Two Myths about Capitalism

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Two Myths about Capitalism

Postby Eran » Wed Dec 29, 2010 4:04 pm

There are two myths that I hear critics of Capitalism repeat from time to time. I thought it would be interesting to put them out explicitly and invite discussion.

Myth: Capitalism naturally leads to monopolies which act to the detriment of the consumer.
Truth: Without government intervention, monopolies are very hard to create and even harder to maintain. Even in the rare cases where a single company acquires a significant market share (e.g. Standard Oil in the 19th century, IBM and Microsoft in the 20th), such market share is acquired by providing superior products to consumer. It is maintained only while superior products continue to be provided to consumer.

There has never been even a single case in the history of Capitalism in which a company, not aided by government intervention, used a monopoly position to the detriment of consumers. I challenge anybody to provide a counter-example.

Myth: In a free market, wealthy people would have more power than ordinary people
Truth: The cumulative purchasing power of the middle-class far exceeds that of the wealthy. Most large corporations exist by catering to the needs and desired of lower and middle class people.

Looking at the Dow Jones Industrial Index as a proxy for America's largest corporations, we see, one after one, corporations whose business is based primarily on servicing the middle classes. Names such as AT&T, Bank of America, Boeing, Chevron, Coca Cola, Exxon Mobile, GE, HP, Home Depot, Intel, IBM, Johnson & Johnson, JP Morgan Chase, Kraft Foods, McDonald's, Microsoft, Pfizer, Procter & Gamble, Traverler's Insurance, Verizon, Wal-Mart and Walt Disney are all based on satisfying the needs and wants of ordinary people, not the wealthy elites.

Even hedge funds, supposedly the servicers of the rich, are actually primarily servicing ordinary people through their pension funds.

In fact, it is government that gives power to the wealthy. Major corporations can buy influence in Washington and thereby attain benefits at the expense of ordinary consumers. Politicians and lobbyists are very proficient at creating rules and regulations that appear to benefit voters, while in fact benefiting incumbent corporations. Without government, ordinary people would be much more powerful than they are today.
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Re: Two Myths about Capitalism

Postby jonquil » Wed Dec 29, 2010 4:39 pm

Lol. More free market lies. Tell these stories to the millions of consumers screwed by monopolies these days.

Don't worry, though. All news and propaganda will be sifted through monopolistic media outlets, so you're crazed views are safe.
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Re: Two Myths about Capitalism

Postby Eran » Wed Dec 29, 2010 5:20 pm

jonquil wrote:Lol. More free market lies. Tell these stories to the millions of consumers screwed by monopolies these days.

Don't worry, though. All news and propaganda will be sifted through monopolistic media outlets, so you're crazed views are safe.

How about addressing the actual points?

Perhaps providing examples or logical arguments to explain why you feel they are wrong?
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Re: Two Myths about Capitalism

Postby phyllo » Wed Dec 29, 2010 8:34 pm

Without government, ordinary people would be much more powerful than they are today.


Given that no nation can exist without a government, this statement is fairly pointless.

Myth: In a free market, wealthy people would have more power than ordinary people


Not a myth. Let me give a personal example. A while ago, I had a problem with my internet service. I talked to three different techs and a supervisor. The supervisor was rude and basically called me an idiot. I called customer service and told them that I couldn't use my internet and intended to take all my business to another company (more than $1500 per year). Can you guess what happened? Boom. Suddenly I was not a dumb peon bringing the company $120 per year, I was a valued customer. I instantly got priority tech support. Hardware couriered to me the same day. Internet problem solved.
Plain and simple... rich people have more leverage.
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Re: Two Myths about Capitalism

Postby iambiguous » Wed Dec 29, 2010 9:06 pm

How about this myth: that free market capitalism exist at all.

Unless you call crony capitalism and state capitalism "laizze faire". Because that's what it's not. Indeed, the presidency of Barack Obama [a future Bilderberger] speaks volumes regarding how "the sytem" works.

He came to Washington to change things, remember?

There are very powerful men and women who comprise the interlocking elements of the Wall Street/Washington revolving doors, the military/media industrial complex, the war economy. America has always had a bi-partisan ruling class.

Above all else, Barack Obama is a member in good standing of America's ruling class. The "liberal" rendition, as it were.

But not in the simplistic Marxist sense of "the class struggle". That was more a manifestation of the industrial revolution. Capitalism has evolved light years beyond that.

Indeed, nominating something as "the ruling class" does not mean that once a month...literally...the folks from the corporate media [and their Wall Street advertisers] sit down with relevant committee chairmen in Congress, Obama's economic team in the White House, the K Street lobbyists and Henry Kissinger's "colleagues" from Bilderberg to meticulously plan the next month's political and economic agenda. It doesn't work that way. Why? Because it doesn't have to. Besides, even within these corporate concoctions of wealth and power, there are considerable conflicts. For example, corporations based here in America may be strongly opposed to government policies that favor companies that shift all or part of their business overseas. And companies that oppose policies seen as favorable to the interests of oil industry do so because the higher the cost of oil the more costly it is in run their own businesses profitably.

That, of course, is where "democracy" comes into play. And some of these conflagrations are titantic because so much money is at stake.

No, America's ruling class does not embody a bunch of secret meetings where secret conspirators secretly plot and plan to carve up the world in Dr Evil's secret location at Goldman Sachs.

Instead, it is more like this:

From the Bullfrog Films review of the film The American Ruling Class:

The American Ruling Class is one of the most unusual films to be made in America in recent years--both in terms of form and content. The form is a "dramatic-documentary-musical" and the content is our country's most taboo topic: class, power and privilege in our nominally democratic republic.

At bottom the film is a morality tale, the story of two Yale students (played by Harvard men) who seek their opportunities upon graduation. As the renowned essayist, author and longtime Harper's magazine editor Lewis Lapham conducts them through the corridors of power: Pentagon press briefings, the World Economic Forum, philanthropic foundations, Washington law firms, corporations, banks, the Council on Foreign Relations, and New York society dinners---our two representative graduates "one rich and the other not so rich" must struggle with their responsibilities in "a world collaterally damaged by the magic of money and the miracles of science." The real-life luminaries they meet on their journey become characters in a story about power, its responsibilities and abuses.

All the while "the Mighty Wurlitzer" plays on, a reference to the massive propaganda apparatus invented by the CIA's Frank Wisner, here used to signify the nocturnal philosophy of acquisition and imperial hubris which continually calls to the young men, the siren song of careerist myopia that was bred into their bones at school.

As we watch these two young men wend their way through what is only a slight fictionalization of their actual lives and choices, as we meet former Secretaries of State and Defense, directors of the Trilateral Commission and the Council on Foreign Relations, the publisher of The New York Times, Kurt Vonnegut, Howard Zinn, Barbara Ehrenreich, Robert Altman and a host of others, we have to ask along with Mr. Lapham: "To what end the genius of the Wall Street banks and the force of the Pentagon's colossal weapons? Where does America discover the wisdom to play with its wonderful toys?" The possible answers move beyond the empty distinction of party affiliation and into the heart of American Oligarchy itself. By film's end, the young men must decide: Should they seek to rule the world, or to save it?


Of course, Obama, the "progressive" capitalist, fits quite comfortably into this carefully calibrated circle of "cultured" friends. His administration is bursting at the seams with them. For example, the Bilderberg, CFR, TC folks alone include Hillary Clinton [and Bill of course], Tim Geithner, Larry Summers, Zbigniew Brzezinski, Rahm Emanuel, George Mitchell, Robert Rubin, Paul Volcker, Robert Gates, James Jones, Tom Daschle, Eric Shinseki, Michael Froman, Susan Rice, Jack Reed, EricHolder, Janet Napolitano, Mona Sutphen.

Though some are admitedly just "advisers".

Hell, it's just commonsense to point out that those who own and operate the political and economic instruments that sustain the global economy, are going to want to connect the dots with others like them around the world. They have "shared interests" that evolve from and center around transactions that swell well up into the hundreds of billions of dollars.

So, no, the crony capitalists don't need to schedule a secret rendevous where they can exchange secret handshakes and secret code words with the other secret participants.

They especially don't need to with an electorate patently blind to how the world really functions all around them.
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Re: Two Myths about Capitalism

Postby jonquil » Wed Dec 29, 2010 9:31 pm

What we have today is freemarket corporate fascism. It is a sociopathic politico-economic system based on self-interested greed and looting.
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Re: Two Myths about Capitalism

Postby phyllo » Wed Dec 29, 2010 9:58 pm

I wonder how relevant a "dramatic-documentary-musical" film is to the real world.
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Re: Two Myths about Capitalism

Postby turtle » Wed Dec 29, 2010 10:48 pm

jonquil wrote:What we have today is freemarket corporate fascism. It is a sociopathic politico-economic system based on self-interested greed and looting.

hi jonquil--------are worker owned corporations realistic------------
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Re: Two Myths about Capitalism

Postby iambiguous » Thu Dec 30, 2010 2:54 am

phyllo wrote:I wonder how relevant a "dramatic-documentary-musical" film is to the real world.


Watch it and decide for yourself. And it is certainly more relevant in my view than the fairy tale world that Libertarians and Objectivists live in.
He was like a man who wanted to change all; and could not; so burned with his impotence; and had only me, an infinitely small microcosm to convert or detest. John Fowles

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Re: Two Myths about Capitalism

Postby Eran » Thu Dec 30, 2010 11:46 am

iambiguous wrote:How about this myth: that free market capitalism exist at all.

Free market capitalism is an ideal. It is like health or peace or a lawful society - none of them exist in their perfect form, but we can still view them as worthy goals, and consider both the historic and the prospective impact of having relatively more or less of each.

I probably agree with every criticism of crony-capitalism, the incestuous symbiotic relation between private ownership and state power.

Where I differ from many other contributors here is that I believe what we need to get rid of is state power, rather than private ownership.

When advocating scaling back state power and allowing private ownership to flourish, two of the most common concerns are the rise of monopolies (which counter the positive impact of competition) and the increased power of the rich. Hence the OP.
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Re: Two Myths about Capitalism

Postby Eran » Thu Dec 30, 2010 11:54 am

phyllo wrote:
Eran wrote:Without government, ordinary people would be much more powerful than they are today.


Given that no nation can exist without a government, this statement is fairly pointless.

First, how do you know that no nation can exist without government? No modern nation existed without a king until 300 years ago. A 17th century phyllo could just as persuasively argue that "no nation can exist without a king", or that "no society can flourish without slavery".

Having said that, we can very easily imagine a state in which government restricts its activities to maintaining law and order and protecting the country from outside threats. While I don't advocate such a "minarchist" construction, it would be a huge improvement over the current state of affairs, and the two myths I discuss would still be relevant to the discussion of its consequences.

phyllo wrote:
Eran wrote:Myth: In a free market, wealthy people would have more power than ordinary people


Not a myth. Let me give a personal example....

I have not made myself clear. Obviously, a wealthy person is likely to be treated better than a poor person. After all, if you can afford business class you get many perks over the masses riding economy. However, in aggregate, rich people have less influence than the middle-class or even the poor. Much more aircraft floor space is dedicated to economy than to business.

Yes, you get better food and service at a high-end restaurant than in McDonald's. But McDonald's corporation continues to serve people of modest income, and has more wealth and resources than any combination of high-end restaurants.

Through the political process, McDonald's competitors might be able to force it to raise its prices or change its offering. In the free market, on the other hand, all the rich people in the world cannot interfere with McDonald's ability to provide inexpensive and tasty food to its consumers.
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Re: Two Myths about Capitalism

Postby Eran » Thu Dec 30, 2010 11:59 am

jonquil wrote:What we have today is freemarket corporate fascism. It is a sociopathic politico-economic system based on self-interested greed and looting.

Absolutely right!

The key term is "fascism" which correctly points to the critical role of the state in facilitating self-interested greed and looting.

The point of my post is to try and disarm some of the arguments people use to suggest that without state intervention, free market capitalism is something to be feared or objected to.

If I am correct (and I am yet to hear an actual argument suggesting otherwise), than competition amongst private service providers will work for the benefit of all members of society. Critically, the poorest members of society will greatly benefit from more freedom and more competition.
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Re: Two Myths about Capitalism

Postby Ganapati » Thu Dec 30, 2010 3:10 pm

Eran wrote:Myth: In a free market, wealthy people would have more power than ordinary people
Truth: The cumulative purchasing power of the middle-class far exceeds that of the wealthy. Most large corporations exist by catering to the needs and desired of lower and middle class people.

The power a weathy man holds is direct. The power a less wealthy person holds is indirect in the sense that if his wants are constantly ignored by some, eventually someone else will take notice and offer a better product/service. The latter kind of power is not something anyone can sense or feel comfortable about when a more direct power is visible around.
In fact, it is government that gives power to the wealthy.

Perhaps a very good reason why you will never see governments disappear. While the threat of competition is good for the consumer, it is not good for the currently wealthy. So if a government doesn't exist, one will be created by the wealthy (they can afford to pay for it) to ensure competition doesn't come up i.e. kill free market. The way to prevent it would be for the rest to pay to set up a competing government to prevent the one owned by the wealthy from being successful. So you will need a government to protect the free market unless somehow killing the free market for personal benefit becomes an unthinkable idea.
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Re: Two Myths about Capitalism

Postby Eran » Thu Dec 30, 2010 3:24 pm

Ganapati wrote:
Eran wrote:Myth: In a free market, wealthy people would have more power than ordinary people
Truth: The cumulative purchasing power of the middle-class far exceeds that of the wealthy. Most large corporations exist by catering to the needs and desired of lower and middle class people.

The power a weathy man holds is direct. The power a less wealthy person holds is indirect in the sense that if his wants are constantly ignored by some, eventually someone else will take notice and offer a better product/service. The latter kind of power is not something anyone can sense or feel comfortable about when a more direct power is visible around.

I don't see the difference in principle. A wealthy person has more money, but money is only a mean, rather than an end. Both rich and poor need somebody to provide them with what they actually want in exchange for the money. Poor people are much more numerous than rich people, and are thus much more likely to find somebody to satisfy their needs.

Ganapati wrote:
Eran wrote:In fact, it is government that gives power to the wealthy.

Perhaps a very good reason why you will never see governments disappear. While the threat of competition is good for the consumer, it is not good for the currently wealthy. So if a government doesn't exist, one will be created by the wealthy (they can afford to pay for it) to ensure competition doesn't come up i.e. kill free market. The way to prevent it would be for the rest to pay to set up a competing government to prevent the one owned by the wealthy from being successful. So you will need a government to protect the free market unless somehow killing the free market for personal benefit becomes an unthinkable idea.

Perhaps. However, raw power is not the only determining factor. Ideology matters. A lot. So while I recognize that getting rid of government is an uphill battle, this battle is not an impossible one to win. The battleground is neither the physical world (as violent so-called anarchists believe) nor the ballot box (as the various Libertarian Parties seem to think) but rather people's hearts and minds. It is a battle of ideas. If the idea of liberty (in the form I am advocating) takes root, the wealthy will have as little ability to resist the forces calling for abolishing their special rights as did the French aristocracy of the 18th century.
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Re: Two Myths about Capitalism

Postby Ganapati » Thu Dec 30, 2010 8:09 pm

Eran wrote:I don't see the difference in principle. A wealthy person has more money, but money is only a mean, rather than an end. Both rich and poor need somebody to provide them with what they actually want in exchange for the money. Poor people are much more numerous than rich people, and are thus much more likely to find somebody to satisfy their needs.

The difference is not in principle, but in practice.

It is much easier to make a product or provide a service if cost were not an issue than if it were. So a rich man's needs get met much sooner than a not-so-rich man's. More importantly it takes economies of scale to meet the not-so-rich man's needs, meaning it takes rich people (who are few) to meet poor man's needs while anyone rich or poor (who are many) can meet the rich man's needs. Not that it is wrong, but that the power gap is real and not a myth.
Perhaps. However, raw power is not the only determining factor. Ideology matters. A lot. So while I recognize that getting rid of government is an uphill battle, this battle is not an impossible one to win. The battleground is neither the physical world (as violent so-called anarchists believe) nor the ballot box (as the various Libertarian Parties seem to think) but rather people's hearts and minds. It is a battle of ideas. If the idea of liberty (in the form I am advocating) takes root, the wealthy will have as little ability to resist the forces calling for abolishing their special rights as did the French aristocracy of the 18th century.

Individual liberty of the kind you are advocating is an idea, not an ideology, Hence it may have different levels of intellectual acceptance at different times, but will not take root because it has no inherent survival value by itself. It needs another vehicle to survive. The vehicle you choose is that it will lead to higher level of prosperity for all in the long run. Or you are trying to convince the listener that it will lead to a higher level of prosperity for him. When a higher level of prosperity for all seems possible without it even in the short run or when the individual concerned sees a possibility for a higher level of prosperity without it, it stops being the motor fuel for the vehicle.

Try convincing someone that the idea itself is worth it regardless of consequences, higher or lower prosperity for one or all short or long term, and see how many will be convinced. That alone will tell you if it can take root.
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Re: Two Myths about Capitalism

Postby Silhouette » Thu Dec 30, 2010 8:38 pm

Eran wrote:Myth: Capitalism naturally leads to monopolies which act to the detriment of the consumer.

To address the first half of this first, due to things like (a) imperfect mobility and (b) natural inequality between humans and imperfect information, free-market Capitalism necessarily tends towards some businesses becoming larger than others, tending towards monopoly:

(a) People can't up and leave any situation they are in at will, nor would they want to if they could. Most people settle in certain places for significant periods of time, influenced by the proximity of family and friends, and developing connections with people and their increasingly familiar surroundings. Most people carry significant material baggage with them, which takes a great deal of effort to move from place to place. Most people are only willing to commute a certain distance, giving them a limited area to find work in. All factors like this provide employers with significant scope to push employees beyond their comfort zone before any "voluntary" agreements between employer and employee can no longer be endured - even in the most free market economy.

(b) The most successful business does not become the most successful business simply because it provides the best product. Much of what constitutes the "best" product is in the persuasion of the public that a product is indeed the "best" - "best" is a value judgment based on what information is available. A great deal of what constitutes the information available is in marketing and a great deal of subliminal influence goes into the most effective marketing. Consumers are more often than not merely passively interested in the products available. This is in part because there is so much choice that the consumer is overwhelmed and is no longer willing to be fully in charge of what they choose.

This gives a lot of scope for employers to encourage the "appearance" of a need for a product, even when there is actually very little need or desire initially. Ironically, there is a great deal of security demanded by employers in a free market when ensuring an adequate and predictable market.

Further, it is primarily on business COSTS that businesses compete, not revenues from simply having the best products. An example of this is the sale of branded products for different prices - clearly they are all made by the same company in the same way each time. Further bargaining power to drive down costs comes about when businesses can make larger bulk orders - the gap between larger businesses and smaller ones is increased due to economies of scale. The larger and more powerful businesses likewise have more bargaining power with the threat of withdrawing their orders from suppliers. This can drive costs down even further for already successful businesses much more than it can smaller businesses.

If there was no option to compete on cost and to aggressively influence consumers through advertising campaigns, and to benefit from economies from scale, producing the best products would be much more closely correlated with the best businesses.
The free market encourages all the above things, all detracting from the best product possible being available to consumers, even by the most successful companies.

Let it NOT be mistaken that I am implying that free market tends toward the complete detriment of the consumer.
The only thing in the consumer's favour that prevents this is the limited power they have in a free market - which leads me to the 2nd "myth".

Eran wrote:Myth: In a free market, wealthy people would have more power than ordinary people.

It is one thing to say that wealthy people and ordinary people both have power in a free market, and another entirely to claim that they have equal power.

Can an ordinary person buy the best products, no matter how expensive? No.
Can a wealthy person buy the best products as well as the worst? Yes.

Clearly purchasing power is in favour of the wealthy people. Of course wealthy people would have more power than ordinary people.
Do ordinary people have NO power? Of course not.

It is in the employer's primary interest to increase their market size because this leads to more demand and revenue from greater numbers of people. This is where ordinary people come in useful.
In pursuing his own interests, the employer provides things for ordinary people so that he gets something in return. However, the producer of the product in a free market would not sell anything if they did not get more in return - otherwise they would simply be producing for the love of production, needing a certain amount in return to be able to continue production. The financial incentive that the system is based on requires that money flows steadily back to businesses so that they may grow at the socially accepted rate that equates to "incentive to set up and maintain a business".

This happens during a boom period, and when too much wealth has flowed back to businesses, consumer wealth decreases to a point where consumers can no longer spend as much, the rich withdraw their investment because they are no longer getting wealthier at their desired rate, and the economy busts.

This is inherently going to happen over and over and over again in a free market.
For every period of growth, the growth must be undone at every recession or depression.

The hope is that in the meantime, more valuable products would have been developed and knowledge of them is not lost. As long as this is the case, the economy can restart once the recession or depression has become so devastating that it cannot get any worse, and we can all start again from a point of higher standard of living.

This would be a lot clearer and extreme without any government "interference".

Let it not be forgotten that governments resort to tactics like running the printing presses to create the illusion of more money... to continue the imaginary appearance of growth. This is only needed when an economy requires this illusion.

Employees maintaining a similar or increasing standard of living while money flows away from them is a symptom of products becoming cheaper as new, more valuable ones replace older versions - not of wealth flowing towards employees. This is why wealth flowing away from employees isn't so clear. Inflation masks this process even better.

The illusion of more money makes it look like wages can be increased, but this is later cancelled out by businesses INFLATING prices so that the previous proportion of employer/employee wealth is restored, and the flow from employee to employer continues.
The illusion of more money makes it look like consumers are maintaining their purchasing power or that this power is increasing. This keeps investors under the illusion that they are continuing to profit from their investments at a more steady rate.

However, such action only prolongs the boom periods and lessens the blows of busts when companies are bailed out.
Booms and busts are inevitable in a free market because what is being seen as "growth" is an illusion. The only actual growth is in knowledge of new technologies and products.

(WHY DO WE NEED THESE BOOMS AND BUSTS FOR NEW TECHNOLOGIES AND PRODUCTS TO BE CREATED?!!!)

The greater power is in the hands of the wealthy who the wealth flows towards during boom periods, and who have exclusive access to be most advanced technologies and products. The wealthy investors are in charge of when to withdraw their investments to get them through a bust period.
The lesser power is in the hands of the ordinary employees who wealth flows away from, and who are left with nothing to see them through each bust period - all the while having no access to anything but out of date technologies and poorer quality products.
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Re: Two Myths about Capitalism

Postby Xunzian » Thu Dec 30, 2010 11:04 pm

Basic game theory argues against the former assertion (see: coordination games). Furthermore, while it is true that no true laissez-faire system has ever existed, it is also worth noting that governments which favor a laissez-faire approach do see a greater development of monopolies than those which do not. Theoretically speaking, I see no reason why this trend would alter itself after a certain threshold was crossed.

As for the second myth, there are two avenues one could pursue in their objection. The first is about the degree of power any given individual has within the system (see: the argument against voting thread). That argument holds some weight, though a more potent objection lies in modern media culture and the consumer culture. Demand doesn't stand on its own as an independent entity but rather it is created. While all classes are subject to this process, access to the media outlets used to create this demand is restricted to the wealthier segments.
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Re: Two Myths about Capitalism

Postby iambiguous » Fri Dec 31, 2010 4:38 am

Eran wrote:Free market capitalism is an ideal. It is like health or peace or a lawful society - none of them exist in their perfect form, but we can still view them as worthy goals, and consider both the historic and the prospective impact of having relatively more or less of each.


In my view, there is almost always an enormous gap between an ideal [of anything] and the world we actually live in.

And capitalism is always viewed from conflicting moral and political perspectives. What some see as its most remarkable achievement others will see as its most deleterious failure.

Look at the dreadful consequences of the business cycle and the manner in which some capitalists treat employees as interchangable [and clearly expendable] spokes on a wheel.

One need but Google the Industrial Revolution to note why unions and communism became so popular. Capitalism is notorious for creating the very conditions that preciptate the politcial and economic interests that oppose it.

Eran wrote: Where I differ from many other contributors here is that I believe what we need to get rid of is state power, rather than private ownership.


As with capitalism itself, "the state" or "the government" is always in the mind of the beholder. It's size is good or bad depending on how you fit it into your political [or ideological] lexicon; or on what you get out of it.

And, again, out in the real world, it is never reducible down to only one thing or the other.

Eran wrote:When advocating scaling back state power and allowing private ownership to flourish, two of the most common concerns are the rise of monopolies (which counter the positive impact of competition) and the increased power of the rich. Hence the OP.


The concern I always have is the manner in which capitalism and the government are just two ways of saying the same thing. At least here in the US of A.

Hence my post above.
He was like a man who wanted to change all; and could not; so burned with his impotence; and had only me, an infinitely small microcosm to convert or detest. John Fowles

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Re: Two Myths about Capitalism

Postby phyllo » Fri Dec 31, 2010 3:59 pm

It's possible to say that a large group of people each with a miniscule amount of power collectively have more power than a small group of wealthy people each people with a great deal of power. However, it is much easier for the small group to organize and use their power. A handful of people can quickly agree and act. Trying too get a million people to agree and act is considerably more difficult and time consuming. It is easier for the wealthy to wield power.

I wonder how the idea of 'no government' would work in the case of essential needs such as water, electricity and heating fuel. What is to prevent a company from doubling the price of heating fuel during the winter and giving the consumer a choice of pay or freeze? Exorbitant prices for water? Why not? It's not easy for consumer to switch to another company, even assuming that there is another company able to supply your needs. Maybe the company already has a monopoly in the area. The problem is exasperated when private companies own everything, including the water and gas pipes going to your house.
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Re: Two Myths about Capitalism

Postby Eran » Sat Jan 01, 2011 5:22 am

phyllo wrote:It's possible to say that a large group of people each with a miniscule amount of power collectively have more power than a small group of wealthy people each people with a great deal of power. However, it is much easier for the small group to organize and use their power. A handful of people can quickly agree and act. Trying too get a million people to agree and act is considerably more difficult and time consuming. It is easier for the wealthy to wield power.

That's a legitimate question. In a world with government, this is precisely why rich people do wield more power than the poor. Without government, however, all transactions are economic. The economic interests of poor people are effectively represented by the companies that cater to them. As I indicated in the OP, the largest, best financed and, presumably, most powerful corporations in the world cater to poor and middle class people, rather than specifically to the rich.

phyllo wrote:I wonder how the idea of 'no government' would work in the case of essential needs such as water, electricity and heating fuel. What is to prevent a company from doubling the price of heating fuel during the winter and giving the consumer a choice of pay or freeze? Exorbitant prices for water? Why not? It's not easy for consumer to switch to another company, even assuming that there is another company able to supply your needs. Maybe the company already has a monopoly in the area. The problem is exasperated when private companies own everything, including the water and gas pipes going to your house.

In word, the answer is competition. You would always have multiple providers (or, at least, multiple potential providers) of essential services. Turn your question around to food, which, in modern Capitalist societies is largely provided by the private sector. What's to stop the one supermarket in a small town from raising the price of bread?
For essential services which are difficult to switch, standard practice among consumers would be to insist on long-term supply contracts. Consider rent, for example. It is expensive and difficult for a company to have to change offices. What's to stop the landlord from suddenly raising the rent? The answer, of course, is that companies signing a lease agreement will typically insist on provisions that fix the rent for a relatively long period, often years, or limit its growth.
As for private companies "owning everything", that is a manifestation of the second myth mentioned in the OP. In practice, it is impossible for a private company (or a cartel of private companies) to use their monopoly power against consumers. Some have tried. Historically, none ever succeeded.

Things are different, of course, when it comes to government, the true monopolist in society. There is nothing to stop government from effectively raising its prices (aka taxes) at will, and history is rife with examples of governments using their monopoly powers against their "consumers" (aka citizens).
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Re: Two Myths about Capitalism

Postby Eran » Sat Jan 01, 2011 5:45 am

iambiguous wrote:Look at the dreadful consequences of the business cycle and the manner in which some capitalists treat employees as interchangable [and clearly expendable] spokes on a wheel.

The business cycle is a consequence of government intervention in the economy, most importantly in the setting interest rates and the money supply. Even mainstream economists agree that the Fed's low rate policy in the early years of the previous decade played a critical role in fanning the housing bubble. Other government policies (e.g. creating moral hazard by rescuing financial institutions) are also involved. There is absolutely no evidence that pure free markets involve business cycles.

As for the treatment of employees, employers in a free society invariably improve the lives of their employees, at least in the eyes of those employees. I have recently visited Vietnam and had a chance to ask people about their attitude towards shoe factories, often decried in the west as "sweat shops". Locally, people are eager to have those factories open, and seek employment in them because the terms of employment are better than any alternative open to them.

An employer who treated his employees in a way that, overall, represented a package that was worse than alternatives available to them would quickly run out of employees.

iambiguous wrote:One need but Google the Industrial Revolution to note why unions and communism became so popular. Capitalism is notorious for creating the very conditions that preciptate the politcial and economic interests that oppose it.

The industrial revolution helped lift millions of people from the horrible life of subsistence farming to a life that was much better, giving them stable income and allowing them to afford what was previously considered luxuries. Dickensian myths notwithstanding, ask yourself why people chose to work in factories? Why didn't they stay in the farms in which their parents slaved all their lives?

Logically, there can only be two answers, neither one of which can condemn Capitalism. Either working in a factory represented an improvement (most likely answer in my opinion), or they were forcibly evicted from their land. In the former case, Capitalism helped improve their lives. In the latter, the blame is with government, the only entity that has the power to evict people from their land.

iambiguous wrote:As with capitalism itself, "the state" or "the government" is always in the mind of the beholder. It's size is good or bad depending on how you fit it into your political [or ideological] lexicon; or on what you get out of it.

And, again, out in the real world, it is never reducible down to only one thing or the other.

I agree that historical analysis is often complicated by the interplay between government and private forces. Still, being complicated doesn't mean such analysis is impossible. Consider different societies with different degrees of government involvement. Other things being equal, the less government, the more prosperity. Or consider different sectors of the economy. The more government involvement (health, education), the worse the performance. Contrast those with food supply and high-tech.

As for the first paragraph, it is, of course, correct. The perspective I am defending, specifically, sees government as a pure evil, without ANY redeeming features whatsoever.

iambiguous wrote:The concern I always have is the manner in which capitalism and the government are just two ways of saying the same thing. At least here in the US of A.

They are always intertwined, but not in uniform amounts. Even if abolishing government is currently an unrealistic goal, reducing its size and involvement (or at least preventing its growth) is not.
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Re: Two Myths about Capitalism

Postby Eran » Sat Jan 01, 2011 6:01 am

Xunzian wrote:Basic game theory argues against the former assertion (see: coordination games). Furthermore, while it is true that no true laissez-faire system has ever existed, it is also worth noting that governments which favor a laissez-faire approach do see a greater development of monopolies than those which do not. Theoretically speaking, I see no reason why this trend would alter itself after a certain threshold was crossed.

Theories, including mathematical theories, can only be applied to the real world with caution. Game theoretical considerations, for example, can never take into account the complications of human innovation and creativity, the entrepreneurial motivation and force of free individuals, all of which are critical for the understanding of the real world.

I challenge your assertion that laissez-faire results in greater monopolies. In fact, government intervention in the economy is often, if not invariably, used to decrease competition. In many cases, government asserts itself as a monopoly.
Hence lack of competition in public transportation, road building, and police services, and very limited competition in education. In other cases, government regulations restrict entry (explicitly, as in taxi services, or implicitly, as in banking).

As I noted in the OP, even during the peak of laissez-faire Capitalism in 19th century America, before the Sherman anti-trust act, there are NO examples of private monopolies acting to the detriment of consumers. None. What good are your theories if they are contradicted by actual experience?

Xunzian wrote:As for the second myth, there are two avenues one could pursue in their objection. The first is about the degree of power any given individual has within the system (see: the argument against voting thread). That argument holds some weight, though a more potent objection lies in modern media culture and the consumer culture. Demand doesn't stand on its own as an independent entity but rather it is created. While all classes are subject to this process, access to the media outlets used to create this demand is restricted to the wealthier segments.

It is false to associate large corporations with "wealthy segments", as much of their ownership is, ultimately, in the hands of the middle classes (usually through pension funds).

More importantly, it is wrong to suggest that "demand is created". At best, the media can help channel demand to one company rather than another, but not to "create" demand.

Consider what it is that people end up buying. Most products (by amount spent) are useful items for which demand requires no explanation. People want good houses, means of transportation, clothes, food and entertainment.

As for "luxury" items, I suggest comparing people's spending patterns to those which prevailed before mass media communication. In ancient and pre-modern times, people, to the extent they could afford to, still desired luxuries. Remember the story of the Indians who sold Manhattan for a few coloured beads? Set aside its historical accuracy. Were those Indians subject to mass media campaigns to "create" demand for coloured beads? Of course not.

Why did primitive cultures go to so much trouble to obtain luxuries? Because wanting them is a natural human instinct. In modern societies, corporations are competing in satisfying that need, rather than in creating it.
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Re: Two Myths about Capitalism

Postby Eran » Sat Jan 01, 2011 6:15 am

Ganapati wrote:Individual liberty of the kind you are advocating is an idea, not an ideology

I am not sure I understand the difference. I advocate a complete ideology based in several ideas, the value of individual freedom being one, but not the only one.

Ganapati wrote:It needs another vehicle to survive. The vehicle you choose is that it will lead to higher level of prosperity for all in the long run. Or you are trying to convince the listener that it will lead to a higher level of prosperity for him.

You seem to claim that people can only be swayed by selfish, individual motivation. This is patently false. Consider the millions of people that willingly sacrificed their lives, throughout history, for a variety of motives. By definition, they were working for an ideal beyond their own personal lives.

However, with the exception of a narrow class of pure exploiters who benefit directly from government (political and business elites), I do believe that the benefit of reducing government intervention will be both short-term and universal. Consider how quickly scaling down communist regimes resulted in increased prosperity for virtually all members of society.

The elites I mentioned above, however, control society. They obviously control the power centres such as the army and the police. Much more importantly, however, they control the agenda-setting and ideology producing sections of society, including academia, education and the media. That's why the battle is an up-hill one.

Ganapati wrote:Try convincing someone that the idea itself is worth it regardless of consequences, higher or lower prosperity for one or all short or long term, and see how many will be convinced. That alone will tell you if it can take root.

Do you honestly believe the American Revolution was the result of people being persuaded that independence from Great Britain will result in short-term prosperity? Or was it motivated by the idea (or ideology) of freedom and independence?
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Re: Two Myths about Capitalism

Postby Eran » Sat Jan 01, 2011 7:47 am

Silhouette wrote:
Eran wrote:Myth: Capitalism naturally leads to monopolies which act to the detriment of the consumer.

To address the first half of this first, due to things like (a) imperfect mobility and (b) natural inequality between humans and imperfect information, free-market Capitalism necessarily tends towards some businesses becoming larger than others, tending towards monopoly:

You mention several factors tending to limit competition (e.g. geographical constraints) or to favour large actors (e.g. economies of scale). You also address the limitations of knowledge by the consumer in selecting the best products.

1. Geographical limitations do indeed place practical constraints on competition. Monopolies can be local even when they are not global. To take a simple example, I live near a small town with only one supermarket. I could drive a few more miles to get bread, but that would be expensive and inconvenient. The supermarket, knowing that, could raise prices above those of the competition.

In practice, they don't. Why is that? I think the most important reason is that competition is for the marginal customer. Consider again the price of bread. Neither I nor most people frequenting the supermarket are very sensitive to the price of bread, as it makes a small fraction of our overall food budget. The price of bread is not legally controlled either. Why doesn't the supermarket raise the price of bread by 10% over whatever they currently charge?

The answer is that while most consumer would continue to buy bread at a 10% price hike, the marginal consumers who would be deterred by the price change will take their business elsewhere. The current price is selected precisely in a way that, in the eyes of the supermarket management, would maximize their profits.

The same hold for factory employment. Yes, most employees would not leave if their conditions were to become worse. But the marginal ones would. Even if employee treatment can be more individualised, employers still have a reputation to consider. Having reputation of ill-treating your employees is not good for business.

In the longer-term, additional mechanisms come into play in the free market. For example, employees will quickly learn to demand contractually-guaranteed terms before agreeing to sign up for longer-term employment. Once burned once, people tend to learn their lessons. Having being unfairly dismissed by one employer may prompt employees to demand arbitration prior to dismissal. Employers always compete for employees (for otherwise why is anybody paid more than minimum wage?). If concern about unfair dismissal is indeed important, employers would find it beneficial to offer it as part of the terms of employment.

2. The "Best" product and limited information.
As a student of Austrian Economics, I am very sympathetic to concerns of limited information. Decisions are always made based on limited information. ALWAYS. Now let's apply this insight into examining the free market and its alternatives. It is correct that consumers are basing their purchasing decisions on limited information. It is also true that corporations will try to take advantage of that fact. However, what is the alternative? Typically, the alternative is some kind of government regulation. However, government regulators are also necessarily going to base their decisions on limited information. Moreover, centrally-made decisions are always based on far more limited information than that made by dispersed individuals.
Government regulators cannot be aware of local, not to mention personal considerations. They cannot know what my personal risk-reward preferences are. Moreover, government regulators are never going to be as motivated as I am to try to obtain as much information as is reasonably required to make purchasing decisions.

Economies of scale apply to the acquisition of certain kinds of information (e.g. safety testing). But the free market is perfectly capable of providing information-gathering services. Consumer Reports is one well-known example, and Amazon and Tripadvisor provide more high-tech examples.

Ultimately, the question regarding what's best for people ought to be decided by the people themselves. I object to being treated as a child, as do most adults. I want to be able to make my own decisions, rather than having my options limited. I think that sentiment is shared by most people. After all, even in a free society, nothing stops you from relying on figures of authority before making certain decisions (see the Amish).

As for businesses "creating" demand, I addressed that myth above. While you may not understand why people may want to "waste" their money on certain purchases (and, admittedly, neither to I :-)), a quick review of history easily shows that seemingly-irrational consumption patterns are not an artifact of modren society, free markets or mass media. They are part of human nature.

3. Economies of Scale
You correctly point out that economies of scale often favour larger businesses. Yet not all industries are dominated by a few large actors. Walk into any shopping mall and you will find a handfull of large department stores, but also a large number of smaller stores, both part of national chains and one-off ones. Why is that? Why haven't department stores and national chains completely out-competed owners of individual stores?

The answer, I think, is that economies of scale are counteracted by "diseconomies of scale". Large businesses suffer from the same problems that governments do. They lack the flexibility to react to local conditions. They lose the benefit of the price mechanism to efficiently allocate internal resources. They have entrenched "elites" (management) whose personal interests may not be aligned with those of the business as a whole. They may not properly incentivised internal innovation. They tend towards a sense of complacency. They certainly hold no monopoly on innovation within their area.

For all those reasons (and others), even large, previously-successful and seemingly-entrenched businesses routinely decline, fail and even go out of business. Who would have thought, in the '70s, that an upstart like Microsoft could overtake IBM? In the '90s that Google could overtake Microsoft? In each case, the incumbent enjoyed numerous advantages, including reputation, economies of scale, large R&D departments, and a solid capital base.

Silhouette wrote:
Eran wrote:Myth: In a free market, wealthy people would have more power than ordinary people.

It is one thing to say that wealthy people and ordinary people both have power in a free market, and another entirely to claim that they have equal power.

Can an ordinary person buy the best products, no matter how expensive? No.
Can a wealthy person buy the best products as well as the worst? Yes.

Clearly purchasing power is in favour of the wealthy people. Of course wealthy people would have more power than ordinary people.
Do ordinary people have NO power? Of course not.

As many people noticed, I wasn't very careful in my OP to make the distinction between the power of individuals (where clearly the more money you have, the more options at your disposal) and the aggregate power of groups of individuals. My point was that the aggregate needs of poor and middle class people tend to trump those of rich people. There is much more money to be made catering to the masses than to narrow elites.

Truly free societies represent another facet to the power question. Without the power of eminent domain (so often abused for the benefit of the politically powerful) and regulation, there is very little a wealthy person or corporation can do to an individual, even one of modest means. In an extreme example, a poor subsistence farmer can, in theory, continue to grow wheat in the middle of a large city, even when his land stands in the way of a large and lucrative development project. The people behind the project may be the wealthiest in the land, yet all their wealth cannot legitimately force the farmer off his land.

It is primarily in that sense that money doesn't buy you power in a free society. Contrast that with our government-dominated world. With enough money to buy influence, the farmer's land would be confiscated in no time.

I don't accept your analysis of boom and bust cycles as a free-market phenomenon. As I explained elsewhere, those are a direct consequence of various forms of government intervention. In a free market, a business would be expected to have a certain "return on equity", at a level asymptotically equal to the risk-free rate (itself determined by the market based on people's time preferences) plus some risk premium. Nothing requires businesses to grow. Many mom-and-pop stores retained their size for generations.

Where you see a push for growth is in the capital markets. Public corporations compete for investor capital. Investors require a competitive rate of return for their investment. Nothing in the free market, however, requires that that rate of return be unsustainable.

Silouhette wrote:This is inherently going to happen over and over and over again in a free market.
For every period of growth, the growth must be undone at every recession or depression.

This would be a lot clearer and extreme without any government "interference".

As I mentioned above, there is nothing inherent about the business cycle. It is always the result of government manipulation of interest rates and the money supply, together with moral hazard that distort the natural balance between greed and fear, profit and loss, which would act to dampen "unbridled entusiasm" in a truly free market.

Historically, the worse recession in history (the Great Depression) came precisely when the US government (under both Hoover and Roosevelt decided to intervene in order to "help" the economy. The financial crisis of 1920 was as severe and deep as that of 1929. Yet it was over within a year, precisely because government largely did nothing. It was Hoover and Roosevelt's disastrous intervention that created, deepened and prolonged the crisis to created the Great Depression.

The failed attempts of the Japanese government to pull its country out the a "lost decade" of the '90s is another example.

Silouette wrote:Let it not be forgotten that governments resort to tactics like running the printing presses to create the illusion of more money... to continue the imaginary appearance of growth. This is only needed when an economy requires this illusion.

You are pointing in the right direction. But your interpretation puzzles me. Government runs the printing presses because the politically-powerful elites (both within government and in the banking sectors) greatly profit from the practice, even though it is to the detriment of the economy as a whole. Would you join me in calling for removing government forces from involvement in money production?

Silouhette wrote:Employees maintaining a similar or increasing standard of living while money flows away from them is a symptom of products becoming cheaper as new, more valuable ones replace older versions - not of wealth flowing towards employees. This is why wealth flowing away from employees isn't so clear.

I am confused. What is "wealth" if not the ability to maintain a higher standard of living? If employees are able, as you correctly point out, to increase their standard of living, isn't their wealth, by definition, increasing?

You continue to correctly point out the evils of inflation (e.g. illusion of more money, cancelled by increased prices). However, you seem to suggest that the fault is with businesses ("INFLATING prices"). Businesses would always try to raise prices as much as they can, with or without increased supply of money. Inflated prices are the direct result of more money (ALWAYS produced by government) chasing the same supply of products.

Throughout your reply you correctly associated boom-and-bust cycles as well as the ills of inflation with increased supply of money. However, money supply is controlled by government. Free-market money supply is never unlimited.

Without increased money supply, there would be no pressure to blow up bubbles. Investors may desire growth, but their desires would be limited by the constraints of the real economy, rather than flamed by illusory low interest rates created by central banks.

Silouhette wrote:(WHY DO WE NEED THESE BOOMS AND BUSTS FOR NEW TECHNOLOGIES AND PRODUCTS TO BE CREATED?!!!)

We don't! What we do need are free markets in which entrepreneurs would be able to create and innovate, the price mechanism would channel investment into the most desired and productive avenues, and consumers would be given the widest possible choice of products and services.

Silouhette wrote:The greater power is in the hands of the wealthy who the wealth flows towards during boom periods, and who have exclusive access to be most advanced technologies and products. The wealthy investors are in charge of when to withdraw their investments to get them through a bust period.
The lesser power is in the hands of the ordinary employees who wealth flows away from, and who are left with nothing to see them through each bust period - all the while having no access to anything but out of date technologies and poorer quality products.

It is true that the wealthy typically have access to the most advanced technologies and products. In the modern world, however, that advantage is very short-lived. Cellular phones, once exclusively available to the rich, are now in the hands of subsistence farmers in the third world. The same is true about TV and satellite dishes.

As for investments, a large fraction of investable funds IS in the hands of the middle-class, primarily through pension and mutual funds.

Most importantly, it is a mistake to associate choice with power. As a wealthy person, I can eat in any restaurant I feel like. However, all my money cannot stop a person of more modest means from eating at McDonald's. Only government has that kind of power. Money can be used to hijack government force for the service of the elites. That is done all the time. Without government, money's power is much more limited.
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Re: Two Myths about Capitalism

Postby Ganapati » Sat Jan 01, 2011 8:30 am

Eran wrote:
Ganapati wrote:Individual liberty of the kind you are advocating is an idea, not an ideology

I am not sure I understand the difference. I advocate a complete ideology based in several ideas, the value of individual freedom being one, but not the only one.

Ganapati wrote:It needs another vehicle to survive. The vehicle you choose is that it will lead to higher level of prosperity for all in the long run. Or you are trying to convince the listener that it will lead to a higher level of prosperity for him.

You seem to claim that people can only be swayed by selfish, individual motivation. This is patently false. Consider the millions of people that willingly sacrificed their lives, throughout history, for a variety of motives. By definition, they were working for an ideal beyond their own personal lives.

An ideology necessarily means something larger than an individual towards achieving which an indvidual can voluntarily sacrifice his interests and life or even sacrifice the interests and lives of others. Yes, people sacrifice interests and lives for the sake of ideologies. Whether something qualifies as an ideology or not is dependent on whether the adherents are willing to give up anything for it. It is not an iedology if few professing it are willing to give up any of what they now have for it.
However, with the exception of a narrow class of pure exploiters who benefit directly from government (political and business elites), I do believe that the benefit of reducing government intervention will be both short-term and universal.

Yes, I know that is what you believe.
Consider how quickly scaling down communist regimes resulted in increased prosperity for virtually all members of society.

Communist regimes when they formed had the exact same effect. What does that prove?
The elites I mentioned above, however, control society. They obviously control the power centres such as the army and the police. Much more importantly, however, they control the agenda-setting and ideology producing sections of society, including academia, education and the media. That's why the battle is an up-hill one.

Yes, elite control the state and society. That is actually a tautology since elite are exactly those that control the society and state. Your agenda is abolition of the society as something larger than any individual, not state. Only when society, as something larger than individuals, ceases to exist, individual liberty of the kind you advocate will be possible.
Ganapati wrote:Try convincing someone that the idea itself is worth it regardless of consequences, higher or lower prosperity for one or all short or long term, and see how many will be convinced. That alone will tell you if it can take root.

Do you honestly believe the American Revolution was the result of people being persuaded that independence from Great Britain will result in short-term prosperity? Or was it motivated by the idea (or ideology) of freedom and independence?

You must be kidding, right?

The American Revolution was not about freedom or independence. It was about power. Their demand "no taxation without representation" was to be represented in the English Parliament, not to govern themselves freely. Even that was an excuse. About the only tax that the Crown levied at the time of the revolt was tax on tea.

That after gaining power they claimed to have been motivated by ideals like liberty and antipathy to monarchy etc are testimonials to their dishonest and devious nature that continues till date. There is nothig more disgusting than slave-owners like George Washington and Thomas Jefferson waxing eloquent about "individual liberty"!
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