their purported defense of consumers, as in the "too big to fail" bailouts of the 2008-2009 recession, often has the curious political effect of protecting rent-seeking businesses (e.g. GM, GE, etc.) and of increasing costs and decreasing value to consumers, in violation of Adam Smith's principle that the purpose of production is consumption. This ironic result occurs because anti-Capitalist critics of corporations frequently are committed to the creation of a Corporatist State, in which monopoly business, far from being an evil, is a function and tool of the natural monopoly of the government. This was the horrific economic structure of the Soviet Union.

The trial and error process by which the laws of property and contract evolve can, of course, be seen in Socratic terms as a process through which opinion may be replaced with knowledge, and we all "learn better" and cease to do the unproductive things we have been doing previously (cf. Apology 26a). Thus, what evolves is not so much either organic or external as it is cognitive and internal. As Hayek himself asserts, the "extended order" of capitalism is a way of dealing with limited knowledge, not only knowledge of economic factors like available resources and consumer preferences, but the meta-knowledge of proper legal frameworks and economic principles. All this is an instance of the humility of Socratic Ignorance. Such humility is conspicuously lacking in socialist projects of command and control:

So, priding itself on having built its world as if it had designed it, and blaming itself for not having designed it better, humankind is now to set out to do just that. The aim of socialism is no less than to effect a complete redesigning of our traditional morals, law, and language, and on this basis to stamp out the old order and the supposedly inexorable, unjustifiable conditions that prevent the institution of reason, fulfilment, true freedom, and justice. [ibid., p.67]

The most ambitious attempts to institute a socialist heaven on earth, however, have instead displayed the dynamic of producing hells on earth instead.

An excellent example of progress over time at the boundaries of personal and property law concerns the disposition of debtors. In Roman law, the ultimate recourse for the discharge of debts was selling family members into slavery. We also see children sold into slavery for economic reasons as far away as China, where, for instance, girls often entered a career of prostitution in that way. But having first lost their children, the parents might finally be bound to sell themselves into slavery. In those terms, the later introduction of debtor's prison was a case of considerable moral advancement, except for the paradox that anyone held in prison is therefore not in any position to work towards the discharage of his debts. Inmates were even expected to be fed by their families, or to beg through the windows for support. This didn't make a whole lot of sense. It almost looks like a case of holding a debtor hostage until family or friends can pay off the debts.

The institution of bankruptcy thus represented a victory both for humanity and for rationality. Persons hopelessly in debt can settle with creditors for as much as can reasonably be paid and then will be allowed to start over, now as a much more productive member of society than a slave or a prisoner would be. This formalizes a practice that actually goes back to the Bible, of having the legal system periodically forgive debts so that all can start fresh.

And ye shall hallow the fiftieth year, and proclaim liberty [áphesis, "forgiveness"] throughout all the land unto all the inhabitants thereof: it shall be a jubilee [eniautòs aphéseôs, "cycle of forgiveness"] unto you; and ye shall return every man unto his possession, and ye shall return every man unto his family. [Leviticus 25:10, with some terms from the Septuagint -- this is the origin of the inscription on the Liberty Bell and of countless references to the "Jubilee" during the Civil War, as in the song "Marching Through Georgia"]

Under bankruptcy laws, the debtor need not wait perhaps fifty years until the next "jubilee", or for the unpredictable magnanimity of the sovereign to similarly forgive debts. A worker may say, "I sold my soul to the company store," but the company cannot legally hold the worker in physical bondage or servitude to the debt, which seems to be forgotten in the protest song.

A similiar provision for debt is found in the device of the "limited liability" corportion -- a much older provision, as seen in the "Ltd." designation of traditional British corporations, than in the newly familiar "LLC." In this, the owners of a company are not personally liable for the debts of the company. In bankruptcy, the creditors of the company can only be expected to be paid from the actual assets of the company, which intially consist of the capital invested by the original owners and investors and later of the assets acquired in the course of business. An owner or stockholder may lose all that they have invested, but they do not need to worry about their other assets or investments. The purpose of this device is to encourage the formation of new commercial enterprises, whose burden on investors can be specified and limited. Not all corporations operate under this limitation. The owners of the venerable insurance company Lloyd's of London are personally liable for the full debts of the company. Despite the age and reputation of Lloyd's, I think this would make investing in it a frightening proposition. At the same time, the lunatic fringe Left, which doesn't like corporations at all, presently is promoting a movement to strip corporations of all rights. Presumably this would also include the right of limited liability. Since the Left doesn't actually believe in individual rights either, one might begin to wonder where rights are supposed to inhere. But the answer to that is simple: Only in the State.

Hayek's own example of recent innovations in property law concerns what is now called "intellectual" property, even as he reflects on the irony of intellectuals who otherise disparage material property rights:

Those very intellectuals who are generally inclined to question those forms of material property which are indispensible for the efficient organisation of the material means of production have become the most enthusiastic supporters of certain immaterial property rights invented only relatively recently, having to do, for example, with literary productions and technological inventions (i.e., copyright and patents). [ibid., p.36]

As the periods for which copyright and patents hold keep being extended, the rationale of the Constitution for a "limited period" to encourage progress and development has been evolving into a sense of permanent rights. This may be considered to be getting out of hand, as not long ago an attempt was made to bill organizations like the Boy Scouts for the royalties due for songs sung around the campfire. I have noticed photographs and illustrations disappear out of the later editions of books, apparently because of the burden of following newly evolved copyright principles in obtaining permission or release for their use. These cases represent a struggle over where boundaries are going to be, with the consideration in the background that this area of law and rights was originally intended to serve certain public purposes, not just render intellectual rights into the sort of absolute use and possession rules that intellectuals tend to despise for material property.

These are questions of political economy -- a discipline now usually just called "economics" but still with an inevitable political component. The political component most concerns the autonomy of persons, i.e. do the principles of property and contract result in massacres and labor or concentration camps, or in a society where innocent people generally do as they wish? The economic component most concerns the ability of the system to produce wealth on a broad scale. This is a deontological modification of Utilitarianism (sometimes called rule or indirect utilitarianism), in which the jussive principles that evolve historically are not duties to produce the general good but do function to actually produce the general good even as they are used by persons only as moral rules of justice to protect and further their own interests.

ETHICS MORALITY Euergetic Ethics, the good and the bad: non-moral worth in human life, the good of teleological ethics, the worth and meaning of life -- happiness, fulfillment, etc. -- things good-for-us: Hortatives -- exhortations PERSONS Morality of things, right and wrong: ethics of property, contract and public order; moral force of legislation, subject to practical falsification; liberties of the marketplace: Jussives -- commands Morality of persons, right and wrong: ethics of personal duty and virtue, intention and justice; dignity of persons, respect for other persons in intention and in action: Imperatives -- commands

right

right

good , right , right of profit , good

Graphic Version of Table

Any kind of utilitarianism, however, always leaves us with the problem of how it can be a duty to "further the general interests" of people in society. The answer must be that it is not, for us as individuals. Instead it can only be a duty for the state, as a corporate entity, to provide for general interests. The state can do that by providing the protections, against violence, negligence, and fraud, needed by the free market. As an implied contract to provide for the general welfare, the state can have no other function beyond that and the general enforcement of justice to protect individuals, property, and contracts. On the other hand, if the state provides for general interests only indirectly by being the guarantor of justice, this does not need to be understood as any kind of contract; for no one agrees to be bound by justice. Those who do wrong certainly do not agree to be bound by justice, but those are precisely the ones against whom the state will legitimately exercise force.

It is through law, of course, that the state administers justice. The prima facie moral duty to obey law cannot be derived from the existence of law as such, but from the presumption that the laws implement the proper purpose of the state. As Thomas Jefferson says in the Declaration of Independence:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the Pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed. That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.

By securing the rights of person, property, and contract, the state and the law in fact further the general welfare -- our "Safety and Happiness." Sometimes to accomplish this the law must make arbitrary decisions. Which side of the street we drive our cars on is completely arbitrary. There is no reason why the right side is preferable to the left. But it must be one or the other; and once the decision is established in the law, the lack of a natural reason to prefer right over left (or the opposite, in Britain or Japan) cannot detract from the moral force of the law. Similarly with more modern problems, like use of the electromagnetic spectrum: Someone acquires the right, through law, of broadcasting or otherwise employing certain wavelengths of radiowaves or microwaves. The use boundaries and the means of acquiring rights to the spectrum simply would not exist outside of their legal definition [note]. The force of law in these matters is expressed through arbitrary conventions, but the conventions themselves allow the law to serve purposes that are neither arbitrary nor conventional. The law therefore must be such as to merit respect by serving its proper purposes. If it demands respect just because it is the law, this is very likely to conceal a corruption of its original and proper purposes into some other purposes that will not hold up under examination.

The principles of property and contract are the functioning morality of capitalism, which is based on private property and contract without any special obligation to advance the interests of others or abridge one's own interests for the benefit of society. Nevertheless such rules unintentionally further the general well-being and growth of wealth for all. Capitalism can produce such results because of the free market. The free market solves the problem of the self-defined character of hortative goods, where, as we see Kant say above, "welfare has no principle," i.e. the good of individual benefit and preference cannot be defined by a rule that will apply uniformly to everyone.

The free market is established by imperative and jussives goods, protections against violence, fraud, and any other coercion or dishonesty, but no one in advance ever needs to know what anyone else in particular wants when it comes to the general goods of euergetic ethics -- hortative goods. Instead one can offer goods that one thinks someone else might want and then see if there are any takers. On the other hand, if someone wants something, then they can just seek out someone else who may be offering it. All that buyer and seller need is some way of making contact. That is called advertising. Exchanges of self-defined hortative value take place without the knowledge or concern of anyone else. Thus, what someone wants or values need not be predicted or known by anyone in any kind of public authority. Indeed, what people want or value cannot be predicted, known, or calculated by anyone in public authority -- it is often difficult enough when one is buying presents for those of intimate acquaintance -- which is why capitalism produces wealth to a greater degree than any other system: every exchange in the marketplace is a transaction, and transactions are wealth. All other things being equal, more transactions will deflate a constant supply of money, i.e. will make the money more valuable (prices will fall), or will allow for the money supply to grow while retaining the same value (prices remain the same).

That no one can say what someone else wants is the foundation of the free market. It is what enables us to solve the problem of the relativism of euergetic/hortative goods. The free market actually enables everyone to get what they want. Even democracy at its best rarely represents more than the wishes of 50 to 60% of the population. That can be called, and often is, the tyranny of the majority. In the free market, however, any taste can be catered to; and no one in political power need ever even ask what people want. The wants and the products seek each other out without the help of anyone outside of advertising. That is deeply shocking to many. Whether it is called "permissiveness" by the Right or "consumerism" by the Left, the exuberance of popular culture, especially its vulgarity, garishness, frivolity, and eroticism, is a profound challenge to the anaesthetic moralism that characterizes the mentality of those who would like to be, or are accustomed to be, telling others what kinds of worthy things they ought to be doing. This kind of popular culture is often not even given credit for being "true" popular culture -- it is just "mass" culture.

The great traditional alternative to capitalistic political economy has been socialism (or communism), where persons are expected to work for the interests of others, either directly or by proxy of the state, and not just for their own interests. As intentionally implemented in communist states, socialist rules of political economy failed by both criteria above: 1) the autonomy of persons was repeatedly violated by massive applications of murderous force and by large scale restrictions on innocent speech and activities, and 2) wealth was produced nowhere near to the extent promised or anticipated, production and development lagged far behind capitalistic countries, and much of the wealth that was produced became concentrated in the hands of the politically privileged, despite constant criticism of the disparities of wealth under capitalism. Without a marketplace, economic planners are expected to know what people want; but clearly they cannot know all, and even if they do find out some, they may well reject the wants as unworthy. And so many people's wants, and needs, will not be provided for. Since prices depend on demand, and demand cannot be calculated without a market, the great Austrian economist Ludwig von Mises (1881-1973), a man with the distinction of having his papers stolen first by the Nazis and then by the Soviets, argued in 1920 that a socialist economy cannot calculate prices and so cannot calculate how much or how little to produce of anything. I have already noted how F.A. Hayek developed this argument from limited knowledge. It is a sorry truth of history that it took another seventy years for that truth to be brought home by the practice, by the general pauperization, by the devastation of land and industry, and especially by the terror and murder of millions, in the Soviet Union and its satellites. Even on the verge of collapse, the Soviet Union still managed to deceive the credulous: The dean of the MIT school of business, Lester Thurow, said in 1989:

Can economic command significantly accelerate the growth process? The remarkable performance of the Soviet Union suggests it can. Today it is a country whose economic achievements bear comparison with those of the United States. [Hoover Digest, 2000 No. 2, p.151]

This was bitter, ignorant nonsense at the time, especially considering that glasnost had made it possible for outsiders in the late 80's to inspect the Soviet Union as previous travelers had been unable to. Yet even today, after the full story is out, American politicians and academics still advocate price-fixing (in medical care, the labor market, and agriculture especially) and other command-economy forms of regulation, justifying them with outrageous Marxist clichés, as though nothing had ever happened to self-professedly "social" economies. Meanwhile, in 2003 Russia stood, according to The Economist, as only the 18th largest economy in the world, behind Taiwan (16) and even Argentina (17). The ranking of the Soviet Union as the 2nd largest economy in the world, as it was from the 50's to the 80's, is open to serious question. No one ever believed Russia's own statistics, but its economy was never as large as even the CIA thought it was -- some anti-American critics now even claim that the CIA did that deliberately, in order to exaggerate the Soviet threat and perpetuate the Cold War (whose existence was to the CIA's bureaucratic advantage).

The starting point for an evaluation of capitalism must be the principle that poverty is not an injustice: it is no more than the natural condition of humanity [note]. There are therefore no "causes of poverty," only causes of wealth. This means that there is no such thing as "social justice" -- poverty in the presence of wealth is not as such a wrong. Only theft, taking by fraud or force, is a wrong. Property and contract, commerce and industry are what alter the natural condition of humanity thanks to the enterprise and imagination -- the hortative virtues of prudence -- of those who create the products of technological society and hire the people to manufacture them. Wealth is not found, it is created [note]. It is not justice to "distribute" wealth that must be coercively taken from its creators in order to be given to those who have not created it. That is theft. And doing that, sacrificing freedom in order to create "equality," never accomplishes that end, since it is the distributors themselves, given power over people's freedom, who become "more equal than others."

Capitalism, by separating the private personal sphere of life from an impersonal public sphere, the marketplace, is inevitably perceived as dehumanizing public life. The impersonal marketplace is merciless and uncaring, operating without compassion or charity. What that contrasts with are older conceptions of society where everyone has the right to be directly cared for by a personal public authority. Those were institutions of religious and political altruistic moralism: a moral infantilization where the right of support is gained at the expense of paternalism and the loss of privacy and autonomy -- i.e. hortative goods are determined by those in authority. The expense of personal "caring" is perpetual dependency; and in a society that may be without much wealth to start with, it can provide real abundance only for those charged with its charitable distribution to others. That distribution was curiously never so great as to leave the distributors with any dearth for themselves.

Karl Popper distinguishes the "closed society" from the "open society." The closed society means the pattern of all traditional societies, and that of the utopianism that would like to return to the form of traditional societies, namely socialism. The pattern is that all moral and factual knowledge needed to run society is actually known to those in authority. That is why the society is "closed": it is complete and self-contained -- everything has a place and everything (and everyone) is in its place. Those in authority, knowing the good (as in Plato's Republic), are thereby able to arrange society into its proper hierarchical structure of those who are dependent and cared for and those who are altruistically productive and caring -- all as in Confucian relationships of xiào, "filial piety." The opposite of this, which is found only in Western liberal democracy and capitalism, is the "open" society, which means that no one in authority actually has or is expected to have moral and factual knowledge in any complete or finished manner. The openness of the society consists in the limitation of the authority of those with political power and the provision of the free market for the exchange of value for value as everyone provides or seeks out all the different kinds of goods that imagination and taste can conceive and prefer.

Objections to the privilege of those in traditional and supposedly benevolent political authority led to capitalism itself; but yearning has never ceased for the comfort, security, and certainty of the older societies. For much as "hierarchy" has become a dirty word to many trendy intellectuals, hierarchical, paternalistic societies are the "natural" state of human communities and exert a constant pull on our sentiments. Demand for them tends to return either through outright conservative and religious yearnings for the old ways or more subtly through socialistic and so-called "liberal" conceptions, which, promoted by the trendy intellectuals themselves, with the old religious trappings stripped away, again would establish a personal authority to redistribute wealth out of compassion and caring: in practice, of course, the compassion and caring become a patronizing condescension that sees to its own comfort first and then uses its political power to prevent criticism. The old abuses of aristocratic privilege returned to full life in the Soviet Union. There is privilege in capitalism also, for anyone with money; but the difference is that in the free market anybody can make a buck, if they are ambitious and imaginative enough. They don't have to have anyone's permission to do that (unless bureaucracy and regulation have closed in on their industry); all they need is something to sell that someone wants to buy. The irony in American capitalism is that some of its loudest public critics, actors and popular singers, make their often considerable fortunes doing things that no rational (i.e. paternalistically controlled) society would have paid them nearly so much for doing. In traditional societies from Europe to Japan actors have usually had the status of outcastes -- because they are typically productive of nothing except disrespect for authority. Their popularity in the free market, however, often provides them fortunes comparable to those of the industrialists whom they so frequently despise and disparage.

The disparity of wealth that exists under capitalism is the incentive for all to improve the poverty of nature through their own enterprise and imagination. Under both socialism and capitalism the ability of governments to promote industry and growth has proven limited: and in mixed systems of capitalism and socialism, which to an extent includes all major capitalistic countries today but most famously is displayed in Sweden and Denmark, the effect of the total security provided by social programs is uniformly to remove incentives and stifle initiative, creating a passive dependence on paternalistic government. Society may only sink slowly under that burden, but sink it does [note]. The famous planned market economies of Europe, including that of Germany, only produced about 2 million new jobs in the 80's. The United States, in the infamous decade of "greed" and waste, produced 18 million. Since 1970, Europe has produced exactly zero new jobs in the private sector [at the time this was written in 1996]. As of 1993 many socialized European economies seem to be in permanent recession, with unemployment at 10% or worse, with some, like Spain, at depression levels of unemployment, 20% or more. Those figures may be deceptive, however, since much employment is deliberately kept off the books, especially in Spain, to avoid taxes, mandated benefits, etc. The free market becomes the black market where it is otherwise restricted or forbidden.

The principal Marxist moral concept is exploitation (although Marx himself despised the whole idea of moral objections to capitalism). Marx's theory is that the whole value of a product is produced by the labor of the workers. If the capitalist then derives a profit from the sale of the product, this must in effect have been stolen from the workers. Profit is therefore entirely an illegitimate thing, and the capitalist is ultimately simply unnecessary for the production of wealth. Attempting to remove the capitalist in communist countries, however, only succeeded in removing what the capitalist actually provided: knowledge, imagination, drive, ambition, innovation, an interest in protecting capital investment, etc. Marx seemed to think that industry grew up as some organic thing to which capitalists were parasites. Such a sad view, with such disastrous consequences, was exactly the opposite of the truth. It was the imagination, labor, and interest of the industrialist that made the modern production of wealth possible. Far from being "exploited," industrial workers were actually rescued from what Marx himself called the "idiocy" of rural life. Yet even in capitalist states today there are laws to prevent capitalists from making "excessive" profits, which in some sense really would be exploitative. The effect of this, as with all such nostrums, must be to remove the incentive for innovation and to drain away the capital accumulations that are the only thing that can provide for new investment and new industry and thus for new jobs. For decades American railroads were starved into bankruptcy and almost into the complete collapse of their physical capital (rails, engines, etc.) by rules that limited their profitability.

Another significant Marxist principle is that free transactions in the market are not "really" free because we may need the things that are offered to us. We do not "really" have a choice because we can only choose what happens to be offered to us at the moment: "capitalist" or "bourgeois" freedom is actually slavery, "wage slavery." This principle has been eagerly seized upon by anyone who wishes to limit the liberties of individuals by increasing the power of government, and that movement tragically includes civil rights groups, feminists, and others who had real grievances against the abuse of government power in the past in limiting their freedom. Instead of being content with the worthy goal of freedom from being victimized by government, such groups have gone ahead in an attempt to preëmpt the power of government for themselves and to use the coercive force of the state in pursuit of what they regard as their interests (which are ipso facto absolute and unquestionable goods for all, whether the all think so or not) to limit the innocent liberties of others. By saying that free exchanges are not "really" free, this results in the real limitation of freedom in restricting the voluntary nature of the exchanges offered in the market. That restriction leads to the converse of the "freedom is slavery" principle: a logical consequence already well understood by George Orwell and epitomized by him in the famous formula of the Party in 1984: "Slavery is freedom" -- the arbitrary tyranny always inherent in state authority will actually make us "free." It is an eternal and, in its seductiveness, almost Satanic temptation.

For the "freedom is slavery" principle to appeal to us, we must be persuaded of our own helplessness, dependency, and especially victimization, i.e. that we are being used and exploited even in the free mutual exchanges that we consent to engage in with other people. The only way that we will not be exploited, presumably, is if people are forced to give us what we need or want without a mutually agreeable exchange. Of course, it is not expressed in the terms that they must be "forced," instead their "consciousness" must be changed in such a way that they will want to fulfill their moral duty to give us what we need and want even if we don't have anything they need or want. Thus a political principle dictates a nightmarish invasion of mind and conscience. As a moral claim on people's behavior this is in effect Marx's principle for the utopian society: "From each according to his ability, to each according to his need." This has been considered above in relation to non-contractual duties of commission, and Ayn Rand clearly saw the slippery slope established by such a principle: it fosters nothing but bitterness among the productive and corruption among the non-productive. That was the lesson of Communism: nobody tried....except the ideologues, who were actually more interested in trying to order everyone else around than in doing anything dull but constructive themselves.

The disastrous error of socialistic thinking -- whether under communism or under mixed capitalism -- is to forget that imagination drives progress and that no government bureaucracy ever rewarded imagination. Instead, as Karl Marx himself understood, bureaucracy only seeks to perpetuate itself and only rewards conformity. As they are based on political power and not on profit, government and bureaucracy cannot fail as businesses can. In capitalism there is failure, both personal and corporate; and it is failure, like natural selection, that makes for progress, to the benefit of all, even if failures seem like disaster at the time, especially to laid off employees. Where failure is impossible, there is no need for effort. Without effort, society begins to sink back to the natural poverty enjoyed by humanity for countless millennia. That has actually become a goal for some in the ecological movement ("Back to the Pleistocene!"), but even they realize that it will mean the poverty, starvation, and death of millions, probably billions, of human beings. What Marx actually envisioned in communism was a spontaneous order, without government, since he regarded all government as oppression. Communism never had a hope of being a spontaneous order, but the freedom of the marketplace actually is, planned by no one and run by all, just as Darwin's principle of evolution by natural selection describes the spontaneous order of nature that produced us in the first place.

Part of the price represents the profit of the supplier. Marx, of course, regarded all profit as illegitimate. Without at least breaking even, however, a supplier cannot cover costs and will go bankrupt. The profit represents the return on the supplier's risk and effort invested in the business. For most small businesses, the profit of the business is in effect the wage of the businessman. It often doesn't amount to much. Nevertheless, people still respond to accusations of "excessive" profits. That is "exploitation." Large profits, however, are precisely what attract competition to a market. Entering a market requires a large investment and a lot of trouble starting up a business or product line. The prospect of large profits makes that worthwhile. Once various competitors have entered a market, competition reduces profits even as the need to attract competition declines. The bogeyman of anti-capitalist propaganda was the prospect of a monopoly: where all competitors are driven out of business by one, which is then free to charge anything. The trouble with the propaganda is that it never happened, except at brief and isolated moments (before, indeed, competition was attracted to a market). There never was an enduring monopoly as described -- with the great exception of the ones established by governments. Standard Oil had more competition in its day than oil companies do now [note]. It drove down the prices of oil products: and the prices stayed down. The truth is that in the free market, there will always be competitors if the prospect of profit is great enough. The Southern Pacific Railroad gouged its customers in Los Angeles until the day that the Santa Fe Railroad arrived, and prices then plummeted. The Southern Pacific's only hope of maintaining its brief monopoly was in keeping out the Santa Fe through political action -- it had actually done rather well at that by interfering in California politics. That is the only hope there has ever been for true monopolies. The best recent example of the failure of a monopoly is OPEC. OPEC continually tries to set oil prices and production quotas; and OPEC members continually (secretly) undersell and overproduce their fellow members. That was one source of Saddam Hussein's irritation with Kuwait.

"Excessive" profits are also condemned because they just make the rich richer. There are a lot of things wrong with that. For one thing, the profits of large companies usually go to stockholders, who are often just ordinary people, or to mutual funds or pension funds that benefit ordinary people. Even if profits merely went to the rich, the wealth of the rich is not simply "lost" to other people. Wealth does not uselessly sit in treasure chests, as it might have done in the Middle Ages. It is invested, goes into banks, etc. What it does then is generate more economic activity, investment and entrepreneurial activities which are more important to growth and employment than simple consumption. The problem with the Marxist principle that the rich get richer and the poor get poorer is that it is impossible: the rich cannot get richer unless the poor get richer. Ruling elites that use violence and theft to enrich themselves at the expense of their people often end up destroying their own quality of life as well as that of the poor. A large market with a small profit margin always produces more profit than a small market with a large profit margin. Henry Ford was not the first industrialist to recognize that, but in recognizing it he transformed modern life by almost single-handedly replacing the horse with the automobile. Ford brought down the price of a car from some $3000 to $380. That put the Model T within reach of a great mass of consumers [note]. Ford also decided to help put it within reach of his own workers in 1914 by raising the daily wage from $2.34 to $5. Since average weekly earnings in 1909 were $9.84, usually for a six day week, that put the average daily wage at only $1.64 [note]. The raise was certainly good for Ford workers, but it shows a "demand side" understanding of economic growth that had disastrous results when Ford advised Herbert Hoover how to deal with the Depression.

Real wages have been falling lately even during the prosperity of the 80's. But wages are not all that an employer pays for a worker. Benefits that the employer pays to a third party (including health insurance, worker's compensation insurance, social security, Medicare, etc.) are now a substantial portion of compensation. If those are figured in, real wages have still been rising, though obviously only for full-time workers with all those benefits. Furthermore, there is more to the cost of a worker to an employer than paid wages and benefits. In the past, workers might be willing to work under dangerous conditions in the hope of getting paid a higher wage. Now that is mostly not allowed by the government (OSHA, Department of Labor, etc.). But safety is not free. Stringent safety measures or environmental protections, which are often mandated without regard to cost, are really part of a worker's benefits package. If modern life and work are going to be safer than in the past, the cost is going to come out of real income. Workers are mostly not asked about tradeoffs.

Continued in: Varieties of Civil/Social Rights

The Greek term κέρδος

"Justly Discredited," Trade, Moneylending, & Capital

The Vice of Selfishness

Socratic Ignorance in Democracy, the Free Market, and Science

Cargo Cult Economics

The Polynomic Theory of Value

Six Domains of the Polynomic System of Value

Political Economy

Ethics

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