Borodog, an extremely insightful poster at the 2+2 politics forums, wrote this article that I think is extremely useful if you’re a believer in evolution and an atheist but having trouble with ideas of a stateless society (like I was about a year ago):
First, I owe a huge debt of gratitude to Hans Hoppe, George Reisman, Murray Rothbard, Joe Salerno, Walter Block, Tom DiLorenzo, and various others for helping to clarify my thoughts on this subject. Anything good in the following probably is due to them, and anything unclear or mistaken is entirely my fault
I read a lot of crazy crap from people bashing capitalism who clearly have no idea what it is or how it works. If I didn’t understand how spontaneous order can arise from simple “rules” in the absence of any central planning, I swear I would think the free market and the beauty with which it operates would be evidence of Intelligent Design and the Hand of God in human nature. It is that profound, that elegant, that beautiful.
First, what is capitalism? Capitalism is an economic system that is based on at least two fundamental principles (which are two sides of the same coin), and supported by a third (that arises because of the first two). First capitalism is based on a social norm of respect of private property in all orders of goods. This includes consumers’ goods like hamburgers and gasoline, as well as producers’ goods like land (including natural resources) and machinery.
The human concept of private property is simply an extension of human nature. First, property “rights” (in my opinion rights are but human constructs; the systems of “rights” that come to predominate in a human society are social norms) can only arise when conflict is possible, and conflict is only possible when there is scarcity. Whenever goods (things that are capable of satisfying human wants, needs, and desires) are scarce, conflict can arise. If I eat an apple, you can not. My satisfaction must come at the exclusion of the satisfaction of others. Obviously, conflicts can arise. Who gets to eat the apple?
We can imagine an infinte number of different “rules” for resolving who gets to eat the apple. Animals in the wild have such rules; the largest, the fastest, the most vicious, etc., gets to eat, while others do not (if they do not get eaten themselves). To be sure, people can use these kinds of rules as well, but in general, they do not. Through evolution, nature constructs all animals to minimize costs, since costs come at the expense of copies of genes, and the name of the game is producing the highest number of copies of one’s genes as possible. Human beings are capable of minimizing their costs through the application of their reason; i.e. a man can formulate plans that operate in the distant future, and can rationalize the likely outcomes of these plans, and choose from amongst them the plan that he believes will be the least costly, the most profitable, the least risky, etc.
Because of this ability, a man can readily see that constantly fighting over resources is not a very smart thing to do. It is costly and risky, and the potential benefits are small (you only gain your next meal before you must begin your struggle again). In order to reduce these costs and risks, the concept of property arises (property I believe is actually much more ancient than humanity; dogs understand property; it is simply that man uses his reason to formalize property and make the concept infinitely more useful). Property serves to prevent conflicts over scarce resources in the first place, and resolve them when they arise.
So what property rights are the “best”? Well, it seems clear that property rights are more likely to be universally adopted and respected if they are symmetric, i.e. a different set of rules cannot apply to you than applies to me; otherwise there will be resentment. So property rights are more likely to be accepted by a larger number of individuals if they are “homogeneous and isotropic” to borrow a phrase from my physics background. I.e. everyone has the same “rights” and all interactions regarding property are symmetric; if the roles in a dispute were reversed, the settlement of the dispute would not change.
Property rights are also much more likely to be accepted if property claims based on these rights can be objectively defended. My claim is that there is only one objective system of property rights that can be identified, that of first appropriation and voluntary exchange. All other systems of title assignation are arbitrary and can only be subjectively, rather than objectively defended. Hence all other systems will lead to perpetual conflict, which means that they ultimately will not serve as property systems at all, since the entire point of property is to prevent and resolve conflicts, rather than foment them.
First appropriation and voluntary exchange is objective. *I* was the first person to appropriate this previously un-owned nature given resource, and no one else can truthfully make that claim. I labored to create this good from that resource, and no one else can truthfully make that claim. I voluntarily gave my good in exchange for that good, and no one else can truthfully make that claim. Of course, since human beings are not omniscient, false claims of first appropriation and voluntary exchange can be and are made. Man develops ways of vetting real claims to proof against this. The more valuable the good, the more elaborate the measures that are created to establish legitimate title.
Any intervention in this system of first appropriation and voluntary exchange represents a weakening of the system that acts to prevent and resolve conflicts and a tendency toward fomenting and increasing conflicts instead, since all other types of property systems must be subjective, and are essentially arbitrary; i.e. they rely on nothing more than subjective verbal claims upon property and the ability of one individual or group to persuade others (whose subjective opinions are subject to change, leading to future conflicts), or to simply violently overcome them (clearly not a very good system of avoiding costs and risks!).
Empirically we see this system of private property in operation all over the world. When new resources are opened up to small groups, social norms quickly arise to establish claims, and prevent and resolve disputes. However this system is of course by no means universal; there are many tribes and societies where certain goods are subject to the rules of private property, but other resources are not. There are many tribes that operate with private property in consumers’ goods but not the factors of production. The property rules are assymetric and heterogeneous, and title is established not through first appropriation and voluntary exchange but rather through the verbal declarations of some special priveleged individual or group, such as a chief or a council of tribal elders. Indeed all modern societies operate in this fashion to a large extent, resulting in a proprty system that foments conflicts and engenders uncertainty in preoprty owners, reducing their time horizon and their ability to plan, which incentivizes consumption at the expense of production. But I’m getting ahead of myself.
The second principle that capitalism is based on (which I said was the other side of the coin of private property, i.e. first appropriation and voluntary exchange) is freedom of exchange. I.e., not only can legitimate title be maintained through voluntary exchange, but voluntary exchanges should not be interfered with by third parties. This is part and parcel of the homogeneity of property; if I don’t want my voluntary transactions interfered with, I probably should not set the precedent that interfering with voluntary transactions is allowable myself. It is clear that any systemization of interference in private exchanges is actually an attack on the integrity of private property itself, since how can you claim that you “own” something in a meaningful (i.e. economic) way if you are prevented from utilizing it (and hence cannot gain satisfaction from it)? This also clearly acts to foment conflicts and increase uncertainty, incentivise consumption at the expense of production.
Voluntary exchange also has the interesting property that all participants in voluntary exchanges must believe that the exchange will benefit them, or else the exchange simply will not take place. Now, after the fact their judgement may prove wrong, but this simply means that the likelihood of all future exchanges of the same class is now affected by previous results. For example, if you believe you got swindled before, you are much less likely to be swindled a second time, because you will not do business with the swindler.
I should probably explicitly mention the division of labor, which is implicit in the idea of capitalism. Reason allows man to undertake in the division of labor, to specialize, which increases his productivity, and then trade, which increases his access to more and more varied consumers’ goods. Bill Gates might not only be a magnificent software mogul, he might be able to clean office space faster and more thoroughly than anyone alive. But since the market values his skills as a mogul vastly more than it does his janitorial skills, he becomes wealthier by hiring a janitor who is wholly inferior in his ability to clean. The janitor easily outcompetes Bill Gates . . . for the job of janitor. Meanwhile the janitor is able to afford a computer and software he would have no hope of being able to produce. The division of labor and freedom of exchange makes both parties wealthier.
So private property based on first appropriation and voluntary exchange in all orders of goods (consumers’ and producers’) and resources, as well as complete freedom of exchange of the same, are the fundamental principles of capitalism. I said there was a third, but I hesitate to actually call it a principle, so much as a requirement for capitalism to operate to its fullest capacity. That requirement is the existence of a money. Societies that do not have a money, i.e. that operate entirely on barter, can have both private property in all orders of goods and complete freedom of exchange, but will still be chained economically. They are restricted by so-called double coincidences of wants, i.e. I must have what you want, and you must have what I want. Furthermore, there is absolutely no way to judge whether or not goods and resources are going to the most highly valued uses or whether they are going to lower valued uses (i.e. they are being wasted), since all goods have different units, and are therefor incomensurable. As society becomes more populous and more complex, and the number of alternative uses of all goods and resources skyrockets, there is no way to judge whether or not one use is “better” than another.
A money is a market commodity who some smart fellow realizes is more easily exchanged than what he has produced. If he can exchange his goods for this more readily exchanged good, the value of his own goods and his ability to get what he wants have both gone up. There is a snowball effect in the market, and a few commodities will rapidly become moneys, and will become value as a medium of exchange (in addition to whatever uses they already served in the market). Market moneys compete against each other, and ultimately there are usually only one or two. Historically there have been many moneys, including salt, sugar, seashells, tin, etc. but ultimately gold won out (with a few places still using silver) in the 19th century. The reasons that gold makes a good money is that it is durable, easily divisible, hard to counterfeit, and has a high value to weight ratio.
A money elliminates the problem of double coincidences of wants. It also elliminates the problem of incomensurable units, almost magically. Potential consumers of goods will bid against each other in units of the money (ounces of gold, for example) and will generate market prices for all goods and resources. This creates a single unit that all goods can be measured in to establish the costs of production, as well as the revenues that can be earned from sales. This allows the entrepreneur to engage in cost accounting. Cost accounting is a miracle of the market. It allows producers to determine, in a single unit, exactly how much production will cost them, exactly how much they can generate in sales. The latter minus the former will either be a profit or a loss.
A profit is a signal to the entrepreneur, it tells him that he has taken a bundle of inputs that the market only valued at X and has produced something that the market values at X+Y. I.e. he has raised the value of scarce resources for the market, and the market is of course, consumers.
Meanwhile, a loss is also a signal. It tells the entrepreneur that he has taken a bundle of inputs that the market valued at X and has produced something that the market only values at X-Z. I.e. he has reduced the value of scarce resources. He has wasted them. But it gets even better. Not only are his losses a signal that he had better shape up, either raise the value for the market or reduce his costs of production, losses act as a feedback mechanism that forces the entrepreneur to stop wasting resources, for if he continues, he will go broke, and the waste will be halted!
So losses act toterminate waste. Meanwhile, profits act to concentrate resources into the hands of those producers who best satisfy the market. This is a tremendously good thing for consumers.
Consider this. Society may only become wealthier in the long term through increases in productivity (one society may become wealthier in the short term by conquering another society). Increases in productivity comes with the formation of capital goods (well, productivity can also increase as labor becomes more skilled, and as production recipes improve; but you can have the most skilled laborers and the best technical recipes possible, and if you have no capital, you will have little production). Capital goods can only be created after savings at the expense of consumption. Profits act to channel resources into the hands of the best entrepreneurs (i.e. those that provide the most for consumers at the lowest cost). Those entrepreneurs will invest those profits into accumulating capital goods that increase productivity, which of course, benefits consumers. Those that do not will be outcompeted, and will either have to shape up, or again, suffer losses and go out of business.
Consumers have total power under capitalism. A billionaire may invest his billions into producing cars, but if consumers do not want them, he will go broke. Profits reward businessmen for satisfying consumers. To be sure, the businessman probably does this out of self-interest, but he still must satisfy consumers. It is not through the goodness of their hearts that the butcher, the baker, and the candlestick maker provide their wares to me, but I still end up with beef, bread, and candlesticks–if I want them.
Consider how profits work as signals in a market economy. First, in the absence of systematic coercion, the only way to achieve sustained profits is to elevate the value of scarce resources and have consumers voluntarily pay you for the things you produce. The price system together with profits and losses, act as signals to investors and entrepreneurs. A business that is seeing above average profits will attract competitors, which expands the market supply. Those above-average profits will also be re-invested by the business itself in expanding supply (to do otherwise is a loss of potential profit). This expanded supply will lower the market price of the commodity, and lower the general level of profit. Meanwhile, the investment in that line must come at the expense of other lines (since the factors of production are at any one time finite). Entrepreneurs obviously choose to shift investment from businesses that are experiencing losses or below-average profits. This reduces the supply in those lines, and brings the general level of profit in that line back up. Hence, profit levels across the entire economy tend toward an equilibrium level. This serves to keep the entire economy in balance. As demand for certain lines wanes, profits fall, and investment is shifted away from those lines. As demand for certain lines waxes, profits rise, and investment is shifted toward those lines.
Also, in the absence of systematic coercion, the only way to achieve sustained above-averageprofits is to continually innovate, either in providing newer and better products, or in lowering costs of production. This is how vast fortunes are accumulated under capialism. It is the only way vast fortunes can be accumulated under capitalism. By satisfying more and more consumers at ever lowers prices, the standard of living of consumers is continuously improved. As his reward for his self-motivated humanitarianism, the capitalist is rewarded with extraordinary levels of profit, which he reinvests, accumulating capital which allows him to become still more productive, making consumers still more wealthy. This is the feedback mechanism that is responsible for the incredible standards of living of the industrialized world, and that allows for the support of 6 billion people and counting.
But where do consumers get the money to purchase these goods? From the capitalists. Because capital produces the market demand for labor. By accumulating capital, the capitalist increases the market demand for labor. He needs workers for his lines of production. There are always many, many times more potential jobs than there are workers to fill them. Capitalists must compete with each other for the workers they need to sustain their high level of productivity. They compete by bidding up the price of labor, just like any other factor of production, on the market. This comes both in the phenomenon of wages, and also non-monetary compensations (which of course still have monetary costs to the capitalists) such as shorter work weeks and work days, longer vacations, safer work environments, training and education, nicer offices, company cars, flexible hours, etc.
As an aside, many times I have seen people blame the “horrible” working conditions of the early industrial revolution and the Third World, as well as child labor, on capitalist “exploitation” of workers. Nothing could be further from the truth. There are always far more potential jobs than there are workers, and capitalists must always compete for workers. Capitalists pay the maximum amount possible for labor, otherwise some other capitalist will outbid them, their production will suffer, as will their profits. The difference between the modern west and the early industrial revolution and the third world is, of course, the amount of accumulated capital. When the accumulated capital is low, so is productivity, and so are wages, and so are standards of living. Nothing can magically change this. The only thing that imrpove standards of living is higher real wages, and higher real wages can only come with increased productivity, and increased productivity necessitates accumulated capital, and it has taken the west centuries to accumulate the capital stock it has. It could never have accumulated that capital stock under the system of property rights operative in the third world. In fact, the west could never have accumulated that capital stock under the system of property rights operative in the first world today. Real wages have been stagnant or begun to fall in the west, reflective of a reversal in the trend toward higher productivity. This is the result of interventions in the private property system and freedom of exchange that lower productivity and act to incentivize consumption and deter investment. This slows and halts capital formation and eventually leads to capital consumption. “Harsh” working conditions associated with low productivity are still better than the alternatives, short, nasty, brutal lives of subsistence farming, crime, and prostitution.
Labor laws do not improve working conditions. Capitalists improve working conditions to increase productivity and compete for labor. Labor laws have a clear history. They exist to protect certain laborers, mostly union laborers, from competition, from the lower priced labor of women, immigrants, blacks, and yes, even children. These people are throw out of work and into poverty, while consumers are made poorer because they have fewer goods and services of poorer quality but higher price to choose from. Minimum wage laws do not help the poor, they throw them out of work. Mandating a minimum wage of $7 per hour, for example, means that all workers providing less than $7 per hour of value will simply be fired. Period.
Anyway, back to the capitalists, labor, and wages. Marxists believe that because a laborer produces a widget that sells on the market for $100, yet only gets paid $80 for his labor, he has been “exploited” by the evil capitalist to the tune of $20. They believe that capitalists “deduct” their dirty evil profit from what should rightfully all be wages. They are incorrect.
What Marxists and their ilk never seem to understand is time and risk. Workers, like all human beings, are constrained by time preference. They prefer goods sooner rather than later. They prefer the certainty of $80 at the end of the week to the uncertainty of $100 in several months. If they did not, theywould not voluntarily exchange their labor for the $80. It is just that simple. The capitalist, on the other hand, has accumulated a large capital stock. His time preference is lower. His most immediate needs are satisfied, and his time horizon is more distant. He can more readily engage in savings and investment. He can more readily tolerate the risks of an uncertain future. He values the risky $100 in several months made possible by the labor more than he values the certain $80 now. Because the value scales of the two parties are reversed, an exchange takes place. It is the capitalist who takes the risk. If he guesses wrong, he suffers loses, while the laborer does not.
Imagine a man who makes wooden shoes from trees on his own property. He suffers no money costs of production (his costs still include his time and effort, of course), so when he sells his shoes in the market, all of his sales revenues are profit. Now imagine that his shoes are so highly demanded that he desires to expand his production. He hires a laborer to make shoes for him. He is the capitalist (his capital stock is his land and tools, and his savings from which he must pay his laborer). The wages he pays his laborer are deducted from his sales revenue, i.e. his profits. Capitalists are not responsible for the creation of the phenomenon of profits and their deduction from wages, but rather they are responsible for the creation of wages and their deduction from profits!
In fact, the more numerous are the capitalists, and the wealthier they become (i.e. the more accumulated capital each has to employ), the higher is the demand for labor, the stiffer is the competition for labor, and the higher must wages become as a fraction of profits. As the capitalists become more numerous and prosperous, the lower the general level of profit goes.
The general level of profit is, in fact, the interest rate. It is the objective market realization of the subjective time preferences of society. The higher the general time preference in society, the more immediate consumption is preferred to savings and future consumption, the higher a premium must be paid to an individual to induce him into defering consumption for savings. This is the interest rate (there is actually a spectrum of interest rates of differing maturities, but you get the point). By the end of the 19th century, the real interest rate (and the general level of profit) had fallen to just over 2%. Think about that; it’s really quite astounding. Would you invest a dollar on the promise of receiving 2 cents in juice after a year? I wouldn’t. Yet it was the norm 100 years ago. What happened? I’ll bet you can guess.
Furthermore, as productivity increases, the costs of non-labor inputs must fall, meaning that almost the total sales revenue ends up becoming wages. Currently in most industries labor costs run about 80% of all costs, with profit levels averaging somewhere in the neighborhood of ~7%. In a free market, as capital is created and accumulated, as productivity increases, the non-labor costs and the general level of profit tend to zero and wages as a fraction of sales revenues tend toward 100%!
This is what the Marxists want out of their Utopia, isn’t it? Consumers have total power: check! There are no profits: check! Laborers receive 100% of sales revenues as wages: Check! Of course in a real economy non-labor costs will never be truly zero, nor will profits. But that’s the direction that the economy tends to.
Let’s look at competition. What is capitalist competition? Is it like Darwinian competition? Is it a competition of all against all for scarce resources, where one individual’s consumption must come at the expense of all others? Our original analysis of scarcity and property would lead us to think yes, but in fact, the answer is an emphatic no. Rather than a competition between consumers to consume scarce resources, capitalism is a competition amongst producers to increase the supply of scarce goods and resources! That is how capitalists make profits, they increase the supply of what others want to consume. The ones who are the best at it make the most profits.
It is man’s reason that allows him to do this, to produce, to increase the supply of scarce goods. It has allowed our species to become more and more successful while becoming more and more physically weak and defenseless. We have no fangs, no claws, no fur, our senses are poor, we are slow, and weak. We are all of these things because our reason (and dexterity) has allowed us to increase the supply of scarce goods that life depends on without strength, speed, fangs, claws, sharp senses, etc.
The spontaneous order of the market is created by the competition of capitalists, not to consume limited resources, but to increase the supply of scarce goods and resources to consumers in an effort to get them to voluntarily hand over scarce dollars. Those with poor sight can read because of self-interested optometrists and eyeglass makers. Those with poor hearing can hear because of self-interested hearing aid manufacturers. Those who are paralyzed can move around because of self-interested wheel chair manufacturers. Those who are sick can live because of self-interested doctors. Capitlism leads not to the survival of the fittest but to the survival of all, or at least of more and more for longer and longer at ever higher standards of living.
The only sense in which capitalist competition is survival of the fittest, is the survival of the fittest producers. And even when producers fail and don’t “survive”, no one dies; scarce factors of production that were previously wasted are freed by bankruptcy to be acquired by other producers that consumers find more favorable.
How about monopoly? Can a monopoly exist in a free market? In short, no, at least not in a modern free market. There is some contention amongst those in the know about whether even so-called “natural monopolies” can exist at all, but it is certainly the case that they cannot exist in a modern free market.
A monopoly can only exist under a system of institutionalized coercion that acts as a barrier to entry into markets. In a free market, any firm that achieves above average levels of profit invites competition. It’s that simple. The objection that entering the car market, for example, requires an enormous investment of capital, while true, is no objection at all. The enormous capital investment is of course only required to achieve the level of productivity and low enough unit costs to compete in the first place. All that capital is required to serve consumers. You could start building cars by hand tomorrow in your back yard, but neither your quality nor your unit cost will be able to compete with established automakers.
As another aside, why then do we have antitrust laws? Doesn’t the existence of antitrust laws demonstrate that we need protection ffrom monopolies? No, of course not. The history of antitrust law is clear. Producers in various industries who were being outcompeted lobbied politicians, claiming that the practices of their competitors (making superior products at lower costs and prices) were “uncompetitive” and “monopolistic”, and had antitrust laws created to break up these competitors (so that they lost economies of scale), fix prices, and increase the regulatory burden on them (and hence raise their prices), so that they (those seaking protection from competition) could again “compete”.
Anyway, a capitalist society is a contractual society, i.e. there is no institutionalized coercion. There of course will always be crime (aggression against property), but it is not legitimized and institutionalized. Rather, private property and contractual voluntary exchange is institutionalized in social norms and the institutions that arise to secure them. Any society with an economic system based on institutionalized coercion is not capitalist, exactly to the extent of the institutionalized coercion. It may be many things, socialist or mercantilist or what have you, but it is not capitalist. Hence there are no capitalist societies, at least not purely capitalist, which would commonly be called “anarchocapitalist”, i.e. capitalist in all things rather than some incomplete subset of goods, services, individuals, etc.
Statists argue that the institutions upon which capitalism is based, private property, freedom of exchange, and money, require a coercive monopolist to secure them. That for example, property must be expropriated to secure property, that coercion must be undertaken to secure freedom, and that fraudulent money must be created to secure the monetary system. Needless to say, I find these Orwellian justifications of the state to be nonsense. Monopoly is in all cases bad for the consumer. A monopolist of justice, who can unilaterally redefine justice and assign its cost, will inflate the cost of justice while its quality falls. Those who can tax, will. Those who can write arbitrary and artificial law, will. These taxes and laws will always favor those writing the laws. Those who can print money and spend it, will. Duh.
Contrary to what statists would have you believe, private property, the law (social norms), money, and social order all predate the state and its interventions in each. They are all emergent phenomena of the market. History is rife with examples of the market producing new property rights, methods of securing those rights, and resolving conflicts, all in the absence of a coercive monopolist. After the fact in many cases these systems have been coercively monopolized by the state, but that is exatly the point when they cease to be tested by and vetted by the market, and becomes tools of exploitation of consumers by the state.
For example, just as state monopolization of the money supply has led to monetary inflation and uncertainty, so has state intervention in the law led to legal inflation and perpetual legal uncertainty and hazard. Both of these incentivize consumption and deter savings and investment, leading to a relative lowering of productivity, prosperity, and peace.
What about so-called “public goods”? We are told that the state must coercively monopolize the provision of certain goods because of “market failures”, i.e. the market cannot provide for certain things. But . . . how can you tell when the market has “failed”? There is no objective metric other than the market itself to determine what should be produced, i.e. what consumers demand. What is clear is that consumers will demand fair judgments; fair judgments are valuable on the market, unfair ones are worthless. Consumers will demand security; security is more valuable on the market than insecurity. Consumers will demand roads. Roads are more valuable than the absence of roads. Consumers will demand health care. Health is more valuable than sickness. Private market suppliers of all these things exist, wherever they are allowed to.
Private competitive firms must provide all of these efficiently and in ever higher quality and supply, or else they will suffer losses and go out of business. The state cannot suffer losses nor go out of business. The state has no incentive to provide more efficient or just justice. The state has no incentive to provide better roads, better education, better anything. In fact, the worse the state makes a problem, the more money it can justify taking to spend on “fixing” it!
There is nothing magic about judgments, security, health care, roads, or any other good that prevents competitive firms from providing them and requires a coercive monopoly supplier. There is no way other than the market to determine how much of a good should be produced, or at what price.
States can never do anything “good”, since to do any “good” a state must begin by coercively doing something bad to someone else; it must prevent people from freely exchanging, it must expropriate their property, etc. Since utility is subjective, there is no way to intersubjectively ascertain that the “good” outweighs the bad. Objectively though, we can say with absolute certainty that all state interventions must take the form of property violations and restrictions on the freedom of exchange. Both of these things act to deter savings and capital accumulation and increase uncertainty, which incentivizes consumption, further at the expense of savings. State redistributions of wealth from producers, savers, and contractors to non-producers, non-savers, and non-contractors deters production, savings, and contractual interactions and incentivizes non-production, consumption, and non-contractual interactions (aggression). All of this objectively makes society poorer and lowers standards of living.
State interventions in the price system are not only coercions that interfere with the freedom of exchange, they create perversions in the market that have far reaching effects. Artificially capping the price of a good below the market clearing price will produce lasting shortages and ensure that scarce resources are wasted (since people will be consuming resources that have higher valued uses elsewhere–for example health care; when visits to the doctor are “free” lonely people with no one to talk to them will visit the doctor and waste valuable time and resources that could be used on sick people). Artificially fixing prices above the market clearing prices will produce lasting surplusses and also ensure that scarce resources are wasted (since scarce resources were used to produce things no one is using and are piling up or rotting in warehouses–for example minimum wage laws; labor is used up in people waiting in unemployment lines that could be used stocking shelves or sweeping floors).
What about planning? Is a capitalist economy “unplanned”? On the contrary, it is as totally rationally planned as possible. Since the information required to make rational decisions about the allocation of scarce resources is decentralized and distributed throughout the economy, with each actor knowing only a tiny, infinitesimal fraction, he makes his plans with the information he has with regards to only those resources that are under his control. The price system acts to harmonize the plans of all market participants. Consumers of eggs do not need to know there was a blight that struck the chicken population in order to cut back on their consumption, the increase in price leads them to the correct action automatically. When high profits signal that there is a demand for an increased supply of X, investors appear. When I plan to move to the beach, the price of beachfront property induces me to adjust my plan.
On the contrary, it is central planning and socialism that is unplanned and chaotic. The central planner can never have access to all of the information relavent to the allocation of resources. Asking that the brains of so few make the decisions for so many will work about as well as asking the legs of so few to carry the weight of so many. Resources will be wasted and allocated politically, rather than according to consumers’ demands. Under total socialism (communism) there is no private property in the factors of production, no freedom of exchange in those factors, which means there can be no market prices, no profits and losses, no way to do cost accounting, no way to determine whether scarce resources are being wasted, no way to tell what uses are highest or what production processes the least costly. Massive waste must result. Far from being “planned”, socialism and central planning result in irrational chaos.
This has been somewhat rambling and is necessarily incomplete, being a tiny fraction of the theoretical foundations of private property, money, the law, the market, social order, the state and its interventions, etc. For more detail, see the work of Murray Rothbard and Hans-Hermann Hoppe. Hopefully you’ve gotten some idea of why I’m a capitalist. In short, under capitalism all individuals become as wealthy and secure as their reason and labor, and the reason and labor of their suppliers, allows. Through the logic of self-interest through mutual accomodation, the market creates spectacular spontaneous order and complexity. I love capitalism for the same reasons that I love physics and evolution.
Capitalism is beautiful.
Originally posted here. Thanks to Borodog for granting permission to cross-post this.