Thursday, June 26, 2014

Fred Guerin — The Compelling Conclusion About Capitalism That Piketty Resists

The idea of capitalism as an expression of economic freedom that also secures moral and political freedom of thought, or the notion that "free-market" economies are guided by an impartial mechanism of supply and demand - an "invisible hand" to use Adam Smith's metaphor - are both powerful indoctrinating notions. As such, they bear little resemblance to actual reality. Smith himself never used the word "capitalism," preferring to call his economics a "system of natural liberty." In fact, the inner logic of capitalism can be difficult to get hold of simply because there have been different configurations of capitalism throughout history. In its classic form, before the advent of corporations (when there was still an implicit sense of social responsibility, and insatiable greed was considered a vice), capitalism might have appeared less virulent. Additionally, there is reason to believe that capitalism unfolded differently in different countries with distinct political and legal frameworks.
All of these contingent factors are worthy of consideration in any assessment of capitalism. However, it is also reasonably clear that once we actually look at history, it is difficult not to conclude that pretty much every embodiment of capitalism - classical capitalism, oligarchic or corporate capitalism, casino capitalism, entrepreneurial capitalism - presuppose similar elements: private property, ownership of the means of production, notions of unlimited growth, the maximization of profit, using wealth to create wealth. They also all embody a form of instrumental rationality, the kind of rationality concerned with maximizing profits and minimizing costs. In its globalized corporate form, capitalism has been able to relentlessly realize this form of instrumental reasoning on a large scale - and thereby show itself as one of the most destructive and undemocratic economic system humans have ever come up with.Unfortunately, neither propaganda nor abstract economic theory can help us to grasp this fact. The reason is primarily that the latter do not really speak to the false theories of human nature capitalism presupposes. Nor do many of them elaborate capitalism's legitimating normative-moral or political origins. Most crucially, they are often silent regarding the devastating impact that it has had on the environment since it first emerged during the course of the eighteenth and nineteenth centuries. As Chomsky insightfully puts it, "There is "capitalism" and then there is "really existing capitalism." What then is "really existing capitalism'?
Capitalism and democracy are antithetical.
If I am right that the inner logic of capitalism inevitably leads to a hegemonic, macro-structural world-system of unequal human social, political and economic relations guided by elite greed that does not reflect the best interests of the majority of people, the common good or indeed the good of the planet itself, then Piketty's assumption that we could ever regain control over an "endless inegalitarian spiral' by imposing a progressive tax on capital seems, is at best, rather fanciful. A more fitting conclusion in the aftermath of the 2008 financial crisis and the efforts of the elite to profit from the latter would be to ask the question whether we should continue advocating for a capitalist system that glorifies profit over people or start thinking about how to reorganize our economy around common goods such as the health and well-being of our present world.
Instead, many contemporary economists repeatedly tell us that our only tenable alternative is to tame capitalist excess through regulative initiatives. This has been done before and it can be done again, the argument goes. Thus, it is claimed that we can and did rein-in or mitigate the severity of capitalist exploitation, and the massive wealth and income disparities that followed from it. However, it should now be abundantly clear that the internal and structural logic of exploitation, wealth-income disparities and the profit-oriented colonization of social and political relations can only be regulated for short periods. It can never be fundamentally altered.
Under capitalism, they'll always be back.

This is a fairly long and detailed article that is well worth the read. It debunks a lot of pervasive myths that have landed us in the mess we are in now with a seriously fouled nest, for example, and seemingly endless resource wars.

The Compelling Conclusion About Capitalism That Piketty Resists
Fred Guerin, Truthout | Op-Ed


Dan Kervick said...

I offer a simple request: for any writer arguing that we should "end capitalism' rather than alter it, limit it or modify it, that writer should put forward a clear, non-wooly definition of "capitalism" so that we know exactly what it is they are proposing to eliminate.

One view might be that capitalism is any system of economic organization that allows for some private ownership of forms of wealth and for some private decision-making aboout how to use that privately-owned wealth to generate new stocks or forms of privately owned-wealth.

It would seem to me that any system that does away with this kind of activity altogether would have to posit that all wealth is publicaly owned, and that all decsions made about the use of wealth in the production of additional wealth are public or governmental decisions.

That seems pretty fanciful to me as a practical political prposal. Much more realistic is to recognize that all economies in the history of the modern world have employed some mixture of capitalistic and socialistic organization, some mixture of public enterprise and private enterprise, and that realistic debate needs to focus on getting the best mix.

Tom Hickey said...

Fair enough, and I have, many times.

Capitalism is the economic system that assumes foundationally that capital is both the most important economic factor as the basis for growth, and also a scarce resource as a factor. Therefore, it is imperative to privilege over the other factors not only real capital as the means of production but also financial capital since it funds real capital.

This entails privileging real and financial capital over labor, you know, workers, which includes the vast majority of people and land considered as the environment. I include "human capital" at the top tier of income distribution, which is tax-privileged and often also receives major compensation other than or in addition to salary or wages.

This creates asymmetric power and puts money and machines above people and ecology. This is to get the priorities ass-backwards from a human point of view and also from a systems points of view.

If you want to redefine and reconfigure the economic system to put people and ecology first and still call it "capitalism," then I am fine with that. But I would contend that then it is not capitalism" as we know it."

Of course, this is a just a thumbnail sketch and I could go on elaborating the details for pages and many books and articles have been written on it over the previous centuries.

How to address it? Put people and ecology over money and machines. This involves political and institutional choices, on one hand, and reconfiguring the economics profession to bring it in line with reality rather than justifying an ideology dogmatically.

This is nothing new. So called free markets still operate even though slavery child labor have been prohibited, for example. The five day, 40 hours week was also an innovation. We already have laws and regulations regarding negative externalities and anti-social behavior like exposing others to second-hand smoke.

Putting people and ecology first is not rocket science. It also happens to be good economics systemically, although top cohort would lose some, most, or ideally all of its ability to collect economic rent and to exploit the commons for private gain.

It's not money or markets that make capitalism. It's asymmetric economic power and social, political and economic privilege traceable to wealth and class status.

Tom Hickey said...

Related to this is my posting on this blog which is an economics blog. Some may be wondering what a lot of the post I put up have to do with economics, since I don't usually spell it out. But almost everything I post has an impact on economics if not directly, then through society and politics.

The failure of conventional economics is to assume that economic as a discipline of study can be studies independently, without taking into account society as a system the structure and functioning of which includes custom, law, policy, politics, the rest of science and the body of knowledge, etc, as well as cultural convention and institutional arrangement, to mention some of the most salient factors. All of these are joined in a web of relationships that constitutes a complex adaptive system as a global phenomenon. Ignore at the peril of the species.

Moreover, conventional economics not only does not bother with examining its assumptions and method but also puts this off limits. The result is puerile and sterile, if not intentional sophistry designed as ideological persuasion.

Even worse, now some economists following Gary Becker are attempting to make economics a theory of everything based on rational choice. This would be laughable if were not so dangerous. Actually, to his credit David Cameron did laugh at it. But many are being taken in by this nonsense.

Unknown said...

wait... where is the Bob Roddis comment?

Dan Kervick said...

Tom, I think systems don't "assume" things. People do.

I think we need to focus on what we should actually do, what laws we should actually have, what institutions we should have, etc.

Clearly, capital is a hugely important factor for growth in advanced economies, and will continue to be even under systems that are socialistic, and where all the capital is owned by the public.

Putting people and ecology first, by the way, would not necessarily eliminate private capital or the use of capitalist systems of of economic ogranization.

Tom Hickey said...

That's my point, Dan. People pretty automatically assume a system's assumptions without critiquing them.

Take the influence of Adam Smith. Most of what is attributed to Adam Smith and assumed in the system that constitutes conventional economics is not actually Adam Smith's as Smith scholars like Gavin Kennedy tirelessly reiterate when someone makes a false claim.

For example, Guerin's characterization of Smith is actually not Smith but capitalism's "Smith." Guerin seems to have picked up the conventional wisdom.

Yes, "people" made these assumptions, just like "people" created customs. Who were these people. Impossible to id them now. But just as customs become received tradition, so too do assumptions become part and parcel of systems of thought and practice, even though their origin is unclear or unknown.

Tom Hickey said...

Putting people and ecology first, by the way, would not necessarily eliminate private capital or the use of capitalist systems of of economic organization.

I did not say it would nor does this have to happen to take capital out of first position and put behind people and ecology.

But then, I would contend, this is not "capitalism" as an ordering principle.

Putting people and ecology first and capital second would result in a more integrated system based on a different ordering principle and different values and priorities. This would entail different policy and different social, political, ecological, institutional and economic outcomes. It would also result in a profound cultural shift.

So call it "capitalism" if you like but it will look very different from anything anyone in conventional economics or politics is talking about now.

Dan Kervick said...

I'm just saying we need a lot more talk about concrete proposals for legal, institutional and policy changes and somewhat less ideological rambling.

Over the past several years, I have run across numerous peices of the "we need to end capitalism" sort, and 9 times out of 10, I don't think the author has any clear ideas about what they are proposing. Usually, they just seem to be using "capitalism" to mean something like "all of the things about our present way of economic life that I don't like."

Tom Hickey said...

I will dispute that too.

The presumption is that "we, the people" live in the same reality and perceive it the same way. Well, we don't perceive reality in the same way since different parties view reality through the lens of their POV, part of which is their ideology.

Moreover, that "we" live in the same reality is also questionable. Most people have no experience of being homeless, for example, and the rich live in circumstances that are very different from everyone else. I can't recall now which politician it was that answered the question about the average middle class wage as about $250K. John McCain couldn't even say how many houses he and his wife owned. He guessed five, IIRC, and the actual number was eight.

When there is such a difference in POVs and even realities how can there be an objective debate? The political debate is normative, prescriptive and ideological through and through, as is conventional economics although it pretends to be a positive science.

One doesn't have to propose anything to make a cogent and convincing critique of present conditions showing that change is required. Occupy realized this and it was their strength, since just about everyone could agree, whereas there would be have been a lot of disagreement over a proposal. Once it is admitted that criticism preceded proposal, then let the sausage making begin. There are already many critiques and proposals on the table from extreme right to extreme left.

The various types of Libertarians would argue that their proposals put individual people first and deal with ecology in the most efficient way, avoiding "the tragedy of the commons." Those on the extreme left would argue similarly that they favor individual freedom but consistent with egalitarianism based on human rights and civil liberties in self-organized community. There's a whole range of options in between the extremes.

The place to begin with formulating proposals is making the foundations clear in terms of norms, values, priorities, governing principles, assumptions, and methodology. This where the fundamental disagreements lie and they are difficult to resolve since most people regard these issues as based on principle that cannot be compromised.

What many fail to take into account, too, is getting form here to there. There are many pie in the sky proposals but few that take into account how a complex social network can move from one configuration to another in a series of iterations that preserve stability throughout the process. It's a huge engineering design problem, so to speak, and a lot is at stake.

Dan Kervick said...

Some time ago, some people in Occupy decided to offer a statement to the effect that their goal was to "end capitalism". Unfortunately, they did not offer even a vague definition of what this "capitalism" is that they are trying to end. My feeling is that they probably had no idea, and were just blowing ideological smoke.

It's very easy to issue slogans like "change", "put people first", "get the money out of politics" and the rest of that kind of stuff. But until you cash these things into concrete proposals, their content is just and amorphous cloud of mental fog.

We can also see how all that Graeberesque fog has degenerated into just another set of slogans to be co-opted by start-up private enterprises.

Tom Hickey said...

Occupy was just the beginning of changing the focus of the debate. Now everyone is talking about inequality and not austerity or fixing the deficit anymore.

Change begins with a critique, then a set of design criteria for either a fix or a new design, and then design proposals.

Tom Hickey said...

I should unpack that a bit more. The critique analyzes the present situation and it doing so clarifies and specifies the design problem and criteria, which must precede a design solution to address the problem based on the criteria. The analysis includes the successes and failures of the present system, as well as identifying strengths and weaknesses. The challenge is to preserve and perhaps amplify the strengths and decrease the weaknesses while innovating either to improve the present system, overhaul it, or replace it depending on the resources, time-frame and criteria. It's an engineering design problem.

Tom Hickey said...

This is Adolf Loew's approach, for example, and that of Kenneth Boulding, too.

The conventional economists' response is that it is doomed to be less satisfactory than a neoclassical approach since economics assumes a natural system based on scientific laws similar to physics.

The answer, of course, is that physics assumes natural laws and applies them for innovation through technology by using engineering, so even if there were natural laws like physics operative in economics, then engineering and technology would still make innovation possible.

But there are no natural laws of economics that can be established empirically, so that is a canard.

Tom Hickey said...

Oops. That should be Adolf Lowe, not Loew.

Anonymous said...

My impression is that capitalism was at first a means by which the bourgeoisie wrested power from the aristocracy. When they had largely succeeded, or, in the U. S., which had already gotten rid of aristocracy, capitalism began to produce a nouveau aristocracy of wealthy capitalists. The term, Robber Barons, attests to the emergence of this new capitalistic aristocracy.

However, by the rise of labor unions, by anti-trust laws, and by taxation we held this new aristocracy in check. Although I have lived through the dismantling of these safeguards of democracy, I do not understand why it happened. I saw something of how it happened, but why is a mystery.

In the U. S. racism played a role, but it has happened in Europe, as well.

Matt Franko said...

Well Dan here is David Harvey who has been teaching Capital for 40 years, quote:

"Capital is not a thing but a process in which money is perpetually sent in search of more money."

And people are not even sure/in consensus on what the metonym "money" means (look at Wray's last post for example...) so this is a specious definition...

He wrote this in his book titled "The Enigma of Capital" which I read a while back and I have to say the only thing I got out of it was how screwed up the definitions are...

"enigma" means "a puzzling or inexplicable occurrence or situation" so the title is indeed accurate... maybe that is the key takeaway from the book...

Harvey is blind to the institutional changes that have taken place since Marx thought up his "capitalism" back in the 1800s or whenever... and more recently we have a system that is better characterized by Dan's description here:

"Much more realistic is to recognize that all economies in the history of the modern world have employed some mixture of capitalistic and socialistic organization, some mixture of public enterprise and private enterprise"

Dan I think what you see with the Occupy movement is the left-libertarian pov taking aim at the currently powerful right-libertarian pov.

Authority is not in the scene.

When Dan says: "realistic debate needs to focus on getting the best mix" this cannot be said by someone who does not understand authority like libertarians of both left and right...

neither libertarian side wants that debate as said debate WILL have an outcome and said outcome WILL be put into law and be enforced via forceful means if necessary...

libertarians recoil from enforced compromise its just the way they are its in their DNA or something... so I dont think you'll ever see the Occupy people generally start to seriously engage in a detailed discussion about new institutional arrangements... I think they would rather talk about something new like "bitcoin"...


Bullish_Bear said...

It's asymmetric economic power and social, political and economic privilege traceable to wealth and class status.

That has historically happened in every economic system. It is just much worse under socialism or communism.

Roger Erickson said...

Most biologists would admit that no formal "law" binds any other highly organized systems, including the 30-70 trillion cells that make up your body.

Which Roman guy said that "no law withstands the will of the people" - Cicero? [I've forgotten who.]

Laws are what people write AFTER they reach some consensus on Desired Outcomes.

Hence, many work on imagining, suggesting & promoting aggregate Desired Outcomes, before trying to write legal methods looking for a problem (or outcome) not yet defined.

Do you agree w Einstein? “Imagination is more important than knowledge. ..."

And can you agree with this following cascade, leading to Group Imagination?

Methods drive results?

Milestone goals drive methods?

Desired Group Outcomes drive milestone goals?

Interacting imaginations drive Desired Outcomes (aka, Group Imagination)?

Many professionals in diverse fields are converging to Outcomes-Based Edu&Training as the framework for accelerating adaptive rate, since it allows scalable groups to set Desired Outcomes first, while remaining completely agile about DISCOVERING (not predicting) what methods/laws/practices offer the best path to that outcome.

That approach is well summed in Gen. Patton's famous statement. "Never tell people HOW to do something. Just suggest what to achieve, and then let us all amaze everyone with our distributed ingenuity." [Or something to that effect.]

Tom Hickey said...

That has historically happened in every economic system. It is just much worse under socialism or communism.

Yes, because there has yet to be a government of the people, by the people and for the people. It's an untried experiment.

Should America fail, it will show nothing about democracy since the US is a democracy only in the loosest sense.

Aristotle was very clear in Politics that representative government where representatives are elected is a type of oligarchy ruled by the asymmetric power of status and wealth.

It's not capitalism v. socialism or any other ism but a form of government that has yet to be tried — actual democracy rather than faux democracy.

Dan Kervick said...

Roger, I don't think it is possible to have a broad consensus on a desired outcome if the outcome in question is not defined - otherwise there is nothing to desire.

Most social changes don't happen as a result of massive revolutionary eruptions or sudden paradigm shifts, but are the result of a succession of incremental changes, most of which are enacted in isolation because they seem good at the time as a solution to a single problem.

Matt Franko said...

Well Roger here you go:

Just what you advocate for, GOALS, here IN LAW via the Humphrey Hawkins Full Employment Act:

"In response to rising unemployment levels in the 1970s, Representative Augustus Hawkins and Senator Hubert Humphrey created the Full Employment and Balanced Growth Act.

It was signed into law by President Jimmy Carter on October 27, 1978, and codified as 15 USC § 3101.

The Act explicitly instructs the nation to strive toward four ultimate GOALS: full employment, growth in production, price stability, and balance of trade and budget.

By explicitly setting requirements and goals for the federal government to attain, the Act is markedly stronger than its predecessor. (An alternate view is that the 1946 Act concentrated on employment, and Humphrey-Hawkins, by specifying four competing and possibly inconsistent goals, de-emphasized full employment as the sole primary national economic goal.)

In brief, the Act:
Explicitly states that the federal government will rely primarily on private enterprise to achieve the four goals.

Instructs the government to take reasonable means to balance the budget.

Instructs the government to establish a balance of trade, i.e., to avoid trade surpluses or deficits.
Mandates the Board of Governors of the Federal Reserve to establish a monetary policy that maintains long-run growth, minimizes inflation, and promotes price stability.
Instructs the Board of Governors of the Federal Reserve to transmit an Monetary Policy Report to the Congress twice a year outlining its monetary policy.
Requires the President to set numerical goals for the economy of the next fiscal year in the Economic Report of the President and to suggest policies that will achieve these goals.
Requires the Chairman of the Federal Reserve to connect the monetary policy with the Presidential economic policy."

OK if all we need are goals, then why are we not there yet in now going on 25 years?

We dont have full employment or a balanced budget or balanced trade... in fact just the contrary huge twin deficits and high UE... which is to be expected according to MMT, etc...

Everybody would agree that we all want maximum employment/employment opportunities yet we dont have it...

So there HAS TO BE more to it than just establishing goals... you also need competent leadership to get it accomplished...

imo that Patton statement is pure bullshit... (not that he didnt say it I'm sure) but he was an elitist who didnt know what was going on, if that is "all he said" then imo a lucky yet POOR leader who only knew how to be demanding with NO VALUE ADDED which only works if you are lucky enough have good people UNDER you who DO NOT follow that same approach... iow if all we did was "set goals" on down the line, NOTHING would ever get done....

When we study evolution, we can miss the details which comprise the creative process which requires much more than just the setting of goals.

It would be like a CEO who said: "I want the firm to make money!" and then that was it... that would never work you need a CEO who knows how to get a team together that KNOW how to get things actually accomplished and run things...

You need qualified "doers" not just "demanders"... just being demanding is never enough.

Competent leadership should recognize this and make sure qualified people are involved.

Instead, we have the current libertarian powers in place who want NO leadership or hierarchy of authority at all, they prefer the "free" market, "open" societies, "equality", "trickle down", "open" source, "open" competition, etc... it doesnt work this way.

So imo this is not happening and we have UNqualified libertarian people in leadership positions across the board... this is the main problem, not that we dont have "goals", we have plenty of "goals"...


Ryan Harris said...

Finding and elucidating flaws in a "mixed economy" is harder than finding flaws in a straw caricature of capitalism or socialism.

Roger Erickson said...

re the 1978 Humphrey Hawkins Full Employment Act

honestly, reading this ya gotta love humans; in aggregate we're so reminiscent of a toddler's mind; still barely learning consistent logic

Humphrey Hawkins Full Employment Act:
4 goals
full employment,
growth in production,
price stability, and
balance of trade and budget.

Growth via full employment AND "balanced fiat" AND balanced trade?
looking back, one marvels that they didn't have a logician vet the Bill before submission;
or at least define their terms;

unfortunately, the level of discussion of this topic hasn't improved much since then

from Quora
Why isn't the Humphrey-Hawkins Full Employment Act enforced?

The so-called Humphrey-Hawkins Full Employment Act is not enforced because it expired!
See, e.g., the Federal Reserve Bank of Chicago discussion about the “Humphrey-Hawkins” name applying to hearings even though the law has expired:


President Jimmy Carter signs the Full Employment and Balanced Growth Act of 1978 (also known as the Humphrey-Hawkins Act) The act reaffirms and elaborates a national policy of promoting full employment, increased real income, balanced growth in productivity, improved balance of trade and price stability. The act specifically requires the Fed to report to the Congress twice a year on its monetary policies and their relationship to the goals of the act. These hearing are called the Humphrey-Hawkins Hearings. Humphrey-Hawkins Transcripts.


Full Employment and Balanced Growth Act of 1978 expires, but Federal Reserve Act amended to ensure the continuation of bi-annual hearings, which are still commonly referred to as the Humphrey-Hawkins Hearings. In addition, Fed officials often testify at different congressional hearings and give speeches outlining the goals and tools of monetary policy and how they relate to overall national economic policy. Hearing and Speech Transcripts.

The Humphrey-Hawkins Act of 1978 expired, but the name lives on, used unofficially to describe the semi-annual reports the central bank’s policy-setting Federal Open Market Committee must present to Congress assessing the state of the economy and monetary policy. The reports, every February and July, are now mandated under a housing law passed in 2000.

Humphrey-Hawkins also reinforced the Federal Reserve’s dual mandate: Promote full employment and keep prices stable. The bill was introduced at the height of America’s stagflation woes, and was officially titled the Full Employment and Balanced Growth Act.

Roger Erickson said...

In all working processes, the list of things that are "necessary but not sufficient" doesn't mean that everything that's necessary is bullshit. Quite the opposite.

"Yes, And" regularly outdoes "No, But"