Alberto Mingardi  

Making capitalism more attractive

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A well-known economic journalist, Hugo Dixon, published an op-ed in the New York Times on "How to make capitalism more appealing".

I wholeheartedly agree with one of his points: "The classic left-wing response to the perceived unfairness of capitalism has been to tax and spend. That doesn't work well" But "just because that response has been tried and failed doesn't mean it won't be tried again". With the exception perhaps of the countries in which the memory of socialism is still rather vivid, Dixon is certainly right: people tend to forget how much our conditions have improved since the Industrial Revolution.

Dixon points out that "Viewed from Mars, capitalism has been a huge success. Free enterprise has generated wealth and removed hundreds of millions of people from poverty. But viewed from Earth, what often stands out is how many have been left behind by the march of globalization and technology, while others have gotten ahead by methods more foul than fair".

This is not so much a point about astronomy, but rather a point about the prevalence of bad news emphasized to the detriment of positive news. In his last book, Matt Ridley points out that "bad news is man-made, top-down, purposed stuff, imposed on history" and instead "good news is accidental, unplanned, emergent stuff that gradually evolves." Ridley compares events with dreadful consequences (wars) and happenings that had glorious effects on human kind (the feeding of seven billions). The first one tend to be engineered by some specific human beings: the others are the product of the interaction of millions.

In one case we see the agency clearly, in the other we do not. And we are hard-wired not to consider events properly, in cases in which we cannot see an immediate casual link: in cases in which the agency is not so evident (Ridley's book is precisely on this subject).

So, I think classical liberals should take Dixon's point seriously, but I'm not so sure there is much to be done in the short term. Shall we pretend events like globalisation and the feeding of billions are the clear result of the actions of some brilliant men, and that's it? Shall we produce a Marvel comics version of the free market, that instead of focusing on the invisible (indeed) interactions of many, praises just the courage and intelligence of few?

earth2.jpgDixon's suggestion is different. He looks for a genuine sense of fairness and the rejection of crony capitalism. All good things, but I'm not as sure as he is that this will change the landscape people see here on planet Earth.

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CATEGORIES: Economic History

COMMENTS (14 to date)
Daniel writes:

Sometimes I think that crony capitalism isn't "real" capitalism in the same way they used to say that Soviet communism wasn't "real" communism.

David S writes:

"real" capitalism vs "real" communism

I was thinking about this the other day, and really it comes down to incentives. If you are a powerful person in a communist economy, the only ways to better your life is not aligned with communist principles. So you are already going against the good of the people, so from there it is a shorter step to just ignore the needs of the people.

In capitalism on the other hand, since power is primarily achieved through free trade, generally once you are powerful you try to do even more free trade. So you are not strongly pushed away from the capitalist model.

While there are "evil" ways to use power to enrich oneself in a capitalist economy, there are "good" ways as well (I would suggest that there are more opportunities under "good" than "evil", but lack proof). Under communism, there are only "evil" ways to enrich yourself.

And the fact is, everyone is going to use their power to attempt to enrich themselves. It is beeter to allow "good" ways to do that, since they will do it regardless.

JK Brown writes:

if we look at this explication by Mises as to why capitalism is unappealing, we see that there is really no way to alter the fundamental complaint. Capitalism is for those with adult maturity and a willingness to assume responsibility for themselves. Those that cannot or will not come to know themselves, will never find capitalism appealing in whole.

Now we can try to understand why people loathe capitalism.

In a society based on caste and status, the individual can ascribe adverse fate to conditions beyond his own control. He is a slave because the superhuman powers that determine all becoming had assigned him this rank. It is not his doing, and there is no reason for him to be ashamed of his humbleness. His wife cannot find fault with his station. If she were to tell him: “Why are you not a duke? If you were a duke, I would be a duchess,” he would reply: “If I had been born the son of a duke, I would not have married you, a slave girl, but the daughter of another duke; that you are not a duchess is exclusively your own fault; why were you not more clever in the choice of your parents?”

It is quite another thing under capitalism. Here everybody’s station in life depends on his own doing. Everybody whose ambitions have not been fully gratified knows very well that he has missed chances, that he has been tried and found wanting by his fellow man. If his wife upbraids him: “Why do you make only eighty dollars a week? If you were as smart as your former pal, Paul, you would be a foreman and I would enjoy a better life,” he becomes conscious of his own inferiority and feels humiliated.

The much talked about sternness of capitalism consists in the fact that it handles everybody according to his contribution to the well-being of his fellow men.

Mises, Ludwig von. The Anti-Capitalistic Mentality (LvMI) (pp. 8-9). Ludwig von Mises Institute. Kindle Edition.

If in lassez faire capitalism, where the most individuals are afforded the liberty to improve their condition through the investment of surplus earning in productive capital, i.e., even regulation is limited, there is no excuse for not improving ones condition except for personal failings, such as no business sense, lack of innovation, etc. What is missing is the great "unfair" oppression based on class, race, sex, etc.

And let's face it, we humans love our nefarious forces working to keep us down ideas. Or at least are educated to such ideas.

R Richard Schweitzer writes:

Economic "journalism," as well as studies of the deterministic aspects of evolution might be greatly enhanced in their observations of our current forms of "Capitalism" (and their social structure results), by recognizing and always explaining that what is referred to as "Capitalism" is not a system.

While the word may be used (as in "Crony Capitalism") to describe political relationships that have economic consequences is still does not define a system.

The conditions resulting from particular (and varying) relationships occurring in specific (but varying) circumstances constitute are what we observe as the current forms of "Capitalism."

North,Wallis & Weingass have opened studies into Limited Access Orders and Open Access Orders . Their studies indicate that the movement of social orders from Limited Access to Open Access is accompanied by increases in the dominance of impersonal relationships which replace the more common interpersonal relationships of Limited Access Orders.

Other scholars (Coase, e.g.) have observed some of the effects of those changes to the "impersonal" as "externalities." But little attention has been given to how the impacts of the "impersonal" have taken the place of "adverse fate" and other explanations or justifications.

It is possible that the effects of the "impersonal," which form is largely essential to the relationships and circumstances that create our current resulting conditions are really at the root of general dismay at adverse personal or social results.

It is doubtful that the effects of the "impersonal" can be made more palatable (despite its nutritional values). However it might be made more acceptable when constantly compared to the effects (with their extensive histories) of the determinations of relationships and circumstances as interpersonal within Limited Access Orders, such as family, clan and tribe.

Studies so far indicate that mature Open Access Orders have been with us for perhaps not much more than 150 years, almost entirely in what are today the "developed societies." It has probably been only in the last 60 to 75 years that observations have been made and considerations taken of the "side effects" of "Open Access." Differing cultures have already made differing responses to those "side effects."

So far, there is no evidence that developed societies should abandon the advantages of Open Access simply because they have not yet found adequate [?] Responses to the "side effects."

To the contrary all other social orders and actual "socio-economic" systems (usually designed) produce effects that may begin as "side effects" but come to dominate the resulting conditions, as has been demonstrated in most totalitarian and other positivist schemes.

Pajser writes:

I think the most important question is which system is more moral. I believe that socialism is more moral - and as long as I believe that, I can only advocate it; maybe not complete socialism, maybe not fast transition, but - as much as possible. If some advocate of capitalism wants to influence me or similar people he should focus on showing that capitalism is equally or more moral.

Roger writes:


To me the issue is also based upon value. The best society is the one that leads to the best results according to the individuals involved on a utilitarian or probably more importantly a behind-the-veil choice. It is the society which would lead to the best life for Each of us and our children and grandchildren regardless of our particular circumstances.

To date the best societies according to the above definition seem to use free markets to solve the problems which they are good at addressing and open access governments to solve the problems that they are best at, with a healthy dose of openness to science and rational inquiry. The US, Canada, Sweden, Japan and Finland are just variations around the basic theme. Flavors more than different dishes. I think I could live comfortably in any of them.

In the end, cumulative growth rates eat every other consideration for lunch. A society which doesn't grow in problem solving capacity (however we choose to measure it) will in a generation or two be dwarfed by those which do grow by just a few percent a year. All the above had seen growth rates in GDP and quality of life for up to two centuries.

If by complete socialism you mean the widespread or complete state control and direction of the means of production in society then I would suggest that if people follow your moral intuition that billions of people will starve and die. The rest will fight over the scraps. I guess it all revolves around how we define moral.

ThomasH writes:

@ Pejser,

I do not think that one can say that either system as it could be inhabited by actual human beings IS more moral than the other. Neither would be wholly moral.

As a thought experiment, I imagine that a society of heterogeneous, non-omniscient but perfectly moral "angels" would organize itself with private property, contracts, and markets. I suppose there would be a government financed by a progressive consumption tax to provide public goods, including courts to settle contractual disputes, and to tax and subsidize externalities. Perhaps private charity would redistribute income to the less fortunate angels and that would not need to be a governmental function.

In effect, I don't think the structures of the angelic society would look much different from our democratic capitalistic one, although it would be much more productive with no need to devote resources to preventing and punishing crime.

There may be a "socialist" version of this utopia as well, but I can't see how it would work as efficiently.

Brian writes:


You have to define what you mean by "moral" before we can argue for one system or another.

Roger writes:


I agree. I will add that if the Angels were also omniscient that socialism might make sense. The point of markets is that they are a decentralized, experimental problem solving system. Omniscient angels would already know the ultimate and eternal answer to every potential problem and would have no need for science, politics or markets.

R Richard Schweitzer writes:

@ Pajser (and others):

In what way is the (current) condition we refer to as "Capitalism" a system?

Can it be defined, or only described?

Does "it", as opposed to the individuals acting within that condition, have objectives, purposes, functions?

Positivist forms, such as Socialism have objectives, and require some degree of coercion to function; to be more effective they require broader and more intense coercions.

Coercions limit choice. The power and exercise of choice is essential to morality.

Pajser writes:

Thanks on all answers. I can say only a little while staying "on topic", i.e. discussing which arguments for capitalism would be effective for me, and resist temptation to discuss which arguments are actually true.

ThomasH - I think that the most usual and adequate socialist version of the most moral society is Marx's "higher phase" of communist society, "from each according to ability, to each according to needs."

Roger - speed of growth is obviously important; although I don't think only that is important.

Brian, Roger - "Moral" is "good" in ethical sense, something that is "right," that "should be done." I cannot a priori exclude any definition as meaningless.

R Richard Schweitzer - the system is usually defined on abstract way, "set of things working as whole", "interconnected network", "a complex whole". It seems to me that capitalism satisfy the criteria. Maybe I am wrong. I do not recognize how it is important for question whether capitalism is more or less moral than socialism.

R Richard Schweitzer writes:

@ Pajser:

Let us begin with whether or not one accepts that morality requires choice.

It has been said that there is no morality without choice.(Karl Jozef Wojtyla)

The conditions of "Capitalism" result from the choices of its members in their relationships in specific circumstances. The choices of some of those members may have more effect than those of others. However, they do not depend upon nor necessarily require the imposition of coercions.

In Positivism, including "Socialism," the determinations of some establish the coercions of others for objectives determined by some but not by choices. Those coercions limit choice required for morality.

That is why an actual definition by HOW a "system" works rather than "abstract" descriptions of what the conditions resemble is pertinent to understanding the functions of choice, how exercised, by whom, and to what ends
in the system of "socialism" distinct from the condition of "capitalism."

Pajser writes:

Richard Schweitzer, I see. There is no moral decision without choice, I can agree about that.

However, it doesn't follow that individual decisions should be allowed. For instance, is it moral to leave to parents choice to keep their children without food? I think it is not. I think it is moral to take away that choice. (Although leaving children without food is not coercion of the children.)

R Richard Schweitzer writes:

@ Pajser:

'I see. There is no moral decision without choice, I can agree about that.
'However, it doesn't follow that individual decisions should be allowed.'

How then is choice to be determined?

Inferred by the example is that individuals (other than those parents)will make choices to intervene in a relationship.

But, we stray from your point of the "moral" superiority or "advantages" of Socialism (or any other form of Positivism) in which coercions displace choice.

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