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Thursday, September 13, 2007

Free market capitalism: evil or amazing?

I guess it depends upon your perspective. If one is devoted to the view that life, the world, the system victimizes most people, that will certainly color your view of other things. When we read history books describing the horrible things that are attributed to capitalism, we will not only believe such stories, but are likely sure that they are utterly true. If, however, our minds are open to other possibilities, it might occur to us that man's inhumanity to man was in full flower long before anything like capitalism was in existence. Perhaps not all but many of these evils have a different root cause and perhaps there are some very different insights about capitalism to be had:
With the intensification of exchange, and improving techniques of communication and transportation, an increase of numbers and density of occupation makes division of labour advantageous, leads to radical diversification, differentiation and specialisation, makes it possible to develop new factors of production, and heightens productivity. Different skills, natural or acquired, become distinct scarce factors, often manifoldly complementary; this makes it worthwhile to workers to acquire new skills which will then fetch different market prices. Voluntary specialisation is guided by differences in expected rewards. Thus labour may yield increasing rather than decreasing returns. Even the bare fact of living peacefully in constant contact with larger numbers makes it possible to utilise available resources more fully.

When, in such a way, labour ceases to be a homogeneous factor of production, Malthus’s conclusions cease to apply. Rather, an increase of population may now, because of further differentiation, makes still further increases of population possible, and for indefinite periods population increase may be both self-accelerating and a pre-requisite for any advance in both material and spiritual civilisation.

It is, then, not simply more men, but more different men, which brings an increase in productivity. Men have become powerful because they have become so different: new possibilities of specialisation – depending not so much on any increase in individual intelligence but on growing differentiation of individuals – provide the basis for a more successful use of the earth’s resources. This in turn requires an extension of the network of indirect reciprocal services which the signalling mechanism of the market secures. As the market reveals ever new opportunities of specialisation, the two-factor model, with its Malthusian conclusions, becomes increasingly inapplicable.

But it would be more accurate to conclude from this that the process of growth benefits the larger number of the poor more than the smaller number of the rich. Capitalism created the possibility of employment. It created the conditions wherein people who have not been endowed by their parents with the tools and land needed to maintain themselves and their offspring would be so equipped by others, to their mutual benefit. For the process enabled people to live poorly, and to have children, who otherwise, without the opportunity for productive work, could hardly even have grown to maturity and multiplied: it brought into being and kept millions alive who otherwise would not have lived at all and who, if they had lived for a time, could not have afforded to procreate. In this way the poor benefited more from the process. Karl Marx was thus right to claim that ‘capitalism’ created the proletariat: it gave and gives them life.

Thus the whole idea that the rich wrested away from the poor what, without such acts of violence would, or at least might, belong to them, is absurd.

The size of the stock of capital of a people, together with its accumulated traditions and practices for extracting and communicating information, determine whether that people can maintain large numbers.

Thus without the rich – without those who accumulated capital – those poor who could exist at all would be very much poorer indeed, scratching a livelihood from marginal lands on which every drought would kill most of the children they would be trying to raise. The creation of capital altered such conditions more than anything else. As the capitalist became able to employ other people for his own purposes, his ability to feed them served both him and them. This ability increased further as some individuals were able to employ others not just directly to satisfy their own needs but to trade goods and services with countless others. Thus property, contract, trade, and the use of capital did not simply benefit a minority.

Envy and ignorance lead people to regard possessing more than one needs for current consumption as a matter for censure rather than merit. Yet the idea that capital must be accumulated ‘at the expense of others’ is a throwback to economic view that, however obvious they may seem to some, are actually groundless, and make an accurate understanding of economic development impossible.


An alternative explanation worth thinking thinking about!


Oroborous said...

It wasn't directly "diversification, differentiation and specialisation" that delayed Malthus's predictions, nor do they allow "population increases [to be] self-accelerating".

Those results came about due to the scientific method, and the industrial revolution, neither of which are solely the province of capitalism, as history clearly shows.

Bret said...


"There are more scientists alive today than have lived throughout all of the preceding millennia."

And there certainly are a lot of different types of scientists. How do you suppose we might've come to this state if it weren't for "diversification, differentiation and specialization" of not only the scientists but of the rest of the populous in order to be efficient enough to support that much energy being devoted to science?

Oroborous said...

OK, good point, but the fact remains that "dds" wasn't solely the province of capitalism, and so therefore it cannot be used to substantiate a claim that the capitalist system stayed a Malthusian end.

Howard said...

Voluntary exchange is actually the genesis of our economic betterment. It involves the social advance of peaceful interaction and the discovery process of value creation inherent in uncoerced exchange. Specialization and differentiation allowed for higher productivity, capitalism was a booster rocket to the process.

Bret said...

oroborous wrote: "[dds] cannot be used to substantiate a claim that the capitalist system stayed a Malthusian end."

Probably true. Because of the large number of variables and the impossibility of creating control groups, very little in economics can be proven.

However, what data there is points pretty strongly to free-markets raising prosperity. Here's a CATO study correlating economic and political freedom with prosperity, where economic freedom is pretty much a measure of how unfettered voluntary exchange is:

"The results are quite remarkable. Table 5 shows that every one of our five survey measures of economic freedom has significant power to explain variation in per capita national income. The estimated equations explain from 54 to 74 percent of the cross-country variation in income; each coefficient on the survey measures of economic freedom carries the correct sign and is highly significant."

So proof, no. Strong indication, yes.

Howard said...


you might enjoy The Victory of Reason by Rodney Stark

The NYTimes calls it a polemic (what else would you expect) but having read it, I think it's worth the time.