Everything You Love You Owe to Capitalism
Knowledge of cause and effect does not come to us by merely looking around a room, living in a certain kind of society, or observing statistics. You can study roomfuls of data, read a thousand treatises on history, or plot international GDP figures on a graph for a living, and yet the truth about cause and effect can still be evasive. You still might miss the point that it is capitalism that gives rise to prosperity and freedom. You might still be tempted by the notion of socialism as savior. Meanwhile, the state thrives on an economically ignorant public. FULL ARTICLE
Comments (100)
Well, I think most times businessmen are the biggest enemy of the free market. Businessmen don't like free markets very much and lobby, spend, bribe politicians for special interests all the time. Big business loves big government as it is in both their interests to join hands to restrict competition, socialize their costs by lobbying for subsidies, special priveleges, etc.
So, I guess as long as there will be a government special interest driven businesses will continue to take advantage and prevent the move towards a truly free market.
Bryan.
Published: May 19, 2008 10:29 AM
Unfortunately, it seems that the free market can only take so much pummeling and still deliver the goods. Lew's remark that there aren't food shortages any longer may not hold true too much longer.
Published: May 19, 2008 11:05 AM
Wow Lew ! Fantastic article !
Thank you very much !
Published: May 19, 2008 12:06 PM
I'm wondering... What exactly is the history of capitalism? When has there ever been a truly free market - absent any government? Does that coincide with the existence of the term, 'capitalism'?
Doesn't it strike you as a little fishy that the term was originally merchant capitalism - which explicitly entailed state involvement in the economy - but then died off as the first word (merchant) was dropped only to be replaced much, much later with "mercantilism" to describe it?
What happened to the concept of capitalism in between the time of merchant capitalism and mercantilism? Could it be that capitalism has ALWAYS meant mercantilism and that capitalist apologists only invented the term mercantilism as a scapegoat when the construct of the state-business environment (capitalism) failed?
I think there might be a case for that.
Published: May 19, 2008 12:16 PM
Niccolo writes, "Could it be that capitalism has ALWAYS meant mercantilism[?]"
No, because that's not the definition of the word. It would also deny the "black market" participants of being capitalists, as well as any market segment not (yet) regulated by government.
I'm not going to deny that merchantilism has been both pervasive and historic.
"...and that capitalist apologists only invented the term mercantilism as a scapegoat when the construct of the state-business environment (capitalism) failed?"
No, because that is the definition of merchantilism. You might as well argue that the word "capitalism" was created as a scapegoat to use when the state-business environment failed.
Oh, wait, that's exactly what happened. Marx invented the word "capitalism" in order to berate it.
Living in an environment of atmosphere, may I not define "vacuum" and extoll its virtues?
Published: May 19, 2008 12:33 PM
Niccolo: "What exactly is the history of capitalism?"
That's a good question. When I began researching the origins of capitalism years ago, I discovered that just every school of economics has a different definition, and within those schools many different definitions exist at any particular time and those change with time as well. In short, you can't find the history of capitalism until you define it and dozens of definitions exist.
Marx opposed all private property, so the system he opposed was identified with what later came to be called capitalism. But Marx claimed that capitalism didn't appear until the early modern period after the break up of feudalism when laborers began to work on farms for wages and before the industrial revolution. So Marx clearly had something in mind that added to private property because even someone as stupid as Marx wouldn't claim that private property originated in the early modern period.
If you look to Adam Smith to find that something extra, you'll find that he called it the system of "natural liberty." He held up the Dutch Republic as the best example. The Dutch created a system in which the state protected property of everyone equally; the nobility could no longer steal from the common people. And they created a system of equality before the law and the institutions to protect those principles. Free markets were just the implementation in commerce of property rights.
The rest of Europe, even England, never adopted the Dutch plan, but chose mercantilism instead, which agreed well with the popular ideas about state control of the economy. Smith tried to get England to adopt the Dutch plan, and succeeded to a large degree.
So if you triangulate a definition and history of capitalism from Marx and Smith, you end up with the system that the Dutch developed and Smith promoted. Capitalism never intended markets to be absolutely free, in the sense that theft and fraud are permissible. Free markets were always limited by the rule of law and property rights. And it's true that states have always interfered in the market more than was required by the rule of law.
But the general idea behind capitalism was the protection of property via a set of institutions, one of them being a relatively free market. If you have free markets without the other institutions, you don't have capitalism, but chaos.
Marxists, neo-socialists, mainstream econ, historians and others will have very different defintions and histories of capitalism. The Austrian definition pretty well agrees with what I have written. Now you'll have to decide which definition/history accords best with reality.
Published: May 19, 2008 12:41 PM
Curt,
But that may very well [b]be[/b] the definition of the word! That is, if you look at it from a perspective of defining words by their original usage and intent of meaning.
I think you're avoiding the question. Yes, that's what mercantilism means, but is capitalism any different from it? I think that the original usage of the word suggests it is not.
Aren't you basically in agreement with me? After all, if Marx coined the word to use it as a definition of the economic system he lived in - which was not a free-market - then wouldn't it be important to distinguish the word capitalism from free markets?
If the case is that the word capitalism originally meant merchant capitalism - minus the word merchant - then shouldn't we be free-market anti-capitalists as well as free-market anti-statists?
I also don't agree with Rockwell on the usage of the word "socialist." To many socialists of the original socialist movement, the word simply meant an absence of economic exploitation. According to Benjamin Tucker - a self-proclaimed socialist - there could be no exploitation of that kind in, and only in, the free market.
Published: May 19, 2008 12:49 PM
Lew's remark that there aren't food shortages any longer may not hold true too much longer.
I suspect that the first area of the real government-engineered shortage will not be food, but water.
Government controls water production more than food. Not by much these days, but they have a slightly tighter grip on water.
Published: May 19, 2008 12:50 PM
Fundamentalist,
But that doesn't make sense. Have you really ever read Marx? Now, I am no Marxist - indeed I represent the single greatest threat to his regime of madness - but it seems that Marx was not defining capitalism in the sense that you say - meaning a system entirely created by private property - but rather he was referring to the system of his day.
As far as I know, Adam Smith never actually used the word "capitalism," and that's the problem I'm pointing out. The ideas associated with capitalism, in my opinion, aren't at all consistent with what capitalism actually meant in its original definition - or at least I think that argument can be made.
Published: May 19, 2008 1:01 PM
Fundamentalist,
Also, your references to "other institutions" being a requirement for free markets to work I find utterly dubious.
I, like the original libertarians, understand that order is the daughter and not the mother of liberty. You seem to be implying that governments can co-exist with a free-market - at least a societal one - and I disagree completely.
As long as the state exists, a societal free-market cannot.
Published: May 19, 2008 1:04 PM
This weekend, I attended the Capitalism the Creator Seminar in Seattle, Washington. I was lucky enough to see Mr. Rockwell deliver this essay in person. As a regular reader of mises.org, I would encourage you to attend a seminar. When I saw the adds,I was reluctant to register, I had no idea what to expect. I'm glad that I did, it was fantastic; outstanding presentations by Walter Block, Thomas Woods, and of course Llewelyn Rockwell, there was pleanty of good food, and lots of like minded people to share ideas with. It was interesting to match a face (and voice) with the writing and ideas presented daily on mises.org.
If you read mises.org often and enjoy the articles presented here, I would recommend that you register for a Seminar in your area.
Thanks for an outstanding weekend!
Published: May 19, 2008 1:04 PM
One of, at least for me, life's greatest mysteries, is the unwillingness of even supposedly well educated people to consider the absolutely awful historical record of socialism in all its various forms. It always seems to me that there should be nothing more to be said--the awful record speaks for itself. But then a Ph. D. [not in economics] says to me (I'm not making this up) that the record of public schooling has been fine, so why shouldn't government sponsored health care be fine? A glaring non sequitor, obviously--so glaring, that I thought the speaker was pulling my leg. Then I realized that she wasn't...Scary! This is what, though, makes me despair of the possibility of educating people out of this absurd kind of thinking. The refusal to consider the record of socialism has its basis in something highly emotional in certain people, and I've found every time that speaking to them in true [Austrian]economic terms is a waste of energy--it doesn't even scratch the skin of their arguments, if you'll forgive the metaphor. God, I hope I turn out to be mistaken in this...
Published: May 19, 2008 1:49 PM
Niccolo: “Have you really ever read Marx?”
More than I care to admit.
Niccolo: “it seems that Marx was not defining capitalism in the sense that you say - meaning a system entirely created by private property - but rather he was referring to the system of his day.”
It doesn’t to me. It seems pretty clear that he opposed all private property. I realize that a lot of neo-Marxists have interpreted Marx that way, but I think they’re dishonest and trying in vein to rescue him from his pit or error. Had Marx not opposed all private property, regardless of the system, but only opposed the system in England at the time, why didn’t he just promote the mercantilist system of France or Germany?
Niccolo: “As far as I know, Adam Smith never actually used the word "capitalism," and that's the problem I'm pointing out.”
As I wrote, Smith called his system that of “natural liberty” not capitalism. England under Marx was an attempt at implementing Smith’s vision.
Niccolo: “You seem to be implying that governments can co-exist with a free-market - at least a societal one - and I disagree completely.”
You’re promoting anarchism, not capitalism. Anarchism didn’t exist in Marx’s day, so he couldn’t have opposed it. Since Marxists coined the term “capitalism”, they must have had something in mind that they were familiar with, and it couldn’t have been anarchism. Nevertheless, anarchism depends upon institutions to promote the rule of law. These include courts, natural law, and a private police force. The only difference between anarchism and capitalism is that capitalism built its institutions through inside the state.
Published: May 19, 2008 1:56 PM
Niccolo, no, I'm not agreeing with you.
Everywhere that government regulation is less, people in general thrive. The less the regulation, the greater the thriving. The greater that regulation, the less the thriving.
"Capitalism" is where people are left alone. It does sometimes happen, through blind luck maybe, through "loopholes" of the not-yet-regulated, or within the black market. Complete market anarchy, that is "capitalism", has even been known to happen in places and times when government had yet to be established (such as Pennsylvania and North Carolina, see Rothebard's "Conceived In Liberty") and chaos was the exact opposite of what occurred.
You might also enjoy "Medieval Cities: Their Rise and the Revival of Trade".
In "East Asia In The Center: 4,000 Years Of Engagement With The World", the historian points out, but himself doesn't grasp, that in approx. 200 year cycles, there would be an easing of government control, a rise of piracy and black markets, which caused a great flourishing of people's wealth. This wealth was then taxed, trade regulated, which induced a decline in the economy, which in turn led to a decline in money available for government, and so a decline in government regulation and "protection". Lather, rinse, repeat.
Capitalism may very well be an "unknown ideal", but if history is any guide it is an ideal worth striving in the direction of even if it is never reached.
Published: May 19, 2008 2:03 PM
That frames the debate so well I think I’ll try to email it around—something I don’t often do.
One point: I think today’s socialists are subtler in their (erroneous) thinking than perhaps the article suggests. I think socialist Molly Ivins view is representative of many I come across: I recall her once readily conceding that the free-market is a blessing because it delivers goodies better than any other system, but freedom is also a curse because, left on its own, business will trample over all of us (I assume they mean with fraudulent products, but you’d have to ask them how) and the environment—and this is why government regulation is necessary.
Published: May 19, 2008 2:39 PM
I think the reason why people don't recognize capitalism for its virtues is pretty simple.
1) We have mixed economy trending more toward central planning over the last several decades.
2) Since we've had increasing socialism over those decades, underlying fraying of economic health is eating away prosperity, at least in terms of the conception of truly building equity. People are more off balance today about what they feel they are building for themselves long term. A buffet today doesn't necessarily provide a feeling of long term security.
3) People, by and large, are a product of the most successful socialist inroad thus far, education. So while people have a queasy feeling about just where they are at financially/economically, they are inundated with socialist style viewpoints from a very young age. They aren't taught basic economics and so aren't equipped to define their legitimate fears of socialism is doing to them, and are trained to run to socialism as an answer to what it is they fear.
Published: May 19, 2008 4:01 PM
Fundamentalist,
I don't believe I stated that Marx did not dislike all forms of private property - though I think that's a rather simplistic view - I meant that as he thought in a Marxian dialect, he believed that his time - the time after the "feudal" age - was bourgeoisie and he called this society a capitalist one. The society Marx lived in, however, was not a free-market one - but would you deny that it was a capitalist one? I think that's denying the creator the ability to name his concept. Also, I believe that Marx associated Germany and France as capitalist nations as well. I personally agree with Marx on that, France, England, Germany, Italy, Prussia, America, etc. were all capitalist countries. This is why none of these countries had free-markets, as a capitalist free-market would be an oxymoron - at least, this is the argument I am currently convinced with.
As far as England goes, I do not buy that England ever had a free-market - partially because there was no absence of state involvement in the economy and partially because it was still a state monopoly in the field of courts, police, protection, banking, religion, etc. - however, I do believe entirely that England was - and is - a country built on the foundation of capitalism!
You're correct though, I am promoting Anarchism - the only true situation where an economy/society reaches the status of "laissez-faire." This is why I say that "laissez-faire capitalism" is a contradiction in terms.
--------------
Curt,
I think you do agree with me, but you don't know it. I think many libertarians have become so entrenched in a "war" against what they perceive to be socialism that they do not see the actual state of capitalism and what the word actually means. It's truly an "us vs. them" mentality!
You said,
"You might as well argue that the word "capitalism" was created as a scapegoat to use when the state-business environment failed.
Oh, wait, that's exactly what happened. Marx invented the word "capitalism" in order to berate it."
If Marx invented the word capitalism to describe his society, and if his society was not a libertarian one, then why should a libertarian strive for it? Indeed, shouldn't a libertarian fight against it?
Published: May 19, 2008 5:54 PM
Lew, an excellent article !
Many points were well covered but the nagging question remains what drives so many highly educated people away from Capitalism and towards Socialism?
Lew correctly points out the lack of proper economic education fosters this erroneous thinking, cause and effect, long range and short range logic are very often lacking. Thinking logically and non-contradictorily is very hard mental work .
There is another concept that should have been more clearly addressed and that is the concept of Ethics.
Philosophically, Politics rests and depends on the Ethics that primarily drives it. Most people are brought up and indoctrinated in believing that the Ethics of Altruism and Self Sacrifice is good and most people want to do what is good, not realizing that the long range of this ethic when practiced as a national ideal leads to the very problems we face today, that governments continuously are trying to solve.
Individual Rights are trampled upon law after law, one Jury-Rigged plan after another trying to hold the morally corrupt system together. Lew you should have said something about the IRS, though good thing you didn't, it probably would have landed you in jail.
As a start we should abolish the Federal Reserve, get off of the Fractional Reserve banking System
and have Honest Money based on Gold and/or Silver. Do we forget what the Constitution said ?
Well if that can be changed why not expect the rest of it to be trashed?
As long as we have Money that can be expanded at will we are just kidding ourselves about the glorious future we can have. The Founding Fathers knew what they were writing and why.
Published: May 19, 2008 6:49 PM
I don't wish to be too critical of this article. I understand it was originally presented as a talk.
Rockwell doesn't define Capitalism or the "Free Market". Reading this, he appears to believe that the world he lives in today is in fact capitalism and the free market. If so, I wonder what all the complaining is about. Most articles on this site claim that capitalism and the free market is something yet to be achieved, but Rockwell is praising the benefits of the current system and attributing that to capitalism and the free market. Are we already there?
Published: May 19, 2008 7:54 PM
Naming names--the doers and the undoers:
This is a great speech and the cause of prosperous societies should no longer be in doubt. As the collapse of the USSR suggested, totalitarian governments and communal economies under central command do not succeed. That was a real-life case study--"the facts on the ground" that Lew refers to as providing a more reliable guide than abstract and unproven theory. However, as a former case writer at Harvard Business School I would like to expand the case method throughout recorded history, and have done so in a search for the origins of capitalism. (I prefer the terms "economic freedom" or "free enterprise" because they describe the governing situation needed for prosperity to emerge) I found that there were a number of laboratory societies where free enterprise led to widespread prosperity for citizens. As Curt mentions, these enclaves were usually in places "not yet regulated." My survey starts with the Phoenicians and comes up through the Greek city states to Republican Rome, the Italian city states, the Dutch Republic that "M. Fundamentalist" mentions, Scotland, and eventually to the American colonies. Each of these locales operated under a form of de-facto economic freedom, at least for long enough to create prodperity. It is important to note that the actual cause of progress was not economic freedom itself, but the common people who were allowed by such freedom to unleash their initiative and genius.Then, eventually their affluence attracted and supported a destructive new elite--as Lew wrote, "parasites prefer bigger hosts." The Rise of all these nations continued as long as they maintained free economies, but was always followed by decline as parasites accumulated. Thus, as Lew pointed out, "Free people create, States destroy." However, since we know that progress comes strictly from the action of free individuals--ordinary workers, farmers, lawyers, doctors, etc., we should not be vague about the "destroyers" by letting them hide as the "State." It is not "the State" that "thrives on an economically ignorant public," it is those certain people who desire and benefit from an expanded State. As Frank pointed out in a post above, "socialism has its basis in something highly emotional in certain people." That explains "the failure of understanding, the failure to connect cause and effect" that prevented many from acknowledging the failure of the USSR's 70 year experiment with communistic socialism. One such individual, Gerda Lerna, history professor at Univeristy of Wisconsin said it like it is: "Like all true believers, I believed as I did because I needed to believe: in a utopian vision of the future, in the possibility of human perfectability. . . And I still need that belief, even if the particular vision I had embraced has turned to ashes." (No one's going to change her mind--she doesn't want to be confused with the facts!) And as Brad posted above, such people dominate in our schools--and our voters, our public "are a product of the most socialistic creation" in America--our public schools. It is the members of that mass of irrational utopianists that destroy States. Ordinary rational people, employing common sense, and free to act in an open economy create, or cause, prosperous societies to advance. That is the secret of capitalism and its advantages were clearly demonstrated in a few locales in the distant past before theorists came forth to describe, praise or condemn it. Most of such societies were eventually undone--not by the State-but by those individuals like Gerda Lerner who bring a faulty vision--an intellectualized abstract hope-and force it onto the successful institutions of free nations. Such people are fanatically wedded to their dreams. They are so determined to change what we have, that they end by hating America and fixate on tearing it and its institutions down--to make room for their dreamlike mirages. Since they dominate the schools, colleges and media, they successfully disseminate their message to the public. Being intellectuals, they easily fudged the collapse of the USSR and explained away the past abuses of socialism, always ready with promises of change and a brighter future. Julian Simon's "Hoodwinking the Nation" and Bryan Caplan's "The Myth of the Rational Voter" provide good explanations of how these biases are force fed to the American students and public alike. In summary, we know about the history of capitalism, free enterprise, and their causation of prosperity. What we ignore at our peril is the cause and methods of those who would undermine our successful institutions so that they can rule from on top, dictating their fantasies to us at the bottom.
Published: May 19, 2008 10:04 PM
Fundamentalist, you are mistaken when you write "The Dutch created a system in which the state protected property of everyone equally; the nobility could no longer steal from the common people" and "Anarchism didn’t exist in Marx’s day, so he couldn't have opposed it".
On the former, sure, the Dutch system didn't give nobles material privileges - but it did give the state religion a special status, and allowed class differences based on trade to dominate, keeping an underclass down. This got worse over time, culminating in a failed revolution just before the French Revolution. (I think we've been over this before.)
On the latter, Marx strongly criticised Max Stirner's anarchist views, mainly because it didn't fit into his world view. That is, he tried to shout it down and crowd it out with rhetorical tricks, since he couldn't use the intellectual toolkit he'd worked out to attack conventional liberal or conservative views. I'm not saying his attacks on those were sound - they weren't - but that he could plug their worldviews into his system and criticise them from inside that, which he couldn't do to Stirner's views.
Published: May 19, 2008 10:40 PM
"...we are often struck by the great truth that knowledge in this world is not cumulative over time. What one generation has learned and absorbed is not somehow passed on to the next one through genetics or osmosis."
my epiphany came not through economics but shaving. about twenty years ago i started experimenting with straight razor shaving (cutthroat razors). to my surprise, i discovered that much of the old-time shaving lore had disappeared down the memory sink-hole. the old barbers were dead or retired, and much of the know-how was verbal, and not committed to paper.
i found out that the russian leather that used to be used for the premium strops was unavailable - the recipe had been lost during the bolshevik revolution. i had naively believed that everything could be re-synthesized via re-engineering. when you think about how nobody can replicate a stradivarius violin, or remake damascus steel, working backwards from the finished item, it hits home how fragile our hold on knowledge is.
so when i ran into austrian economics several years ago, i could easily appreciate how important it is to actively promulgate these ideas. i'm very grateful for those few who kept the pilot-flame alight for so long, and feel that this site has sowed the seeds that will regenerate some of tomorrow's societies.
(happily, thanks to the internet revolution, there is now a flourishing straight-razor community, if no russian leather).
Published: May 19, 2008 11:46 PM
The reason why socialism keeps on recurring is because people don't learn from the past, except to say, "WE can do it better!" They failed in the past, but how many times did Edison try to invent the light bulb before he hit on the right material? Socialists may be the never-say-die types who think in social terms, like those tragic types who support a football team despite the record. THIS year, things will be different!!!
And the heading is wrong. If I publish a book, the dedication will read, "Thanks to God, for EVERYTHING!"
Published: May 20, 2008 2:29 AM
PM Lawrence: “On the former, sure, the Dutch system didn't give nobles material privileges - but it did give the state religion a special status, and allowed class differences based on trade to dominate, keeping an underclass down.”
And the Dutch allowed a monopoly for the East India Company. However, it’s more important to compare the Dutch Republic with the rest of Europe in its day than with theoretical ideas of today. Before the Dutch Republic, no country in the world had secure property rights, the rule of law (as opposed to the arbitrary rule of men) equality before the law and free markets, as Israel, De Vries and others point out. These institutions led to greater savings and investment in manufacturing, especially ship building. But most importantly, it led to manufacturing for the masses instead of for the wealthy as most manufacturing had been done before. That led to lower costs and higher standards of living. The Dutch were the first nation in the world to escape the Malthusian cycle of death from starvation because of their farming productivity.
Where did Smith get his ideas about an economic system of “natural liberty?” He clearly didn’t use apriori reasoning. He examined the enormous prosperity of the Dutch and distilled principles from that nation, as well as from other writers who had studied the Dutch. In fact, I would credit the Dutch for creating modern economics. Before the Dutch Republic, almost all writings on economics were ethical and focused on the just price. With the rise of the Dutch Republic, bureaucrats began to ask how the tiny nation had become so wealthy and powerful. Most got the answer wrong, but a few, like Smith, got it right.
If you define capitalism as that system that protects property through the institutions of natural law, the rule of law and equality before the law, then the Dutch invented it with little doubt.
PM Lawrence: “On the latter, Marx strongly criticised Max Stirner's anarchist views, mainly because it didn't fit into his world view.”
Published: May 20, 2008 8:09 AM
Niccolo; "I am promoting Anarchism - the only true situation where an economy/society reaches the status of "laissez-faire." This is why I say that "laissez-faire capitalism" is a contradiction in terms."
Well, you're promoting an anarchist definition of capitalism and laissez-faire, which is a fairly new definition. As I wrote before, everyone has their own definition of the word "capitalism." So you have every right to your own. The problem is that nothing but confusion results when everyone uses their own definition of terms in a discussion; we end up arguing past each other and discussing entirely different subjects while using the same words.
If we define capitalism as a system of state-controlled private property, then capitalism would have existed from the beginning of history and would be the opposite of what Smith promoted. Then you are left with the problem of naming the system that the Dutch Republic created that accounted for the radical break with other nations in terms of institutions and economic results. At the time of the Dutch Republic, most nations in the world had about the same standard of living, although China and the Ottoman Empire were a little wealthier. The Dutch system launched the West on a path that caused us to increase our standard of living much faster than any other part of the world and leave the once powerful Ottomans and Chinese in our dust.
So what do you call that system? It was a radical break from the “capitalist,” state-controlled economies of the past and of the rest of Europe, and it caused a radical increase in wealth. It was something new. Other European nations thought it was evil, as did much of the clergy. Smith called it a system of natural liberty, even though it involved a state. By Marx’s day, England had implemented much of that system and enjoyed the industrial revolution as a result. The systems in the rest of Europe were much different in the degree of state-control of the economy. To lump the English system in with those of the rest of the world is clearly wrong. What shall we call that system?
Published: May 20, 2008 9:22 AM
PM Lawrence: “On the latter, Marx strongly criticised Max Stirner's anarchist views, mainly because it didn't fit into his world view.”
Sorry, I didn't finish my post above. But was that the main focus of Marx’s writings? Opposing the views of another writer and opposing a dominant system are very different things.
Published: May 20, 2008 9:24 AM
The Dutch in the 16th and 17th century did pioneer numerous innovative financial systems and achieved prosperity by allowing competition within a free and open economy. But those same pioneering systems were evident in the Italian city states during the 13th and 14th century. Around 1500 AD Machiavelli reminded the Medici princes of a time honored maxim-- to leave their subjects' private property alone. The Medici agreed, because they were not landed aristocrats but came from merchant classes and understood that an open economy with easy access for all was the way to prosperity. A few hundred years before Florence enjoyed free enterprise, the Basques and the Swiss allowed free and open competition. Mark Kurlansky's book on the Basques refers to them as "capitalists before capitalism" because they had an open and vibrant economy unburdened by aristocrats or a large central bureaucracy. And two thousand years earlier, the Phoenicians operated in much the same way from their islands off the coast of Lebanon. The free enterpise and open economy with limited regulation or barriers to entry that really define true capitalism are ancient principles. They were suppressed almost everywhere by autocrats and emerged only in a few small safe havens. Capitalism was not "discovered" by anyone--unless it was Fred Flintstone when he first sold Barney Rubble a used dinocar. Trading is an instinctive human trait. What was discovered, unfortunately, was the means of suppressing and regulating free trade by would-be rulers. They restricted the benefits of capitalism almost everywhere. We owe a lot to the smugglers and law-breakers who kept finding ways to topple the regulated systems that prevented free economies. Adam Smith's dad was a customs inspector so he fully understood the evils of regulated monoplies and the good that came from competition--smugglers are the ultimate competitors!
Published: May 20, 2008 11:27 AM
Bill: “Capitalism was not "discovered" by anyone…”
I think you’re confusing capitalism with commerce. Capitalism isn’t just improved methods of commerce, as double-entry bookkeeping. Yes, commerce has always existed, but even Marx was not so dumb as to think capitalism had always existed. He recognized that something new hit the world in roughly the 16th century, but he was too stupid to figure out what it was. While commerce existed from pre-history, it was despised throughout most of that history and heavily regulated by the state. The preferred ways to wealth throughout most of history were warfare, ransom, and state privileges. Property always faced the danger of confiscation by those in power. As a result, wealthy merchants tried to secure their wealth by purchasing land and titles of nobility. The nobility very rarely invested in business because their duties as nobility forced them to consume all that their lands produced.
As Angus Maddison and others have repeatedly demonstrated, the standard of living in all countries of the world changed very little from that of ancient Egypt until the industrial revolution. At the time of the Dutch Republic, standards of living were pretty much equal world-wide. What change happened that enabled the explosive economic growth that the West enjoyed while the rest of the world continued on the ancient path? The Dutch secured property for individuals for the first time in history. That security required a legal system and a relatively incorrupt police and judicial system, as well as free markets. As a result of that security, wealthy merchants and manufacturers felt free to invest in new business ventures instead of buying land and titles of nobility. (Even today, a major sign of the backwardness of a country is the fact that people will invest only in real estate.) As the middle class developed, manufacturing switched from its focus on the wealthy to a focus on producing for the masses, which lowered the costs of living for all classes and increased their standard of living. The Dutch system of institutions that protect property is what should be called capitalism.
Douglass North describes ancient economics best. Rulers protected the property of their associates, those whom the rulers needed in order to stay in power, usually the nobility. They rewarded that support by allowing the nobility to lute the property of the masses. The genius of capitalism was to protect the property of every citizen, not just those in power.
I could half-way agree with you about Venice being the cradle of capitalism. It came very, very close. I won’t argue to much against it. I don’t give it a passing grade because Venice gained its wealth by using the navy to force all trade between northern Europe and the Ottomans to go through Venice. Venice declined when Portugal found a way around the Venetian navy. In addition, the leading industry, ship building, was a state-owned venture, and the state organized and regulated
Published: May 20, 2008 12:30 PM
Molly Ivins wasn't a socialist. To say so, as josh m did, is the same confusion as exhibited in this article. Socialism is control of economic resources, transactions, etc. by the state. Government regulation is not the same thing. Molly Ivins was exactly right, as evidenced by historical experience, that business, if left completely to its own regards, inevitably will take advantage, abuse, etc. people and the environment to meet its goals. Not all business mind you, but a business is subject to the flaws of its owners/managers/Boards, human flaws. There will always be evil among us, we're human. Free markets are not infallible, boundaries or rules can be a good thing. In fact, are necessary most of the time.
Beyond that, this wasn't a very good article. From early on its a straw-man proposal. Who says Walmart is "the worst possible thing that can ever happen to a community"? Who makes the proclamation "Well, I suppose I'm really a socialist at heart"? Thats not a realistic conversation, unless of course you're at a Marx convention. And how succinct to refer to the buffet table as a blessing of capitalism. The buffet table! About the most wasteful, disgusting thing we could do to the restaurant dinner table. We should be proud of that?
I don't think Mr. Rockwell expresses these words out of ignorance. I believe its extremism that leads a person to these thoughts. They lack a moral consideration of whats best for people. Thats what matters in the bottom line. Capitalism is a good thing for people, if its good for people it will be good for business. We're mistaken to focus on whats good for business and just think it will automatically translate to whats good for people. Capitalism is good; greed, waste, consumerism are bad. So to conjure the reality of these actions as a blessing of capitalism is simple a wrong way of thinking. Extremism.
Published: May 20, 2008 1:47 PM
Is it just me or do socialists market themselves better than capitalists.
In the sorts of arguments Lew writes about the trait of niceness is inevitably brought up as the strength of the socialist system. Socialists, after all, help the poor and provide a safety net. And most people want to be nice.
Capitalism is decried as an everyone-for-themselves sort of system that cannot proivide for niceness. Inevitably when you take the capitalist side in an argument you will be branded a selfish bastard, thereby ending the argument.
The capitalist side of the argument would be fortified if it could get over this public relations deficiency. Studies on the potential of private safety nets would help. More theoretical work on NGOs. Anything to break the socialist monopoly on "being nice."
Published: May 20, 2008 2:25 PM
jp: "Socialists, after all, help the poor and provide a safety net."
That's what socialists claim. Socialism actually causes greater poverty. Look at the USSR, China before it introduced a tiny measure of capitalism, Cuba, N. Korea, Tanzania. They're were and are the poorest nations on earth; nations with vast natural resources. History has proven that socialism does not help the poor, it brings everyone down to the level of the poorest.
As Bill Greene wrote above " One such individual, Gerda Lerna, history professor at Univeristy of Wisconsin said it like it is: "Like all true believers, I believed as I did because I needed to believe: in a utopian vision of the future, in the possibility of human perfectability. . . And I still need that belief, even if the particular vision I had embraced has turned to ashes."
No amount of logic or evidence will change the minds of people like that.
Published: May 20, 2008 8:08 PM
bill greene says:
"Adam Smith's dad was a customs inspector so he fully understood the evils of regulated monoplies and the good that came from competition
well i don't think the wealth-of-nations-adam-smith would have appreciated smugglers as much as you suggest. he worked as commissioner of customs in scotland until his death in 1790. customs was a sort of family calling for the various smiths.
Published: May 21, 2008 12:46 AM
robpo says:
"Socialism is control of economic resources, transactions, etc. by the state. Government regulation is not the same thing."
if instead of seizing your car from the garage for the greater good, suppose i control where you drive, for what purpose, whom you carry, and impose on you reporting obligations. now, is the car really yours in any other sense but nominal? or is it really mine, except you get to wash it and fill the tank? i am the state.
this was the subtle difference between german national socialism and communism. under the former, some property holders retained title to, but not the unencumbered use of their property. under the latter, this artifice was dispensed with.
Published: May 21, 2008 1:06 AM
Fundamentalist wrote "The Dutch were the first nation in the world to escape the Malthusian cycle of death from starvation because of their farming productivity."
That's wrong. First, the whole idea of "escape" rests on the idea that indefinitely sustainable productivity increases have now been achieved, enough to stay ahead of the problem indefinitely, something that is far from established. Second, as Malthus himself pointed out, Holland found it practical to import and distribute food with its external trade and internal system of communications, essentially exporting the problem. What they achieved in that era had nothing to do with their internal agricultural productivity at all.
What I was pointing out in saying that Marx had criticised Stirner was, there really were anarchists around in those days. It's irrelevant how much effort Marx devoted to the matter, he shows that it was a contemporary system with his.
Published: May 21, 2008 2:03 AM
"Molly Ivins wasn't a socialist. To say so, as josh m did, is the same confusion as exhibited in this article. Socialism is control of economic resources, transactions, etc. by the state. Government regulation is not the same thing. Molly Ivins was exactly right, as evidenced by historical experience, that business, if left completely to its own regards, inevitably will take advantage, abuse, etc. people and the environment to meet its goals. Not all business mind you, but a business is subject to the flaws of its owners/managers/Boards, human flaws. There will always be evil among us, we're human. Free markets are not infallible, boundaries or rules can be a good thing. In fact, are necessary most of the time."--robpo
Robpo,
(IMO), the fundamental error that socialists (like Molly Ivins) make is the belief that the state can prevent injustice by 'regulating' (i.e., interfering with) voluntary cooperation.
They haven't yet realized (at least) two things:
A) What exactly is 'injustice', and,
B) That the state's only legitimate function (if it has one) is enforcement of property rights.
Published: May 21, 2008 5:33 AM
PM Lawrence: “First, the whole idea of "escape" rests on the idea that indefinitely sustainable productivity increases have now been achieved, enough to stay ahead of the problem indefinitely, something that is far from established.”
Jonathan Israel and Jan de Vries disagree with you. The Dutch had attained indefinitely sustainable productivity increases. Must of the rest of Europe continued to starve to death long after the Dutch solved the problem in the late 16th century.
PM Lawrence: “Holland found it practical to import and distribute food with its external trade and internal system of communications, essentially exporting the problem.”
Again, Israel and de Vries disagree. The Dutch had increased agricultural productivity to levels unheard of before or anywhere else in Europe. They concentrated on wheat, meat and dairy production because of the high profits in those items, then imported barley and rye for their own consumption. They also exported some of their production. Besides, it wouldn’t matter if the Dutch had no agriculture at all. If they increased their productivity, and hence their standard of living, to a level that they could import food from areas with surpluses, as Japan and much of Europe do today, they have still escaped the Malthusian trap.
PM Lawrence: “It's irrelevant how much effort Marx devoted to the matter, he shows that it was a contemporary system with his.”
Fine. Marx attacked an anarchist. But it wasn’t the main thrust of Marxism, which was directed at all private property, not just the aspects of the economy that involved state control and privileges.
Published: May 21, 2008 8:21 AM
Robpo: “I believe its extremism that leads a person to these thoughts. They lack a moral consideration of whats best for people. Thats what matters in the bottom line.”
I couldn’t agree more that a “moral consideration of whats best for people” is the most important thing. But the real question is who will decide? The state or individuals. Capitalists decided long ago to let natural law decide the morality of some issues, such as theft, fraud, and murder. On issues like greed and envy, capitalists left the decision to individuals. Do you really think the state could do better?
“We're mistaken to focus on whats good for business and just think it will automatically translate to whats good for people.”
Capitalism never said what is good for business is good for the people. In fact, Adam Smith warned that businessmen are often the worst enemy of an economy of “natural freedom.” Capitalism should always oppose any efforts by business to use the state to obtain an advantage in the marketplace.
“Capitalism is good; greed, waste, consumerism are bad. So to conjure the reality of these actions as a blessing of capitalism is simple a wrong way of thinking. Extremism.”
Capitalism had nothing to do with greed, waste or consumerism. If those exist in a society, it’s because the people are free to act that way, not because capitalism makes them that way. You may have fallen prey to the socialist fallacy of determinism that says society makes the man. The truth is that the character of the members make the society. Regardless, what gives you, or anyone, the right to determine what is greed, waste or consumerism? What you see as greed may be caused by envy on your part. Envy used to be considered as immoral as greed, but socialism has made envy respectable. And why is a buffet table waste? It saves the cost of labor. I assume you think it wastes food, but would you rather waste labor? I don’t know what you mean by consumerism, but usually people use the term when they think other people buy too many things. Again, is that envy? You’re judging other people without an objective standard, using your personal preferences as the guide.
But it all boils down to who will decide what is greed, waste and consumerism, the state or the individual? Capitalism chooses the individual; socialism the state.
Published: May 21, 2008 8:43 AM
robpo says:
"Free markets are not infallible, boundaries or rules can be a good thing.
first, it's silly to anthropomorphize. "free markets" are not a separate entity any more than is "society". laissez-faire is merely people going about their individual business free from outside interference.
now of course individuals make errors constantly, but in free competition, these mistakes are minimized. those who make less errors are rewarded, those more, punished (in a commercial sense).
"The buffet table! About the most wasteful, disgusting thing we could do to the restaurant dinner table"
and yet you haven't been very observant in your dining-out. people generally make a bee-line for the high-value foods (think shrimp, lobster etc), and eat less of the low-value fillers (rice, salad greens etc). scarce resource allocation in action! you're probably well-off enough to look down on those poorer folk who go for buffets. silvertails can order a la carte without agonizing over the bill.
Published: May 21, 2008 10:52 AM
"I'm sure that you have had this experience before, or something similar to it. You are sitting at lunch in a nice restaurant or perhaps a hotel..." etc.
Actually, I've never had any of those experiences. Lew is telling us the media commonly says that gas station owners have been responsible for jacking up gas prices, and that WalMart is some malignant fungus sucking the life from our system. No newspaper I've read or television station I've watched has offered either of those opinions. In fact most are far more prepared to offer us their free market wisdom, being owned as they are by our largest corporations. What they're saying about gas prices is that they're rising from simple supply and demand issues. And WalMart is hardly ever mentioned by name, other than during their commercials.
He also appears to commonly dine with people who consider themselves to be socialists. And that's a pretty antiquated concept. In America, I think the last person who considered himself a socialist died back in 1948.
And his table partners also appear to include people who want to end the ownership of private property. Viz "Nor is it possible to divorce socialism from totalitarianism, because if you are serious about ending private ownership of the means of production, you have to be serious about ending freedom and creativity too. You will have to make the whole of society, or what is left of it, into a prison."
Let me offer that the number of Americans who would like to continue holding onto their own private property is very likely 100.0%. Although many would probably oppose having their democratically elected government suddenly replaced one day by one that proposed the selling off of national assets to foreign or domestic investors for peanuts. As has happened in a number of places... for instance, the former USSR.
But it's clear what he's getting at. He says "socialism always means overriding the free decisions of individuals and replacing that capacity for decision making with an overarching plan by the state". Which an ordinary person might paraphrase thusly:
"Good government involves regulating the behaviors of the economically powerful so they don't overwhelm the interests of the less rich."
Apparently for Lew, the material blessings of capitalism are paramount: availability of golfing and boating, exclusive shoppes to keep the wife busy and memberships in exclusive organizations with expensive dues... to keep out the riff raff. Personally, I would like to see the retention of some old fashioned virtues. The elegant food sticks in my throat when I see people outside the restaurant hungry.
Certainly in the example I cite-- the old USSR-- everyone not a member of the CPSU had more or less an equal share of hardly anything. But it is demonstrable that after the Fall, the great one-time sale of state assets plunged people into a much greater poverty. And to this day their standard of living is lower, unemployment higher, wages less and life more tenuous even than it ever was under the old system. That is, if you're not well connected. The only thing that seems to have changed is the names of the owners-- now a handful of oligarchs, rather than the Party.
So that while communism was demonstrably a terrible economic system to live under, the laissez faire sell-off of national assets to well connected insiders was much worse. I wonder whether Lew could write something along those lines, suggesting a third course that would benefit all levels of society rather than just the fortunate few?
Published: May 22, 2008 9:38 AM
michael says, in reference to the ussr:
"So that while communism was demonstrably a terrible economic system to live under, the laissez faire sell-off of national assets to well connected insiders was much worse.
is it impolite to bring up the tens of millions who were killed by the monsters running the machine? that helps skew the figures a bit.
i guess solzhenitsyn was a fascist liar and traitor, too.
Published: May 22, 2008 9:53 AM
michael:
"In America, I think the last person who considered himself a socialist died back in 1948.
probably right - they had a name change, now they're greens.
Published: May 22, 2008 9:56 AM
In America, I think the last person who considered himself a socialist died back in 1948.
Here's a quote you might find interesting:
"The American People will take Socialism, but they won't take the label. ... Running on the Socialist ticket I got 60,000 votes, and running on the slogan to 'End Poverty in California' I got 879,000."
-- Upton Sinclair (1951)
So that while communism was demonstrably a terrible economic system to live under, the laissez faire sell-off of national assets to well connected insiders was much worse.
If there is such a thing as a group of "well-connected insiders," then it's not laissez-faire.
Published: May 22, 2008 10:39 AM
newson points out "is it impolite to bring up the tens of millions who were killed by the monsters running the machine? that helps skew the figures a bit... i guess solzhenitsyn was a fascist liar and traitor, too."
The crimes of Lenin, Stalin and Mao are all undeniable. But these do not comprise a refutation of any economic theory. They have to do with the dictates of raw power. Communism was instituted by force in those countries, and millions died in the imposition of a highly unpopular (and disastrous) economic program. But I think what you're trying to do is to link such phenomena inevitably to the existence of any government that sincerely try to alleviate the poverty of its own citizens. Number one, Leninism-Stalinism never tried to do that. Number two, the connection you imply (social responsibility equals violence) does not follow.
Let's look at this example: Chicago School capitalism (very much like the Austrian School) was enforced at gunpoint in Chile, in 1973-- albeit with a smaller number of victims. As it was in Argentina, Uruguay and elsewhere. Should such historical events therefore form a blanket indictment of all Chicago School capitalism?
I think the lesson we should take away from such events is that whenever an economic system-- whether of the Right or of the Left-- is so unpopular that it must be imposed at gunpoint, it is likely to turn out bad for the average citizen. Democratic, popular rule doesn't always offer outcomes that suit everyone. But it's the best way we've found to avert the forcible imposition of disastrous economic regimes.
Published: May 22, 2008 10:47 AM
The crimes of Lenin, Stalin and Mao are all undeniable. But these do not comprise a refutation of any economic theory. They have to do with the dictates of raw power.
Nonsense. All economic theories other than those promoting free markets ARE promotions of some form of aggressive power.
Let's look at this example: Chicago School capitalism (very much like the Austrian School) was enforced at gunpoint in Chile, in 1973-- albeit with a smaller number of victims. As it was in Argentina, Uruguay and elsewhere. Should such historical events therefore form a blanket indictment of all Chicago School capitalism?
Yes.
I think the lesson we should take away from such events is that whenever an economic system-- whether of the Right or of the Left-- is so unpopular that it must be imposed at gunpoint, it is likely to turn out bad for the average citizen. Democratic, popular rule doesn't always offer outcomes that suit everyone. But it's the best way we've found to avert the forcible imposition of disastrous economic regimes.
That's the whole point of free markets -- the idea that the ONLY form of justified force is defensive force, i.e., force needed to prevent or repel an invasion of property rights.
Published: May 22, 2008 11:10 AM
Michael: “Certainly in the example I cite-- the old USSR-- everyone not a member of the CPSU had more or less an equal share of hardly anything. But it is demonstrable that after the Fall, the great one-time sale of state assets plunged people into a much greater poverty.”
As today’s article on China states, the GDP of the USSR was a total lie. All of the figures were fabricated. The CIA tried to estimate the USSR’s GDP during the cold war. After the collapse, the CIA found that it has overestimated Soviet GDP by a factor of 10. All of the reports that the collapse increased poverty in the former USSR are based on the false GDP produced by the Soviets. If you use the actual GDP figures, poverty did not increase, and it did not fall after the collapse.
Michael: “So that while communism was demonstrably a terrible economic system to live under, the laissez faire sell-off of national assets to well connected insiders was much worse.”
There was no laissez-faire sell off of national assets. People with political connections stole them. A group a wealthy Russians paid for Boris Yeltzin’s campaign. In exchange, Yeltzin sold state companies to those people for pennies on the dollar of their worth. That’s corruption and theft. Laisez-faire has always meant the rule of law and protection against theft and fraud.
Michael: “:The crimes of Lenin, Stalin and Mao are all undeniable. But these do not comprise a refutation of any economic theory.”
It certainly does. You can’t divorce economic theory from political theory. That’s the whole point of Hayek’s “Road to Serfdom.” A socialist economic system requires that people think and act a certain way. If they don’t, the state must force them to think and act the way it thinks they should. Stalin murdered 30 million people because they threatened his economic system.
Published: May 22, 2008 12:03 PM
Magnus, I'm confused about your position. You say "All economic theories other than those promoting free markets ARE promotions of some form of aggressive power."
And then you move on to condemn the imposition of Chicago School rules on hapless nations like Chile. But what was imposed was the epitome of "free market" capitalism. Deregulation was decreed across the board. Publicly owned assets were thrown to the hounds. Spending on social programs was shredded. Price controls were eliminated. All trade barriers were lifted. And so forth.
And it was a disaster. Inflation more than doubled during the first year-- to 375% in 1974. The economy declined by 15 percent. Unemployment climbed from three percent under Allende to 20%. The manufacturing sector collapsed against cheap foreign imports. With price controls and subsidies gone, food became unaffordable. The quality of life plummeted drastically for every sector of society except a tiny number of speculators at the top-- the "piranhas"-- just as happened when Russia liberalised.
It was such a debacle that Chile's National Association of Manufacturers (who had initially supported the coup) declared the result "one of the greatest failures of our economic history". The income their businesses once generated were now going into the pockets of multinationals and speculators, and hard cash was disappearing across the country with striking efficiency.
By the time Hayek came to take a look around (1981, at the Vina Del Mar conference) three fourths of a typical worker's wages were needed just to provide bread for the family-- where previously bread, milk and bus fare together only took 17% of the average public employee's salary.
What would you call such a program of radical transformation, if not an experiment in creating a pure free market economy? The measures taken all appear to me to be straight out of the Austrian playbook. And the program had to be maintained by force.
Published: May 22, 2008 1:59 PM
Fundamentalist, you're telling me "All of the reports that the collapse increased poverty in the former USSR are based on the false GDP produced by the Soviets. If you use the actual GDP figures, poverty did not increase, and it did not fall after the collapse."
I beg to differ. The evidence does not come from econometrics. It lies in the mass of testimony from ex-Soviet citizens and western eye witnesses. Average Russians state that they found their standard of living greatly reduced.
First, everyone's life savings were wiped out in the devaluation of the ruble. Then when public sector jobs were eliminated, many millions of people continued working out of habit-- even though they were no longer being paid! This was the period when bazaars sprang up across the country, with people selling off their furniture and clothing to get basic necessities.
The economy reverted to a state of primitive barter. I recall reading an incident where workers in the state undergarment factory continued making brassieres and girdles... and offered them for sale in the markets, to buy food with. It was a disaster, a state of economic anarchy.
That, I would say, is a great step down from what I observed personally of daily life there under either Brezhnev or Gorby.
Published: May 22, 2008 2:12 PM
Michael, you keep yourself uninformed about South America, especially about Chile, Argentina and Uruguay. I don´t know if you have swallowed too much propaganda or just like to lie.
I am from Uruguay, and never in the last century there was ever a single policy similar to what the Austrian School proposes. Not in democracy nor in dictatorship (1973-1984). Nothing even close to free markets. Always planning, controls, price fixing, etc. And what is called "neoliberal" is nothing more than mercantilism, changing state monopoly for a private one.
The same can be said about Argentina, and I already wrote you about last week's bank run. And you can easily check about their rising infaltion, shortages, and tailored indices like the CPI.
Regarding Chile, you mentioned inflation in the first year, but you do not post what was in Pinochet's last year. You should make a statement considering the effects of each one's measures, not his predecesors. But forget about statistics and indices, which are easily falsifiable. Just check what have been said by Chile´s presidents after Pinochet, who were socialists and social-democrats. They all kept everything unchanged in economic terms, making Chile to stand out compared to the rest of the neighbourhood. They stated that the only thing to improve was social redistribution.
And about the economic policy, only a madman would call it anything like austrian school. It was an improvement over Allende's communism, but far from being laissez faire / free market.
So, Michael, inform yourself better and stop posting lies.
Published: May 22, 2008 3:46 PM
Michael: “The evidence does not come from econometrics. It lies in the mass of testimony from ex-Soviet citizens and western eye witnesses. Average Russians state that they found their standard of living greatly reduced.”
And many said their standards of living increased. The only objective data is the GDP, for all its faults. You may not remember, but Russians had plenty of rubles but nothing to buy with them because the store shelves were empty. They were emplty because the rubles was worth less than toilet paper and even the state stores wouldn’t accept them any longer. Soon after the collapse, store shelves filled up, but still no one would accept rubles in exchange; they wanted dollars. Before the collapse, Russians could buy what they wanted on the black market for dollars.
Michael: “First, everyone's life savings were wiped out in the devaluation of the ruble.”
No. You have to get cause and effect straight. The state made rubles worthless by printing an endless supply of them. They were worthless long before the collapse of the Soviet Union. The devaluation was nothing but the public acknowledgement of that fact.
Michael: “Then when public sector jobs were eliminated, many millions of people continued working out of habit-- even though they were no longer being paid! This was the period when bazaars sprang up across the country, with people selling off their furniture and clothing to get basic necessities.”
The workers never were paid. They got worthless rubles that no one in the Soviet Union would accept in exchange for goods. Russians used to have a saying that the state pretended to pay them while they pretended to work. Before the collapse, many Soviets worked two jobs—the state job that paid nothing but worthless rubles and a black market job that supported their family. The collapse of the USSR did not eliminte those state jobs; they had never really existed. Those workers weren’t doing anything before the collapse. The bazaars sprang up because without the old communist law, people were free to do what they wanted to do to support themselves and their families. Before the collapse, anyone attempting that would have been jailed for life. You forget that the US fed the Soviet population throughout the 80’s with massive shipments of grain, which was a good sign of the impending collapse.
Michael: “The economy reverted to a state of primitive barter.”
The economy had been in that state for quite a while before the collapse, but the USSR tried to hide it from the West, and Western reporters played along because they were in love with communism. If you don’t believe me, you ought to read a biography of Gorbachev. Long before he took the top position, he was desperately trying to save the country from total economic collapse. For many years he was head of agriculture. His reforms were his attempt to fend off the total collapse that eventually engulfed the nation. He pulled out of Afghanistan because it was costing too much. The economic collapse of the USSR in the 70’s and 80’s caused the political collapse. The poverty that reporters showed after the collapse had happened decades before, but reporters think that if a tree falls in the wilderness and they haven’t videotaped it, it never happened. Years later when they happen upon the tree, they think the fall just happened.
Michael: "It was a disaster, a state of economic anarchy."
That is the one way in which the collapse made life worse for the people: the collapse of any kind of law and order made crime increase dramatically.
Published: May 22, 2008 4:48 PM
to michael:
you conveniently omitted the rampant inflation during allende's rule, and the economic depression his marxist policies created. the only reason leftists
venerate allende was his claim to have been first the marxist leader to have been elected democratically (albeit with an absolute minority of popular votes 36%). his suicide/murder made his martydom a sure thing.
sounds like you've never even been to chile. pinochet only brought in "the chicago boys" after he realized the military was unable to run the economy. to his credit, this realization was shortly into his rule.
other military dictatorships killed/tortured/exiled, and left their countries in ruins. pinochet relinquished his absolute rule after a plebiscite, and the country passed back to democratic rule. whilst condemning human rights abuses of his rule, successive centre-left parties have left the pinochet economic reforms intact. none of the terrible shanty-towns around santiago, so prevalent when pinochet took power, remain. pick any statistical measure you like - child mortality, longevity, illiteracy - you'll find things are a vast improvement on when pinochet seized power. this is not the case in other countries of south america. the brazils, argentinas and uruguays seemed to the future of the world in the seventies and yet blew it all.
the other reason that pinochet enjoys such notoriety (the political killings in chile were less than in any other of the surrounding countries) is that he ruthlessly pursued the artistes, who'd been part of the allende cheer-squad. the lucky/sensible fled and have dedicated their lives in exile to the consacration of allende & co.
as for the ussr nonsense, do a google on "vorovskoy mir" (thieves world). the hopelessly naive seem to believe that the ussr got rid of the crims. the more wordly realize that not even stalin could transform human nature. even during his bloody rule, the gulags were training camps for the brutal gangs that ran the parallel economy. when the wall went down, both the uniformed and non-uniformed thugs (kgb and mafiya) didn't miss a beat and continued to do business with each other.
of course they now had to learn how to tie windsor knots, and their zil limos became armored mercedes. plus ca change...
Published: May 22, 2008 9:22 PM
Newson, Good points. The sad thing about Russia is that they believed communist propaganda that capitalism was nothing but the rule of criminals. I heard several Russians say that they disliked the crime and the control the mafia organizations had over every day life, but that was how the US got started so they would just have to put up with it. If Russia has rejected capitalism, it's their own ignorant version of it they rejected.
Published: May 23, 2008 9:30 AM
Fun-- you make a number of comments I would modify somewhat. In response to my observation that most Russians saw greater personal privation after the Fall than they endured under Communism, you say
"And many said their standards of living increased."
Yes. A number of them saw the opportunity to make hundreds of times the money they could before. Mafiosi in particular. But the mass of the Russian people only saw things get worse. The problem is that the poor, the rural, the working class, write no books. Instant millionaires do. So they have a greater visibility. The poor were poor under Communism, but had jobs and life savings. After, the poor only had their furniture and clothing.
"The only objective data is the GDP, for all its faults."
Median real wages would be a much better measure to look at-- if such a thing could be measured. And I'm sure someone has. The GDP represents total productivity, not wealth distribution. And undeniably there was a sudden speculative frenzy fueled by direct foreign investment that boosted GDP. But the new money circulated in a small number of hands.
"You may not remember, but Russians had plenty of rubles but nothing to buy with them because the store shelves were empty. They were emplty because the rubles was worth less than toilet paper and even the state stores wouldn’t accept them any longer."
The first sentence is correct. But the reason the shelves were empty is that the State did not make the manufacture of consumer goods a priority. Therefore nothing was made that was worth buying. Most people had huge savings accounts of unspent income. The utility of that cash was that it could be spent in one's old age on cheap rent, food and health care... a safety net that got severed under the new regime.
"Soon after the collapse, store shelves filled up, but still no one would accept rubles in exchange; they wanted dollars. Before the collapse, Russians could buy what they wanted on the black market for dollars."
Let's take a look at the timeline offered in Daniel Yergin's The Commanding Heights.
1970-1985: Following the oil crisis, from 1973 to 1985 energy exports account for 80 percent of the USSR's expanding hard-currency earnings. By the late '70s up to 40 percent of hard currency in foreign trade is being spent on increasing agricultural imports to maintain the informal social contract with the people: low pay in return for cheap food.
1986: World oil prices plummet by 69 percent, and the dollar, the currency of the oil trade, drops like a stone. Almost overnight, the windfall oil and dollar profits the USSR has enjoyed for more than a decade are wiped out.
1987-1990: Gorbachev's reforms force state enterprises to rely to a greater extent on their own financial resources rather than on the central budget. Several new banks are set up to finance industrial undertakings, ending the monopoly of Gosbank. By 1989 inflation begins to make a major impact as goods grow ever more scarce. In 1987 checking accounts begin for personal savings accounts.
1991: The budget deficit exceeds 20 percent of estimated GDP. Soviet foreign debt balloons to $56.5bn at a time when the ruble is undergoing steep devaluation. Capital continues to flee the USSR, and Soviet gold reserves and foreign currency accounts disappear never to be found.
1992-1995: The Soviet state bank is replaced by 15 republic central banks. The ruble is retained in the belief that a single-ruble zone will promote economic reintegration. By 1993 many CIS states create their own currencies. Russia ends Soviet price controls, but monetary stabilization proves elusive. To prevent enterprises going bankrupt, the state prints money. In 1992 inflation reaches 2,323 percent.
1996-1997: Despite having sold off much of its industry, the Russian government finds itself virtually bankrupt. High rates of taxation serve only to drive businesses into systematic tax evasion. To cover its persistent deficits, the Treasury issues bonds (GKOs) at very high rates of interest. They help keep the government temporarily afloat and allow it to persuade the IMF it is solvent and deserves loans.
1998-1999: The aftershock of the Asian economic crisis hits Russia. With commodity prices tumbling, Russia, a major commodity export earner, sees its revenues plummet. Unable to fund its soaring GKO obligations despite a large IMF loan, the government defaults on its debts. Overnight most of Moscow's large banks go bust. The ruble declines to less than a third of its previous exchange rate.
http://www.pbs.org/wgbh/commandingheights/lo/countries/ru/ru_money.html
It would be hard to make the case from this that the New Russia was on a sounder footing than the USSR was.
Also, while the dollar was always king in the Soviet Union, it was so because the ruble was not convertible, and only hard currency could buy Western goods. And the average citizen had zero access to Western currency. Only Party members and mafiosi had pockets stuffed with dollars. After the Fall it was mostly the same people. Only now they were oligarchs and "biznismenii".
I would wholeheartedly agree that Communism, as an economic model, didn't work. My point was only that it was followed by an episode of total laissez faire capitalism-- rule by bandits in a lawless realm free of controls-- and that that approach also didn't work.
Published: May 23, 2008 12:06 PM
newson-- You start by saying "you conveniently omitted the rampant inflation during allende's rule, and the economic depression his marxist policies created."
Yeah, I guess I did... when I said "And it was a disaster. Inflation more than doubled during the first year-- to 375% in 1974. The economy declined by 15 percent. Unemployment climbed from three percent under Allende to 20%. The manufacturing sector collapsed against cheap foreign imports. With price controls and subsidies gone, food became unaffordable. The quality of life plummeted drastically for every sector of society except a tiny number of speculators at the top-- the "piranhas"-- just as happened when Russia liberalised."
I should have spelled it out more clearly than by merely saying inflation more than doubled-- to 375% under Pinochet. In 1972, under Allende, it rose to 140%. So there's our score-- Pinochet, 375... Allende, 140.
We should note the reason why inflation took off when Allende came to power. There was a clear collaboration between the USG and American corporations to freeze Chile, denying them the funds they needed to operate industry. This has been very thoroughly documented, and inevitably led to the deterioration of the Chilean escudo.
Second, any supposed "veneration" of Allende is irrelevant. Chileans were very strongly behind the government they had elected.
But then you say something clearly very wrong: "pinochet only brought in "the chicago boys" after he realized the military was unable to run the economy. to his credit, this realization was shortly into his rule."
In fact this aspect of the revolution was set up well in advance, and was as thoroughly thought out as was the military aspect. You would be familiar, I suppose, with the "Brick"?
On September 12, 1973-- the morning following the coup-- the Brick was published. This was the detailed economic plan for the direction the country was to take place. And it was modelled on the principles Chicago-trained Chilean economists took straight from Friedman's Capitalism and Freedom-- privatisation, deregulation and cuts to social spending. All planned in advance-- although The Master himself did not visit the country until March, 1975, to try to save the place from going down the tubes.
Virtually everything else you say in this comment is equally misleading. But these two points will do for a start.
Published: May 23, 2008 12:39 PM
Michael, stop lying. You do not want to tell the truth.
This: http://www.ine.cl/canales/chile_estadistico/estadisticas_precios/ipc/050508/xls/11115.xls
is a link to the Instituto Nacional de Estadísticas de Chile. From where I extracted the information displayed below, which is the monthly variation of the CPI.
Please note that Pinochet's coup was on september 11, 1973, and the first democratic president after him took office in 1990. You will see that high inflantion took place between august 1972 and june 1976, and after that until the dictatorship ends it was very much lower. Allende was president from 1970 til 9-11-73.
So, if you were honest you will conclude that Allende's disastrous policies (communism) were to blame for that high inflation, besides all the other suffering he imposed over Chile.
This information is easy to gather, so claiming the opposite is very dishonest.
1970 6,8 5,1 3,5 2,4 2,1 2,0 1,9 2,5 2,7 0,9 0,6 0,0
1971 1,4 0,7 1,2 2,5 2,8 2,0 0,3 1,1 1,1 1,7 2,7 2,8
1972 3,7 6,5 2,7 5,7 4,3 2,1 4,5 22,7 22,2 15,2 5,6 8,3
1973 10,3 4,1 6,2 10,2 19,4 15,7 15,3 17,1 16,9 87,6 5,7 4,7
1974 14,1 24,5 14,2 15,3 8,7 20,8 11,5 10,9 12,8 18,9 9,7 6,5
1975 13,9 16,5 21,2 20,8 16,0 19,8 9,3 8,9 9,2 8,4 8,2 7,1
1976 10,5 10,1 13,5 11,9 9,8 12,3 8,9 5,5 7,6 6,7 3,8 5,1
1977 5,9 5,8 6,1 4,7 3,8 3,3 3,9 3,4 3,7 4,2 2,2 3,1
1978 1,8 2,4 2,9 2,6 2,1 2,0 2,5 2,8 2,9 1,9 1,3 1,5
1979 2,2 1,6 2,8 2,6 2,5 2,5 3,6 4,7 3,9 2,4 2,1 2,2
1980 2,1 1,8 2,9 2,5 2,3 1,9 2,0 2,2 2,1 2,9 2,6 1,9
1981 1,6 0,3 0,8 1,2 1,3 0,1 0,6 1,2 0,9 0,3 0,2 0,5
1982 0,7 -0,8 0,4 -0,1 -0,5 0,7 2,0 3,2 4,3 4,8 3,3 1,2
1983 1,8 0,1 1,9 3,0 1,4 1,6 1,9 2,7 2,3 2,4 1,3 0,6
1984 0,1 -0,2 2,5 1,5 1,2 1,3 0,9 0,3 2,9 8,2 1,2 1,4
1985 3,1 2,0 2,8 2,3 2,0 3,7 1,3 0,9 1,2 1,5 1,6 1,3
1986 2,7 0,9 1,5 1,4 0,7 1,3 1,0 0,6 1,5 1,5 1,4 1,5
1987 2,0 1,7 1,6 2,4 1,5 0,7 1,7 1,4 1,9 2,4 1,9 0,3
1988 0,7 0,4 1,9 0,8 0,5 0,6 0,1 0,8 0,9 1,5 1,9 1,9
1989 1,1 0,1 1,9 1,0 2,0 1,8 1,8 1,0 2,1 2,9 1,7 2,1
1990 2,5 0,3 2,4 1,8 1,5 2,2 1,7 2,0 4,9 3,8 0,9 0,5
Published: May 23, 2008 2:26 PM
Michael: “But the mass of the Russian people only saw things get worse.”
Simply not true.
Michael: “Median real wages would be a much better measure to look at-- if such a thing could be measured. And undeniably there was a sudden speculative frenzy fueled by direct foreign investment that boosted GDP.”
I’m sure the communsit party measured them, but why would you trust them? I don’t recall any boost in GDP in Russia for quite a while. Besides, how would you know if there was a boost or a collapse? All real data collection began after the collapse. I remember a passage from Hedrick Smith’s “The New Russians” in which he described how the head of a cotton growing region sold all of the cotton that his region produced on the world market and pocketed the money. To stay out of trouble with the party, he shared some of the proceeds with his bosses up the ladder. His bosses then entered fake production and delivery amounts in the books.
Michael: “But the reason the shelves were empty is that the State did not make the manufacture of consumer goods a priority. Therefore nothing was made that was worth buying. Most people had huge savings accounts of unspent income. The utility of that cash was that it could be spent in one's old age on cheap rent, food and health care... a safety net that got severed under the new regime.”
So where did the few consumer goods, especially food, go that the state produced? In fact, what did the people eat to keep them alive, and wear to keep them warm? Store shelves were empty. They had to go to the black market with dollars or do barter. This all was happening decades before the collapse. And the people did not have huge savings. They had rubles in the bank, but they were totally worthless long before the collapse. That’s why no one in the black market would accept them. All the collapse did was prove to the Russian people that the rubles had never been worth anything.
Michael: “It would be hard to make the case from this that the New Russia was on a sounder footing than the USSR was.”
I think it would be impossible. But it wasn’t worse than it had been for decades under communism.
Michael: “My point was only that it was followed by an episode of total laissez faire capitalism-- rule by bandits in a lawless realm free of controls-- and that that approach also didn't work.”
I agree that Russia was ruled by bandits, but that has nothing to do with laissez-faire capitalism. Capitalism has always included the rule of law and protection of private property. Russia exchanged one group of thieves for another with the collapse of the USSR. The nation is doing better today solely because of higher oil prices.
Published: May 23, 2008 3:05 PM
Eduardo, let me submit that we're not going to resolve the discussion by recourse to insults. I'm bringing my talking points from solid evidence and arguing in good faith, and so are you. Let's stick with scholarly discussion, and let the heat subside.
Allende was elected in 1970, and put his economic program into place immediately. Yet you admit inflation only became a serious problem in August, 1972. So what was it that suddenly altered the financial terrain in 1972?
Certainly some contributing factor would be Allende's success in lowering the unemployment rate. And of course most Latin nations struggled with some endemic level of inflation, including Chile. This would be Allende's inherited burden. But more weight, I think, should be given to Chile's strong labor unions, clamoring for higher pay-- and getting it.
Still, the dominant factor would be skullduggery on the part of the United States. Here's what the very stodgy, nonleftist Encarta has to say:
"Under President Richard Nixon, the United States sought to prevent Allende’s inauguration and then to speed his overthrow through economic pressure and covert aid to his opponents. The United States discouraged new private investment in Chile and blocked funds from the International Monetary Fund, World Bank, and Interamerican Development Bank."
http://encarta.msn.com/encyclopedia_761554059/allende_gossens_salvador.html
What happens during a liquidity crisis? The currency decays. I think it would be a very hard case to make, that US actions played no part.
Now let's look at inflation under Pinochet's radically new policies-- also begun immediately upon his seizing power. It goes up and up-- until June, 1976 by your own numbers. The economy was in the hopper due to the deliberately induced depression, and Pinochet switched economic advisers. Under the new guy, Sergio de Castro, social programs were cut to shreds. Public schools and health programs, on which nearly all Chileans relied, were destroyed and replaced with private plans very few could afford. Five hundred government-run businesses were virtually given away. The manufacturing sector was gutted. And the pension program was privatised, destroying the working man's safety net for old age. For a human being, the program was a total disaster.
However, with the nation prostrate, foreign investors rushed in to stake out their claims. And when money returns, inflation subsides. Nothing hard to understand there.
Your list of inflation rates shows something interesting. Beginning with an inherited rate of 6.8%, Allende is able to keep the rate under three percent until the rug gets pulled out from under him by a scheme orchestrated by Henry Kissinger. The obvious explanation is that the funding evaporated suddenly due to political pressures. And then one day the money returned, and inflation again came under control. By contrast, look at the numbers for 1974 and early 1975. Not impressive.
Published: May 23, 2008 6:17 PM
Your scholarly manner of argumentation simply blows me away. You wave your hand and say "simply not true"... and presto! The matter is resolved.
I'd rather proceed from the evidence. There are abundant metrics showing the increase in poverty under Yeltsin's shock program. According to Russian Economic Trends, 1997, for example, the average Russian consumed forty percent less in 1992 than he did in 1991, and a third of the population existed below the poverty line.
Here's an article well worth reading from the New Statesman:
http://www.newstatesman.com/200210280041
"Russia as we know it today is a product of two experiments in westernisation, one imposed by Lenin, and the second by the market Leninists who ruled the country during the ill-fated years of neoliberal "shock therapy". Both were disastrous. In the wake of these failed attempts to achieve modernity by blindly following western models."
And later "As could be foreseen from the beginning, the market Bolshevism that was imposed on Russia in the early 1990s by the Yeltsin government - strongly influenced by the IMF - was ruinous in its effects. Millions of people did not die of starvation as they had during the Stalinist experiment, but a large part of the population was entombed in hopeless poverty."
The liberalisation program has been a total failure, and is now being rescinded. I note in passing that they tried massive infusions of foreign capital, to no good purpose. The only thing that can help them now is jobs.
The year was 1992 when Yeltsin came to power and the ruble was induced to collapse, wiping out everyone's life savings and eliminating their pay checks-- while at the same time, food prices were allowed to jump to world levels. The old Soviet ruble had worked fairly well on its own terms... but it could not survive the new terms suddenly being imposed on the country. The situation was exactly similar to 1920, when Lenin tried to remake the world all at once, with his own program of economic shock therapy... and also destroyed the ruble.
Neither experiment worked-- and both should be enshrined in the history books as a sharp reminder against society ever allowing adventurous radicals to try to remake society.
You also make this erroneous statement: "So where did the few consumer goods, especially food, go that the state produced? In fact, what did the people eat to keep them alive, and wear to keep them warm? Store shelves were empty. They had to go to the black market with dollars or do barter. This all was happening decades before the collapse. And the people did not have huge savings. They had rubles in the bank, but they were totally worthless long before the collapse."
I was there during Brezhnev's rule-- the nadir of the Soviet experience. And everyone was housed, fed and warmly clothed out of the ruble economy. The clothes were cheap and flimsy, but the coats were adequately warm. Housing was dilapidated and crowded-- but it existed and was kept warm in the winter. No one was yet homeless except a handful of drunks. And there was never any shortage of cheap, boring food-- although much of that was due to US wheat sales. Soviet agriculture was a complete mess but there was food on the table.
You're thinking of luxury goods. If you wanted a bottle of Johnny Walker you had to hustle some dollars or marks. The people I knew didn't have either... but they lived a secure life and did have a lot of money put away in the bank. Their lives were destroyed in the experiment. The access to Johnny Walker wasn't worth it.
Published: May 23, 2008 7:28 PM
"The problem is that the poor, the rural, the working class, write no books. Instant millionaires do."
In fact, one instant millionaire got going by writing the manuscript of his book, lodging it with his new bank, and giving it a high book (!) value so that his bank had adequate assets and he could do all the usual banking things in an emergent financial sector. Later on, he wound that back and arranged for his book to be bought - but it got him started.
Published: May 23, 2008 9:34 PM
michael says:
"Allende was elected in 1970, and put his economic program into place immediately. Yet you admit inflation only became a serious problem in August, 1972. So what was it that suddenly altered the financial terrain in 1972?"
obviously you're not aware of the austrian view of inflation (growth in money supply). there can be a considerable lag from when the money supply is boosted, and when its effect shows up via rising retail/producer/asset prices. massive money supply growth in germany during world war I didn't correspond to hyperinflation until the early twenties.
militant trade unions, greedy businessmen, rising oil prices or even henry kissinger don't cause inflation, which is always a monetary phenomenon. blame the central bank of chile (under allende's control).
allende implemented price-control over all key sectors of the economy, so i think the accuracy of the cpi is likely to be especially dubious during this period; black market prices for goods and services (which naturally sprung up under allende) would have shown a much higher figure.
cpi is a flawed and problematic construct in the first place. pinochet left the country with much improved child mortality, and life expectancy figures, and these are harder to fudge (though i note that cuba registers births retrospectively, on infant's first birthday. can't be too careful with that marvelous healthcare reputation! sicko, indeed.)
chilean capital had already fled chile prior to allende's electoral win, as the wealthy rightly anticipated the expropriation that would occur. the us trade embargo occurred after kennecott and anaconda were seized without recompense (allende's mob figured that they'd already got enough profit in the previous years!).
castro uses the us trade embargo towards cuba as an excuse for the shocking standard of living of his fellow cubans (whose pockets are as full of "chavitas" as their government shops and bellies are empty).
our one possible point of agreement is the us should stay out of other countries' business. it's both morally wrong and counterproductive, allowing socialist propagandistas like yourself to yet again deny marxism's time-worn legacy - hunger,death and state terror, all on a vast scale.
Published: May 23, 2008 9:42 PM
"new statesman" = left-wing mouthpiece. (keynes used to be chairman of the board. 'nuff said!).
Published: May 24, 2008 2:00 AM
michael says:
"Allende was elected in 1970, and put his economic program into place immediately. Yet you admit inflation only became a serious problem in August, 1972. So what was it that suddenly altered the financial terrain in 1972?"
To which newson counters
"obviously you're not aware of the austrian view of inflation (growth in money supply). there can be a considerable lag from when the money supply is boosted, and when its effect shows up via rising retail/producer/asset prices. massive money supply growth in germany during world war I didn't correspond to hyperinflation until the early twenties. militant trade unions, greedy businessmen, rising oil prices or even henry kissinger don't cause inflation, which is always a monetary phenomenon. blame the central bank of chile (under allende's control)."
Admirably tautological answer. But I would disagree with the rigid definitions. It may be that that form of inflation caused by an increase in the money supply is always a monetary phenomenon. Because we found that answer in the textbook, so it must be right. But what happened when foreign investors pulled the rug out from under Chile was that the liquidity had been removed from the economy. And with it, the subsidies that helped people afford food on their low salaries (and in fact many of the salaries themselves) began to vanish. So prices went up, while incomes dropped.
We need a new word, to describe what happens when prices go up and incomes drop. The condition you are trying to relate it to-- "inflation"-- is a condition where there is a superabundance of money, and costs and income go up in tandem.
In Chile the money was being "disappeared".
In your final comment, you try to equate any concern that economics should try to benefit the actual people who live in actual countries, with a fondness for Stalin's terror. It's a bogus argument. When state-owned eneterprises churn off a profit, the money can be used to fund social programs of great benefit to the public, like schools, healthcare and subsidies for expensive necessities (food, for example). There's nothing wrong with that. It's a legitimate use of money and it works to benefit society.
On the other hand, when state-owned enterprises are sold off to private investors the profit stream only goes into the pockets of a small number of people who don't really need the additional money-- they're already rich. The state will have in essence, "sold the cow" upon whose milk its people had been subsisting.
And there's nothing wrong with that either... assuming human life is of no value in one's system. I think the distinction is quite clear without resorting to lurid imagery-- "hunger, death and state terror"-- and in fact would note that under Allende there was no actual state terror. While under Pinochet, there demonstrably was.
Published: May 24, 2008 7:53 AM
To everyone here:
I would like to resolve this discussion with conclusions that everyone can agree on. It has been my thesis that the manner in which market liberalisation has been implemented in such countries as Chile, Argentina and Russia has been an utter disaster. And my opinion stems from that of people who have had the misfortune to live in those places and endure those events.
It is also generally agreed in the academic community that the methods employed to destroy and rebuild those economies have been taken directly from the Chicago School play book: privatisation, deregulation and the elimination of needed social services.
And finally, most disturbingly, I can find no example of an instance where the radical cure was initiated democratically; it always seems to get imposed by force or by guile, on a protesting public. This seems very wrong.
Admittedly, I don't know a lot about what distinguishes the Austrian School. And I haven't been able to learn much from any of you, as you tend to rely on airy abstractions and doctrinaire, boiler plate responses instead of describing nuts and bolts situations where I can see your favored approach in action. Hence my question to you all:
How would Friedrich von Hayek have done things any differently?
Published: May 24, 2008 8:11 AM
Michael: "I'd rather proceed from the evidence. There are abundant metrics showing the increase in poverty under Yeltsin's shock program."
You probably assume that I make this stuff up just to annoy you. But I proceed from the evidence, too. I just read different material than what you read. You kind find support for any position, no matter how stupid, if you search long enough. And as Mises was fond of saying, you can find historical evidence to support any position. To make sense of history, you have to approach it with a theory of how things work that is sound, otherwise you'll be fooled by all kinds of charlatans.
I can guarantee you that I could post articles from experts that oppose yours on every point. Why don't I? If you were someone that appeared to be searching for the truth and really wanted answers to your questions, I might put out the effort.
Just curious, but I wonder why you think Gorbachev went so far in his reforms if Russians were doing so well under communism? In interviews with him, he claimed that under Brezhnev he could see the economy falling apart and that people would eventually be starving if he didn't make radical changes. But then, I guess you'll be able to provide plenty of statistics that show Gorbachev didn't know what he was talking about, even though he was in charge of agriculture.
As for what Hayek would have done about Russia after the collapse, no one can say. But I have read Jeffrey Sachs, and others, accounts of advising the Russians after the collapse. Sachs also advised Poland, where the transition went very well. He says that he didn't want to advise Poland because the economy was such a mess, but one night he met a young mother crying because she could find no milk in the the city for her baby, so he decided to give it a shot.
Poland's transition went relatively well. Then Yeltsin invited him to Russia. He gave the Russians essentially the same advice he had given the Polish, but Russia became a disaster. Years later, he said that he didn't realize at the time that communism had completely destroyed all of the institutions in Russia that are needed for a free market to work. That hadn't happened in Poland.
If I had to guess, I would say that Hayek would advise the Russians to establish the rule of law first and the institutions to support it as quickly as possible, before privatizing everything. But that takes time and Russians were starving.
The lack of law and institutions to support it is the reason the Chicago Boys, and the similar Washington Consensus had failed consistently in most countries where it has been tried. Douglass North has revived the interest in institutions which Austrians never lost. But it was too late for the transition from communism.
Published: May 24, 2008 9:12 AM
Hayek probably would have encouraged Russia to tie the ruble to gold, since Russia is a large gold producer. A sound currency can correct a large number of ills in a country. Russian banks were a mess and essentially designed to steal from their customers. A gold standard with free banking would have helped a lot. It would have forced a lot of dishonest people to act honestly.
Published: May 24, 2008 9:30 AM
"You probably assume that I make this stuff up just to annoy you. But I proceed from the evidence, too. I just read different material than what you read. You kind find support for any position, no matter how stupid, if you search long enough. And as Mises was fond of saying, you can find historical evidence to support any position. To make sense of history, you have to approach it with a theory of how things work that is sound, otherwise you'll be fooled by all kinds of charlatans.
"I can guarantee you that I could post articles from experts that oppose yours on every point. Why don't I? If you were someone that appeared to be searching for the truth and really wanted answers to your questions, I might put out the effort."
Better answer, fundy-- but not best. I find I'm still going to the trouble to bring up supporting source material, while you aren't. The reason I'm asking is that I have been looking. And all I'm finding are dry, theoretical tracts describing the rarefied world of money under a perfect bell jar. I have found next to nada describing an instance where the economy has been successfully liberalised-- except those in which the evidence has been cooked, and important facts omitted. I would like more sound factual analysis. So please, provide it... if not for me, then for others on this board.
"Just curious, but I wonder why you think Gorbachev went so far in his reforms if Russians were doing so well under communism?"
There are many contributing reasons for the fall of Communism in the USSR. To me, the most significant would be the collapse of oil prices in, what, 1986? Oil formed the basis for the Union's cash income. And with that profit center deteriorated, they could no longer continue to support both a listless consumer economy and a bloated military budget. So something had to give. Gorbachev understood this, and tried to move the country away from a command economy and into a more mixed developmental model.
Noted, that reforms were instituted well prior to the softening of oil prices. It was obvious to everyone that the economy under Brezhnev was a corpse still walking.
The one jarring note I'm finding in the arguments I read is the all-or-nothing outlook. To me it's the hallmark of absolutism to believe totally in one theory, and think that by virtue of its correctness, all other theories must be totally wrong. And that kind of zero-sum thinking has been behind the failure of all the great isms of the 20th century.
In contrast, those economies that have offered the best blend of general prosperity and financial stability have been mixed approaches, cobbled together one program at a time. I would propose the USA from Roosevelt through Kennedy as one example-- during which time we rose to a commanding position in the world-- and nearly all of Latin America before it was subverted to ideological radicalism.
Latin America? Jobs, especially in the industrial sector, were expanding rapidly thanks to strong protectionism. Workers shared in the profits, due to a strong union movement. Government-owned businesses spun off profits that went into infrastructure, education and even subsidised groceries-- all of which directly raised the average person's standard of living. Note that under the privatisation model such profits disappear from the country, going instead into the pockets of investors.
The price? Some level of inflation had been unavoidable-- and people had learned to cope with that.
Best of all, there was no coercion. Democracy was mostly fair and free, and a tightly controlled police state was unnecessary due to the popularity of the governments.
The problem was that these successful experiments were all cut short by the advent of military intervention, and the imposed shock of an instant transformation to pure capitalism. Poverty and oppression ballooned simultaneously. I think the historic record will bear me out here.
But if you can find sources with eyes not half shut, I would very much like to read of the positive side of these dark events. Something on the order of Daniel Yergin's The Commanding Heights, or Joseph Stiglitz's Globalisation and its Discontents. I am very aware that one cannot form an accurate opinion about anything in the economic and political spheres without looking closely into the arguments held by all sides in the debate. As yet, I've found the arguments put forth by the advocates of extreme capitalism to be nearly as weak as those propounded by the Marxists of yore.
I am willing to be persuaded by reason in the service of truth.
BTW I agree with you that the rule of law in the New Russia would have been crucial. However such a rule had never been a part of the Russian character. Under the Czars the law was seen to be subversive, in that it could conceivably go against the will of the sovereign. And under the Bolsheviks-- well, what can I say. Interesting to note that at the fall of Communism, many of the same people who were prospering under the wing of the Party prospered under the Great Sell-off. The only thing that happened was that the deck got shuffled, and a fresh hand dealt.
I had a good friend who was studying on a Fulbright at the Supreme Court (DC), so he could bring a strong legal framework back to the Bulgarian Supreme Court (his employer) and help to establish the rule of law there. How sadly pathetic a task. He was Don Quijote, tilting at a windmill. The fix was already in. That was in 1993.
Published: May 24, 2008 9:56 AM
michael says:
"haven't been able to learn much from any of you, as you tend to rely on airy abstractions and doctrinaire, boiler plate responses instead of describing nuts and bolts situations where I can see your favored approach in action.
no matter how many dyed-in-the-wool socialists i talk to, i can never get a convincing answer as to why it is that nobody flees from florida to cuba. in a wheel-inner, sharks, currents and all.
why is it that those who failed in their bid to hop the berlin wall all got the slug from the communist side? these are the nuts-and-bolts questions i'd like to hear answered.
here in australia, we've got a large vietnamese community who braved pirates, fins and ocean to arrive on our shores. what could have been so terrible about communism that entire families risked their lives aboard overcrowded junks?
these people embarrass and discomfort those who find that words speak louder than actions.
Published: May 24, 2008 10: