Archives for category: Economics

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One does not normally insure against chosen and regularly incurred costs, like fill-ups and oil changes in cars . . . or haircuts, waxes, and contraceptive devices on people. When insurance companies’ policies do cover regular, pre-injury/-illness purchases, they are not economically engaging in an insurance contract. They are offering a payment system, a kind of premium savings plan.

Why would they do that? Sometimes to attract customer with a convenience — an expensive convenience they expect to make money off of. But also for another reason: because they are compelled by law.

The corruption of the insurance industry by government policy has been ongoing for decades.

Especially in medical markets.

How? At a fundamental level.

Economist Friedrich Freiherr von Wieser (Social Economics, 1928, p. 149) noted that there are three kinds of “binding compensatory contracts”: exchange contracts, insurance contracts, and social contracts. Wieser noted that insurance contracts sometimes look like social contracts, sometimes like exchanges. But the resemblance to explicit social contracts is that they mimic the widespread effects usually aimed at by social contractors, but through private exchanges. An ingenious invention. Insurance provides a public good by private means. The core nature of insurance contracts Wieser explains thusly:

Its purpose is to distribute the effects of loss over many private economies. It has attained great importance in developed economies. But it has to do only with the security of the economic body, not with its creation.

Wieser did not examine this form of contract in detail. He also, in developing economic theory, put aside discussion of the social contract:

One should expect that it be adopted to the integration of the social economy. Nevertheless in its effect it has been overshadowed by the exchange contract, which although as a rule is made only between two parties, has manifested itself the coördinating instrument that binds individual economies into the national economy.

This manifestation of unexpected and unintended coördination puzzles many people. Which is perhaps one reason why, as Wieser’s student F. A. Hayek suggested, we witness much social distress regarding — and political pressure to undermine and control — market order. The coördination provided by markets is “spontaneous,” as Hayek metaphorically put it (“inadvertent” is more exact), and its mechanisms and processes mysterious, in no small part because of its inadvertence. Folks balk at accepting an unplanned order.

This is especially true of insurance contracts, which often seem “unfair.” For example, I was a very good and safe driver as a young man, ages 16–28. Never an accident. Never even a complaint. But an appreciable number of my peers drove recklessly (but not “wrecklessly”!), skewing the actuarial tables that make insurance bets doable, so my insurance rates were high. Young women, on the other hand, had far lower rates — despite my personal knowledge of many dangerous young female drivers.

But I understood the unfairness, and rallied through. Meanwhile, during that same period, feminists pushed through in my state regulations that forced insurers and their customers to pay equal rates, disregarding the sexes. Young women tend to have more medical issues, especially regarding pregnancy — which, one should note, are usually the result of free choices, not wholly accidental events — and thus are greater risks for insurance companies, requiring higher rates.

But . . . unfair!

For some reason, feminists did not push for a forced equalization of auto insurance rates.

So, consider what that regulation did: it increased the pool of insured people, bracketing out of consideration reliable data upon which insurance businesses calculated profitable rates. So, it decreased the information content of insurance rates — prices, really — and made the business decisions less efficient, and less capable of adding efficiency over the course of time.

And by equalizing men’s and women’s rates, it swept into the mix a mostly non-insurable expense: pregnancy and birth. One insures for things out of one’s control. And, except in case of rape, one can choose not to engage in sexual intercourse, the activity that causes pregnancy. So, under modern regulatory requirements, more and more people are swept into the pool with more social contract problems associated with such pools: that is, “the tragedy of the commons.” When some gain at the expense of others, they tend to opt to do just that. A common resource subject to individual exploitation tends to degrade, as has been understood since the time of Aristotle, but clarified by William F. Lloyd, Garret Hardin, and Richard Stroup. In the case here made as an example, what would normally be unforeseeable and insured-for is now intermingled with eventualities placed under a woman’s or couple’s control. Thus they are able to game the system and free ride off of it. Basically, shifting their avodiable medical expenses onto other people who do not choose to produce babies.

This jiggering with the insurance industry basics changes its very nature. But not without costs.

And it is certainly not limited to just the one example. Tax policy, regulation and now subsidy have been contriving to turn medical insurance contracts wholly into social contracts. And politicians and activists have succeeded in convincing many simpletons and distracted citizens into thinking insurance should cover events that no honest business would cover — events such as already existing disabilities, or expenses that are wholly voluntary.

Remember: One cannot “insure” against the present; one cannot “insure” against controlled outcomes. It is only future uncontrolled events with assignable probabilities that make sense to insure. Only these eventualities that can make for stable, long-term and sustainable and efficiently provided buffering of the effects of loss or injury.

But, to repeat, tax law, regulations and now subsidy — by state and federal governments — have so twisted the industry that it now is a badly run redistribution scheme, something one would normally expect from governments pretending to enforce “social contracts.”

Wieser’s “coördinating instrument” of the exchange system, and the pricing (in this case) of insurance rates, has been scuttled by people more comfortable with the seemingly “rational” — but much more ungainly and discoördinative — government policy. Also, the instrumentality of force quickens the vindictive soul, spurring folks to demand a great cause — fairness, justice. Which allows, naturally enough, for the heady mix of self-righteousness and outright oppression (for what else is forcing others?) as well as the precious social signaling that moral crusades engender.

But because information is thereby decreased, and the tragedy of the commons introduced into the industry, society is corrupted, hobbled, injured.

The very opposite result, you might think, of medical insurance policy.

And witless Americans carry on with the fiction and lies. As if they were being smart and wise. Anyone who repeats the current wisdom about medical “insurance” — such as demanding “coverage” for a wholly voluntary aid, like contraception — is a dupe or a liar.

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Friedrich von Wieser portrayed at top, in sketch; the current blogger immediately above.

You know a person isn’t serious about opposing child labor if they keep up bringing sweat shops but never mention farm work.

Traditionally, had children not worked on family farms, many families would have starved. Personally, I worked on our family farm without recompense, growing up, and also worked on other farms for money. Before I came of age. I know that this was good for me, and everyone else knows this too.

img_0056My mother grew up in the Great Depression. She was one of the family breadwinners — as a child. Only an evil person would regard this as exploitation and wrong to the point that it should have been illegal.

A close friend of mine and I both spent time picking fruit in the summers. We earned a few bucks. This was good for us, even at ages nine, ten and eleven.

Now, in the state due south of where I live, such child labor is unlawful. Or so I’m told. I do know that illegal Mexicans pick most of those crops. Progress?

Harping on sweat shops and factory work by children makes moderns feel good about themselves. It is much like imagining themselves as great opponents of slavery — despite their lack of interest in slavery rampant, today, in the Islamic world.

Harping on sweat shops and factory work by children means never having to think about context, progress, wealth creation, or even what actual conditions in most of these situations were really like. I have never met a progressive who talks about this who has read one word of the current scholarly literature on the subject. They are merely repeating stuff pushed to them by brainless high school teachers and Marxist college professors.

Every time I mention that rates of child labor were plummeting prior to child labor being regulated and then prohibited, I get blank looks or eyebrows of incredulity.

Some day these uninformed ideologues may realize that they are merely ignorant buffoons parroting dogmas of little value.

By then, though, they will have supported dozens of insane regulations and deceitful politicians.

twv

The origin of a thing or practice does not always and obviously provide strong clues to the reason for its growth and then for its survival. Theories of ethics, for example, are littered with monocausal accounts of “the foundations of ethics” that fail to separate the various distinct causes and levels of operation.

Take that very institution (or human endeavor, or practice) we call “ethics” or “morality” — consisting of rules, ideals, norms, and reasonings and rationales for action. Its origin may be seen in the simple need to influence human behavior, of self and others. Think of the body of ethical precepts as a toolkit. But the reasons why one ethical system flourishes and others wilt may have surprisingly little to do with the aim of the moralizers who cook up, repeat, and transmit their normative notions. And those reasons may not be the same as their explicit justification.

These distinctions can often only be seen as we pass through time, as various stages of the social life of the memes become evident. (Maybe we should speak of the ordinal, not cardinal, virtues!)

IMG_3224Similarly, the first people to adopt a belief, habit or good are very different in nature from later adopters. The distinction between early-, mid- and late-term adopters is of huge importance for understanding fashion and other consumer behavior, as well as ideologies. Businesses that do not figure in these different consumer bases will suffer. Critics who do not understand this will find themselves irrelevant. Voters find themselves . . . stuck with bad candidates and poor policies.

On a macro level, this trend in consumption allows the masses to benefit from investments that they themselves would never make, nor would ever, alone, entice from capitalists. Only the strong preferences and spending of early adopters allow the success of many goods that later circulate to everybody. In effect, late adopters and skinflints are “subsidized” by the early adopters and the prodigal.

This element of capitalist development is integral to fulfilling one of its defining functions, mass production for the masses. Attempts to “rationalize” the economy in a social engineering way often assume an egalitarian customer base, and thus start with the lower rungs of development kicked away from the ladder of progress.

“Price discrimination,” particularly what amounts to  intertemporal price discrimination (what is the exact technical term? I wonder — separate time-frame equilibria?), is key to the functioning of markets.

Many class resentments and tensions come from a lack of acceptance about this diversity in human judgment and consumer function.

And much confusion results from mixing up the nature of the origins, the persistence, and the expressed and unexpressed rationales for any human practice or institution.

twv

Illustration courtesy James Littleton Gill, My Monster Problem — and Ours

The problems here addressed are so huge that one simple blog post, indicating them as if with a wave of the hand, hardly does them justice. Clearer statements can be made later, or elsewhere — and no doubt have been, by others.

img_3081(from The Lesson Applied, December 1, 2011)

The good folks at Coca-Cola really want to innovate. They probably admire the late Steve Jobs. They’ve lots of neat ideas. Helping polar bears is one of them. So, to honor the polar bears (or at least ballyhoo their cause and plight), Coke folk changed the color of the can of their main product, Coca-Cola™. They made it white. You know, “polar” color.

And then came the uproar.

Coke buyers didn’t like it. Many returned the product, thinking that it was either Diet Coke (whose silver can is, actually, very similar to the new white can) or else a modified product. A few Coke drinkers said that the drink tasted different. There was general confusion, as reported in the Wall Street Journal:

Mel Cyr, a 17-year-old Coke drinker from Sheboygan Falls, Wis., said she and other teenagers attending this week’s National 4-H Congress in Atlanta scratched their heads after seeing the white cans. “You can’t change something that’s classic,” said Ms. Cyr.

4-H delegates from Wisconsin said their chaperone was mistakenly served a regular Coke on the flight to Atlanta from Milwaukee after requesting Diet Coke. “The flight attendants were really frustrated” and apologized for the mix-up, said Sara Harn, 17, of Brooklyn, Wis.

Obviously, this is another innovation from Coca-Cola that didn’t take — reminiscent of the infamous “New Coke” of a few decades ago. Coca-Cola’s clientele was so negative that the august Atlanta company switched plans, and is now switching back to the red cans we all know and love, far ahead of schedule.

A lesson for us all. Consumers are sovereign. You can innovate up and down your line, but if consumers aren’t buying, you aren’t selling.

The doctrine of consumer sovereignty was defended, in the 20th century, by two curmudgeonly economists, W.H. Hutt and Ludwig von Mises. The word choice was spot-on. “Consumers are sovereign” doesn’t mean that producers are meaningless. But the sovereign(s) have the last word; it’s the sovereign who must be pleased.

And that’s what capitalism is all about.

This lesson is probably hard on the innovators at Coca-Cola. Take the lame ending of that Wall Street Journal article:

But Ed Rice, the 81-year-old chief executive of Ozarks Coca-Cola/Dr Pepper Bottling Company, a longtime Coke distributor in Springfield, Mo., thinks the white can was innovative and engaged consumers. He downplayed confusion between the cans.

“If you put the cans side by side and blink, you might have to take a second look,” said Mr. Rice, who loaded his first Coke truck in 1945. “But I think there’s a distinct difference.”

Yes. But not distinct enough.

And besides, the customer is always right. Well, right in the one way that matters most on the market, right in being sovereign.

12/01/2011

In the early and middle 1980s, “comparable worth” became a celebrated cause of the feminist left. The idea was to equalize wages among occupations, particularly between, for example, a well-paid occupation that tended to be manned mainly by men and a more poorly remunerated occupation mainly performed by women. The examples given at that time were often truck drivers vs. secretaries.

I witnessed several public debates on the subject, way back then. And having just begun to study economics, I quickly came to regard proponents of the “comparable worth doctrine” (CWD) as utopian lunatics. Their glee in concocting regulatory schemes was over the top, and their arguments were always and in each case economically illiterate. They looked upon all wages as mere artifacts of custom and power, never productivity. Notions like “marginal product” and “imputation” and even “supply and demand” never rose to coherence, or even the level of mere mention.

I remember one absurd discussion, where a young man argued against a then-current objection commonly made to the CWD — that comparing truckers to secretaries was comparing apples to oranges. (That is, the occupations were different enough that no wage equalization effort could make sense.) He said that the beauty of CWD was that (quoting from memory) “we mix the apples and oranges and get fruit punch, and then divvy out equal amounts!”

You see what I mean by economic illiteracy.

Now, I did not go on to become an economist. It never became my job to investigate the statistic artifacts of the period to test the doctrine. Or any other. But I did notice that in the State in which I lived, the CWD became the official doctrine of one institution: government.

My guess is that many a low-wage government and contractor job were upped to a higher level, according to some “comparable” “worth” (of a labor theory of value variety) and that taxes were quickly increased to cover.

It might be good to check to see whether this did actually happen. I would be surprised if it did not.

I am getting at something here. There is a difference between government wages and business wages. They are figured and set differently. Unlike in the market sector, politicians can and do set State employee wages. And take credit for the hikes.

The taxes? They tend not to talk much about the taxes hiked to pay for the greater drain on resources. In markets, wage hikes must be merited by business success in voluntary markets, within a context of competition for scarce consumer attention. In politics, the checks and balances are much less integral with the process. There is a high degree of arbitrariness to government worker remuneration.

I suspect something similar happens in government regarding minimum wage jobs. I know of a number of positions paid by tax funds through contracts with the state. Many of them — particularly the temporary ones — are minimum wage jobs. (Elder care, some seasonal fishery services, and a few others come to mind.) When the minimum wage requirement is raised, budget requirements are raised, and politicians shrug “cost of living” and approve a budget hike, leading directly to raised contract worker wages.

We often say, with varying degree of inaccuracy, that “consumers pay” for minimum wage hikes. (Consumers do pay, but usually indirectly.) More accurately, taxpayers pay. Quite directly.

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One of the more interesting arguments for socialism is the argument from sectoral successes, that is, with particular socialistic enterprises, the prime example being roads. As libertarian economist Walter Block chided Milton Friedman once, Friedman’s support for public roads amounted to a “road socialism.” And most folks, upon hearing that, would raise an eyebrow and pull out of the driveway and say, “if this be socialism, make the most of it.” That is why socialists bring up the roads as an example of how all-sector socialism could work. 

And they have a point: our road system is awfully socialistic. Of the main features of socialism, it has all but two*: the economic good, road access, is not now provided on an egalitarian or needs basis, but instead (1) to all permitted drivers as much as they want, (2) funded by a fairly efficient set of use taxes, on fuel and licensing, etc.

Now, Professor Block has done important work showing not only that private roads do work and have worked, here and there, and could work if universalized. But, let us admit it, his (and similar) writings notwithstanding, road socialism has not been a complete disaster, and is widely popular, unquestioned.

Does road socialism provide a good blueprint for generalized, all-sector socialism? No. But instead of providing the many usual reasons given, I will suggest another way to look at it.

Road socialism in America is an excellent example of how we tend to “regulate a commons”: ruthlessly and with special attention to prosecution (and overburdening) of the poor.

Have you ever been to a traffic court? It is apparent: every unwanted or slightly dangerous behavior is criminalized. The cops are oppressive. The rules are numerous. And the system is exploitative, often nothing more than a shake-down operation. Pleading before the court, the general run of those who challenge the system tend to be abject in their petitions. And the general theme of oppression stinks up these venues, as the states and municipalities nickel-and-dime the least successful in our society.

Think of that system writ large!

On the private roads, there is a perceptible tendency for road owners to provide help, not deliver beat-downs and stick-ups. Road service is more useful than cops, in most cases. Suggestions and highway engineering that encourage safe driving have been found to be more effective than patrolling, but our commons regulators insist upon tickets, property confiscations, and even prison terms.

So there you have it. Road socialism provides a blueprint for social tyranny.

For the good of society at large, the roads should be privatized, just to make life more peaceful and less deadening. Driving need not be regulated by fear. The fact that our most socialistic sector of society is run along  authoritarian and exploitative lines should indicate what a bad idea imitating public roads would be for yet more sectors of society.

Go to traffic court, and come to your senses: no more of this! No more socialism. Please.

twv


* Not counting sector limitations, of course.

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I just watched Lisa Kennedy Montgomery cave on repealing ObamaCare — see tonight’s Kennedy, Fox Business Network, 2017-01-12.

It looks to me like the putative libertarian is following Sen. Rand Paul and President-Elect Trump in doubling down on the core principle of ObamaCare itself.

They do this by insisting that the people newly covered by ObamaCare must remain covered under some new scheme before the old scheme be repealed.

This ensures that no real progress can be managed, for it commits the federal government to guaranteeing a transfer of wealth that (a) is nowhere authorized by the Constitution; (b) can only send medical costs spiraling further upward for the non-subsidized and eventually even the subsidized; (c) must increase the ranks of the subsidized as time goes on; (d) will become increasingly insolvent and demanding more taxes, eliciting further damaging regulation, as well as further stress the U. S. debt load; and, last but not least, (e) commits the nation to a principle utterly at odds with the best method for progress in medical services delivery. A better, free-market system, would simultaneously improve technology and capacity while leading to a secular trend of price reductions.

img_1981The Rand/Trump/Kennedy ploy gives the game away — the whole enchilada — to the socialist-minded Democrats (and Republicans, for that matter), which means that there could never be a rollback of government. At least, not on their watch.

It also shows that Kennedy and Rand and Trump all believe, just as do progressives and socialists and Fabians and fascists and ignoramuses (but I repeat myself) that once one has given a treat to someone else, that treat must be considered as a sacrosanct “right.”

Further, it indicates that they do not understand the economics of health care and medical insurance, especially not the damage done by decades upon decades of subsidy, mandates and regulations.

In other words, it means they do not really believe that free markets can work. Which is almost certainly true in Donald Trump’s case.

In Rand’s and Kennedy’s case, it ultimately means cowardice.

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Thomas Sowell retired from writing his syndicated column a few weeks ago. And so the tributes have been coming in. As they should.

img_1961I note that Paul Jacob at ThisIsCommonSense.com, and Gene Epstein on the Tom Woods Show, both have praised Sowell for his astute and well-explained economics popularizing while expressing their chagrin that Sowell never seemed to apply the same “thinking beyond Stage One” approach to foreign policy.

This was a point I made in one of my earliest published reviews, of Thomas Sowell’s A Conflict of Visions, to be found in the premiere issue of Liberty, way back in 1987. (Which you can read on this site, now — O, lucky you!)

So, if we are all pretty much saying the same thing, what can I say differently?

Well, I could mention my favorite Sowell book, his first: Say’s Law: An Historical Analysis. This is probably his most difficult book, in no small part because Say’s Law is itself a surprisingly difficult concept. It has been years since my last reading — and I have read it at least three times, even now wishing to return to it, give it another go.

I first read the book in tandem with W. H. Hutt’s quirky A Rehabilitation of Say’s Law. Each book helped me understand the other.

One of the really tricky things about Says Law is that it is a macro theory; but many authors found its chief resonance on the micro level. Indeed, though Say’s Law was first marshaled to debunk one theory of economic depression, the general glut theory, W. F. Lloyd, in his classic essay on value, tied that macro problem very closely to what became the theory of marginal utility, the micro theory par excellence. And Say’s Law according to Say’s disciplines — the Third School, or Catallactic economists — turned into a theory of “harmonies,” not equilibrium. It was another macro approach based on a micro insight that in turn was used against not merely general glut theories, but also protectionism and socialism. Sowell, if I remember correctly, does not extend his analysis into the third school, except insofar as he deals with Walras’s Identity.

As an economic popularizer and as an economic historian, particular of race and cultures, Sowell was magnificent. Yes. But as a social philosopher he was perhaps even better. More necessary.

There is a caveat to this judgment, however. Jacob and Epstein and Woods all discussed their favorite Sowell contributions. I have done the same, with his recondite Say’s Law survey. But let me offer a balance: his worst book, something neither Epstein nor Jacob bother with.

I nominate Marxism: Philosophy and Economics (1985). This book is easier to read than Say’s Law, my favorite, and it probably packs more punch . . . at least in terms of surprise value. But one of the big surprises is a huge whopper of an error. It is an error, of all things, about value.

Sowell asserts, in Marxism, that Eugen von Böhm-Bawerk was wrong on Marx’s labor theory of value.

When I read this, I had not only read Böhm’s classic “Zum Abschluss des Marxschen Systems,” translated under the provocative-if-puzzling title Karl Marx and the Close of His System (first English language edition, Alice MacDonald, 1898), but also two other important books related to the subject: Destutt de Tracy’s A Treatise on Political Economy (Thomas Jefferson, 1817) and a crucial chapter in Karl Marx’s infamous Das Kapital (1867).
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You might be wondering: what the heck — what’s with the Tracy? Well, Tracy makes much of the Condillac thesis of both parties to an exchange gaining value in the transaction. So when I read Marx’s obscurantist dismissal of that thesis, wherein the old socialist crank mocks Condillac and Tracy’s mutual gain thesis, I was prepared for Sowell’s disagreement with Böhm.

The key Marxian error, in my opinion, is that repudiation of mutual gain through trade. It was there that Marx necessarily went off track, not seeing how value is increased as goods flow through the market nexus. The marginalist view of value is intricately entangled with the mutual gain concept, and by rejecting mutual surplus of value in each trade, Marx took his most decisive turn the wrong way. Adam Smith and David Ricardo and the British economists had sent economics down the wrong path in 1776, and Marx took their labor theory of value to its absurdist conclusion. Sowell basically apologizes for Marx. He insists, without much evidence (and with the evidene right there in Das Kapital, on the pages citing Condillac and Tracy), that Marx’s formalistic definition of value as (somehow) incorporating socially necessary labor time was indeed compatible with marginalism. This thesis seems not in the tiniest degree defensible.

A few years later (if memory serves), David Ramsay Steele cleared all this up in his magnificent book on the socialist calculation problem, From Marx to Mises (1992), speculating that Sowell was merely regurgitating the views of his Marxist-apologist professors in the days before his conversion.

In any case, Sowell has, since his conversion from Marxism under the influence chiefly (I think) of Milton Friedman, remailed too closely tied to the British Classical School. He seems uninterested in, perhaps dismissive of the Third School tradition starting with Condillac and moving through Tracy, Comte and Dunoyer, Bastiat, Perry, Henry Dunning Macleod, and Gustave de Molinari. (Half of these economists are French or Belgian or Swiss, so the tradition is often called the French Liberal School. But that is too narrow a reading of this dissident, proto-marginalist tradition.) The later Third Schoolers ran off-track, too, in not accepting the important proof of the basic idea in the marginalist advances of W. S. Jevons, Carl Menger, and Leon Walras. While Menger did not go on at length about what he owed to the Third School economists, Jevons sure did, while heaping scorn upon the Ricardians. And Walras, it is worth noting, was himself the son of a Third School economist, Auguste.

This lack of interest in these economists seems especially strange to me, since Sowell has repeatedly dipped into the rhetorical well so ably primed by Third Schoolers Frédéric Bastiat and Yves Guyot. (See my forewords to Bastiat’s and Guyot’s classics, available on Amazon/Kindle and iBooks.)

But it has been a long time since I read Sowell’s Marxism. Perhaps my memory is fuzzy. And my view of the Marxian surplus value and exploitation theories needs refreshing. So, after just now re-reading my three decades’ old review of A Conflict of Visions, I won’t direct my attentionimg_1963 to The Vision of the Anointed: Self-Congratulaton as a Basis for Social Policy (1995), which I had been planning to do. I will go back and re-read Böhm-Bawerk’s take-down of Marx, instead.

So perhaps I will follow up this post with a corrective, soon. I should not be this fuzzy on something so basic as “surplus value.”

twv

img_0056The defining features of capitalism are

  • the widespread acceptance and defense of private property;
  • mostly free labor (no chattel slavery);
  • established markets in both consumer goods and producer goods (including sophisticated financial markets); and
  • the use of mass production through the division of labor primarily for consumption by the masses themselves.

Key features necessary for the onset of capitalism include

  • the accumulation of capital through savings (“abstinence” from consumption, as Nassau Senior put it);
  • respect for (or cultural valorization of) work and trade;
  • tolerance of natural inequality, a general culture deprecating envy;
  • a willingness (even eagerness) to form voluntary associations for mutual and general benefit;
  • a widespread-enough sense of justice to undergird the division of responsibility; and
  • a culture that encourages and expects its members to take charge of their lives at fairly young ages, to control sexual appetite, regulate population growth through something like marriage and family, and foster education and the cultivation of human capital.

Some or all of these factors must begin outside of a capitalist context, which evolves and, in some cases at least, presumably reinforces the bulk of them by self-subsumption.

In our real-world experience of capitalism, for instance, some of the necessary limitations on the scope and power of governments arose for a variety of reasons; religion played a key role in the early development of education and the habit of voluntary co-operation, as well as the enforcement of sexual practices that allowed some stability in families.

It is crucial in such discussions to distinguish two antagonistic poles of government policy towards capitalism, neatly expressed in the French terms “laissez faire” and “dirigisme.”

Many people mean by “capitalism” the former policy — and there is some reason for that. However, a word of caution: mercantilism (Adam Smith’s term for the variant of dirigisme popular in his day) was almost universally present as industrial capitalism took off in the 18th century. Laissez faire was an alternate policy approach advocated chiefly by intellectuals based on extrapolations they made from observing how trade works, and what the complete consequences of mercantilist policy were. The laissez faire economists ably demonstrated that mercantilist practice did not intellectually back up social outcomes of the policy.

Though some of the first advocates of laissez faire’s hands-off policy argued for it in terms of its “natural” quality, it is worth noting that laissez faire is a policy designed to limit the natural activity of state control of economic life. It is a rule-of-law policy to curb “corruption” and inefficient-to-the-public rent-seeking and zero-sum wealth transfers. It is not a description of our system, or any previous governmental policy, as such.

Modern capitalism has mostly evolved in the context of sovereign states, which have practiced, to varying degrees, protectionism, wage and price controls, a myriad forms of taxation, goofily partisan operations of industry and “security,” vast wealth transfers, plunder and confiscation, corvée labor, monetary manipulation and credit control, and occupational licensing, not to mention the historical defining features of the State, conquest and war.

It is obvious that “capitalism” covers a lot of ground, and also that there is a lot of “ruin in a nation” (h/t Adam Smith) ruled by states of whatever kind.

To repeat: laissez faire (“let them act”; “let-alone,” as a later economist translated it) might best be seen as a system of controls (limits) upon government. It is in an important sense a regulatory regime, only the target of regulation is largely government itself, which is seen as dangerous beyond a certain level and scope. (The regulation of the minutia of economic life is left to individuals and groups vying with each other to serve each other’s values. The order exhibited by markets, especially left free, is a sort of cybernetic, emergent property of decentralized decision-making. Adam Smith offered a powerful and influential metaphor to explain this tendency to order: “the invisible hand.” Frédéric Bastiat referred to this observable phenomenon as “economic harmonies.” Economists of a more theoretical bent have tried to capture some of the ideas, here, in various notions of “equilibrium.”) Even a cursory glance at history shows us that these controls on government have, historically, tempted fewer folks than those enamored of controls by government.

For a variety of reasons, most people “naturally” tend to prefer over laissez faire more arbitrary and malleable systems — systems that allow for mass coercion, intricate political hierarchy and the constant game of positioning to gain at the expense of everybody else. Via force.

This is to say that “dirigisme” (political control of markets and private property) wins most policy battles, and sometimes extremist versions of it, such as socialism, make huge (if temporary) gains.

The current system in America, along with most places elsewhere, is dirigisme. Such systems entail an interventionist state that usually receives the appellation “welfare state,” since the common justification for its vast wealth transfers is human betterment, or “welfare.” But its characteristic policies are probably best described as “mercantilism with a socialist face.” The policies are very old, a revival of ancient, closed-society practice. The difference of today’s mercantilism from that of the 18th century lies mainly in that the group interests appealed to tend to be radically different. Which groups that are actually served, on net, are arguably very different.

The open secret of modern society is this: the representative political systems governing the regulatory and redistributive programs of modern states tends to be captured by what used to be called “the monied interests” is under-appreciated by dirigisme’s most enthusiastic public supporters, who, instead, blame “the free market” (a non-existent creature nowadays) for our apparent plutocratic structures.

Also not appreciated? The sheer unwieldy volume of transfers both outright and hidden (regulations), which scuttle any realistic accounting of who wins and loses by the system.

It is not for nothing that political philosopher Anthony de Jasay offers an alterternate name for the modern welfare state: “the churning state.” As Jasay sees it, there is a constant churning of policies — with each turn of the crank creating new advantages and disadvantages. This constant shuffling yields a kind of chaos, a feature prophesied in the 18th century by C-F Volney, who identified the nature of such systems as examples of “an intestine war.”

The modern state incorporates the all-against-all warfare of the theorized “state of nature” into the fabric of government policy, the better to bind participants to the state.

To advocates of laissez faire, the whole edifice of modern ideology and politics looks like nothing other than a long con.

Meanwhile, the system does not fall into utter chaos because of the resilience and productivity of the markets — the freedoms — that are allowed. It is obvious that our modern churning states have survived for decades, though their sustainability over a long run (which we may be approaching an end to) is certainly questionable.

Unquestionable is the extent to which these policies have altered human culture and moral perspectives. The changes in this latter have been vast . . . some good, some bad.

The dream of laissez faire still remains a mirage-like goal, on the whole.

twv

In any election in which the complexion of the major-party campaigns makes a minor-party run look plausible and more hopeful than usual, multiple minor-party and independent candidates will see that advantage and dilute the effect, thereby diminishing the minor-party advantage.

I wrote about this years ago, though I cannot find where it was published. Back in my Liberty days. Oh, well. The Evan McMullin gambit in this election, as in the John Anderson media-backed run in 1980, shows why the minor-party strategy is such a nonstarter. And surely this wisdom should inform Libertarian Party strategy.

The law, above, by the way, should sound very familiar to economists. It looks a lot like the Efficient Market Hypothesis, doesn’t it? Or Stigler’s Equilibrium Always position.

Yes, I know. This is a fairly obvious point, but I’ve not seen it made in the Public Choice literature I’ve read.

twv