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Source link: http://archive.mises.org/13472/give-capitalism-a-chance/

Give Capitalism a Chance

August 4, 2010 by

It is a common assumption in today’s world that capitalism is, at best, out of control and, at worst, outright evil. Everyone knows that it causes most of our financial, economic, and social problems. Of course, everyone is wrong. FULL ARTICLE by Kel Kelly

{ 228 comments }

Barry Loberfeld August 4, 2010 at 8:24 am

Best of luck with this much-needed book!

It appears to be the perfect antidote to those “who point to the very real problems of partial statism (“state capitalism”) but then perversely propose a tried-and-false “solution” — total statism (socialism) — that would only exacerbate those problems.”

michael August 4, 2010 at 8:33 am

May I intrude with a bit of perspective from the left? I really don’t think there are many who condemn capitalism as being all evil. In my observation everyone agrees that a market economy is basic to our way of life. But there is a lot of complaint out there about excesses, and problems not addressed by pure capitalist theory.

I do, for instance, have a bit of trouble with comments like this one:

“Socialism involves government control of the means of production, and its real purpose is redistributing property for the benefits of “society” (society being receivers, not givers). Controlling production and redistributing wealth are precisely the goals and justifications of our government’s constant intervention in the economy.”

Society is all of us. We are, in fact, the producers of all material wealth. And will remain so until the day the last necessary function has been assigned to maintenance-free perpetual machines. We are also the consumers of all wealth. To say we are receivers but not givers is as silly as saying the reverse would be.

And before the wealth can be redistributed, it first has to be distributed. Right now, under the system overseen and managed by the US government, the lion’s share goes to shareholders and officers of large corporations as well as to ourselves in our guise as customers. Left out of the split is small business entrepreneurs, the working poor, the working class generally, the community at large and the environment. So shares of our common wealth tend to rise to the top, where they get distributed into the world of investments and have no direct means to nourish the bottom.

How can I say such a thing? Isn’t investment necessary for businesses to flourish?

I’m old school. I think if a business is viable it should fund its ongoing operations and possible expansion out of cash reserves. That is, if the model is profitable, the business should never need a loan other than in rare and unusual circumstances.

Startups do need capital, and lots of it. The IPO is the perfect platform for funding startups. And we should always have sufficient savings to be able to form pools of investment capital. But we have fulfilled that quota by a thousand times, perhaps a million times over.

What has been happening, and repeatedly, is that excess accumulated capital has been going into the Big Casino, where it places bets that every few years reliably go south. And trillions in wealth simply get purged from the system. Surely there is a better model than this for wealth creation. The excuse that it ‘provides jobs’ is threadbare and inaccurate. Most job creation is in small, private firms. And they are starved for capital no matter how hot the investment sphere is running.

All my comments here go to the fact that the overall economy does best when demand is stimulated. The more paying customers you have, the more product you can sell. It’s pretty simple. If we want to go back to the best of times, let’s go back to an economy where wages are high and everyone profits from sales volume.

Viva enlightened capitalism!

mpolzkill August 4, 2010 at 8:37 am

“Viva enlightened capitalism!”

See Kel, it’s much worse than you thought.

Jon Leckie August 4, 2010 at 8:50 am

michael, why don’t you buy the book and study it carefully. From the article’s description, it sounds like it might be a very good remedy for the several errors laid out in your post. It might even just be a match made in heaven.

Kel, are there any plans to have the book available for delivery from the amazon sites? Postage from mises.org to the UK kills me.

Kel Kelly August 4, 2010 at 6:29 pm

John, Not sure about that, sorry. I will inquire and see if it’s a possibility.

Daniel September 1, 2010 at 10:15 am

It would be great if the book could be made available for the Kindle (and on other ebook stores). Many of the books recommended on Mises.org don’t seem to be available, and I am sure it is limiting your audience. The faster the truth about capitalism and the harms of government intervention spreads the better.

Bill Miller August 4, 2010 at 10:14 am

michael,
Given that Kel put “society” in quotes, I’m guessing that he’s pointing out that who politicians are thinking of when they talk about benefitting “society” is different from what he considers to be “society”, so your simplistic “society is all of us” tautology makes no useful point.

“And before the wealth can be redistributed, it first has to be distributed. Right now, under the system overseen and managed by the US government”
Aha. Now we get to the root of the problem. You’re going from the assumption that there must be a central distributor of wealth. This stems from the fallacy, which you also express later in your post, that wealth is something that is created by “society” (aggregated with no distinctions), put in some common pool, and then distributed by some authority. In a free market, however, there is no central distributor of wealth. Wealth is created by individuals through production and trade. If I produce a good that people want more than the other things they can buy with the money that I need to charge so that I can pay my operating expenses and make a product, I have created “wealth”. In the same act wealth has also been “distributed” to me, as well as to my customers (who, from their own point of view are better off as a result of the transaction). There is no need for a central distributor. There is no “common wealth”, except as an aggregation of the wealth created by individuals, and it is not arbitrarily distributed in a free market (though in our current system this distribution has been perverted through grants of privilege by the government, which do tend often to help well-connected individuals and organizations).
“I’m old school. I think if a business is viable it should fund its ongoing operations and possible expansion out of cash reserves.”
Agree on the ongoing operations. That some corporations can keep a shell game going on easy credit is just one of the many problems that we can thank the federal reserve system for. As for expansions, the cash reserve requirement is arbitrary. Provided they can pay off the loan, I see no reason why large businesses should not be able to borrow to fund expansions.
“And we should always have sufficient savings to be able to form pools of investment capital. But we have fulfilled that quota by a thousand times, perhaps a million times over.”
What sort of proof do you have for that statement? For quite a while we’ve had negative savings (which is kind of what happens when returns on savings are artificially reduced and borrowing is made artificially cheap). Americans have only very recently resumed positive savings, and this is only if you ignore the massive debts being piled up by the government.

“All my comments here go to the fact that the overall economy does best when demand is stimulated. The more paying customers you have, the more product you can sell. It’s pretty simple.” Wow. This is a fairly blatant example of vulgar demand-side fallacy. In reality, except in rare cases of significant monetary contraction (which, in the absence of artificial price floors, tends to be balanced quickly by price reduction), all restrictions upon production are supply side. If a business produces goods that consumers value more than the resources they have to give up to buy them, the business will never lack for paying customers. As the supply of goods grows, the value of money will tend to rise, much as it did during the explosion of productivity during the later part of the nineteenth century, and so the money will automatically adjust to accomodate a larger economy. Conversely, production cannot be increased by artificially increasing the number of “paying customers” through inflationary measures. Some industries can be stimulated, of course, while starving others of resources, ultimately resulting in a recession (and which, ironically, is probably the cause of the inability that you so deplore of small businesses to get capital). As a commonsense observation, there has never been a limit to the human desire to consume, just a limit to the ability to produce.

“Viva Enlightened Capitalism”
Given the cluster of fallacies that you committed during your post, this has to be one of the more ironic statements I’ve read.

michael August 4, 2010 at 11:00 am

“Given that Kel put “society” in quotes, I’m guessing that he’s pointing out that who politicians are thinking of when they talk about benefitting “society” is different from what he considers to be “society”, so your simplistic “society is all of us” tautology makes no useful point.”

Hi Bill. If Kel puts “society” in big fat quotes, then he creates a straw man. Society is society. That is, all of us, in our totality. And we should all be standing behind those policies that don’t divide us, one against the other, but instead benefit ALL of us in like degree, to the extent that we contribute to the general welfare of the overall economy. Would you disagree?

Call:“And before the wealth can be redistributed, it first has to be distributed. Right now, under the system overseen and managed by the US government”
Response: “Aha. Now we get to the root of the problem. You’re going from the assumption that there must be a central distributor of wealth.”

There is. It’s called our global economy, including total industrial capacity, the distributional grid and the retail sector. It’s one engine, with all parts interrelated.

The problem is, although all share in the maintenance of this machine (other than the unemployed), very few have an actual say in how the yield gets distributed. That’s the central problem. Currently the desired split gets engineered by executive officers answering to the dictates of compensation boards composed of other executive officers, and the people they hire: elected politicians.

If I have a goal for action, it would be to put the enterprise under better management than the current one. It’s now too top-down.

“If I produce a good that people want more than the other things they can buy with the money that I need to charge so that I can pay my operating expenses and make a product, I have created “wealth”.”

No you haven’t. What you’ve done is redistribute wealth. You’ve paid the least amount for industrial plant, raw materials, taxes, labor and incidentals, and set an asking price that includes the maximal amount of profit. And I don’t really expect that you do otherwise; that’s your function. But you haven’t “created” that wealth any more than the guy who opens your mail, or handles your accounts, or operates your bindery equipment. All of you, working together in a collective enterprise, created the product you sell to the world.

I’m just saying that when your ability to exert force (as CEO) is greater than anyone else’s, it results in a playing field tipped in your favor. So you should expect countervailing forces arising from within society to set the balance a little more level.

You still belong to society, Bill. You just don’t know it yet. :)

Bill Miller August 4, 2010 at 11:32 am

No, because wealth is subjective. It is based on what the holder has a use for. So if I have a machine that I can use to produce goods that I can then exchange for money to buy goods that I want, it is wealth from my point of view, and the company that sold it to me has created wealth. Your argument boils down to little more than semantics. Even if we accept your argument that wealth is only embodied in the final product and that it’s a “collective” act of the people involved in its production, it does not follow that the resulting wealth belongs to “society”, if we define society as everyone in the population. It belongs, simply, to the person whose willing to pay me what I need to pay for the costs of production.

J. Murray August 4, 2010 at 12:52 pm

Wealth is something that exists only because we decided it to be so. Simply having stuff isn’t wealth. Wealth is ONLY created when you can trade what you made for what someone else made. Only in the course of engaging in that trade is wealth created. Wealth is merely the accumulation of subjective values. Dollar values can’t be attributed to it. It can’t be objectively measured. When I buy something from the store with a $20 price tag, I have profited from the arrangement as I viewed the object I just traded for to be greater in value than the $20 bill. If I would buy the same object if it were priced as high as $25, my wealth improved by $5. If the store purchased the item for $15, then their wealth increaed by $5 as well. By the single transaction of a $20 bill, I just increased our national wealth by $10. The problem coming into measuring wealth is that only the seller can easily be calculated. If someone else buying that same product I just purchased for $20 would buy it at $23, his wealth only increased by $3. By simply having a higher relative opinion of the value of the exact same object we both paid the same price for, I gained more wealth than the other individual did. Since we can’t canvass the population asking them what their breaking point for each and every product purchased, or even get a reasonable statistical estimate, wealth creation is forever out of our reach as a means of measurement.

Now, let’s say the government increases taxes and the $20 item just went up to $23. My wealth now only increased by $2 and the other guy didn’t gain any wealth at all. The business tax, levvied to regulate the business, just cost me $3 in wealth and the other guy $3 in wealth. What was created to supposedly protect my wealth just harmed it. Governments can’t get around this problem. All government action will, inevitably, destroy the wealth of the common individual as it closes the gap between price and relative value, thus destroying the wealth gained in the transaction. On the business end, the profit still remains $5 as it’s the minimum necessary to remain in business. Falling below a certain profit margin can lead to bankruptcy, even if the business is still profitable.

Government can’t make us increase the relative value of the product we just purchased, which is the only way to counter-balance the $3 price increase as a result of taxes and regulation. As such, any actions government takes can only cause us harm in the end.

michael August 4, 2010 at 2:00 pm

“Wealth is something that exists only because we decided it to be so. Simply having stuff isn’t wealth. Wealth is ONLY created when you can trade what you made for what someone else made. Only in the course of engaging in that trade is wealth created. Wealth is merely the accumulation of subjective values. Dollar values can’t be attributed to it. It can’t be objectively measured.”

So what you seem to be saying first is that when you make something and then sell it, it becomes wealth. Because you exchanged it for dollars. Then it would follow that when you then spend any of your dollars, you have lost wealth.

But then you say it can’t be measured in dollars. I like that concept. So even if you don’t make a dime, you’re still wealthy in spirit?

It all seems so… so un-Austrian somehow.

J. Murray August 4, 2010 at 3:03 pm

No, if I spend those dollars, I further gain wealth. Every transaction I make in absence of coercion leads to wealth. If I make a product for $10 and sell it for $15, I gain wealth of $5. If I turn around and spend that $15 on something else which I would buy if, say, $20, I gain wealth of $5. The simple transaction of using the intermediary of dollars to trade my product for the product someone else made leads to a total wealth gain of $10 even though I don’t actually have a $10 bill to show for it.

What’s great about the system is that the guy who purchased the product I made for $10 at the $15 price point, HE GAINED wealth as well, but the amount is unknown unless you ask him how much he would have ultimately paid for the product before choosing not to engage in the trade at all. In every transaction, both parties gain wealth. Spending money doesn’t lead to reduced wealth, it leads to increased wealth so long as the decision is my own to make. For instance, paying taxes is wealth destruction since I didn’t make the decision to pay them, it was forced on me.

Scott D August 4, 2010 at 4:30 pm

It all seems so… so un-Austrian somehow.

Subjective value is one of those foundational concepts, like marginal utility or supply and demand, that is acknowledged as unequivocally true in most modern strains of economics–and it came directly out of Austrian economics of the late 19th century, specifically the work of Eugen Böhm-Bawerk.

michael August 9, 2010 at 10:38 am

“No, if I spend those dollars, I further gain wealth. Every transaction I make in absence of coercion leads to wealth. If I make a product for $10 and sell it for $15, I gain wealth of $5. If I turn around and spend that $15 on something else which I would buy if, say, $20, I gain wealth of $5. The simple transaction of using the intermediary of dollars to trade my product for the product someone else made leads to a total wealth gain of $10 even though I don’t actually have a $10 bill to show for it.”

J Murray: With your definition of wealth, I’m surprised you don’t buy everything when it’s on sale, and then buy more with all the money you saved.

Household wealth is usually defined as the current value of all one’s possessions, plus their available cash, plus the redemption value of their investments. You might not trade your dog for a million bucks… but on the market he’s not worth that.

Danny C. August 4, 2010 at 6:31 pm

“No you haven’t. What you’ve done is redistribute wealth. You’ve paid the least amount for industrial plant, raw materials, taxes, labor and incidentals, and set an asking price that includes the maximal amount of profit.”

This is a wonderfully succinct expression of the point you seem to be missing. The only way you can buy a factory is if there is already a factory! Resources have always been here, but wealth has not. Somebody built that factory, and in doing so he *created* the wealth that was then transfered to other people when he sold it. So of course it is not distribution, it is production. There is more wealth than before. The pie is *bigger*, no matter how the slices are arranged.

Furthermore, you seem to be confused about what demand is. Demand is not the ability to make a transaction happen, as you seemed to define it (in a later post). It is the *desire* to make the transaction happen. This is not a mere semantic difference, because demand is not linked to a particular transaction. I can buy a good at any price (or under any other contractual agreement) and sell a good at any price (which is of course just buying the good that is being traded to me), so the inability of the transaction to take place cannot be an indicator of the demand itself.

If I were starving on the streets with absolutely no money, I would *definitely* still demand food!

This seems to be behind the demand-side economic arguments you have put forth. What could it possibly mean for society to not demand “enough”, or its corollary that the market needs to be “stimulated”? If demand is “too low” that of course implies that there is some level at which it “should be”, and how is this to be defined? The only thing we could possibly use to define the proper amount of demand is supply, and that would mean that no matter what the supply of one good is the economy would do best to match it with equal demand. According to this if I decided to invest $1,000,000 in filling a warehouse with “butt-scented perfume”, it would be best for the economy if enough people bought my butt perfume just to make my business work! Then I would have the incentive to continue producing butt perfume and invest more and more money, while more and more people trade their hard earned cash for butt perfume.

Of course a much more rational explanation of that would be overproduction! The best way to fix that problem is for me to go bankrupt not getting any sales and still having to pay to maintain my business, so that I have to liquidate the assets into the hands of people that will use them for a better purpose, lest they suffer my fate. Even better would have been if I had never tried to “stimulate demand” for butt perfume in the first place, as I would still have $1,000,000 of capital that could be used to produce for the demand that is there.

One might think, “But no one wants butt perfume. If you stimulate demand for, I don’t know, houses, the story would be different, because people do want houses.” The point that is supposed to illustrate is that if people don’t demand something naturally then they don’t want it, and “stimulating demand” can only be a euphemism for forcing people (ahem taxes) to sell what they want to keep and buy what they would rather not have. If someone demands a house, he always demands it, even if he is broke. It makes no sense to “stimulate” the economy. Either people want stuff or they don’t. The stimulus boils down to making people spend when they would rather save.

And such is the seed-corn-eating philosophy of those poor Keynesians. If demand is what drives the economy, then everyone should liquidate their bank accounts right now. Then everyone will have lots of cool stuff, and all that money will just be in other bank accounts, so then those people can do the same, and get cool stuff and keep that currency movin’, and before you know it we’ll have everything we ever dreamed of! Hell, why not print more money while we’re at it!

Problem is, while everyone was busy emptying their bank accounts to “stimulate demand”, they spent all the money that needed to be used to produce all those wonderful things that are expected to flow from this extra demand. Now the pie is smaller.

Gil August 4, 2010 at 11:32 pm

I would disagree. I would indeed define “demand” in economics as the ability to buy something. If you are flat broke and hungry you may want food as much as you like but since you nothing to trade you won’t be sold food hence you want people to give you food but you can’t demand it. Inevitably your correct definition of “overproduction” reminds me of the pointing out of the term “agricultural surplus”, i.e. the world’s hunger problem hasn’t been solved rather farmers have made more food than what the actual buyers will actually buy leading to wastage.

michael August 5, 2010 at 9:35 am

Gil: We may have been plowing our fields of grain under back in the 1930s, but we’re definitely not doing so today. There’s definitely no structural “wastage” of food supplies due to any absence of demand. Instead, world grain stocks tend to be very tight now, due to over-demand.

Take a look at this latest world food stocks report:

http://www.usda.gov/oce/commodity/wasde/latest.pdf

The columns of interest are Output (current production); Total Supply (output plus reserves); Total Use (consumption) and Ending Stocks (remaining reserves). As you can see, what you end up with is not a whole lot of reserves to carry over into the next season.

We’re not that far from big problems, in the event that changing climate or some other variable causes a seasonal failure in world food production. Another way they measure this is in days. That is, if we have no new output of food, how many days can we feed the world from our reserves. And normally it’s not many days at all. 60 to 80 would be the typical range.

Grain and meat production is also extremely vulnerable to oil prices (now just heading above $80/barrel). Our global agricultural model is oil-intensive, dependent on oil-based production methods for fertilizer, pesticides and other inputs, plus the energy costs of transporting bulk products across the globe. A spike in oil price can result in severe dislocations in demand, stemming from price inflation that prices food out of the range of affordability for millions of people. Also, increased demand for biofuels can result in similar price dislocations (as happened several years ago).

In short, we’re not throwing the stuff away or burning it in stacks.

J. Murray August 5, 2010 at 9:42 am

Uh, michael, we ARE burning our food supply. It’s the ethanol mandate we can thank for a good chunk of the over-demand. We are burning corn.

michael August 5, 2010 at 10:08 am

J Murray: Demand for corn ethanol is slackening. More and more users are beginning to understand it’s a bad idea. A bad use of food supplies, that uses huge government subsidies to promote a plan that doesn’t make economic sense, and ends up leaving us with an inferior fuel, compared to gasoline. It has always been just a political boondoggle, designed to win votes in Iowa.

What they’ll realize in another few years is that weed-based biofuels are just as foolish; a plan that makes sense to an economist but not to a gardener. Every ton of weeds or chaff we turn into fuel goes into the sky as CO2 instead of back into the ground. Over time we run out of organic material in the soil, leaving us in the same spot the Middle East (once able to feed the world’s first populations in the millions) has become: a desert. So it’s not a sustainable model either.

Back to the drawing board.

Danny C. August 5, 2010 at 11:51 am

Interesting response Gil!

“I would indeed define “demand” in economics as the ability to buy something.”

But what does it mean to “buy”? One can trade money for something, but one can trade other things, too. If I have no “money” I may still have other goods that I can trade for what I want. So to be “broke” in the sense that one has no currency is really not “broke” in the absolute sense.

“you nothing to trade you won’t be sold food hence you want people to give you food but you can’t demand it.”

Is there ever a case when someone has *nothing* to trade, though? Given an able body one can always offer labor. Even then, I think the best illustration of how someone that is totally broke can definitely demand something is crime. When a criminal robs a store is he not demanding the goods he takes? He might not have any money at all, and yet the demand is still there. Demand is the fact that somebody will do something for another thing. I think there is something very different from the person who wants a computer and can’t afford one at the price at which they are sold, and someone who just doesn’t care to have a computer. The latter person would not trade *anything* (or only those things whose worthlessness in his eyes compare to a computer) for a computer, while the other person would be willing to trade, even though he can’t trade what they are asking now. If the price of computers goes down then those differences will start to matter more: the person who always demanded the computer will buy it for whatever price he can pay, while the other person will never demand a computer even if it were $0.50. This is a crucial difference because if no one wanted computers at all then making more to bring the price down would be a financial disaster. On the other hand, making more computers to bring the price down would bring more business as long as there are many people who demand computers but are unable to pay the current price. It determines whether or not further production of said good is worthwhile.

Another thing I thought about is that for a transaction to go through there must be both supply and demand. Is someone incapable of demanding that which does not exist? At first that would seem to make sense, but if demand does not precede supply then what indicators could be used to determine what is to be produced in the first place?

Consider this: if a person always demands food, then that will affect his behavior even if he has literally nothing of value to trade away. In particular, this person may decide to resort to criminal activity to get food. If he actually stopped demanding food by being broke he would have no reason to do this.

“Inevitably your correct definition of “overproduction” reminds me of the pointing out of the term “agricultural surplus”, i.e. the world’s hunger problem hasn’t been solved rather farmers have made more food than what the actual buyers will actually buy leading to wastage.”

That’s an interesting point. I wonder, though, in what way could we be “overproducing” food if there is starvation? That seems to suggest that farmers in, say, the U.S. produce enough food for the whole world (or more), but because many people are unable to make the transaction happen (i.e. people starving in Africa can’t take a trip to America to get food) all this food produced goes to waste. But no farmers in the U.S. (most likely) are expecting to feed the starving parts of the world, only to be disappointed that these potential customers never showed up. Instead, the food we are “wasting” is exactly that: waste. It is a by-product of production, and in this case it is reflecting the uncertainty of economic calculation. Food producers cannot predict exactly how much food is going to be bought, and so they usually produce enough that they are sure they won’t run out. This means there is often “extra food” that ends up getting thrown away, but that is not overproduction. The farmers are not wasting money producing that extra food, because if they produced less food they would run risks of developing shortages and lose their place in the market. Now of course this is all assuming a capitalist backdrop, and I’m sure the myriad of subsidies and other tampering by Uncle Sam could cause some real overproduction, but even in a free market food would get thrown away, because it is actually *better* for business to make enough food that they always either come out even or make a surplus.

Another thing to consider, I think, is that supply and demand can be local. Perhaps there is an oversupply of food in the U.S. (which I would still debate, the fact people throw away food does not mean it would be more cost effective to make less food, it is more complex than that), but there is certainly an undersupply of food in other parts of the world. So then it is not “food” that is overproduced, but “food sold in the U.S.” that is overproduced, and “food sold in other places” that is underproduced.

So I’m really not so sure there is an “agricultural surplus”, for the very fact that lots of people still starve. Maybe there is an “agriculture in America surplus”, but again a surplus is not the same as overproduction. To never have a surplus would require perfect economic calculation which is impossible. Overproduction seems to have more to do with ignoring price signals (or manipulating slash destroying them).

J. Murray August 6, 2010 at 7:19 am

The demand is not slackening, michael, because it is REQUIRED to be in our gasoline supply. The only way ethanol demand would slack is if gasoline demand slacks along with it. 10% of the fuel you pump into your car is ethanol by government mandate. No matter how much you want to not use ethanol, Washington has set it at 10% of every gallon of gasoline you put into your car. Ethanol was never used much outside of the government The only demand that is slackening is for the E85 fuel, which didn’t make a material or significant dent in the overall use of ethanol.

The other uses such as antiseptics, feedstock, solvents, poison control, and consumer beverages, are dwarfed by what we burn in our cars. The ethanol fuel market would outright collapse if the mandate was eliminated becuase the ethanol fuel market exists purely becuase of government mandate. Without that mandate, no one would put ethanol in their gasoline and corn producers would actually start selling corn for food, not fuel.

michael August 5, 2010 at 9:08 am

Me: “What you’ve done is redistribute wealth. You’ve paid the least amount for industrial plant, raw materials, taxes, labor and incidentals, and set an asking price that includes the maximal amount of profit.”

Danny: “This is a wonderfully succinct expression of the point you seem to be missing. The only way you can buy a factory is if there is already a factory! Resources have always been here, but wealth has not. Somebody built that factory, and in doing so he *created* the wealth that was then transfered to other people when he sold it. So of course it is not distribution, it is production. There is more wealth than before. The pie is *bigger*, no matter how the slices are arranged.”

Danny, there’s accounting error here. When someone “creates” a factory he doesn’t just wave his magic wand. He exchanges a certain sum of money for the factory. That is true regardless of whether he builds a new one or just buys an existing one. So nothing is created out of nothing. You can buy a factory whether or not one is already in existence and for sale.

Nonetheless there has been a transformation, from mere cash into the means of production. So he has set the stage for wealth creation. That’s the capitalist path. And once he cranks the handle, causing salable product to come out, he has created potential wealth. (Once it has been bought and paid for, it becomes for him actual wealth.)

But if he needs other people to help him create that wealth, he needs to share the proceeds with them. In our society this is done by wages, salaries and billing via subcontractors.

We have nearly always been in an employer’s market. That is, there are at any given time fewer jobs on offer than there are people looking for jobs. And by the laws of supply and demand that means the hopeful job-seeker usually has to choose between a bad offer and no job at all. Occasionally, when the jobless rate goes down below 5%, the job-seeker is in a stronger position to use his bargaining power.

But usually it’s the employer who sets the terms. And that’s why employers get so upset about collective bargaining power: unions. Because it is an attempt to tilt the playing field back level again, where organized employees can meet an employer eye to eye.

If two sides in a negotiation enjoy something like equal power, the outcome is usually a fair one. If one side is much weaker than the other, that side usually gets the shaft.

BTW, listen to Gil. A hungry person with no money creates no demand. Demand only comes from a hungry person WITH money. He is both willing and able to enter into an economic transaction.

As for my “demand-side” argument, I would ask you this question. What happens when an auto maker supplies ten thousand Hummers to the market and no one’s buying Hummers?

First he tries cutting prices, then he tries offering low financing. In fact we do see a lot of zero-rate fi’s on offer when times get slow. But if those tricks don’t work, he shuts down production. Right?

So you have slack demand leading to idled plant. Or, in terms people like to use here, ‘reserve capacity’ is created. Production alone was unable to make the good times roll. Hummer had to fold production entirely. Potential wealth had to be dismantled.

That’s why I like to remind people that before anything good happens, your customer base has to have access to either good wages or easy credit. And of the two, good wages are the more sustainable model.

In other words I find your butt perfume argument to be a forced one. What you are doing is beginning with your conclusion and then trying to frame an argument that will fit it.

mpolzkill August 5, 2010 at 9:11 am

Michael: “listen to Gil”

A formidable team, that.

“What you are doing is beginning with your conclusion and then trying to frame an argument that will fit it.”

Oh, that’s rich.

Danny C. August 5, 2010 at 12:50 pm

“Danny, there’s accounting error here. When someone “creates” a factory he doesn’t just wave his magic wand. He exchanges a certain sum of money for the factory. That is true regardless of whether he builds a new one or just buys an existing one. So nothing is created out of nothing. You can buy a factory whether or not one is already in existence and for sale.”

It’s funny you mentioned the waving of the magic wand, since I highly suspect that is what you are really imagining. For example, before there are any factories in existence, how does one exchange money for a factory!? You said you can buy a factory, even if it doesn’t exist!? How does that work? From who are you buying it? You seem to be confusing buying a factory with buying land and building a factory. Before there is a factory, you can’t buy it. If someone offered to “sell” me a factory, for me only to find out it doesn’t actually exist, I probably wouldn’t buy it!

Your “nothing from nothing” argument leads to the conclusion that the amount of food around now is equal to how much was around before human civilization. This is absurd, there was hardly any food before civilization and there is definitely way wayyy more food, not just in raw supply but per person, because of the act of production. How could one argue that wealth is not produced by agriculture? Agriculture is not a system to divide up the amount of food that is around in a better way, it is a system that produces more food than there was before. I am expecting for you to argue something along the lines of using up land to farm, but that illustrates my distinction between resources and wealth: the land is a scarce resource, but food is wealth. The supply of food is not fixed, and will increase if we produce faster than we consume.

A factory is worth more (in some cases) to an economy than land put to any other use. You might have used up land to build the factory, but your factory is now worth more than the land itself was. You have *created* wealth. Also, you are committing the typical Keynesian fallacy of assuming “money” is this external ever-present market force. The notion that one must spend money to build a factory is crazy. Factories are capable of existing before money, and their construction has more to do with whether people do the necessary work than with who has “money”. Either way, to suggest that a factory is worth as much to an economy as the land, scrap metal and wood that went into building it is nuts! If that were true then why build a factory, just keep the land, scrap metal and wood. Also, farms, which are economic use of land just like a factory, predated all forms of money, and probably had a big part in influencing what kind of money came about later.

“Nonetheless there has been a transformation, from mere cash into the means of production.”

If the products at the end of the transaction are worth just as much as before the transaction, then that begs the question: why make the transaction? Why does anyone ever trade ever if it doesn’t increase wealth?

“We have nearly always been in an employer’s market.”

This is crazy. As Mises pointed out, the vast majority of goods are produced for the working class. How in the world is this, or even more so theoretical pure capitalism, an “employer’s market”? The vast majority of goods produced are cheap, mass-produced goods that are geared towards the working class. Almost all of the work done by those employers’ factories is going to be consumed by the workers!! Also, the notion that employers have all the leverage in transactions is just wrong. People seem to forget that the employer needs his wage workers and customers way more than the wage workers and customers need the employer. In capitalism employers are almost slaves to employees, and the only counter-argument to this I have heard is that they get to go home to big houses at the end of the day. Being an employer is much harder, much more stressful, risky, and challenging than being an employee. That is why it is more profitable and there are fewer that do it.

“But usually it’s the employer who sets the terms. And that’s why employers get so upset about collective bargaining power: unions. Because it is an attempt to tilt the playing field back level again, where organized employees can meet an employer eye to eye.”

Again, this is insane, and a total misrepresentation of labor unions. Anyone can refuse to come to their job because they don’t like it. That’s called quitting. People do it all the time and labor unions have nothing to do with it. It becomes a union when you quit but it is against the law for your employer to seek another employee. Leveling the playing field!? The employee can always look for another employer that fits his needs better, but literally taking that exact same ability away from the employer makes it *more* fair!? I am quite confused. An employer has say in who he employs, and the employee has say in who he is going to work for. How does that favor the employer?

“If two sides in a negotiation enjoy something like equal power, the outcome is usually a fair one. If one side is much weaker than the other, that side usually gets the shaft.”

Fair doesn’t mean anything. Fair is a way for people to say, “I have nothing to back this up but I like/dislike what is happening”. For example, it seems like you would argue that allowing employees to freely choose (and exclude) employers, but denying that same ability to employers is somehow “fair”. I cannot contest this, because “fair” means whatever the hell you want it to. I suppose it is also “fair” that the employers typically pay far higher of a percentage of their income in taxes.

“BTW, listen to Gil. A hungry person with no money creates no demand. Demand only comes from a hungry person WITH money. He is both willing and able to enter into an economic transaction.”

So starving people with no money have never ever done anything to the effect of getting food? Are you familiar with criminals? I have already responded to Gil, and I hope you understand that telling me to “listen” to somebody is unnecessary. As a substitute for a real argument it only makes me less likely to take your side seriously (not that you should care anyways).

“Production alone was unable to make the good times roll. Hummer had to fold production entirely. Potential wealth had to be dismantled.”

Yes, production alone won’t do it. You must understand what you are suggesting though, and take it for what it is: if we force people against their will to buy Hummers, that will be better for the economy. That’s where the government comes in: they have the badges and guns to make these deals go through. And how, exactly, is that “better” than the Hummer plant owner going bankrupt and having to hand over that factory to someone else to be put to another use? So the Hummer guy keeps his job and a bunch of people end up buying cars they don’t want! Factory owner wins, everyone else loses. Hmmm, that sounds a lot like the bailing out of big banks and insurance companies!!

I am disappointed you ignored my humor. Walk yourself through your argument again, replacing “Hummer” with “Butt Perfume”, and perhaps you will see how crazy the conclusion is. Why don’t we just pay people to dig holes in the ground and fill them back up?

“That’s why I like to remind people that before anything good happens, your customer base has to have access to either good wages or easy credit.”

Perhaps they need reminding because this actually isn’t true. Are you saying “easy credit” existed back in the hunter gather days, which is what the customer base used to create agriculture? See this is the biggest, most severe problem with mainstream economics: it assumes money is this totally different, always present external factor and makes no attempt what-so-ever to explain where it came from or what purpose it serves. Money is not what makes things happen. So this friendly reminder is actually dead wrong: before anything good happens, someone has to decide to *make* that good thing happen. Your customer base can have all the “easy credit” in the world, and nothing is gonna get build into someone builds it. Consumption does not create, production creates.

“In other words I find your butt perfume argument to be a forced one. What you are doing is beginning with your conclusion and then trying to frame an argument that will fit it.”

What conclusion was that? This is a meaningless criticism: if I think of the conclusion first, that wouldn’t change the fact that the argument leading to it is either sound or unsound. Sure, before I began with my butt perfume example I was pretty sure I would reach the conclusion that trying to match that supply with demand would be a disaster. But that is irrelevant and you have done nothing but avoid criticizing my actual argument. Either the argument is sound or not. If it is unsound, then point out its unsoundness. If you are trying to suggest that I am using circular reasoning, then I admit I don’t follow you. It’s really a simple argument: make a lot of something useless, and consider what would happen if people were forced to buy it anyways.

michael August 5, 2010 at 4:20 pm

Danny: “It’s funny you mentioned the waving of the magic wand, since I highly suspect that is what you are really imagining. For example, before there are any factories in existence, how does one exchange money for a factory!? You said you can buy a factory, even if it doesn’t exist!? How does that work? From who are you buying it? You seem to be confusing buying a factory with buying land and building a factory. Before there is a factory, you can’t buy it. If someone offered to “sell” me a factory, for me only to find out it doesn’t actually exist, I probably wouldn’t buy it!”

For me, this is not just some intellectual exercise in semantics. If you need some cash, the best way to get it is to buy or build a factory. I’m defining “factory” as being equivalent to “means of production”. And you can do that by either taking over an existing business (factory) or by trading your investment capital for the means to build a new one. It’s the same either way.

“Your “nothing from nothing” argument leads to the conclusion that the amount of food around now is equal to how much was around before human civilization. This is absurd, there was hardly any food before civilization and there is definitely way wayyy more food, not just in raw supply but per person, because of the act of production.”

We weren’t even discussing food production, Danny. You said something about “creating” wealth by building or by buying a factory, I forget which. And I said that nothing is created out of nothing. You have to have some resources in order to buy or to build that factory. Once you have it and put yourself to work in it, you then begin to create wealth.

And if you hire on help to make the work go faster, then they assist you in creating that wealth. You call attention to this when you observe this: “Is there ever a case when someone has *nothing* to trade, though? Given an able body one can always offer labor.”

Normally that’s what people have to trade. And since the supply side of labor is normally more abundant than the demand side, they have little bargaining power.

We continue: “How could one argue that wealth is not produced by agriculture?”

One can’t. Growing food is the most basic sort of production.

“Also, you are committing the typical Keynesian fallacy of assuming “money” is this external ever-present market force.”

No I’m not. Nor is that sentiment particularly Keynesian.

If you’re in the woods and there’s no one around, you can fabricate the means of production without spending a dime. But if you want to make a living as a self-employed painter, at a minimum you need to buy one (1) paint brush. Probably you’ll also want a ladder and spare pants. Those implements are, in my language, your “factory”, your means of making a living.

Some years back there was in fact a civil engineer in Boston who wanted to get away from the rat race. So he went out to a distant part of Idaho and found a place no one owned in the wilderness. And he built a foundry from some bricks he found, dug iron ore out of a hillside and smelted it. Then he fashioned tools from it. And built his home and shop, planting a garden and putting up a curing shed for game. He fashioned the easiest hunting rifle you can make at home, a percussion-cap long rifle.

He did so without a lot of expense, having come there with nothing at all but knowledge. But he still had cash expenses. So he would use his spare time in panning gold from the stream. And twice a year he’d hike into town to use his little bag of gold to buy his four requirements: coffee, sugar, flour and books.

He was the exception to the rule. Most of the rest of us use cash.

Kel Kelly August 4, 2010 at 5:53 pm

Michael,

Though I think that these guys have done a good job of clarifying some issues you are concerned with, let me first state that the book was written precisely to address the very statements you are making–it was written for you! I think that much of the problem is simply a disconnect between “your side” and “our side.” What I attempt to do is reconcile these, to go back and forth between the two sides and explain, in detail, how something can or cannot work so that we can whittle it down to understanding the raw “mechanics” of how things must truly work.

Some examples:

Demand: We cannot say demand is demand. There is monetary demand and real demand (the will and means to purchase something by paying for it with what we have produced). We cannot demand more without additional production with which to purchase a thing. Simply increasing monetary demand–paper bills–not only merely changes the relative prices of things, but distorts the price system and ultimately destroys real wealth, or, real things already produced. There is never a lack of demand. Whatever is produced will be used to purchase something else (excluding the fleeting act of “hoarding”). If we do not spend our previous production on consumers goods, we will save it in our bank account or investment account, where it will be used by others to purchase “i.e., “demand” capital goods. This demand for capital goods, though it is thrown out of GDP calculations, is still there. The fact that people are reluctant at some periods to spend on “anything” (to hoard), comes from their being in a shaky economy that could come about only from prior “demand stimulation.” You don’t need to force people to spend–they will, and they have to.

Society: What I meant was that socialists redistribute for the sake of society, they do not consider the rich (i.e., the creators of the wealth) “society” because they obviously don’t redistribute back to the wealthy. They only take, net net, from the wealth. I offer (though it’s obvious anyway) detailed proof of this in my chapter “The Morality of Capitalism.”

Redistribution: To have someone originally distribute wealth means that they have to take it in the first place from their rightful owner. The rightful owner could not have it to begin with without having created it or having been paid for it (unless he received special privileges from the government, where he could effectively take it by force). There is no “wealth to be distributed.” There is wealth created and owned. The global economy is not one engine—it’s billions of people (individual engines) producing, exchanging, and working together (except when prevented from doing so by government). Everyone who produces is paid in either revenues or wages the value of what they produce—the market forces this to be the case (when not distorted by government). See Chapter one for details on this. The janitor creates less wealth than the marketing executive (brings in fewer revenues to the company). The CEO, a laborer, creates much more wealth than me, and is responsible for preventing the company from going bust (for helping me keep gaining wealth). He is therefore paid more. If you don’t like his being paid more, as his shareholders—is bosses—do, then you don’t have to work for him or buy his products. He has nothing to do with you. If you think we should have government alter his salary, perhaps we should have government alter what you are or are not allowed to receive as well?
Recessions and hardship: It would be virtually impossible to have recessions and unemployment in free markets. These are the things created by those who promise to protect you from these things, and still fail to do so.

War and recovery: please see Chapter 6 and Chapter 10: GDP growth figures are absolutely meaningless. You can’t have a real recovery by having destroyed goods in the economy and failed to produce as many as you used to (by war). The only way you can destroy goods and see increased GDP growth is by printing money. The Soviets had very high GDP growth but never increased their production, net net.
I hope that an alternative explanation of how things work will give you different insight into what the things you see around you really mean. If nothing else, as the articles title said, give capitalism a chance: the policies you implicitly support–the ones we’ve had for the last hundred years–have not solved the things you are complaining about. Maybe, just maybe free markets could solve the problem if only you gave it a shot. Cheers.

michael August 5, 2010 at 10:40 am

Kel: Thanks for going to the trouble of summarizing all those undoubtedly convincing arguments in your book. Now I don’t have to read it. :)

But seriously, you do address some key points:

“Demand: We cannot say demand is demand. There is monetary demand and real demand (the will and means to purchase something by paying for it with what we have produced). We cannot demand more without additional production with which to purchase a thing.”

This looks like a distinction without a difference. If you want to buy something, you normally do so with the money in your pocket (derived from your past contributions to wealth creation) or with a credit card (derived from your future contributions).

The truly important distinction, to me, is the one between demand (the ability plus the desire to purchase) and need (desire without the ability). If you don’t put this concept front and center in your mind, nothing I can say about whether it’s demand or supply driving the economy will make any sense.

I’m not talking about people not buying because they make rational decisions to do without a 4G phone as opposed to their old 3G phone. I’m talking about what happens to production when people just can’t afford to buy the things they need.

In a truly free market, such as you espouse, these people would be of no economic consequence. They create zero demand, hence they are out of the equation. There exists no economic term called “need”.

That’s why so many people here consider my comments to be off-topic. I come from outside the parameters of the narrow academic discipline of economic thought, as defined in Austrian terms. And so, for many, my arguments literally do not make sense. “Need” is irrelevant to their thinking.

2. “Society: What I meant was that socialists redistribute for the sake of society, they do not consider the rich (i.e., the creators of the wealth) “society” because they obviously don’t redistribute back to the wealthy. They only take, net net, from the wealth.” and

“Redistribution: To have someone originally distribute wealth means that they have to take it in the first place from their rightful owner. The rightful owner could not have it to begin with without having created it or having been paid for it.. (etc)”

A long time ago we came up with the idea that we could create create a society by combining the efforts of all its members. One was either “in” society and contributing toward its maintenance or one was “out”, and considered an enemy. It was a cooperative effort, involving mutual labors toward a single end: wealth and prosperity.

It needed a government, to direct the efforts of many thousands of people toward one collective effort. Dam building and giant hydraulic projects were the first such societies, in places like Egypt, Mesopotamia and Peru. And one of government’s first bright ideas was to collect a tithe of the grain each farmer produced, as taxes.

These grain stores were saved for use in the event of a crop failure, in which case they were disbursed to feed the hungry. It was the world’s first insurance policy.

Should a rich farmer pay grain in at the same rate as a poor one? Proportionately, of course. But what if the rich farmer is found to continually be getting richer, while the poor one becomes poorer? Obviously there’s some structural problem here. Government normally solves it by taxing the richer one at a higher rate, hoping that there is a leveling out that aids the poor farmer.

The first people to realize this were the Hebrews, a bright bunch of people. They instituted the Jubilee, which unfortunately is a custom that’s gone out of use. Every fifty years you hold a Jubilee year, in which all the slaves are freed and all the debts dissolved. That puts everyone back in the same pile and prevents the kinds of social strife that follow from allowing systemic class-based inequities. It’s vital to the long-term survival of any society to have some compensating leveling mechanism.

From such an event, one can see that the sharper mind and the more ambitious personality can easily become rich again. So it’s no big deal to him. And fifty years later his children, having had a ton of property bestowed on them for no great reason, get it leveled again. If they’re good they can always make the money back again.

But contrast this with American society today. The rich get rich while the poor get poorer. And while the rich console themselves with the thought that only they put forth effort, and everyone else prefers being lazy and living off handouts, the fact is that poor people work a lot harder for the little they get, because they’re desperate to gain something they can hang onto.

I offer this as evidence that our current government is rather more effective at transferring commonly held resources (tax revenues) upward to the rich than it is downward, to the relatively under-served. And that condition is a very divisive one for our society. So some revision in the way we cut the national pie is in order.

Warren Buffet famously noted that he actually pays taxes at quite a lower rate than does his secretary. I suggest that while the very fortunate do a lot of hand-wringing about their sorry lot under an inequitable government, they shed crocodile tears. They’re getting by far the better half of the deal.

I do fully appreciate the emotional truth expressed in the simple view that “It’s mine. You can’t have it!” But the interrelated world we live in is a little more complex than that.

michael August 9, 2010 at 10:54 am

Kel: Me again, after several days’ thought.

“There is never a lack of demand. Whatever is produced will be used to purchase something else (excluding the fleeting act of “hoarding”). If we do not spend our previous production on consumers goods, we will save it in our bank account or investment account, where it will be used by others to purchase “i.e., “demand” capital goods. This demand for capital goods, though it is thrown out of GDP calculations, is still there. The fact that people are reluctant at some periods to spend on “anything” (to hoard), comes from their being in a shaky economy that could come about only from prior “demand stimulation.” You don’t need to force people to spend–they will, and they have to.”

Agreed. To the degree that there’s always money looking for a new home, there’s always demand. But the nature of that demand is always changing.

In a period of relative income equality, like the halcyon days of the 1950′s and 60s, people demanded more washers, Buicks, sewing machines and cool clothes. But as those more fortunate have pulled away from the pack (we now have the greatest inequality of income we’ve seen since 1929) people are increasingly looking for a safe investment, something that will expand their wealth without significant downside risk. And buying less stuff. It’s that sag in ‘stuff’ sales that has led to our employment slump. We can’t all make our livings as investment advisers and arbitrageurs.

I think the evidence is hard to ignore that in such times accumulating investment capital has a way of disappearing in a puff of smoke.

“Production” is a word with a deceptive meaning. If we describe the GNP as being the sum total of all national consumption, all investment, governmental purchases and our balance of trade, we come up with a number that doesn’t really enlighten as much as one would hope. I think we do have to give some cognizance to the ‘real’ economy… unless we pull free from gravity and float away in a cloud.

Russ the Apostate August 9, 2010 at 11:11 am

michael wrote:
“…people are increasingly looking for a safe investment, something that will expand their wealth without significant downside risk. And buying less stuff. It’s that sag in ‘stuff’ sales that has led to our employment slump.”

You’re only looking at consumer goods as “stuff”. Capital goods are also stuff. Let’s say somebody simly sticks his money in a bank account (not a good investment, but a simple example). That money is not just sitting there, not buying “stuff”. It’s being loaned to somebody else, so he can buy something with it; possibly “stuff”, possibly capital goods. The production of capital goods provides jobs just as much as the production of consumer goods does.

Also, it’s not the slump in “stuff” sales that has killed our economy. It’s that, because of easy money, people were buying consumer goods stuff that they wouldn’t have if the money weren’t so easy. Businesses invested their capital goods stuff so as to produce the consumer goods stuff that the people wanted. When money started getting tight, people stopped spending on the stuff that they were when money was easy. Then it became apparent that the businesses were geared to make the wrong consumer goods stuff, and have thus spent money on the wrong capital goods stuff.

“I think the evidence is hard to ignore that in such times accumulating investment capital has a way of disappearing in a puff of smoke.”

Is it disappearing, or is it just waiting to try to find where the good investments are? If it is invested in a poor investment, all that will happen is that that wealth will be wasted, and will not be around to be invested in a good investment when one eventually comes around.

michael August 5, 2010 at 9:59 am

Bill: I’ve been re-reading your comment, and you make a couple of points worth further comment. Here:

(Me): “And we should always have sufficient savings to be able to form pools of investment capital. But we have fulfilled that quota by a thousand times, perhaps a million times over.”

(You): “What sort of proof do you have for that statement? For quite a while we’ve had negative savings (which is kind of what happens when returns on savings are artificially reduced and borrowing is made artificially cheap). Americans have only very recently resumed positive savings, and this is only if you ignore the massive debts being piled up by the government.”

I think we need to distinguish between four kinds of savings, and examine each one separately. First, work-dependent Americans have had a tremendous negative-savings rate for many years now, particularly in the revolving credit category. Since 2007 this rate has been going down, for nearly the first time ever.

Second, banks and businesses are carrying far more in the way of cash reserves now than before. In the Paulson and Bernanke-led recovery effort, hundred of billions were thrown at the major investment houses, and tens of billions to the automakers to restore liquidity. None of it got spent or lent, so the extension of credit was for naught.

Government debt is in a special category. They have an unlimited supply of credit to draw on, from the Fed.

And finally we come to available funding from investors– the kind of credit I was referring to.

On second thought, I exaggerated greatly in saying the pool was a thousand or a million times greater than the potential need for investment capital. I was bubbling over from exuberance, and only came to my senses after the post had been finalized. But it is demonstrably true that the supply of investment capital is vastly greater than the need.

My evidence is that it doesn’t always trickle down to areas where it’s really needed, like startup and small business funding. Investment bankers prefer the convenience involved in shoveling a hundred billion into one great-sounding derivative, like a credit-default swap, because it’s both sexy and convenient. Having to process one million requests for a $100,000 business loan sounds a whole lot like drudgery.

And as a direct result, they put hundreds of billions in investors’ eggs into only a few baskets. And periodically most of the badly thought out baskets drop, losing trillions in investor assets along the way.

Which you’d think would wipe those investors out. But no, the forces propelling capital upward out of consumers’ hands and into the open arms of the investment class almost immediately provides such people with MORE trillions– to replace the ones they foolishly lost.

Meanwhile wage earners, below, suffer continually from inadequate access to the wealth their labors have helped create. I hope you are not one of those who say they create nothing, it’s the genius who conceived of the business who created all the wealth. Because that’s not so.

Mushindo August 4, 2010 at 10:21 am

No, th eoverall economy does not do ‘best when demand is stimulated’. If people dont want the stuff that’s on offer at the prices asked, the correct response of producers is to stop making stuff people dont want and start making stuff they do want, or to drop their prices, or some combination of both. The wrong response is to implement policy aimed at making them change their minds, or, worse, just spending it directly out of the fiscus on stuff nobody wants.

Youve been infected with the Keynes virus – Krugman was I’d guess the vector.

Keynes’s diagnosis ( that unemployment is caused by insufficient demand) and prescription (stimulate demand fiscally) is like a physician declaring that malnutrition is caused by insufficient defecation, and prescribing a course of laxatives to cure it. Its hopelessly backwards.

The Friedmanite variation on th eKeynesian theme , preferring monetary over fiscal policy as the stimulant, is no less wrong, because the ultimate malign effect is the same – it just occurs more indirectly. I am afraid I am not clever enough to stretch the medical analogy to cover that nuance, so I wont even try.

michael August 4, 2010 at 10:29 am

“No, th eoverall economy does not do ‘best when demand is stimulated’. If people dont want the stuff that’s on offer at the prices asked, the correct response of producers is to stop making stuff people dont want and start making stuff they do want, or to drop their prices, or some combination of both.”

Mushindo, this kind of response purposely misunderstands what I’m saying. Demand is demand. If I want what you have on the shelf, at the price you are asking, and I have the required sum of money in my pocket… THAT constitutes demand.

Should any of those elements be lacking, there is no demand. And the product does not get sold.

And when word gets back to the factory that inventory is starting to pile up, they curtail production. And idle plant. And lay off workers. So with less money in people’s pockets, there is less aggregate demand for the sum total of products being offered for sale. And so there is a snowball effect, as the syndrome expands to ripple out into the entire consumer economy.

Everyone involved in the conduct of business knows this stuff. Demand is the engine driving the consumer economy.

If it is not so, describe exactly how one can keep up production rates in the face of slow sales. You’ll be able to upend the entire structure of marketing.

Bill Miller August 4, 2010 at 11:04 am

michael-your argument assumes that the factory cannot cut the price it charges (to sell excess product) and cannot reduce its own operating expenses. This would be theoretically valid except for one problem-if there are significant unemployed resources (such as the resources that would be unemployed by the hypothetical factory’s downturn in business) in the economy,then the prices of those resources tend to go down, meaning that the same amount of nominal (money-denominated) demand can accomodate a greater volume of business. Which is why the Keynesian unemployment spiral has never actually happened (since if it actually occurred, there would eventually be universal unemployment). Historically, depressions in which prices were allowed to fall freely ended quickly. The worst depressions were the ones that combined 1. massive monetary contraction with 2. The inability of certain crucial prices to fall, generally due to varying forms of government intervention. For example, during the great depression, while the money supply contracted by 1/3, the price of labor (wages) was not allowed to fall, first due to informal pressure on government-connected businesses by the Hoover administration, then by wage controls imposed through Roosevelt’s National Industrial Recovery Act, and then later still by pro-union policies instituted under the Wagner Act. The economy ultimately recovered after the war because 1. the government abandoned most of its depression and wartime controls on the economy and 2. the government’s policy of inflation, while harmful in its own ways, had the unintended benefit of rendering the price floors imposed during the depression moot.

mpolzkill August 4, 2010 at 11:20 am

Welcome to the world of Michael, Bill, you will feel as if there’s a pillow over your face as you speak.

michael August 4, 2010 at 11:36 am

Bill: Your argument assumes that when one loses his job and his home, due to inadequate funds, and is living in his car, that a producer can attract his business merely by reducing his price.

There are times in our lives when no amount of price chopping can induce us to buy more stuff. Since 2007, millions among us have been using their remaining discretionary funds to pay down debt. They have a house full of stuff already. They’re holding yard sales, just to get rid of it and convert a bit of the pile back into cash.

Our last two recessions have had ‘jobless’ recoveries. That’s because supply can’t easily be stimulated in the absence of demand.

Bill Miller August 4, 2010 at 11:45 am

Typical vulgar Keynesian-can’t see the forest for the trees. No, the business probably won’t be able to attract the business of the guy living in his car, but it might be able to sell more to people who didn’t stake all their financial hopes on housing prices by reducing their own prices, and if Mr. Unemployed has a skill they can use, he’ll probably be willing to work for less than the wages they were paying before. But as similar processes work throughout the economy, those lower wages will see their purchasing power rise as prices fall.

Bill Miller August 4, 2010 at 12:06 pm

And our last two recessions have had “jobless” recoveries because they weren’t really recoveries. Just failed attempts to paper over a moribund economy with borrowed funds from foreign creditors.

Jon Leckie August 4, 2010 at 3:15 pm

michael said: “Bill: That was a great idea, it started me thinking.” I’ll believe it when I see it, michael.

michael August 5, 2010 at 10:58 am

“Typical vulgar Keynesian-can’t see the forest for the trees. No, the business probably won’t be able to attract the business of the guy living in his car, but it might be able to sell more to people who didn’t stake all their financial hopes on housing prices by reducing their own prices, and if Mr. Unemployed has a skill they can use, he’ll probably be willing to work for less than the wages they were paying before.”

Let’s not descend into ugliness, Bill. We’re just trying to have a conversation.

Society has an interest in providing some measure of security for the guy who has to move his family into the car after they lose their home. “Mr Unemployed” certainly does accept any job he can find, including the one that pays a third of what he formerly needed to maintain his family. But this results directly in his being able to provide only a reduced demand, relative to the demand he formerly provided.

This results in viable stores going out of business, factories going idle and dealers having to walk away from their dealerships. Allowing such things to occur without making any effort to relieve the pain is damaging to our economy in a very broad manner. Let it slide and in time, even the fortunes of the privileged will suffer. Not just the vulgar herd.

michael August 4, 2010 at 11:40 am

“The economy ultimately recovered after the war because 1. the government abandoned most of its depression and wartime controls on the economy and 2. the government’s policy of inflation, while harmful in its own ways, had the unintended benefit of rendering the price floors imposed during the depression moot.”

During the war there was little production of peacetime consumer products. Production was oriented toward the war. And shortages were everywhere: sugar, gasoline, coffee. There existed a lot of pent-up demand, combined with very large accumulated savings.

Then by 1946, production began to switch back over to consumer goods. People flocked to the stores with money in their purses, buying everything in sight. It was this consumption that fueled profits and consequently expanded the economy.

Bill Miller August 4, 2010 at 11:49 am

Actually, if you read the article “The Great Depression of 1946″ (irony intended by authors), you’ll find that nominal consumer spending did not offset the decrease in government until after the recovery. In other words, there was a huge aggregate demand gap (in nominal terms) that strangely enough did not bring about a second depression.

Bill Miller August 4, 2010 at 12:00 pm

And the wartime shortages go back to my original point. The government traded deflationary disequilibrium (brought about by a monetary contraction coupled with government policies that kept prices from being able to fall in response to the reduced money supply) for inflationary disequilibrium (a massive monetary expansion coupled with an attempt to keep prices from rising by imposing price controls and rationing). After the war, most of the price controls were ended, and prices were able to rise to reflect the monetary expansion.

michael August 4, 2010 at 12:10 pm

Bill: That was a great idea, it started me thinking.

First I looked up the GNP from 1930 onward, courtesy of the Dept. of Commerce. And guess what I noticed right away? 1934, 35 and 36 were all GREAT years. The economy grew by 10.9%, 8.9% and 13.0% respectively! Who knew the New Deal was so effective?

Then 1941, 42 and 43 were all growth years in the middle teens. Fantastic! Of course this was artificially induced growth. Government spending, you know. By 1944 it had started to subside, at 8.1%. 1945 was even quieter, minus 1.1%. The munitions biz had pretty much folded its tent.

In 1946-49 the switch from wartime production to peacetime production was obviously fitful. Factories had to tool over to making refrigerators and things. Minus 10.9%, minus 0.9%, plus 4.4% and minus 0.5%. Thereafter, strong and fairly steady growth commenced.

So you’re right, in a sense. Heavy industry became dependent on government contracts. And when that door suddenly slammed shut, they took several years before they could rebuild their business models to follow consumer demand.

Demand still led, though. People had the money and the desire to buy. They were waiting for the stores to re-stock the shelves. And in time, business responded.

http://www.bea.gov/national/nipaweb/TableView.asp?

mpolzkill August 4, 2010 at 12:11 pm
Bill Miller August 4, 2010 at 12:21 pm

The point, which you seem to be misunderstanding, is that the whole Keynesian theory of depressions depends on the stability of the circular flow of nominal income. The end of the second world war brought a significant interruption to that circular which, even accounting for the smaller rise in nominal consumer spending, still should have brought about a severe depression if we accept the Keynesian theory.
“1934, 1935, 1936″
Interestingly enough, the years of highest real growth occurred after the NIRA was declared unconstitutional. In addition, the money supply grew slowly, so the economy was able to approach monetary equilibrium from both ends (both the price level and money supply). Who knew that getting rid of misguided legislation that attempts to centrally plan the economy could be so effective?
Wartime GNP numbers are crap, because most prices were set by government decree, at artificially low levels. If you couple high nominal growth with prices that aren’t able to rise due to price controls that cause shortages, the results look great on a statistical report, but not so great in real life. Similar, it’s going to make the following years look terrible, even if they’re great, since nominal growth will be lower,and prices will be rising.

michael August 4, 2010 at 12:28 pm

“The government traded deflationary disequilibrium (brought about by a monetary contraction coupled with government policies that kept prices from being able to fall in response to the reduced money supply) for inflationary disequilibrium (a massive monetary expansion coupled with an attempt to keep prices from rising by imposing price controls and rationing). After the war, most of the price controls were ended, and prices were able to rise to reflect the monetary expansion.”

Bill: The wartime shortages were just that: real shortages. The sale of scarce goods had to be regulated, whether by price or by quota. What you’re saying is first, that the government erred by imposing a monetary contraction and then erred again by imposing a monetary expansion. To me, the fact that they had to do something about the scarcity of consumer goods has to do with the speed at which the economy shifted from peacetime to wartime production. There were dislocations, unavoidably.

One unpleasant consequence I do remember was the price inflation of the late 1940s, after the recovery had commenced. That was indeed distressing. But as everyone was making more money than they used to be making, most considered it an endurable nuisance. You still were able to buy plenty of stuff.

Was the transition perfect? No. But when you consider that we ended up in the most prosperous period the world had ever known up to that point, I think we can forgive a lot.

One thing I have trouble forgiving, though, was the bargain that was struck between the largest wartime suppliers and the government about extending contracts. From 1946 forward, ever expanding amounts were included in the federal budget for armaments purchases. Industry had gotten used to fattening from the Golden Calf. And so a Cold War had to be invented to justify the expense.

It continues today. Same war, different enemies.

Bill Miller August 4, 2010 at 12:32 pm

Not to mention, those numbers tend to contradict the assumption that a demand depression will snowball. Presumably that 10% drop in GNP should have set off the snowballing process you mentioned earlier-except it didn’t. All those workers laid off from bomb factories (and having to compete with returning soldiers, no less) should have contracted their spending, leading to lower business profits, leading to more unemployment ad infinatum. Actually, it probably does account for the fact that consumer spending did not offset the fall in government spending (leading to the nominal drop that you pointed out yourself). The point is that no amount of Keynesian spin-doctoring can turn this event into a vindication of the Keynesian idea.

mpolzkill August 4, 2010 at 12:32 pm

You may have trouble but you sure do still forgive, and how, judging by your voting and incessant propagandizing. Battered-wife syndrome, perhaps.

Bill Miller August 4, 2010 at 12:40 pm

Actually, the government erred by imposing price floors that prevented the economy from adjusting to the monetary contraction, as it had in the past, and then later by imposing a monetary expansion and keeping prices from adjusting again. Then it stopped screwing around with prices as much, and the economy recovered. The only difference between this recovery and previous recoveries was that rather than taking a year or two at most, as previous recoveries had, it took 16-17 years. Great track record!

michael August 5, 2010 at 11:20 am

“The point, which you seem to be misunderstanding, is that the whole Keynesian theory of depressions depends on the stability of the circular flow of nominal income. The end of the second world war brought a significant interruption to that circular which, even accounting for the smaller rise in nominal consumer spending, still should have brought about a severe depression if we accept the Keynesian theory.”

You really think far too much about theory, Bill. We’re not living in some Cartesian vacuum here. We’re trying to describe how prosperity rises and wanes.

And in making so much of some theoretical quibbles over definitions, you obscure the simple facts. During 1942-44 most of our GNP was comprised of defense spending, not consumer spending. So the GNP was high, as was the increase in federal debt. And in personal savings (there was full employment but not much to buy).

After the war there were dislocations as factories had to transition back into producing for the consumer. But yet it was a perceived period of great and rising prosperity. Even though at one point price inflation became alarming, people felt strongly that they were living in the good times.

Compare this with the wake of WW One. Likewise there was a strong increase in GNP, from defense spending. But at war’s end there was a sharp trough, in 1919-22. And it was only in the later twenties that prosperity truly occurred. 1946-48 was nowhere near as bad. Yet there was a distinct transitional trough.

Your linking of the years of rapid increase in GNP 1934, 35 and 36 with the demise of NIRA is a stretch. I offered those years tongue-in-cheek, to tweak you. Obviously business was picking up. Any evidence you come up with linking that spike in business activity with NIRA’s existence or nonexistence would be purely ideological in nature. NIRA was judged largely to have been ineffective. It’s impact was not great one way or the other.

The CCC was far more effective in increasing family incomes and spurring consequent production– not to mention being an excellent preparation for our entry into the War as a nation standing on its feet.

mpolzkill August 5, 2010 at 11:26 am

Did you get that, Bill? You think far too much about theory. Why don’t you have a toke and relax your mind with one of the last of the real old-time hippies, here?

michael August 5, 2010 at 4:32 pm

“..those numbers [fluctuations in GNP during the 1940s] tend to contradict the assumption that a demand depression will snowball. Presumably that 10% drop in GNP should have set off the snowballing process you mentioned earlier-except it didn’t. All those workers laid off from bomb factories (and having to compete with returning soldiers, no less) should have contracted their spending, leading to lower business profits, leading to more unemployment ad infinatum.:

Bill: Recall the circumstances. Women remained fully employed while the men were overseas. They earned good money but bought little, leading to both pent-up desires and the savings to translate them into strong demand.

Then the boys came home… and married the girls. They were not in any kind of competition.

Then Uncle Same provided easy credit via the GI Bill. The new couple could buy a home, a car and furniture. And start a little family.

It was a win-win-win. And the federal hand played much more than a small role in the process. They set the table for an unprecedented period of wealth creation. They made modern America.

The only thing the mid-forties contraction represented was a bit of down time before the jeep factories could turn out enough Buicks to satisfy the public. What made the difference was that the public had cash in their pockets.

michael August 6, 2010 at 9:34 am

“Presumably that 10% drop in GNP should have set off the snowballing process you mentioned earlier-except it didn’t. All those workers laid off from bomb factories (and having to compete with returning soldiers, no less) should have contracted their spending, leading to lower business profits, leading to more unemployment ad infinatum.”

Bill, this just runs counter to all logic. Those workers laid off from bomb projects had been denying themselves purchases for years, because there was little in the stores to be bought. Consequently they had all built up large savings accounts from their income. What one would expect would be an avalanche of consumer spending once the postwar wares were put on the shelf.

And that’s exactly what we saw. Deferred spending.

Add to that another deferred event: getting married and having babies. Johnny came home. There’s nothing that stimulates spending like setting up a whole new household.

Allow me to suggest the 10% drop in GNP has an entirely plausible explanation. Consumer spending was going through the roof in that year. But still, its size was smaller than the retirement of huge government defense contracts. It’s a theory, but I believe one supported by accounts from that era.

Bill Miller August 4, 2010 at 11:21 am

And you’ve got it backwards-production is the engine of the economy. Demand is the pilot. And government spending is like the drunk in the passenger seat trying to seize the wheel.

michael August 4, 2010 at 11:31 am

“And you’ve got it backwards-production is the engine of the economy. Demand is the pilot.”

Then how come in 1929, 2000 and 2007, we had all the production capacity anyone could want– yet when demand slowed down, so did production? Production can’t lead, only follow.

Demand without production stimulates people to increase production, to meet it. Idle plant comes back online. Venture capital funds the construction of new plant.

Production without demand goes idle. People get laid off. You tell me again which one’s in the driver’s seat.

Bill Miller August 4, 2010 at 11:40 am

I already explained the circumstances of the Great Depression. If you’d actually read posts, rather than skimming cursorily, you’d know my answer.
As for the other cases-we had productive capacity THAT WAS GEARED TOWARDS THINGS THAT PEOPLE DIDN’T WANT AS MUCH AS THE ALTERNATIVE USES OF THEIR wealth. Hence the collapsed bubbles. Which were a result of malinvestments whose costs were temporarily hidden by inflationary policy.

In any case, what productive capacity? Most of our economy is organized around bloated, government subsidized sectors, which are all ultimately propped up by the ability of the US government to get foreign governments to prop up its currency with reserve status-certainly a cool trick, and one that hurts those countries more than us in the long run, but hardly a sustainable arrangement.

Stephon Smith August 4, 2010 at 9:30 pm

You can’t consume unless you produce first. While I agree that demand sends the signal to producers to make the desired product, artificially stimulating demand by quantitative easing, bailouts, and stimulus measures pours money into industry sectors where there clearly was and still is not enough demand to justify further production. Government intervention, therefore, is worsening the recession by taking up scarce capital and devoting directly it to politically chosen projects and indirectly through banks that loan it on terms influenced by previous governmental interference. This crowds out needed capital for projects the market would deem important without the distortion government causes.

michael August 5, 2010 at 4:46 pm

“I already explained the circumstances of the Great Depression. If you’d actually read posts, rather than skimming cursorily, you’d know my answer.
As for the other cases-we had productive capacity THAT WAS GEARED TOWARDS THINGS THAT PEOPLE DIDN’T WANT AS MUCH AS THE ALTERNATIVE USES OF THEIR wealth. Hence the collapsed bubbles. Which were a result of malinvestments whose costs were temporarily hidden by inflationary policy.”

Bill: I’m picking up the scent of specious argument. You’re telling me that the Depression occurred because everyone had been on a spending binge throughout the late twenties, and they suddenly discovered that the factories weren’t making anything they wanted to buy?

That is indeed a novel take. Add to that the fact that the pre-1929 economy apparently forced people to buy into highly speculative stock issues due to Cal Coolidge’s inflationary policies. Instead of the logical motive, that everyone saw stocks going ever higher, and bought into issues that were already overpriced, confident they could always sell them to a greater fool.

I think it needs some work.

htran August 4, 2010 at 12:17 pm

“And when word gets back to the factory that inventory is starting to pile up, they curtail production. And idle plant. And lay off workers. So with less money in people’s pockets, there is less aggregate demand for the sum total of products being offered for sale. And so there is a snowball effect, as the syndrome expands to ripple out into the entire consumer economy.”

Umm, humans are always going to need food, clothing, and shelter, and given that society isn’t exactly crumbling around us, there’s probably going to at least some demand for the majority of products produced today. It’s just a matter of how much demand you deem correct. Is it the previous demand built upon government intervention, market booms, and “rights” such as health care and housing? Or should the demand be based on the soundness of supply and demand, without someone telling what I should or should not be buying through subsidies, price fixing, and bailouts?

Stop with the Keynesian kool-aid. Demand is a natural occurance, not a government function.

michael August 4, 2010 at 12:34 pm

“Umm, humans are always going to need food, clothing, and shelter, and given that society isn’t exactly crumbling around us, there’s probably going to at least some demand for the majority of products produced today. It’s just a matter of how much demand you deem correct.”

The National School Lunch Program provides nutritious, affordable lunches to more than 27.7 million children each day. Those are children whose parents have trouble providing them with a proper lunch. I’d say the desire to eat was there… but without the subsidy there’s no way it could be translated into actual demand. Not until the government stepped in to provide the funds missing from private purses.

If everyone were rich we could all afford to be Austrians. We could just buy things as they appeared in the stores. Everything would be hunky dory. But somehow in the real world, poverty imposes distortions on that rosy view.

Demand is not always a natural occurrence, in a world where money is distributed only in patches. In some cases, demand has to be a government function.

mpolzkill August 4, 2010 at 12:39 pm

This is the kind of real doozy he can come up with from time to time that almost convinces me we’re being had, that he is a spoofer. I have to rub my eyes and steady my shaking head on these ones.

I wonder what percentage of those parents play the State Lotto.

Bill Miller August 4, 2010 at 1:02 pm

And why would that money be “missing” from private purses? Presumably all the money that is spent on goods has to go somewhere (wages, other factor costs, or profits). For this to be the case, in the long-run aggregate as opposed to the case for certain individual products, it essentially requires that people never want to use the totality of what they’ve produced for any purpose, even investment. And as prices fell to reflect the reduced velocity of money, it would essentially require that some people consistently choose, voluntarily, to subsidize the consumption of others,by producing and selling but never spending. It may be possible, but it’s certainly not likely.

Once one understands that money is ultimately just a token of value exchanged, and not some magical good that must be “distributed” from on high, the rest comes pretty easily.

Bill Miller August 4, 2010 at 1:21 pm

And if you’ve never heard of Say’s Law, which is the principle I’m employing, you can look it up. And no, Keynes did not disprove Say’s Law, he merely found a limited and temporary case (which had been recognized before) under which it did not work immediately (monetary contraction). And incidentally, this situation self-resolves on a free market due to prices falling, which happens pretty much automatically following a monetary contraction EXCEPT when the government imposes barriers to a downward fall of prices (as was the case in the Great Depression).

htran August 4, 2010 at 2:53 pm

This argument is about the necessity of government to stimulate demand in order to drive an economic recovery. A school lunch program to meet children’s food necessities is about as narrow as you can go, but you have a point, even though you’d have to be very destitute to not be able to afford food at the expense of everything else. However, if your new argument is that people are so poor that their productive value cannot equal their basic essentials on such a massive scale to subsequently demand government stimulus to save the food industry… well, it doesn’t take a genius to see how ludicrous that would be.

Richie August 4, 2010 at 9:26 pm

Michael is actually Brad DeLong.

michael August 5, 2010 at 1:03 pm

“..if your new argument is that people are so poor that their productive value cannot equal their basic essentials on such a massive scale to subsequently demand government stimulus to save the food industry… well, it doesn’t take a genius to see how ludicrous that would be.”

You’re right, htran. Such a dumb argument would be ludicrous on many levels. You’ll note that I’ve not made it.

The food industry can survive just fine without the fiscal contributions starving people might theoretically make if they had money. In fact, it does. Currently the world has around 800 million seriously hungry to outright starving people. Those are the ones that routinely go to bed hungry each day. (Not many of them live in America.) And the food industry does just fine without them.

The same with the children of parents who qualify for food stamps. Were there no food stamp program there would be little curtailment of food production.

The act of helping to feed 27 million kids whose parents can barely keep up with expenses is an act of a charitable society, one I would be proud to belong to and support with a portion of my own earnings. I expect you’ll disagree.

michael August 5, 2010 at 4:55 pm

“And why would that money be “missing” from private purses?”

Bill, you pretendeth ignorance. You know perfectly well how it happens that when joblessness increases, money can go missing from private purses.

We know all the money’s still there, though… safe and sound, in a smaller number of different, and fatter, purses.

So by all means, bring on Say’s Law. All it says is that the sum total of all goods and services on offer must equal the sum total of all demand (desire plus money). It does not address what happens when there are dislocations, such that a small number of people have more cash than they can possibly spend, and spend the majority of their lucre on wagering in the exchange, while millions of others go without… leaving unpurchased food in the stores, and unsold cars on the lot.

You’re seeking to dazzle a greenhorn with fancy footwork. No dice, amigo.

michael August 6, 2010 at 9:52 am

“Umm, humans are always going to need food, clothing, and shelter, and given that society isn’t exactly crumbling around us, there’s probably going to at least some demand for the majority of products produced today. It’s just a matter of how much demand you deem correct.”

Right on the money, htran. There will always be some demand. Or rather, the day there is zero demand everyone will be dead. But what is the optimum amount of demand? It’s a critical question.

At present, the US workforce has been reduced in the amount of approx. twenty million jobs. I see that as a failure of the economy to nourish us properly. And as I’ve pointed out, the economy is our handmaiden, to be used for our benefit. We don’t serve it. It serves us. And it’s not doing a proper job if it leaves twenty million families in some degree of financial duress.

So I would stimulate it in any way possible. I’d try any sort of intervention, to see which strategies were successful. I’d learn from both the mistakes AND the successes of the past.

Now let’s look at the flip side. What about when the economy’s running too hot? Everybody has a good job, in fact we’re putting out resumes and job hopping, encouraging employers to bid for our services. It’s a job-seeker’s market.

Good, right? Wrong. Now the problem is that everyone has so much cash in their pockets they’re buying everything in sight. This encourages vendors to increase the prices of their wares. Price inflation rears its ugly head. And this is likewise a condition we detest.

I’d use whatever interventions I could imagine to bring inflation back down. In fact Ronald Reagan used strong interventions to cool the overheated economy of the late seventies (the product of an excess of success from 1946-1973) and kill inflation. True, he did run up the debt during that period. But which was worse? The inflation or the debt?

How much demand do we consider to be “correct”? That’s like asking how much heat is necessary in your home. We know when it’s too hot. Likewise, we know when it’s too cool. And we take a different approach to thermostat depending on the nature of our discomfort.

mpolzkill August 4, 2010 at 10:29 am

Awesome, Mushindo. I’m not clever enough either, but this popped into my head:

http://www.youtube.com/watch?v=eHxI12VVgRg

Christopher August 4, 2010 at 11:48 am

“But there is a lot of complaint out there about excesses, and problems not addressed by pure capitalist theory.”

The problem is that the gov’t has NEVER allowed favored industries to experience the negative consequences resutling from the “excesses, and problems”. If we truly lived in a capitalistic society then the Big Three would not have needed a bailout because they could not have survived to reach the form they were in when a bailout was given. Some of the big banks should have fallen and paid the price for the excess but they did not. Nobody of consequence lost their job. Both of these industries were ‘saved’ because of who they were and the jobs, dare I say “bubble jobs”, they represented.

Years ago I read a interview of Tom Purves the former head of BMW North America and one of the questions asked as about the state of doing business in the United States. His answer ‘paraphrasing here’ was that the number of laws and regulations made doing business very difficult, and that the US was far from being the beacon of capitalism that many foreigners and Amercians think it is. He also commented on he could not understand why the roads in this country were soo poor but that’s another subject entirely.

mpolzkill August 4, 2010 at 11:55 am

Introduce Herr Purves to the road expert, Michael, that should help him figure it out.

michael August 5, 2010 at 12:54 pm

We have many poor roads in this country, suffering from deferred maintenance. That’s because there are many demands on a limited supply of public money, especially at the state level. And some needs have a priority over others.

If Germany has fewer roads needing repair, they obviously have a different set of priorities. They still, I presume, fund their road system through the public purse.

No one asserts that America in its present state works well. Not on any side of the political spectrum. But there are those of us that think there is the possibility of improvement, and who work toward that end.

mpolzkill August 5, 2010 at 1:05 pm

I’ve often wondered about how the German State makes such great roads. The theory I’ve devised: whatever is a widespread and true passion in a country, that and only that service can the State excel in. America’s great passions? Gross consumption and slaughtering Injuns. I give you the U.S. Military!

J. Murray August 5, 2010 at 1:15 pm

Better known as getting lucky.

Bill Miller August 4, 2010 at 12:10 pm

“He also commented on he could not understand why the roads in this country were soo poor ”
Because the government prefers flashy new projects that will win votes in elections over boring old projects like road maintenance that might actually benefit the economy? It’s certainly not due to a lack of spending on the roads, which in addition to the gas tax (which is at least sort of similar to a user fee) are also subsidized by federal income taxes, as well as various other taxes at the state and local levels.

Old Mexican August 4, 2010 at 2:37 pm

Re: Michael,

In my observation everyone agrees that a market economy is basic to our way of life. But there is a lot of complaint out there about excesses, and problems not addressed by pure capitalist theory.

Michael, you should not begin any opinion piece with a question-begging assertion. What “excesses”?

I do, for instance, have a bit of trouble with comments like this one [comment omited by OM]
Society is all of us. We are, in fact, the producers of all material wealth.

You misunderstood, Michael. The point of the comment is to explain that “society” is being used, under Socialism, as an excuse to limit people’s choices. In fact the Market is MORE socialistic than Socialism, since every one of us participates in the market, whereas under socialism a ruling elite (the sages) decide for us.

Right now, under the system overseen and managed by the US government, the lion’s share goes to shareholders and officers of large corporations as well as to ourselves in our guise as customers. Left out of the split is small business entrepreneurs, the working poor, the working class generally, the community at large and the environment.

You are making simplistic divisions. Who are “the working poor”? What is that? Does that mean there are “working rich”? Who’s the “working class”? Do you mean there’s a “non-working class”? Why are the small entrepreneurs listed separately? Are they not the “working poor”, or the “working class”?

You may want to stop thinking that people are termites, Michael. That is certainly how Marx saw us, for the detriment of hundred of millions snuffed out of existence.

I’m old school. I think if a business is viable it should fund its ongoing operations and possible expansion out of cash reserves.

I’m old school as well – I believe where a company obtains its funds to grow is the business of the people that invested in the company in the first place and NOBODY ELSE.

What has been happening, and repeatedly, is that excess accumulated capital has been going into the Big Casino,

“Excess” capital? What’s that?

michael August 5, 2010 at 12:46 pm

Mex: I don’t think I can make any kind of constructive comment on your series of questions; we’re simply too far apart to be able to communicate effectively.

What are the excesses of capitalism?

Is it a realm in which everyone participates, including its discards, while socialism is the control of the many by the few?

Who are the working poor? Or the working class?

Did Marx consider us to be (mere) insects? And did he snuff out the life of millions?

Does a company belong exclusively to those who buy into its success? And no portion of it to those whose labors create that success?

And finally, what is excess capital?

If you don’t know already, as they’ve said about jazz, you’ll never be able to understand the explanation.

Magnus August 5, 2010 at 12:56 pm

If you can’t explain it, you don’t understand it.

But we already knew that you don’t understand what you are talking about. Your conclusions are nothing but a few decade’s worth of unexamined assumptions, and the biases that build up upon them, like the mucus that builds up on a hair clog.

mpolzkill August 5, 2010 at 12:57 pm

I don’t recall any jazz aficionados using their knowledge as a pretext for confiscating anyone’s property. Please don’t talk about jazz anymore.

Wait, I stand corrected, that weasel Wynton Marsalis, probably in league with the deadly pill, Ken Burns.

Mushindo August 4, 2010 at 9:59 am

I shall have to acquire this book.

In the article, the following quote piqued my interest

‘ “Capitalism” is neither the Right-wing, crony-capitalism corporate-welfare economy, nor the anti-rich, wealth-redistribution social-welfare economy that we have today’

If I may presume to recast this , to slip in an additional point often lost in polarised left/right ideological debates:

‘Capitalism is neither the Right-wing crony-capitalism Corporate-welfare economy, nor the anti-rich, wealth-redistribution social-welfare economy, and it is particularly not the bizarre amalgam of the two which characterises most modern western democracies, in which different parts of the same governments vainly attempt to achieve both sorts of economy simultaneously, thereby achieving neither, at incalculable cost to all members of society. ‘

There, I think that firmly distances ‘free-market capitalism’ from most of the countries commonly regarded as ‘capitalist’ in the minds of most of the world’s population.

I shall resist again banging on in detail about the inadequacy of term ‘capitalism’ as a synonym for ‘free marketism’ here, beyond declaring that I myself prefer to use it as a synonym for ‘Right-wing crony-capitalism Corporate-welfare economy’. It helps enormously to begin debate against my friends down th epink part of th espectrum, by agreeing on where a large part of th eproblem with the status quo actually is, before moving on to what is best done to fix it (the correct answer being, of course, ‘nothing, beyond stopping all the things currently being done to fix it!’)

$0.02

gene August 4, 2010 at 10:46 am

yes i agree completely.

why use the term Capitalism at all? if all one intends is “free markets”, then leave it at that.
I blame absolutely no one for believing Capitalism is the root of all evil. We call what is out there capitalism, and in the sense that it “collects” capital it is, but it is as far from a “free market” as possible. we don’t even know if a true free market would collect capital at all.

The chances are it wouldn’t.

The term should be used for what is out there. For what could possibly be, “free market” is sufficient.

mpolzkill August 4, 2010 at 10:54 am

If it’s all about PR, Friedman helped make that word as filthy as “capitalism” in the leftie mind. To them, all usage of “free” except “free to partake equally of wealth” connotes “free to exploit.”

Gabriel Donohoe August 4, 2010 at 11:00 am

This article might well have been written by David Rockefeller or Ken Lay or Tony Hayward or perhaps by any central banker on the planet. Corporations good for humanity? Really? You mean all those nice people at Monsanto, or British Petroleum, or Halliburton…?

Deregulation is what got us into this mess in the first place and apparently Mr. Kelly wants continued deregulation to keep the handcuffs off his pals in their casinos in Wall Street.

“The government has its hand in every company and every industry in the nation, controlling what things are produced and by which means. Indeed, it even manipulates market prices and production directly.” I just can’t believe this assertion. In fact, it is the other way around. It is the large companies and industries that control government and regulatory bodies, manipulating markets and the rules to suit their own shareholders.

Real wealth for society as a whole will only come when the power of money creation is taken away from private banking cartels and issued by a government that _truly_ works for the people, all the people. Furthermore, this money should be based on something of value – not debt.

As Dorothy Parker said of a different book: This is a book not to be lightly cast aside – it should be hurled with great force.

mpolzkill August 4, 2010 at 11:11 am

I think Ms. Parker might have read that book first, anyway:

“It is the large companies and industries that control government and regulatory bodies, manipulating markets and the rules to suit their own shareholders.”

Very close to the complete truth (I’d say they are partners).

“Real wealth for society as a whole will only come when the power of money creation is taken away from private banking cartels”

Yes, yes.

“money should be based on something of value – not debt.”

Testify!

“a government that _truly_ works for the people”

OK, let’s get at it! First off, what is “the people”?

Gil August 4, 2010 at 11:53 pm

I thought the problem of “fiat” money was that the money had no value, period, other than decree by the government. It’s neither debt nor assets. The gold standard was a debt money whereas gold ingot was an asset money. There’s nothing wrong with I.O.U.s provided they will be honoured.

michael August 5, 2010 at 4:59 pm

Fiat money has the value people assign to it. If they’re confident in it, they use it in their daily commerce.

The US dollar is tremendously popular, around the world. It’s well ahead of whatever’s in second place. It is the world’s currency of choice.

If the Treasury ever held an auction and no one bought their dollar offerings… THEN we’d be in trouble. But there’s no sign yet that that’s about to happen.

Bill Miller August 4, 2010 at 11:13 am

“Deregulation is what got us into this mess”
No. If we’re talking about the housing bubble, then inflationary policies by the federal reserve, coupled with special privileges (such as deposit insurance) granted by the government to favored companies is what got us into this mess. If we’re talking about the Gulf Oil Spill, you may want to look into the government’s 1990 act limiting liability for oil spills (decreasing the incentive for companies to avoid the events), as well as the various policies that have made it more difficult to drill on land or in less risky shallow water wells that are easier to plug if something goes awry.
“Real wealth for society as a whole will only come when the power of money creation is taken away from private banking cartels and issued by a government that _truly_ works for the people, all the people. ”
Right, the same government that created the original cartel, largely because they wanted the ability impose a backdoor inflation tax on people for the benefit of themselves and their well-connected friends.

Barry Loberfeld August 4, 2010 at 11:18 am

“It is the large companies and industries that control government and regulatory bodies, manipulating markets and the rules to suit their own shareholders.”

Hmmm, so why not separate those large companies from that government?

Kel Kelly August 4, 2010 at 6:00 pm

Gabriel, I agree with most of what you say. I think that what you believe what I’m supporting and proposing is the exact opposite of what I actually am. The book was written precisely to clarify these things. I have 15 thousand words dedicated to exposing the real way the banks do harm to us (as opposed to the way those who have no idea what happened in 2008 state that they are bad). It would obviously be a stretch to say they are my pals when I am proposing they be dismantled.

As part of that, just because someone tells you that we had deregulation (just as they tell you we have capitalism) doesn’t mean we do. Deregulation does not consist of adding thousands of more pages of regulation, which is precisely what we have done. Additionally, as I say in my book:

How could the financial markets be called free when they
are controlled on a daily basis by the Federal Reserve, the Treasury
department, the SEC, the Comptroller of the Currency, the FDIC, the
Bank of International Settlements, the Office of Thrift Supervision,
the Office of Federal Housing Enterprise Oversight, the Federal
Home Loan Board, the Federal Financing Housing Board, the Department
of Housing and Urban Development, the states Superintendent
of Banking, the National Credit Union Administration, the Federal
Financing Bank, the Federal Financial Institutions Examination Council,
the Thrift Depositor Protection Oversight Board, and the Community
Development Financial Institutions Fund, among others?

Stephen Grossman August 4, 2010 at 8:14 pm

>Deregulation is what got us into this mess

This is a evasion of our economy as an ideologically regulated whole for one Pragmatically isolated part that is not (yet) regulated. The hidden context is that only a totally regulated economy (eg, Soviet Union, pre-capitalist China and India, and of course, the Republic of Boiled Grass, AKA, North Korea) can be prosperous. As part of that hidden context is the claim that even a small amount of capitalism in an overwhelmingly regulated economy is sufficient to destroy the intended effect of the regulations. Mises would enjoy this grudging recognition of the laws of economics.

These socialist fools want to counterfeit money and bank credit to steal resources away from the most productive people and give them to their political allies who are less productive. Then they claim that any lack of govt control in doing this is the cause of the lesser productivity.

Commentator August 4, 2010 at 11:05 am

I have always maintained that the average American is a socialist at heart irrespective of which party he belongs to, including the latest joke that’s been perpetrated on us, the Tea Party. He contributes to the formation of the ballast that non-socialists and true producers have to drag around. His concept of capitalism does not extend beyond Wall Street. Come election time he is out there wanting to know which political party will most closely meet his demands and his needs.

The only difference between the Republicans and Democrats is the amount of taxes that will be levied by the government. The biggest joke of all is that Republicans call this country a Democracy and not a Republic. A classic case of the blind leading the brain-dead.

Bill Miller August 4, 2010 at 11:15 am

No the average person (not just the average American) is gullible, and willing to believe that the government has a magical means of giving away free (as far as the voter is concerned) goodies.

Gil August 4, 2010 at 11:54 pm

Is that what Commentator just wrote?

gene August 4, 2010 at 2:43 pm

Exactly!

The squabbles have become more intense because the pay outs are so massive and more and more groups are involved. like the saying says “socialism ends when you run out of people to pay for other people’s projects”.

it doesn’t matter what “kind” of project it is, any project is socialism if someone else is forced to pay for it. that is what the repubs and demos don’t get at all, especially the repubs who believe their projects are “above” socialism.

we very well could be near the end of a long and for the most part unrecognized american socialized project and the bill is coming due and there is no mechanism in place to pay other than structuring the economy to impoverish the majority of people. that obviously causes tensions to mount.

One thing is for sure, the solution will not be found in the problem.

agdrummer August 4, 2010 at 11:37 am

Socialism is so entrenched in americans thought process of how to “fix things” (stemming from central planning) that I fear what is coming. I hope that Bob Precther’s research in”socioeconomics” is correct in that a long lasting negative social mood (bear market) will “wipe out” socialistc programs and thinking,if not …….

Eric August 4, 2010 at 11:39 am

The article says at the end:

“…but, because they will give us whatever we want if we put them in power, we could actually compel them to allow freedom and thereby improve the lives of everyone.”

The better quotes would be, “they will promise us whatever we want…”.

The reality is that the system is what it is because the public doesn’t understand that they really have no choice. After all, if they understood this, why would they bother to vote?

Elections are useful to let the public blow off steam. After all, it’s not important who wins – it’s who runs that counts. If both candidates are beholden to the same handlers, is there going to be a change? Sure, the two candidates fight against each other, because THEY have something to gain by winning an election. And that makes it look like there’s a choice. But it’s no different than when two boxers owned by the same promoters wind up fighting for the championship.

I think that understanding economics is important, but failing to understand how the political system works is just as important. As long as the handlers can control what the public hears and sees, they are in no danger of having someone win an election who they don’t already own.

Guard August 4, 2010 at 12:53 pm

I totally agree. There are ways things can be changed, but “working within the system” is code for “giving the government more power”. If you accept that the present political system has any validity whatever, you have already lost the battle.

Stephen Grossman August 4, 2010 at 12:58 pm

>Kel Kelly: Regulation does not usually protect consumers

If 2+2 only sometimes is four and if the sun only sometimes came up, there would be no definite reality with definite things and definite relations, including definite actions. There would be only the chaotic randomness of empiricists, positivists, and statisticians. If capitalism sometimes is destructive enough to require regulations then the Austrian/Keynsian debate is not over principles but merely over more or less of Keynsian principles. And Austrian economics is in history’s dustbin.

Bill Miller August 4, 2010 at 2:06 pm

*Some* regulation tends to naturally emerge on the free market. Private ratings agencies, franchises, brand names-all are forms of regulation that have emerged naturally on the market. To some extent government regulations do “protect” consumers, but only insofar as they are providing regulation that would have occurred anyway. And to the extent that they regulate beyond the level of regulation that would be reached on the market, they tend overwhelmingly to harm consumers. In fact, this is what happens most of the time.

Stephen Grossman August 4, 2010 at 2:50 pm

Another sleazy Marxist who evades the basic difference between politics and economics, here, between political and economic regulation. Your sleaze is that you provide the details of evading the difference, ie, “government regulations do “protect” consumers, but only insofar as they are providing regulation that would have occurred anyway.” But you evade identifying the Marxist context in which politics is economics. Eg, I like brown and green but I dont like colors because Im not a colorist, not an ideologist. I just like some Pragmatic concrete facts without those pesky, revealing, intellectual commitment-requiring labels. See Ayn Rand for definitions by essentials and the objective need for principles to discover and organize facts.

Bill Miller August 4, 2010 at 4:15 pm

I don’t remember claiming that the self-regulation that naturally occurs on the free market was the same as regulation imposed by government. If, by poor wording, I gave the misimpression that I was, it was not my intntion. I did point out that the same truths about human behavior that apply in economics also apply to politics, but that since the conditions in the two spheres are different (markets consisting of voluntary interactions while politics consist of coerced interactions) the outcomes are different. Applying economic reasoning to the behavior of political agents is not an exclusively Marxist idea. Indeed, if we were to take that line of reasoning, then Murray Rothbard and George Stigler would both have to be defined as Marxists!

Stephen Grossman August 5, 2010 at 4:47 pm

The economic production of values is basically different from the political use of force to protect or violate rights. Econ. determinism is the defining characteristic of Marxist politics, thus its use by others, whatever their context, is Marxist. And econ. determinism is false. Rothbard, whatever his intention, uses Marxism. His otherwise excellent, _Hist. of Money & Banking in the US_, should have the absurd, extensive concern with economic influence networks among political and economic elites edited out in a future edition for a better ,consistent book. The intellectual and moral justification of socialism and interventionism in banking and money, which he rarely and dismissively mentions, should replace his Marxism.

Stephen Grossman August 4, 2010 at 1:03 pm

>If both candidates are beholden to the same handlers

This is Marxist economic determinism. But politicians have the guns of policemen and can thus force their will on those who merely have money. They dont even need to take bribes. They can simply tax and regulate.

Bill Miller August 4, 2010 at 1:34 pm

Marxist economic determinism is flawed (because Marx was using bad economics), but I would argue that economic determinism applies to pretty much all governments. There is an inevitable tendency in all governments, including democratic governments, for collusions to form between special interests and said government, especially when such governments are inclined to activist economic policy. This is because the individuals seeking privileges from the government have an incentive to do whatever is necessary to obtain those privileges, because 100% of the benefits will accrue to them. Meanwhile, the average voter (unlike the average consumer) lacks the incentive to examine government policies critically, as a “good” vote on a particular policy gives him only a small part of the benefit while a bad vote imposes only a minor part of the cost on him. And this is assuming that voters decide on each issue individually, rather than electing politicians who hold a variety of positions that often change. The aggregate effect of all this is that the government inevitably tends to favor a plethora of special interests at the cost of society as a whole. Constitutional restraints on government do little to prevent this, as determined lobbyists and legislators regularly take lengthy defecations upon any restrictions that theoretically apply to them. Only the lack of a central government, or a voting populace with sufficient suspicion of the institution to reject most activist policy as a matter of course can slow this tendency.

Stephen Grossman August 4, 2010 at 3:00 pm

>Marxist economic determinism is flawed (because Marx was using bad economics), but I would argue that economic determinism applies to pretty much all governments

Econ. determinism is basically a theory of man’s nature, not economics nor politics. Economics is an application of a theory of man’s nature. Youre conceptual hierarchy is reversed. Marx’s false economics was a valid application of his false view of man’s nature.

You pretend to deny Marxism but then affirm it. Marxism is a rationalization of sleazy dishonesty. Ideas ,not economics, determines politics. And the idea of Marxism, in ideological or Pragmatist form, has been influencing politics globally for a century and more.

Bill Miller August 4, 2010 at 4:23 pm

Not quite sure how to respond. Are you saying that the aspects of human behavior that apply to economics do not apply to politics? I’ll have to disagree. Or are you saying that politics is fundamentally different from free markets? Certainly I would agree there. You’re not being clear about your objections to what I’ve been saying. Read my other comments on this thread, and on previous threads, and draw your own conclusions about whether or not I’m a Marxist, or use Marxist reasoning in coming to conclusions.

Stephen Grossman August 5, 2010 at 5:23 pm

Economics is basically different from politics, whatever non-basic similarities they may have. You are defining by non-essentials. See Rand’s _Epistemology_ and _Capitalism_ for the importance, theory and application of defining concepts. Again, you may or may not be basically a Marxist but you _use_ economic determinism. And because its false, it weakens your view. Ideas, not economics, are the basic cause of politics. And the basic ideas are philosophical. Philosophy causes politics.

Eric August 4, 2010 at 2:57 pm

But the politicians need money to get on the ballot and more to get elected. Money buys fame and you must be famous to get people to vote for you. This is why the only way someone from the outside breaks in is if they’re already famous (and rich) as an entertainer.

Peter Schiff is going to find this out the hard way. His few hours of fame is nothing compared to the wife of World Wrestling Entertainment’s Vince McMahon. All his economic wisdom means nothing at all.

Stephen Grossman August 4, 2010 at 4:56 pm

>politicians need money to get on the ballot

Money is created by ideas and spent by ideas. Man has free will and the first choice is reason or evasion. Marxism is a rationalization of evasion. And willful stupidity. Why bother to be smart if the truth will be revealed to your economic intuitions? Automatic knowledge is the highest value of most people in history. Most cultures, religious and socialist encourage evasion.

Jeremiah Dyke August 4, 2010 at 1:24 pm

I thumbed through the pages of this book and it looks great! @ $25 it’s slightly too expensive for me so i hope to pick up the kindel version if it is offered.

Kel Kelly August 4, 2010 at 11:52 pm

Jeremiah–thanks for the nice comment. Good news: it’s already reduced to $20, so now it’s not too expensive! :)

Jim August 4, 2010 at 2:08 pm

Good luck acheiveing either of those Mr. Miller.

Bill Miller August 4, 2010 at 2:17 pm

Oh, I doubt either of them will ever happen. No matter how badly the government screws up, people will always cling to the belief that there is some magical formula for “reform” that will make it all better, or blame the wrong targets altogether (like the “evil speculators” who many statists blame for the housing crisis in the US and the sovereign debt crises in Europe).

Jim August 4, 2010 at 3:42 pm

Yeah, but we can at least get closer and closer to a point where people realize there isnt a “magic formula” but while we work towards that the “socialists of all parties” will continuously be working in the opposite direction.

ABR August 4, 2010 at 5:37 pm

Critics of capitalism end up criticising corporatism instead. But even if you point out the difference, the critic will continue to attack ‘capitalism’, arguing that corporatism inevitably follows when the State meets Capital. And the critic is correct.

The only solution is the elimination of the State. But that’s not a road most capitalists wish to follow except on this site. Hence, the arguments pro and con capitalism go round and round, getting nowhere.

The key is the elimination of the State. So long as the State lives, so will corporatism.

Jim August 4, 2010 at 7:18 pm

ABR
So you say it is impossible for a State to exist that wouldn’t become entwined with corporatism.

gene August 4, 2010 at 7:34 pm

My guess is that ABR meant as long as “this” state exists, so will corporatism. and that is true, since they as virtually one and the same.

As long as any state exists, the collective will have the power of force over the rest. That is by definition. The state will exist as long as
1. we allow them to possess ultimate power
2. as long as they have the ability to possess that power

both points have to be history before the state will go away.

mpolzkill August 4, 2010 at 7:38 pm

Maybe not exactly corporatism, but the State will always be controlled by the richest and the most power hungry.

ABR August 4, 2010 at 7:58 pm

Jim, it’s not impossible, but even if such a State did exist, it would inevitably degenerate, and corporatism would follow.

Focussing on the evils of corporatism is somewhat a red herring. The State is the underlying problem.

Jim August 4, 2010 at 8:30 pm

ABR
I see your point but I don’t think such a progression is inevitable with a well informed and critical thinking populace (I know I’m an idealist in that respect). But I find the possibilities of a peacefully, individualist soceity built on voluntary trade surviveing without a State-like institution to be even more slim.

mpolzkill August 4, 2010 at 8:51 pm

An ill informed and gullible populace will be abused and ultimately destroyed by a State and a well informed and critical thinking one wouldn’t need a State.

Jim August 4, 2010 at 9:08 pm

Ehhh.. not so sure of that one mpolzkill. When I said “well informed populace” I didnt mean country of angles I meant that the majority of citizens would have a basic understanding and respect of indivdual liberties in all aspects of society.

mpolzkill August 4, 2010 at 9:10 pm

Until mundane people are all angels they need angels with titles and badges, eh?

ABR August 5, 2010 at 10:36 am

It’s not a good idea to hire a crocodile as a lifeguard, even though the creature is an excellent swimmer.

Voluntary Exchange August 5, 2010 at 6:00 am

I would settle for a change in people’s minds about what they are trying to achieve with a “state”. If they could come to see their presumed need for a “state” as in actuality a need for a bundle of services especially security, and adjudication services, and then insist on maintaining the “power of the purse” and only exchanging their things of value for those services while the non-monopoly service providers lived up to the explicit service contracts, then I would be happy enough. Of course this can only apply to those who are willing to live by voluntary exchange. IN such a society it seems to me there is and ought to be perpetual “war” against those who choose non-voluntary means of exchange.

If people of the first class could come to see that a person (or group) who advocates non-voluntary exchanges usually wants additional “services” from what he/she thinks of as “state” and usually wants the “state” to be a monopoly to further assist in his/her crimes, maybe then they might see the weakness of voting and other long-term non-workable solutions to the problem of criminals who choose non-voluntary exchanges. And that then they would teach their children the wisdom of NEVER ever relinquishing the “power of the purse” (including never giving someone else the power to define what “money” is for an individual), never allowing a monopoly to be formed in “governmental”-class services, and seeing instantly all attempts to breach these two principles as an act of war and a crime against those who wish to live by voluntary exchange. Thoughts?

LD August 4, 2010 at 8:25 pm

Just a heads-up… There is a huge amount of damage being done to the oceans right now – downplayed by Greenpeace & co, in their push for a socialized world economy (see “climate change”).

The main cause of this damage is because of factory fishing. Factory fishing is heavily subsidized by governments.

If those socialist, vote-buying drones dropped those subsidies, those companies would be raking in losses of $50 million a year, and they would stop razing the oceans, quickly.

http://en.wikipedia.org/wiki/Overfishing#Removal_of_subsidies

As it is, I am certain that they won’t stop until the sea is sterilized – and then Greenpeace will quickly shift the blame to “those greedy capitalists.”

(Did these people learn anything from the environmental disaster area known as the Soviet Union? Obviously not.)

Jim August 4, 2010 at 9:09 pm

(Did these people learn anything from the environmental disaster area known as the Soviet Union? Obviously not.)

Do they ever learn from ANY of their disasters?

Jim August 4, 2010 at 9:16 pm

Regards to mpolzkill, it wouldnt let me reply for some reason so my reply is down here.

(Until mundane people are all angels they need angels with titles and badges, eh?)

You know I dont think I implyed that. They dont need angles to direct their lives as the socialist presumes. It would be nice if we had angles to protect us from coercion but this is impossible so the citizens of a State have to be well informed.

mpolzkill August 4, 2010 at 9:20 pm

Mundanes have to be angels to be masterless, but their masters need not be? But if they are “well informed” they should be able to control their masters?

Jim August 4, 2010 at 9:23 pm

No, you dont have to be angelic to be free you simply have to be extra dilligent of those you employ to protect you.

mpolzkill August 4, 2010 at 9:36 pm

Not to be free in your defintion, to be Stateless.

If you employ them, that’s not a State.

Jim August 4, 2010 at 9:39 pm

Ok sorry. I see the current US govt as under our employ, be it a monopolistic one. The use of force is an area where competition can mean death at the hands of another.

mpolzkill August 4, 2010 at 9:51 pm

If you really think they’re under your employ, you have really gone wrong, sorry to say.

Do you think that actual employees who compete for business would have or could have killed 100 million of their own bosses in the 20th Century alone?

Russ the Apostate August 4, 2010 at 10:25 pm

You keep trotting out that number as if all governments contribute to it equally in proportion to their populations. Do you really think that the US government has killed as many of its own citizens, per capita, as the Soviet Union under Stalin, Germany under Hitler, or Cambodia under Pol Pot? In other words, do you really think that the US government is as bad as Stalin’s, or Hitler’s, or Pol Pot’s? If so, then you have absolutely no sense of proportion whatsoever. If not, then why do you treat minarchists as if you’ve just seen them herding Jews into cattle cars?

If government employees are not angels, they what would private defence agency (PDA) employees be? Why wouldn’t they fight each other? If we got rid of the government in the US, a similar thing would happen here to what happened in the former Soviet Union. The government officials would become mafias, the mafias would fight, some would consolidate their power, and we’d have one government per geographical area again. Then the bigger ones would eat the smaller ones, until we have a big huge government again. The best we can do is try to control the excesses of these mafias in whatever ways we can. The way we currently do this is through the farcical aquatic ceremony known as an election. In this strange magical ritual, the little people, in return for being given the illusion that the rulers actually care about their pathetic little lives, promise not to go insane and riot uncontrollably and kill as many government officials and taxpayers as they can in the process. Meanwhile, the rulers promise to do more or less what the majority of the little people think they want, and promise not to take the velvet glove off the iron fist unless they absolutely have to. It’s certainly not an optimal solution, but it’s the best this race of non-angels has come up with, and may be the best we ever will.

mpolzkill August 4, 2010 at 11:00 pm

They’ve been much more prolific in killing others’ “clients” so far. Just wait a bit.

And yikes, your true nature really came out strong on that one.

Russ the Apostate August 4, 2010 at 11:41 pm

“Just wait a bit.”

If you’re right, we’ll see nothing fundamentally different than what we’d see under anarchy.

“And yikes, your true nature really came out strong on that one.”

What true nature? My cynicism about the nature of government, and for that matter, about the nature of us hairless apes in general? Yeah, well….

Bala August 5, 2010 at 4:32 am

Sorry if I seem to be butting in, but this is an error I used to make and see it made quite often. You said

” The use of force is an area where competition can mean death at the hands of another. ”

You err in saying “The use of force”. Actually, the correct point is “The retaliatory use of force”. The moment you make this change, it becomes incumbent upon anyone wielding “force” to first make sure that it is retaliatory in nature, failing which they too will have consequences to face.

That apart, monopoly over the use of force does not prevent or reduce the probability of death at the hands of another. So, why consider the monopoly to be any better?

mpolzkill August 5, 2010 at 7:29 am

“If you’re right, we’ll see nothing fundamentally different”

We’ll be men at least. But I do not share your immense cynisim about all men, just a knowledge of the most power hungry men. The way you bring up Pol Pot, etc…you seem to discount most of the many ways governments can get you killed. I know you stubbornly refuse to even consider how it was your government that really got those 3,000 people killed on the day that turned your mind to guacamole.

- — – - – - –

Not butting in Bala, good point. I guess they both just watched too many Westerns, and for some reason they really think the guys with badges who happen to claim the territory they were born in really care about them. Some of them probably really do, that’s sweet, but the cops’ bosses care about Russ and Jim as a farmer cares about his cows. And the big bosses seem to be hiring more and more hands and more and more psychotic ones.

Jim August 4, 2010 at 9:36 pm

I should say Im not claiming to be an expert on this subject but it seems to me that a free society (being one built on peaceful cooperation) cannot exist without a protective institution of force. I just dont think that supply and demand will contibute to the establishment of protective forces without causeing rival worlords to destroy most of those who dont wish to control or be controled.

mpolzkill August 4, 2010 at 9:58 pm

So, you’re for one-world government?

Jim August 4, 2010 at 10:02 pm

Whenever one that protects the individuals right to live his own life in peace is possible, yes.

Gil August 5, 2010 at 12:06 am

So you think any society avoid the Iron Law of Oligarchy?

Jim August 4, 2010 at 9:57 pm

Alright I’ll concede I’m going on what I think the US govt should be. Governments deal with he citizens should be that all citizens are voluntary shareholders and also client to be protected. But this protection has to be over a geographical area, I dont know of another way a peaceful society could be protected from a coerceive world.

mpolzkill August 4, 2010 at 10:01 pm

That is the way they sell their protection racket. At least you realize what would happen if you tried to fire them.

No citizenry can ever be informed or vigilant enough to counteract the type of characters that are attracted to State power.

Jim August 4, 2010 at 10:04 pm

A citizenry being that informed is more possible,in my opinion, than survival of liberalism under warlord conflicts.

Gil August 5, 2010 at 12:10 am

The analogy of the government isn’t that of “government vs private defence agencies with the people hiring them” rather it’s “government vs private landowners with the people as land tenants”.

Then again theoretical private landowners each have their claim to a monopoly of land via force so what’s stopping power going to their heads and they become governments?

Jim August 4, 2010 at 10:14 pm

Hey mpolzkill, Ill be on and comment other times but for now Im getting off. Thanks for the discussion.

mpolzkill August 4, 2010 at 10:16 pm

You bet, nice talking to you, Jim.

I guess I get the last comment for now:

Now you have your constant warlord conflicts, it’s about to really get ramped up. One-world government you’ll get complete tyranny.

Jim August 5, 2010 at 8:59 am

A benevolent govt (I dont say this the way the socialists do I simply mean one that does attempt to protect the free world and free individuals from coercion without leading us down their utopian fantasies) is much more possible with a monopoly on external defence (meaning individuals can still defend themselves or others but the state does it for a living) than with competeing security squads.
The same holds true across any geographical area and hopefully Gods entire green earth.
Well actually Im an atheist but you know what Im saying.

mpolzkill August 5, 2010 at 9:05 am

Sorry, you sound pretty religious to me, Jim. There are competing security squads right here, within your government, competing for loot and power. One squad took over the country around 1933 and most people don’t seem to realize the extent of the new dictatorship or that there was a revolution at all.

http://mises.org/books/pottage.pdf

Jim August 5, 2010 at 9:14 am

Youre reffering to FDR and the new deal. They did come to power and lay the foundations for such an evolution but their competition did not use force outright as they were members of the same govt. If Hoover had been with a different govt entirely the democrats wouldve developed the neuclear bomb ahead of schedule just to bomb washington.

mpolzkill August 5, 2010 at 9:21 am

These ideas about how governments gain and hold their power…we just can’t get anywhere. I really don’t enjoy looking down on people, but besides the irritation of being stuck in your world, you are in my wheelhouse here: you could really use some la Boetie (and the great ex-anarchist, Russ sure could use a refresher course)

http://mises.org/rothbard/boetie.pdf

Daniel August 4, 2010 at 10:42 pm

Re: michael, WW2

http://mises.org/media/1975

It’s a mere 35 minutes long, please listen to it (for real)

michael August 5, 2010 at 12:32 pm

I read a lot faster than I listen– so naturally I looked for the text copy instead.

Imagine my surprise, reading the “comments” section in the bookstore, to find that this book has no footnotes. It’s entirely comprised of opinion.

I have not the slightest doubt but that listening to it being recited will have a mesmerizing effect on those inclined to believe it utterly. :)

But I’ll search around, and see if I can find chapter 12. Thanks, Daniel.

mpolzkill August 5, 2010 at 12:35 pm

He reads incredibly fast. His secret? Barely reading.

Matthew Swaringen August 5, 2010 at 12:40 pm

It should have footnotes so we are clear that other people’s opinions are there?

michael August 12, 2010 at 11:17 am

No, only other people’s facts. I’ve been listening to the lecture, and it seems to be comprised of unsourced statements. Ones at a variance with the common understanding of WW Two. So what is one to make of such a lecture?

Daniel August 5, 2010 at 2:26 pm

The book does have references (surprise: not all references are in the form of footnotes)

This is not the book, it’s a lecture, which DOES have references, but you would know that if you had listened to it, instead of calling me a gullible sucker and a liar

Just listen to the goddam thing and stop pussy-footing and being evasive. I’m certain your attention can be focused for 35 minutes on something you merely need to stand still to understand.

Protip: use a notebook and pen while listening to it, write down the references, then verify them yourself, then misunderstand them or take them out of context or disregard most of it and hang on to some irrelevant detail, then write a huge block of text about it

Scott D August 6, 2010 at 10:59 am

Careful, Michael. Your confirmation bias is showing.

igbymac August 5, 2010 at 3:12 am

Left-wing pundits ridicule those who label such government manipulation and control “socialism,” but it is in fact just that. Socialism involves government control of the means of production, and its real purpose is redistributing property for the benefits of “society” (society being receivers, not givers).

I believe what you describe is communism; Socialism is merely the control of production held by the workers, those who do the work.

Wealth is primarily the planet, our resources; secondary wealth is our labour; tertiary wealth is that created by those opportunists whom move money around creating a simulacra of wealth – the wealth , and creators of wealth, we tend to worship.

Let’s presume talking about an economic paradigm such as free market capitalism is akin to talking free choice as conducted by robots. Needless to say, one can easily see where this leads.

Daniel August 5, 2010 at 7:20 am

We’re not robots

How come you progressives/liberal-democrats/socialists/communists/platonists hate human beings so much?

You could at least be autocratic, instead of calling me a retard and then telling my I can “run things” with my vote (i.e. democracy)

mpolzkill August 5, 2010 at 9:53 am

“You could at least be autocratic”

Haha, they don’t usually have to get rough. It’s frustrating, almost every leftie that comes here comes thinking we’re idiots. They immediatly see that the pickings aren’t at all easy and they immediately leave. Only the very few with egos as massive as Michael’s will stay and dig massive holes for themselves.

igbymac August 6, 2010 at 6:35 am

mpolzkill, your statement “Haha, they don’t usually have to get rough. It’s frustrating, almost every leftie that comes here comes thinking we’re idiots. They immediatly see that the pickings aren’t at all easy and they immediately leave. Only the very few with egos as massive as” …

your own, perhaps??

Maybe I was wrong in thinking this was a forum for the exchange of ideas and perspectives on economic matters. True, most folks are terribly uncomfortable having anything but their own thoughts regurgitated, and they tend to get rather testy when questioned even in passing. I just hope your boastful cranium thumping has caused no permanent damage.

mpolzkill August 6, 2010 at 7:07 am

“Wealth is primarily: the planet”

“secondary wealth: labour”

“tertiary wealth: opportunist”

“free market capitalism is akin to talking free choice as conducted by robots”

“one can easily”

No, I think you’ve got the ego issues. Exchange of ideas? Thanks, already heard Karl’s harebrained ideas. You got any?

Lou Cypher September 2, 2010 at 11:53 pm

Michael stays put until I tell him otherwise.

igbymac August 6, 2010 at 6:14 am

You did not read what I wrote very well. I said “Let’s presume talking about an economic paradigm such as free market capitalism is akin to talking free choice as conducted by robots”.

Every economic model is a presumption; the free market capitalist paradigm is a model of economics; it does not and cannot account for illogical or bewildering human behaviour. As such, the free choice element of this model is simply not tenable because free choice and all its mutations remain an unknown.

The point being, where I did not think I had to spell it out but apparently I do, is that human behaviour ultimately makes something workable or not. The free market capitalist model, in fact capitalism itself, only works when it is not corrupted in some human fashion.

It is my love of humanity that puts human behaviour and its mysterious free-will paramount and overarching all economic models.

When one comes to terms that no person is an island, but no collective should over-power individual enterprise, then one may appreciate economic ideology is fallible too.

As for you being a retard if, in fact, that is true, those were certainly your words, not mine. I certainly never passed any judgment in my post.

J. Murray August 6, 2010 at 7:08 am

You basically just explained the Austrain position. The Austrian position doesn’t believe man is an island and rejects collective control at the same time. It also fully recognizes human fallibility. That’s why the Austrian perspective is rather adament about identifying that capitalism isn’t a single system and can be divided into the state driven model (fascism), the free market model, and verying degrees in-between, such as the mixed regulatory model used in the USA.

It’s by the recognition of human fallacy that Austrians reject centralized control, regulatory control, or any authoritative control. The one in control is fallible and by the nature of being in control, everyone will fail when he does. The true basis behind the uncontrolled, free market proposal is that the inevitable failures are not created as a system-wide problem that happens under the regulated market model. Failures in the free market system are staggered, which allows those who are still in operation to learn from it and continue forward. Learning from failure is not an option in the regulated market becuase to learn from the failure, the system itself has to change. Free markets can organically adjust around new situations, regulated markets have to battle bureaucratic inefficiencies, gather committees, commission studies, and send out votes to get anything changed. It’s the regulated market that allows the human fallacy to fester in the system long after it would normally be purged out of a free market system.

What makes the proposed free market system a good idea is it is designed specifically to leverage human greed and fallacy to positive ends. The true fallacy of the regulated and controlled market is that we can collectively identify and present an infallable person into a position of control to guide us around the failures.

The regulated and government controlled market is a true paradox. To coordinate a group of fallable, greedy humans, we must control them by selecting a person or group who does not fail to show them the error of the path they take. However, since no human is infallable and selfless, finding that person or group to engage in the control is impossible and always leads to full failure of all the members of society at the same time when the fault of the individual or group is now projected to everyone else.

mpolzkill August 6, 2010 at 7:20 am

I’m sorry, you sounded exactly like 10,000 apparent college students I’ve talked to. Alright, so you have some mysterious variations on the cult of labor. You say “we” tend to worship money pushers. Who exactly is “we” and who exactly are these money pushers?

htran August 5, 2010 at 8:35 am

“Wealth is primarily the planet, our resources; secondary wealth is our labour; tertiary wealth is that created by those opportunists whom move money around creating a simulacra of wealth – the wealth , and creators of wealth, we tend to worship.”

You cannot be more wrong. Without these “opportunists” you deride, the opportunity to produce that wealth would never be seen, worked on, or realized, to the detriment of society. Or do you think an internal combustion engine can be thought up by anyone, or any person can just stumble onto an assembly line?

michael August 5, 2010 at 12:22 pm

“Wealth is primarily the planet, our resources; secondary wealth is our labour; tertiary wealth is that created by those opportunists whom move money around creating a simulacra of wealth – the wealth , and creators of wealth, we tend to worship.”

Those are true words, htran. Our original wealth was created millenia before the rise of capitalism, by individuals molding the sticks and stones of the world into useful shapes, and fashioning tools from them with which they reshaped the world.

Wealth still depends on man’s hands, and their mechanical extensions. Its creation would be much the same without money jugglers who claim ownership of the process but who actually fashion little but numbers on a spreadsheet.

Land wealth in England was “created” by evicting the tillers of the soil from their plots, and awarding title to those plots to the King’s favorites. So it became “their” wealth, to enjoy and employ as they pleased. You are the fortunate recipient of such policies over the subsequent five centuries, and are naturally anxious that “your” wealth not be compromised in any way by the inconveniently enduring existence of the heirs of those tillers.

mpolzkill August 5, 2010 at 12:33 pm

Does anyone know the Mises’ quote to the effect of: for all the delivery boy knows, the writings and figures on the papers he delivers are so many chicken scratches?

mpolzkill August 5, 2010 at 12:39 pm

This degenerate once suggested that I was a rabble rouser. Well, he *is* a protectionist.

Jim August 5, 2010 at 9:30 am

mpolzkill-
Im starting to get the impression you do enjoy looking down on people. It could be said opposite that im stuck in your looney world, which I didnt acctually think.
The fact is that a democratic election to change powers is not neccesarily a war with coercion. It could lead to coercion as with FDR but it doesnt make that end neccesary.

mpolzkill August 5, 2010 at 9:35 am

Nothing in the world would make me happier than not having to. For one thing, If peasants didn’t get involved in politics and talk about it in public I wouldn’t be compelled to.

Jim August 5, 2010 at 9:43 am

Wait, Im a peasant.
And I thought you were an anarchist.

mpolzkill August 5, 2010 at 9:48 am

I’m a peasant too, one with a different religion than you. And please, no more assumptions, you really don’t know what you’re talking about. What’s your line of work or your passion? If I came to your workshop and acted as you’re acting, you would certainly look down on me, and rightfully so.

Jim August 5, 2010 at 9:52 am

According to your own logic YOU shouldnt get involved in politics.
I have no intention of talking to any kind of elitist, intellectual or economic.
Good day to you, sir.

mpolzkill August 5, 2010 at 9:55 am

Ah, just when I asked you to stop assuming things. Yes, neither one of us should have anything to do with politics, always leave that to the professional criminals. Do you play Three-Card Monte?

J. Murray August 5, 2010 at 9:39 am

A democratic election is, by its very nature, coercion. It’s force applied by the 50%+1 on the 50%-1. It’s the notion that if a raw majority decides it to be (or in the case of American politics, roughly 20% of the public), then the group that disagrees with the policies are now fully available for abuse. They can now be taxed, regulated, have debt created in their name, laws written against their interests, and numerous other factors that they at no point agreed to. Should the minority who didn’t win the election chose to not pay the tax or follow the laws, they get thrown in prison and have their resources confiscated. Democracy is a pure form of coercion and elections are wars do decide who gets to hold the power. Force is still force, the changing of the identity of the one wielding the force from a single individual (king, dictator, etc) to the masses (democracy) doesn’t legitimize it.

Remember the old saying: Democracy is two wolves and a sheep voting on what to eat for dinner.

michael August 5, 2010 at 3:33 pm

I’ve seen this definition a number of times before, JM. That’s often the way democracy operates.

At other times, and particularly now, it induces gridlock, as the sides are evenly matched and each fruitlessly attempts to destroy the other. In such cases it leads to instability, as the voting public won’t indefinitely put up with a state of affairs where neither side can get what it wants.

Democracy works best in its third state, where both sides agree to work together to promote mutually beneficial goals. The postwar years, 1945-65, were times like that. Through a compromise at the extremes, the mainstream middle got most of what it wanted.

Then Vietnam upset the applecart.

Your old saying could as easily describe capitalism: if you look around the table and don’t see what’s for dinner, YOU are dinner.

Scott D August 7, 2010 at 12:21 pm

“Your old saying could as easily describe capitalism: if you look around the table and don’t see what’s for dinner, YOU are dinner.”

Nope, doesn’t work. There’s no voting in capitalism except in a figurative sense, when consumers “vote” with their money, and my vote doesn’t make yours invalid.

Jim August 5, 2010 at 9:46 am

Youre discussing the laws that follow not the election itself. I never said I thought election give right to coerce only that citizens should vote who isto protect tthem from coercion.

Jim August 5, 2010 at 9:57 am

Although I do value what youre saying Mr. Murray. Ive used that arguement myself with fequency.

mpolzkill August 5, 2010 at 9:59 am

Jim, please hit the “reply button”. On a thread that has no “reply button” on the last comment, just hit the one closest to the last comment.

Jim August 5, 2010 at 10:32 am

Well I wasnt attempting to reply to you. I was hoping Mr. Murray had something to say, so I might prove to myself that this site wasnt made for the egotistical and that i might be able to enjoy a converastion that didnt end with someone so certain of their superiority over me.

mpolzkill August 5, 2010 at 10:36 am

Jim, first look at all your posts: *you* have created many, many different threads. That’s not necesarry, I’m trying to help you and me and the three or four readers. Second, look at all your posts: who could be more intellectually superior than you? You are apparently the master of the future and all that is possible in it (and the master seer of many counterfactuals as well). I am quite humbled by your incredible powers.

Jim August 5, 2010 at 10:47 am

Again… why? Does it give you some sort of rush to think youre so high above everybody else?
You dont have to answer that although im sure you will.

mpolzkill August 5, 2010 at 10:57 am

Almost all of you are on your knees. No rush, nausea. Please, please stand up.

And stick to whatever your business is instead of defending your masters in public and you’ll never hear from me at all.

Jim August 5, 2010 at 11:02 am

(sigh)
narrarator- “again the anarcho-capitalist fails to recognize the difference between master and bodyguard”

The ones we have now are masters but a geographic protective institution is not impossible.

mpolzkill August 5, 2010 at 11:07 am

A geographic protective institution with taxing power that will not move into the situation you see today is possible? See, you’re intellectually superior to me. How do you know that’s possible?

mpolzkill August 5, 2010 at 10:06 am

I wonder if Jim is more likely to use this argument after the election of a Dem or Repub administration?

Did anyone else notice the explosion in the number of our friends after the election of Obama?

Jim August 5, 2010 at 10:21 am

Oh and, by the way Im about halfway through your la Boetie link. I see no reason within so far as to say that all governments will pursue this path. With democracy I believe it is possible to have a govt that acctually protects individuals from coercion.

Also I didnt know this blog was for “expert thinkers” only. If my “mediocre” ideas are not welcome I will leave immediately, after I finish La Boetie.

And no, Im not a repub, well acctually a recovering one but Im simply Libertarian now. Not right or left, but not anarchist either.

mpolzkill August 5, 2010 at 10:32 am

Well the party keeps running away from you and Ronnie, don’t they.

Why are you being so dramatic? You suggested that if FDR was known to be of a rival gang outside of the laws of Hoover’s gang, that in order to control Hoover’s flock, the Dems would somehow construct a nuke to destroy said flock. I said, “Oh, dear, please read some la Boetie, that’s not how things work.” Your government couldn’t even control Vietnam, they might have made the place one greasy spot, but even they were’nt insane enough to do that (though I think Grossman is very bitter about that)

Jim August 5, 2010 at 10:46 am

That one was an ill conceived joke.

mpolzkill August 5, 2010 at 10:50 am

Well, see how tone deaf we all must be on here? Maybe if we had the skills of a Dickens we could communicate more easily.

Stephen Grossman August 6, 2010 at 8:58 am

Sometimes i think about potatoes and rock music together tho there is no rational justification for this.

Franklin August 5, 2010 at 10:37 am

Jim, be cool. If this place were only for expert thinkers, then I’d have been thrown off long ago. Well, I ought not give the webmaster any ideas.

“…recovering [Republican], Libertarian now….”
Just stay the course, step by step!

By the way, and I know I fail at it enough myself, you gotta be more careful on the spellchecking. Gets distracting, man.

mpolzkill August 5, 2010 at 10:44 am

“I’d have been thrown off”

Me too, haha. I always expect to be anyway.

(And thanks for yet another thread, Franklin. [minor exasperation])

Vedpushpa August 5, 2010 at 10:48 am

GOVERNMENTS CANNOT OPERATE IN THE CPITALISM MODE BECAUSE IT DEALS WITH PUBLIC FINANCE OF THE MOST GENERAL,KIND AND NOT ANY QUASI PUBLIC LTD OR PRIVATE FINANACE.

ANY SO CLAIMED – ‘GOOD GOVERNMENT’ DEFINITELY OUGHT TO FACILITATE CAPITALISM BUT NOT HAVE A SHARE IN THE PROFITS EXCEPT THROUGH THE TAXES.

GOOD MONARCHIES HAVE INVARIABLY BEEN THE BEST OF PRO-CAPITALISTIC REGIEMES.

IT IS A LAMENTABLE FACT THAT THE PRESENT-DAY DEMOCRACIES ARE MORE ‘DEMO-CRAZIES’… WITHOUT ANY SENSE OF GOOD ECONOMICS… THEY ARE EITHER THEMSELVES ‘RUN AWAY CAPITALISTS’ OR ‘WASTEFUL POPULIST PATRONS’ SO TO SAY !!

Jim August 5, 2010 at 10:53 am

… And I’m being dramatic.
… And Im also a bad spell checker (not taking offence to that, its true)
I wonder If youll ask the same questions of your screaming compatriot here, mpolzkill

mpolzkill August 5, 2010 at 11:00 am

I’ve often noticed that the plain simple truth sounds like screaming to the Statist. I think it’s related to the violent urges that they obviously project onto foreigners.

Jim August 5, 2010 at 10:49 am

OH look another thread. I hope this doesnt bother Pr.Genius too much.
Ill go look for somewhere more friendly (If thats possible on the internet).

mpolzkill August 5, 2010 at 10:52 am

Jeez, Jim. I am sorry I attacked your religion. Consider keeping it to yourself if you’re so sensitive about it.

Jim August 5, 2010 at 10:54 am

Likewise with you. I wont dare question the church of ancaps again.
at least not here anyways.

mpolzkill August 5, 2010 at 11:01 am

Question and challenge away, it’s great. If you tried harder to check your emotions you’d do a lot better. The adrenaline drops ones IQ frightfully. Look at Russ, to this day he hasn’t been the same after 9/11.

Jim August 5, 2010 at 11:06 am

As does the dogma to your IQ. Anyway I said Id leave and Ill leave, with hope that a less intellectual supremicist libertarian site is out there.

And no its not the truth, its the ALL CAPS and exclamation points that make it seem that way. What of the emotions of your fellow ancap. I suppose theyre in check?

mpolzkill August 5, 2010 at 11:09 am

Where do you get the idea that I’m somehow the site? Talk to Don here, he’s a real teddy bear. Really, he even puts up with Michael, if you can believe it.

Jim, I didn’t post that. Boy, now *my* feelings are hurt.

And what dogma? How does a stupid dogmatist keep getting you to reverse and amend yourself?

Jim August 5, 2010 at 11:58 am

Your accepted dogma that somehow security forces which acctually protect people and dont kill each other could exist in a competitive enviornment.

(this is another ill conceived joke)
This may be an assumption but I think youre equating me with micheal. Now to that I take offence.

Jim August 5, 2010 at 12:02 pm

And I dont think youre the site. It just seems to be a repetative theme in the comments blog.

mpolzkill August 5, 2010 at 12:02 pm

I never made any claims on what would happen, that’s all invented by you and Russ. I have a hard time believing they could be any worse then your monopolists, and the positive side of such a world is that we could then be men is all I said.

You are one prickly pear, Jim, if I may say so. Actually, you’re being arrogant again: Michael is a legend.

And to be arrogant myself again, the anarchists tend to have studied and thought about this stuff a lot more; the genius Russ, notwithstanding.

J. Murray August 5, 2010 at 12:03 pm

The reason you think it’s a theme is you seem to only be responding to one person. Narrow the view enough and everything is thematic.

mpolzkill August 5, 2010 at 12:09 pm

Sure, a million flavours in the anti-crime rainbow.

Jim August 5, 2010 at 12:09 pm

Ill concede that may be true. mpolzkill is not the site. wont blame the site for this. And like I said the thing about micheal was a joke.

Again enter the intelectual superiority. “The anarchists have tended to thought about this more”
Perhaps on this site they have but I cant imagine that out of all the worlds great thinkers only the anarchists thought about this the most.

Jim August 5, 2010 at 12:12 pm

Its inconceivable to me that its more likely anarcho-capitalism and competeing protective services will be more likely to bring about just rule then a well functioning democratic republic

mpolzkill August 5, 2010 at 12:13 pm

Oh, the State is loaded with great thinkers. How do you think you got to the point where they pick half your pocket every day, and then on your free time you defend them on the internet they invented?

Jim August 5, 2010 at 12:14 pm

Im not sure the state invented the internet.

mpolzkill August 5, 2010 at 12:16 pm

I *am* sorry Jim. I’ll leave you alone.

Jim August 5, 2010 at 12:16 pm

FA Hayek was libertarian, didnt believe in your pocketpicking, and wasnt an anarchist but thats beside the point as plenty of libertarian thinkers arent anarchists.

Jim August 5, 2010 at 12:26 pm

John Locke of course too. Liberty can only exist under rule of law.

I wont even say Jefferson because hes probably just another fascist responsible for this current travesty of a republic we now have.

Jim August 5, 2010 at 12:29 pm

Which it is of course ridiculous to call jefferson a fascist in my opinion but he mightve been to an ancap.
Thats just another assumption though isnt it?

Jim August 5, 2010 at 3:22 pm

I should probably stop commenting now but Im just going to say that we almost had a constuctive conversation.

Condoleeza September 3, 2010 at 12:14 am

Mpolzkill,
One day you anarchists will be woken up by the mushroom cloud over your nature-strip, and then you’ll wish you’d bit the pillow for us.

mpolzkill September 3, 2010 at 12:46 am

Yikes, Condi. Speechless, nice.

Donald Rowe August 5, 2010 at 10:51 am

The Tippy Table; The Quack; and The State.

The Tippy Table.
Family members gathered from all points of the compass for the festivities. When the banquet was held, young Mickey was seated at one corner of a table, beautifully decorated and laden with food of all kinds. Suddenly, as Mickey leaned forward, elbows pressing down on the edge of the table, the opposite corner shot up, propelling little Sally’s glass of milk into a failed back flip, spilling the milk on the table and from there some of it ran onto her lap as well as onto the lap of uncle Ludwig.

“It’s the table!” exclaimed the young lad. “This leg right here is too short, see! And when I leaned on the top, it when down making that other corner go up.”

“It’s OK, Michael,” calmly spoke the uncle from the other end of the table. “No one holds you responsible for the table’s construction. But are you sure the problem is due to the leg which you say is too short?”

“Of course, any idiot can plainly see that there is a space between the end of the leg and the floor. And every time I lean on the table the leg goes down and the gap closes and the opposite corner goes up, every single time. It couldn’t be any simpler than that.”

“Have you considered the possibility that there might be another condition that could result in the same effect?”

“I don’t need to because the cause is right there in the open for anybody to see. You don’t have to be a genius, uncle.”

Ah, the impetuousness of adolescence, thought the smiling uncle Ludwig. “Have you considered that the same effect may be caused by no less than six distinct configurations of the legs, and that does not even consider the condition of the floor?”

“Come on uncle, surely you can see that I am correct, this leg is obviously shorter. You are making yourself look more and more like a village idiot.”

The idiot of any village can identify the problem of a tippy table, and many other problems as well, some don’t even require that the milk actually spill on them to see there is a problem.

The journeyman can identify a cause and effect, and can usually apply a patch.

The master realizes that even the simplest of problems may have many different causes. He tries to consider and evaluate all of them, with the goal of determining the solutions for each. He then considers what the effects of each potential solution will likely be. He then chooses the one that is both most beneficial and has the least harmful effects and then he acts. Then he evaluates the results of his action because he recognizes that he is not infallible and he wants to learn from the results so as to make better choices in the future.

The Quack.
One day, a few years later, Mike woke up with a sharp pain in his belly. It wouldn’t go away so he sought help from the local shaman. “It hurts right here. Can you help me Doc?” asked Mike. “Hmmm”, hmmmed the doctor. “Take these pills.”
“Will they cure me? They won’t hurt me, will they?” asked a worried Mike.
“They cannot harm you because I have no intention of harming you. Go, and take the pills.”

The State.
Michael survived the resection of the ruptured bowel segment and later became press secretary to a very important circle of people. He hovered on the periphery as the six sat at the big polished table and held their discussion. Finally, after reaching unanimity, Barry turned to Michael and said. ‘This is what you are to say to the press. “Our economy has gone wobbly on us. We have identified the problem and we are working on the solution. Because the people are not buying the goods factories make in sufficient quantities business output has slowed. Factories have laid off many workers. There is just not enough spending going on in the economy right now. Because the people either cannot or will not spend sufficiently, it falls to us to do so. It will be a long, difficult recovery, and a painful one, but we are determined to see it through. We will not fail.” ’

“But Sir, have you considered the possibility that there may be some other condition that could result in the same symptoms that you call the wobbly economy? Maybe there is an even better solution.”

Barry glared, “We were elected to do this job, not you. You will do as I said, or you will be replaced. Do you understand?” Michael nodded and hustled out to meet the clamoring press corps crowd.

Meanwhile, back inside Barry turned to the others and said “Let’s take out our personal checkbooks shall we. Ben, Tim what do you think it will take? Should each of us spend two or four hundred billion dollars?”

OK, that last part didn’t happen. You don’t really think those guys are idiots, do you?

agdrummer August 5, 2010 at 3:28 pm

Answer: social mood change

hrbiel August 6, 2010 at 11:32 am

I don’t know what you have been smoking but if you think you can unravel all the laws and regulations that have been put in place by major corporations to thwart competition then have at it. I realize full well that capitalism is the most efficient method of distributing goods and services among unlimited wants and desires but it will never be implemented in today’s political environment.

Barry August 10, 2010 at 1:54 pm

It’s doubtful if facts ever change any one’s mind. The only way I have had any success in having one who is not a capitalist to consider changing their mind is by sizing the moral high ground.

I point out that as I have rejected the initiation of force and thus they have nothing to fear from, and as they will not make the same rejection, I have much to fear from them. This is usually most effective after they have told me that if I don’t do this or that (pay taxes, don’t support welfare, or whatever) then I deserve to go to jail and if the discussion gets really heated, they will invariably threaten to put me up aganist and have me shot! Having said all this and having threated me, the chances are still that they will not accede to free market cap;italism. Sad but true.

dj September 12, 2010 at 11:11 pm

just finished your online book on Capitalism. Excellent! I never considered myself a socialist or communist, but also was not overly excited about capitalism, just considered that we should have a free market system. My view on capitalism was the crony capitalism and government bed partners that I mostly had been aware of and I bought some of the media stories of greed as business as usual. After reading this, I realize the true capitalism is a free market system. The book also helped me understand certain aspects better. Thanks so much.

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