Sunday, November 5, 2017

Chris Dillow — How to defend capitalism


Coaching the opposition. That's only relevant when the opposition is hopeless lost in the weeds, is in power, and is running society into the ground.

The problem is that there are two major forms of capitalism, one based on classical liberalism and the other on neoclassical liberalism.

The first is laissez-faire and the second is neoliberalism.

These are greatly different and conflating them leads to confusion.

Perhaps most significantly, as Michael Hudson constantly reiterates, classical liberalism in economics  was about reducing and eliminating economic rent, while neoliberalism based on neoclassical economics is based on rent extraction.

Classical liberalism was about reducing the role of government in the economy so that economic rent would be competed away in efficiently operating free markets, so that profit would be based on productive contribution rather than market asymmetries.

Neoliberalism is based on using institutional arrangements to favor capital "because growth," the assumption being that growth is the higher priority and growth is the outcome of capital formation, so that capital must be favored as a factor over other factors, namely,  labor (people) and land (the environment). So the formula becomes "capitalize gains and socialize losses." And the means is increasing asymmetries institutionally through capture.

People are beginning to get this now, at least inchoately, owing to the poor results they are experiencing, and voters tend to vote their pocketbooks.

The challenge is to debunk the myths based on conflating classical liberalism with neoliberalism, along with educating the public about how economies actually operate in the real world.

These challenges are getting easier to meet meet in that an increasingly large number of people are realizing that they are holding the short end of the stick, and many of them are young people that will be around for a while and voting. It is also leading in a resurrence of interest in Marx among them, since it is increasingly obvious that these issue reduce to class struggle.
There's class warfare, all right, but it's my class, the rich class, that's making war, and we're winning. — Warren Buffett, as quoted in "In Class Warfare, Guess Which Class Is Winning" by Ben Stein, in The New York Times (26 November 2006) [Wikiquote]
Dillow's post is worth reading in full. It's import is not limited to UK politics and the UK economy. As usual he provides useful links regarding the points he makes.

This also shows how bound up economics is with politics.

Stumbling and Mumbling
How to defend capitalism
Chris Dillow | Investors Chronicle

5 comments:

Bob Roddis said...

Neoliberalism is based on using institutional arrangements to favor capital "because growth," the assumption being that growth is the higher priority and growth is the outcome of capital formation, so that capital must be favored as a factor over other factors, namely, labor (people) and land (the environment). So the formula becomes "capitalize gains and socialize losses." And the means is increasing asymmetries institutionally through capture.

This is Libertarianism 101 which I learned in about 4 minutes in 1973. I've been pointing out this simple distinction in these comments for years. It's not exactly complicated. Apparently, it's too subtle for most people which I find inexplicable. I think people just don't want to think about it because it would destroy the basis for "progressive" economic policy. The problem is thus not "laissez faire" but intervention which will always be for the benefit of the powerful.

All libertarian analysis begins with the proper use of violence. Offensive violence is always forbidden and there are no exceptions. Further, there is no basis for a government policy to affirmatively encourage "growth". In fact, once private property can be violated by the government to encourage "growth", there can be no legal limitation upon what form that encouragement might take, it being up to the legislature. The natural result is our present kleptocracy. Or Venezuela.

Duh.

Ben Johannson said...

I don't think it's entirely correct to say that classical liberalism sought to reduce government intervention across the board. Adam Smith was explicit in approving of intervention when it benefited, in his words, the working man, and opposed intervention when it benefitted the Masters.

The ultimate failure of the classical liberals and modern right-libertarians is not recognizing that capitalism is utterly dependent on a massive state for its establishment and continued survival. It isn't a coincidence that central governments became increasingly powerful as capitalism spread in the 18th and 19th Centuries. Capitalists demanded governments subordinate free people into the employer-employee relationship and commoditize land and money, wage wars for the necessary resources and establish professional police forces to keep workers in line. Hence freedom and diminution of the state in our lives requires transcending capitalism, not reform.

Joe said...

Only 2 forms? What about state led capitalism like we saw post ww2. Virtually every modern convenience we enjoy today, upon which whole new industries are built, has its genesis either directly in the state sector or heavily financed by the state. Not really sure where free markets fit into that picture.

Noah Way said...

The state works for - and is a tool of - the private sector.

Calgacus said...

Bob Roddis - as many have pointed out, this way of thinking about violence and private property gets things backwards. Being for private property & invariably against the initiation of force is self-contradictory. The defenders of some private property are the ones privileged to use or call upon force against the persons of those who might rob them.

At least in theory. These days if some bankster defrauds you, he is likely to call upon the government to jail you for the crime of being poor, after he made you poorer by robbing you. Me, I think that this is not good. Private property, especially of the poor, should normally be protected, by (the minimal necessary) force if need be.

The false idea that there is, was or could be any kind of money that is not funny, fiat, credit money also fosters misperception of what laissez-faire or nonintervention is. Idolatry of gold equates to massive intervention on behalf of the wealthy and powerful, while funny fiat credit money need not do this, especially if people really understand what they have always understood.