What part of free market allows someone to make another person a slave? I think that’s the point.
Sure, if they are allowed. But part of the point is that economies that employ slave labor -[ul]
[li]To the extent that they use slavery as a primary mode of economic activity, are not “free” market.[/li][li]Are less efficient, for reasons covered in The Economist article.[/li][li]Are going to be at a disadvantage in competition with non-slave holding economies. That was one, albeit one of many, factors in the War Between the States. [/ul] [/li]Regards,
Shodan
The market part.
Couldn’t resist a pithy one-liner. The decision on whether humans are allowed to own other humans is a moral one. Debates about what happens in a free market are amoral (notice I didn’t say “immoral”). If you want to put an axiom in your definition of a “free market” that prohibits slavery, go ahead. But if the argument is that amoral market forces will abolish slavery, I don’t see it.
You should probably start here, since it’s pretty obvious that you don’t actually know what ‘the free market’ IS, let alone what it’s for.
From Wiki:
That’s it. That’s what it is and what it’s ‘for’. YOU are the free market. I am the free market. Everyone reading this is the free market. And it’s for setting the price of goods and services between sellers and buyers.
I’ll let Sam take the first shot as answering your other questions…especially since you basically handwaved away the folks who already tried to answer them without actually addressing their replies (no, as far as I can tell, did you address Sam’s responses to you in the linked thread with anything like honest debate, but maybe I missed that part).
Call it an axiom if you like, but if a system is supposed to be defined as “the free exchange of goods and services” and you build in involuntary exchanges of services, then you can’t call it a free market anymore than you can call a cat a dog.
[quote=“Enterprise, post:1, topic:709911”]
[li] Yes, capitalism does require that some people be poor. It is built on the exploitation of those who do not own the means of production so that the capitalist can amass profit. [/li][/QUOTE]
This is not only an emotional, rather than factual, argument, but is rather obviously false. It is obviously the case that many people - well, actually MOST people - who do not own the means of production are not “poor.” I do not own the means of production, but I am not poor, nor are, well, most citizens of any industrialized country.
Again, this is both an emotional argument and visibly false. You’re making the same error Marx made, which is to assume that labor has a fixed value independent of the manner in which it’s applied.
Value does not just come from the delta between wages and the value of the labour, as is plainly evident to anyone who’s tried to run a business. It also comes from the delta between physical inputs and their value, from innovation, organizational effort, management effort, so on and so forth.
Your entire argument rests on the assumption that if you are paid $15 an hour and are worth $20 an hour to your employer, that’s “exploitation.” As you have circularly defined “exploitation” it’s going to be hard to argue you out of that, but your circular argument fails to account fr the fact that the worker’s work has no intrinsic value; it is valuable solely BECAUSE she has that particular job and is doing that particular work. That is what fixes the market value for her labour at $15.
You’re further making the assumption that the difference between the wage and the per hour value of the labour is purely exploitative, but it’s clearly not; if it were, the worker would simply stay home and generate $20/hour. They can’t, though, because the job is what creates that value. Your comeback to this will be “but if only she owned the means of production…” but, of course, she quite often can, and there’s no evidence that would change the wage rate.
Har.
It’s not quite as easy to hold on to that capital as you seem to believe.
You passed judgement, and lost credibility, the moment you described the labor market as “exploitation of the poor.”
A factory worker should not be paid like a doctor, for obvious reasons.
Bringing slavery into the discussion is just a red herring. The slave is unable to negotiate his pay and freely enter into a contract to work for the slave-owner. There is nothing capitalist, or free-market, about slavery.
However, I and other rational free-marketeers will gladly concede that there are some major failings of a fully free market: the accumulation of capital into a few hands, negative externalities (such as pollution & resource depletion), monopolization of industries, market manipulation, among others.
The above can be remedied through reasonable government regulation. I don’t know why we have to go on this round-about all the time as to why capitalism is clearly better than any other economic system. You want to go back to the feudalism of the Middle Ages? Soviet-style centralized management? How about we let the free market system do its thing, and correct for the faults that will inevitably spring up?
Okay, I have no idea where you’re going with this. The idea of capital is pretty central to capitalism. So how exactly would a moneyless system work? Some have been tried but none have done well.
Oh, come on, I know you know better than this.
There’s nothing about the free in free market that prohibits slavery. It’s an entirely different usage. It’s like arguing that you can’t have a free market if you’re putting a price on things - because, hey, in a “free” market everything should be free, right?
You can have slavery in a free market society. You can even sell the slaves themselves in a free market. And you can charge money for those slaves, which means they aren’t free in that sense either.
It’s only the free exchange of good and services between buyers and sellers. Slaves are neither so they can exist in a free market system while not participating in it.
I have no problem with capitalism. But the notion that is must be an utterly free, unregulated market is not just nonsense, it is irrelevant, because our particular flavor of capitalism in the US has been rigged for centuries in favor of the very wealthy. One example is the lower tax rate for capital gains and carried interest, which is not only unnecessary for free markets, but it slows the cycling of wealth from high incomes to low incomes. Say what you will, if there is no mechanism to spread the wealth, our economy will have the same out come as the end of every game of Monopoly; one person has all the wealth, and everybody else is bankrupt.
Some would argue that wealth is spread when the wealthy spend their high incomes on houses and boats and what not; but in reality, the truly wealthy never spend but a small fraction of their holdings. They invest it to produce more wealth, and those investments are recycled through the investor casino with some winners and losers, and only a fraction trickles down to the rank and file worker. Only high marginal tax rates and federal investing on infrastructure can break the death spiral of wealth concentration, through spending on construction and manufacturing for the common good.
Capitalism only works when wealth is not so concentrated in a small number of individuals that the masses find their lives intolerable and resort to revolution. Does anyone argue with that?
I disagree, but I think the more important part is that during the days of slavery a free market in ANY form did not exist either in the US, the UK or in Europe or anywhere else where the slave trade existed.
I never said anything of the sort. I merely said there is a big difference between equality of opportunity and equality of outcome, and that it’s better to focus on the former than the latter. In fact, I specifically said that opportunity was NOT equal, and gave several examples. You need to read what I actually said, and not what the caricature in your head is saying.
Never said that either. I said that capitalism does not require poverty, but when you have a large normally distributed population of things the 80/20 rule generally applies. That is, in such a system 80% of the effects are caused by 20% of the population. This is a remarkably robust ratio that exists across many fields. For example, in software development 80% of the bugs are caused by 20% of the programmers. In many firms, 80% of the productive value comes from 20% of the workers. And in a free economy, 80% of the capital tends to accrue to the top 20% of the population (and within that 20%, 80% of that value goes to the top 20% again).
This appears to be a law that emerges out of the interaction of actors in a complex system. It’s not designed, it’s not the result of exploitation, and it’s not clear that anything can really be done about it without destroying efficiency.
So wealth inequality is not a requirement of capitalism, it is the inevitable result of group interaction without interference. That doesn’t mean anyone has to be poor. The poor in North America today are incredibly wealthy compared to the rich of even 200 years go in absolute terms. But if you are going to measure poverty always as a ratio of wealth, then yes it’s hard to see how you can ever get rid of it, for the simple reason that people are not equal in ability, work ethic, opportunity, intelligence, luck, etc.
Still torching the straw men, I see. I never said at any point that the market solves all questions ideally, and in fact I took pains to state that markets are not perfect and that they can fail. I merely said that the market works better than any other alternative we have, and that it works best when it coexists with a social safety net. But I can see how you got confused: such statements don’t match the libertarian radical vision of me you have in your head. Best to just ignore what I’m actually saying and let the caricature speak, or else your brain might explode from cognitive dissonance.
Of course, I never said that. I specifically said that not everyone is born equal, and will not have equal results. And you’re right - ‘opportunity’ is a hard thing to pin down. Certainly a person born into a rich family has more ‘opportunity’ than someone born in a ghetto. On the other hand, a rich person expected to take over the family business may have less ‘opportunity’ than a middle-class person with a degree and no expectations for what career and lifestyle he may choose. And ignoring the rich/poor divide, a person who came of age in the 1990’s had a lot more opportunity to make millions in the emerging internet economy than a person born 10 years earlier or later. We are all constrained by our environment in some way.
The real question is whether this is a problem that can be ‘fixed’ with legislation. In some cases, yes. In others, no. Rather than trying to give everyone completely equal ‘opportunity’, I would suggest we restrict ourselves to ensuring that everyone has access to the fundamental tools required to achieve success. Minimum health care standards, basic education, etc. For example, I’m not opposed to programs that provide resources for people seeking jobs, subsidized night school programs, and that sort of thing. I would also include things like ‘business incubators’ that provide basic tools like shared office spaces, copying/shipping services, internet services, etc.
But if you think equality of opportunity can only be achieved by redistributing all the wealth so everyone is on an equal footing, you would be destroying the system in order to allow everyone to participate in it. In Venezuela they decided it was unfair that poor people didn’t have access to modern electronics, so the state simply mandated that the stores sell them at reduced prices, even if it was below their cost. When stores didn’t comply, they were nationalized, store owners arrested on charges of ‘price gouging’, etc. The result is that those electronics are no longer available for anyone at all.
Or, you know, you could look at it as a business owner who is offering a product to the public, which provides a value to the public. To provide those goods, he must hire workers. So he puts out an ad, and people willing to work for the money he offers. The businessman comes up with the idea, takes the risk and invests the capital, so he earns the profit - if any. The worker gets a steady paycheck, puts up no capital and assumes no risk. He gets paid whether or not the businessman ever turns a profit or gets his capital investment back. That’s the contract.
So… Just who is being exploited here? Is the consumer exploiting the businessman? After all, they can tell him to go to hell and he loses everything. Is the worker exploiting the businessman? After all, even if the business is losing money the worker still gets paid. Why is that fair, while it’s ‘exploitation’ if the businessman keeps the profit that results after he meets his obligation to the workers and consumers?
The only reason you consider working for someone for an agreed-upon wage ‘exploitation’ is because you believe that the businessman is ultimately the powerful entity here, and that he is using that power to coerce, trick, or manipulate the workers and consumers for his benefit. In fact, the powerful entity is the market itself, and the worker, businessman, and consumer are all slaves to it. If the businessman tries to sell his product at prices above the market price, no one will buy it. If the consumer demands a price lower than the market price, no one will sell to him. If the businessman tries to offer a wage that is below the prevailing market rate for the skills he is looking for, he won’t find workers. And so it goes. In a capitalist environment, everyone is entering the contract willingly, and everyone expects to benefit.
Does this mechanism always work? No. There are certainly market failures and legislation is appropriate in those cases. But those are the edge cases. The vast majority of transactions are carried out in the context of a functioning market. And that’s still the best mechanism we know of for coordinating economic activity.
I think you are using the Marxian labor theory of value, which says that the ‘value’ in a product is the sum of the labor that went into it. That’s simply wrong. It’s always been wrong. Value is relative - it’s whatever people decide something is worth in the context of a market transaction. If a businessman spends $100 to make a product that turns out to be valued at $70, he will go out of business. If he makes a product for $10 that has a value of $100, other competition will arise and sell a similar product at a lower cost. This process drives products down to the cost of production plus whatever profit is enough to warrant investing in that product’s development rather than putting the money in a bank account or investing in something else.
That’s why high profit margins generally only exist in markets where the barrier to entry for competition is high. And that’s why businesses spend so much effort lobbying for legislation that restricts entry into the market or raises costs on startups.
Again - I’m pro-market, not pro-business. Crony Capitalists who use government to bias the market in their favor should be stopped. The way to stop them is to take away the power of government to do their favors in the first place. So long as economic power is concentrated in government, you will have cronies and lobbyists. All the campaign finance reform laws in the world won’t change that.
The other area where profit margins are high is when the investment contains serious risks, in which case the profit is higher to compensate for the additional risk of loss. For the same reason, risky investments pay higher interest rates than safe ones.
Again, on occasion the market does not function well. That can be because of regulation, or because of physical limits (owning the only road in and out out of a valuable region, for example). There is a role for government here, but only to correct for real market failures, not ‘failures’ defined as, “The market isn’t giving me what I want.”
If you want to know how the businessman adds value, it can be through many means - inventing more efficient processes, creating the infrastructure that allows a good to be brought to market, discovering needs and desires that no one else discovered, having better ideas about product design, you name it.
You don’t have to own the capital to benefit from it. Why do you think workers in North America make so much more than workers in China or Africa? It’s not because we are ‘exploiting’ them. It’s because our own labor is magnified by capital investment and infrastructure. An auto worker can be paid $35/hr because his labor is magnified by hundreds of millions of dollars of equipment, and because the company he works for has built up a sales and distribution network that creates a division of labor that makes the whole production chain more efficient. And also because the company exists in a country with ready access to markets, good roads, a healthy, educated population, etc.
Let’s say you eliminated the evil corporation, and gave an auto worker the raw material to make his own cars, and all the tools he needs. He has to design them, put them together, test them, market them, sell them, maintain them, etc. Just how much do you think his labor would be worth then? Pretty much zero because it would take a lifetime to build a single car, and it would be so expensive and probably of such low quality that no one would buy it.
So one of the values a businessman brings is the skill to put together an organization of people that creates a division of labor that allows each person to focus on what they do best. In the Marxian sense, every employee is ‘exploiting’ the labor of every other employee - except that no one is being exploited because they are all there voluntarily. And they all benefit because the sum of their labor provides more value to each than their individual labors would be capable of doing where they not organized and provided with the capital equipment and corporate infrastructure needed to be efficient.
The market is certainly subject to fluctuation, bubbles, etc. It’s a complex adaptive system, and such systems can be noisy and have sudden transitions between states. But this isn’t something you can regulate - these are emergent phenomenon not under the control of anyone - not even government (especially not government). Government does not have the information required to predict or control this stuff.
The solutions to this is not centralization of power and decision-making. That will only make it worse. The correct solution is diversity, redundancy, and other anti-fragile structures. For example, in nature a beehive is an example of a complex adaptive system. The bees regulate the temperature of the hive by alternately beating their wings to generate heat, or just stretching them out to act as radiators, cooling the hive. If all the bees did this together (or were directed to by a central bee authority), you would see wild temperature swings. But this doesn’t happen because a beehive is genetically diverse, and each sub-species of bee has a different threshold temperature so they kick in at different times.
In a capitalist economy, redundancy created by competitive marketplaces, freedom of action for individuals, and decentralization of power help to mitigate this.
Centralizing power will result in either even bigger swings, or the avoidance of variance will go too far the other way and choke off the dynamism required to create economic growth.
Your last question requires a bigger response, so I’ll save it for the next message.
To answer this requires us to step back and ask some more fundamental questions.
First, what is economics for at all? The answer is that economics is the study of the allocation of goods and services under a condition of scarcity. If we all had everything we wanted at birth, we would have no need for economics. So we have to start with the knowledge that not everyone can have everything they want, whether it’s the government or the market coordinating economic activity.
So what is the key problem economics tries to solve? The answer to that is summarized as “The Coordination Problem”. You have a nation of millions of people, all with different skills, interests, desires, needs, and most importantly, knowledge. How can you get all of that organized efficiently? And do we need to? Can’t we all just do whatever we want? To answer that, we have to answer the next question:
How does economic growth happen? What does a healthy economy look like? The answer is that economic growth happens when we figure out how to provide the things people want with less effort than what was required before. That requires a process of discovery, invention, and a means for efficiently organizing economic activity.
Division of labor was the first way in which we created economic growth. Adam Smith used the example of a pin factory. Let’s say you are a pin artisan - you buy raw metal, and you make pins. You have to forge the metal, hammer it or roll it into shape, sharpen one end, and weld or form a ball on the other. This is a slow process. But if have someone focused on forging, someone else focused on sharpening, and another focused on the ball head, you can each perfect your own part of the process and the three of you can make far more than 3 times the number of pins one of you can make. By dividing your labor, you grow the economy and your own incomes.
The second way is through invention. Inventing a pin-rolling machine. Discovering a market for pins that no one else uncovered. Figuring out how to forge the metal with less energy or in faster time.
The third way is through capital investment. Building factories, paying to have large quantities of raw materials delivered (and being without the money until the output good sells), etc.
The next question is, what would we consider to be an efficient, growth-maximizing economy? An efficient economy is one in which the skills of the workforce are aligned with their jobs, where the production of goods and services closely matches the needs of the population, where capital investment flows to the areas where it does the most economic good, and where the right mix of short-term and long-term investment is found.
Now I’d like you to think about the problem of coordination. Think about how amazing our capitalist economy really is: You can walk into a grocery store and find what you’re looking for almost all the time. And yet, the store doesn’t maintain huge inventories of every product - it maintains a few days worth. And every single product in that store is the result of a long chain of cooperation involving thousands to millions of people. Who knew how much carboard to make so that there would be enough boxes? Who made sure that there were enough trucks to deliver the goods, and enough service stations to service the trucks? Who made sure that there were enough people to staff the service stations, enough rubber to make the tires needed for the trucks, enough machines to make the rubber, enough people to run the machines, enough parts to build the machines, etc? And who can figure out whether those are the best uses for all those resources? And who decides what must be shifted around if the demand for cereal changes, if a bad weather season causes the raw materials to up or down in price, etc?
In the absence of the market, think about how hard this problem is. Do you think a bunch of really smart central planners can do it? The Soviet Union tried. They had tens of thousands of actuaries working for GOSPLAN, trying to determine all the factors of production and where things should be allocated. They utterly failed. The result was an endless series of shortages and gluts, misallocated resources, poor use of human capital, etc. That’s why their people lived in poverty and their economy ultimately collapsed.
Let’s take a simple example: You want to improve production, and one of your planners says, “The people could use more hammers.” How he would know this, I don’t know. But let’s say you decide to allocate more hammers. How do you know who should get them? You could simply ask the people, “Do you need a new hammer?” And of course, most people will say yes. Hey, free hammer, right? So now you say, “Only say yes if you truly need one. If we find out you didn’t, we’ll shoot you.” Now they’re motivated to give you an answer, but how do they know if they really need one? Their hammer has a cracked handle, so yes. But wait: What if the guy down the street doesn’t have one at all? Or what if his handle is cracked, but he needs a hammer for his job and you don’t?
The point is that the information needed to efficiently allocate resources is not available to central planners, because no one person has that information. To efficiently allocate hammers you need a way of assessing who needs them, preferably in some sort of hierarchy of need. But also, you need to know if more hammers are a better use of wood and steel and human labor than, say, saws.
It gets uglier. Let’s say you order up a million hammers. Now you get calls from the hammer factory saying it doesn’t have enough steel. So you order steel production diverted to the hammer factory. But diverted from where? How do you determine that the current steel consumers need it less than the hammer factory? To know that, you’d have to know not just how much steel you have, but whether there are alternatives to steel for either product. And if you substitute an alternative, where does that come from? You can order up more production of the raw material… then you run into a shortage of trucks. So you order more trucks, but now there’s a rubber shortage…
Now consider what happens when there’s an economic shock. A tornado destroys a factory, a cold summer causes crop yields to fall, whatever. Now all of your fancy calculated factors of production go out of whack. And as you try to correct for the shortages, each correction causes other shortages which have to be corrected for, ad nauseum.
And so it goes. A modern economy is a complex, interlinked network of millions of nodes, each of which knows a little bit of the information required to keep the whole economy running well, but it’s information which is impossible for central planners to extract or to even know exists.
In the information age, this gets even more critical as the networks get bigger and more complex, the information more dispersed.
How does the market solve this problem? Through prices. Think about what a price is - it’s a distillation of all the information necessary to pass between people to coordinate economic activity. If I think I need a new hammer, I don’t have to know whether my need is greater than anyone else’s, or whether the steel in the hammer would be put to better use elsewhere. I just have to look at the price of the hammer, and compare it to the prices of all the other things I could buy with the same money, and make a decision. This decision creates the information about my relative needs compared to others. I was forced to choose between all the things I could buy, and that is what resolved the tension between all my needs. Then my hammer purchase feeds back into the system and causes changes to production, prices, or the consumption of others.
It’s an anonymous, cooperative system. It abstracts everything you don’t need to know and retains everything you do. I don’t need to know whether my hammer was made by a person of a specific race or religion. I don’t care about the political affiliation of those workers, whether they like the same things I do or hate them. In this way, capitalism breaks down the barriers of racism, tribalism, etc. It’s why Jewish firms in Israel can sell goods to Muslims in Egypt without rancor, why poor people in Bangladesh can get jobs selling products to children in Japan or Germany. It’s a wonderful system. The alternative of having governments do it results in allocation by influence, alignment with political goals, or whatever. It fractures society and creates a zero-sum mentality that pits all the possible recipients of government largesse against each other.
Now consider what happens in a capitalist system if there is an economic shock. A major hard-drive factory burns to the ground. How is allocation adjusted? Well, the prices of existing hard drives goes up as people compensate for the lack of future supply. This causes the people who don’t really need one to drop out of the market, easing demand. The higher prices stimulate other hard drive manufacturers to ramp up production. In turn, the increased demand for all the little pieces that go into hard drives causes price adjustments which change the supply chain in similar ways. Materials shift around, alternatives are found, new alternatives invented, etc.
One way to look at an economy is as a huge parallel supercomputer with the actors in it acting as agents or individual processors. The price system acts as the information bus that allows all those processors to coordinate their activity. It’s possibly the most beautiful creation in human history, and it happened spontaneously - it emerged - from the complex interactions of free people allowed to make their own choices, using and disseminating the information we all need to know but which only they possess.
Now consider what happens when you muck about with prices. Let’s say you pass an ‘anti-gouging law’ which prevents stores with hard drives from raising their prices. Now you’ve destroyed information. You’ve removed the incentive for the people on the margins to forego a hard drive purchase. You’ve detroyed the information manufacturers need to assess how much demand there is and what people are willing to pay. The result is that a price cap causes production efficiency to drop and the result is shortages.
What if we do the opposite and give everyone a big check becaue of the slowdown to ‘stimulate’ the economy? What then? Well, now we’ve distorted that information. A business gets a signal that there is more demand for, say, restaurant meals. Now there’s additional risk - is the demand temporary, caused by the stimulus? Or is it real and permanent? Guess wrong, and you’re screwed. Open up that extra restaurant, then watch the customers trickle away when the stimulus ends. Or don’t open one, and watch your market get eroded by other businesses if the demand was real and permanent. In short, we’ve injected noise into the information bus and made the information a little less valuable and a little more likely to cause misallocations that hurt economic growth.
And so it goes. Government intervention causes real losses of efficiency. Sometimes it’s worth it to correct an even bigger problem. But it always comes at a cost.
What you believe is irrelevant. The question is, how does your proposed system achieve it? It’s easy to pick out the flaws of the current system because nothing is perfect and life is messy. It’s much harder to show how your system will work better. Take any of the problems I listed above, and tell me how you would solve them without markets and prices.
Again with the straw men. What if I said that the free market gives us so much wealth that we can afford to look after the people who are unable to compete in it? I’d still be a ‘free marketer’, wouldn’t I? And I haven’t heard anyone denounce whole human beings. If you want to have a civil discussion, you might want to stop with the evil caricatures. Assume that even capitalists love their kids, want to be fair to people, and want the best for everyone. That might help clarify your thinking and keep your emotions from clouding the debate.
However, it’s absolutely true that in any population there will be people willing to exploit whatever you offer. There will always be people who could work but choose not to because welfare is easier. There will always be people who find it easier to demand handouts than to work for a living. I know some of them. But that’s not the majority - it’s the people on the margin. The same is true for capitalists - on the margin there are always those who find it easier to defraud people, cut corners, mistreat employees, etc. But they are the marginal cases. The vast majority of businessmen work hard to deal fairly with people. And the market forces that behavior on them if they want to survive, because the people they sell to and the employees they hire are part of it.
I don’t think there are many who would argue in a vacuum like this. The degree of ‘freedom’ in a free market will vary depending on the circumstances. That doesn’t necessarily negate the ‘free’ park of the market, any more than restrictions on hate speech compromise free speech.
Restrictions on hate speech do chill free speech because it limits what you can legally say on many subjects. Arguably, Real Time would have to go off the air.
The same can be said of any economic system.
What is the point of this slavery dalliance? Is it supposed to act as some sort of refutation of capitalism?
Just read it.
Apparently you are unawareof Greece ([URL=“http://greece.greekreporter.com/2015/01/15/greece-among-5-member-states-with-highest-poverty-hikes-during-crisis/”]2), Italy, Portugal, and Spain.
Social democracy’s track record is rather short. After about 100 years, you run out of money and your population ages to the point where there aren’t enough productive members of society to pay for the unproductive ones.