h2g2 The Hitchhiker's Guide to the Galaxy: Earth Edition

Should capitalism be just defined by what types of private property are possible? Private ownership of land seems to pre-date capitalism, but as a form of ownership of the means of production it seems to be heading towards capitalism. The industrial revolution, by making it so that individuals couldn't compete with businesses that owned very expensive to produce machinery, exaggerated this already existing aspect of the economy. Taking this point of view, we could say that there were capitalist aspects of economies before the industrial revolution, but that the exponentially increasing multiplying effect of technology means that the importance of the private ownership of the means of production grew over time, and particularly rapidly during the industrial revolution.

pedro: "How do you work out what's 'fair', without having some pre-conceived moral framework?"

Why shouldn't we have a moral framework? Actually, capitalism *does* have a moral framework, it says that we should reward people according to their bargaining power. And to me, that's a pretty perverse moral framework. There's no such thing as an objective, non-ideological position. The best you can do is not to talk about the ideology, which just means accepting the already existing one. The alternative is to decide for ourselves how we want to live.

The way I see it, we all benefit by the existence of an ordered, lawful society, and this society is created by the labour of (almost) everyone in it. The rich couldn't enjoy their massive wealth if there weren't a whole society of people producing stuff for them to consume, they couldn't have made their massive wealth without an ordered society with many people working on their behalf, and they couldn't keep their massive wealth without a lawful society with people working to protect it for them. This is clearly a parasitic relationship: all the labour involved is necessary for the production that happens, but some people get to enjoy more of the fruits of it than others.

Bouncy: "The advantage of capitalism is that it it adapts to changing conditions. It does this through competition."

Two things. First of all, capitalism isn't the only possible competitive system. Secondly, competition isn't always a good thing.

I think we're all probably in agreement that central planning is a bad idea for the reasons you say (and others which might be even more important). But central planning and capitalism are not the only two alternatives. Before the idea of communism and central planning existed there was syndicalism for example, the idea of organising the economy around voluntary cooperation of workers in different industries via trade unions. Anarchosyndicalist economics was briefly tried during the Spanish civil war but it's difficult to get much of an idea about how successful it was because it was largely a war economy and relatively short lived (the fascists won). There are other more recent theories of decentralised planned economies involving competition: various forms of market socialism; economic democracy (David Schweickart and others); participatory planning (Pat Devine and others); and my own favourite which I wrote an EG entry on at A30777546, participatory economics (Robin Hahnel and Michael Albert). There are many more.

The second point was that competition isn't always a good thing. In a capitalist economy, people compete only for short term profit, to the exclusion of everything else. Consequently, we get things like the recent credit crisis, and worse, environmental destruction.

Ed: "*On the other hand*...it does seem, does it not, that we need to give *some* centralised attention to the regulation of society (which amounts to the regulation of economy)."

It doesn't have to be centralised, but it should be socialised (and democratic).

Hi Dogster,

<>

I think the market system is supposed to reflect the economic value of labour in wages. Nothing more. Like you say, 'There's no such thing as an objective, non-ideological position.' So wages and prices are determined solely by their economic value, which are basically what people are prepared to pay for them. I'd say it's more an amoral position than a moral one (and obviously, it doesn't reflect any power differentials between the parties involved, which is hugely important, especially for labour).

Where I was coming from was the point Polanyi made about economic behaviour (basically all kinds of resource allocation) being totally embedded within social structures before the industrial revolution, and being dominated mainly by market forces afterwards.

The moral aspect comes in at the point where you choose which economic system to use though. A system that paid everyone exactly the same would also be 'amoral' in its everyday workings - what would make it 'moral' is that the society had chosen to live by these rules. My argument is that the same holds in the case of capitalism, we as a society have chosen to live by the rule: reward people according to their bargaining power. The difference is that we've chosen to do this by virtue of not opposing it rather than positively seeking it out - but I don't think this makes it any better.

About the Polanyi thing, that seems plausible to me. It can't be entirely true though, because there are class based aspects to it too. For example, professional organisations are able to improve their wages above the market price by artificially restricting supply, whereas trade unions are highly regulated and restricted in what they are legally allowed to do.

I've been dragging my sorry ass through this Polanyi book, which makes my eyes glaze over for most of the page then has something dramatically interesting in one line.

One thing he noted is that when modern economics was being founded/extended by the likes of Malthus and Ricardo, there was a wage subsidy in place in England called the Speenhamland system
http://en.wikipedia.org/wiki/Speenhamland
He calls it a 'right to live' allowance, and it meant that the unemployed got enough money to feed themselves. Problem was, most labourers' wages were pretty much subsistence wages anyhow, so for most of them, their wages went pretty much to zero, with the local parish topping them up. The vast majority of them became much poorer.
It lasted from 1795-1834, when the next Poor Laws were effected.

Polanyi says having a market system without a proper labour market (men were essentially tied to their local parish at that point) was catastrophic. What it did for Malthus and Ricardo though, was to completely skew their understanding of labour markets. Which must interest Ed at least, cos Marx's understanding of labour is heavily dependent on Ricardo, and presumably his 'iron law' of wages (that they tend to the minimum). Which has not, over the decades, been the case.

Interesting.

The Romans also had a system of giving free bread to the citizens. It nearly bankrupted them.

Can you explain more about Ricardo and the skewing, though?

My memory of Ricardo (which might well be mistaken) is that he based his theories on mathematics. He didn't go in for real-world data collection. What he describes is presumably a notional world without Speenhamland or similar. ie a more nearly unbridled market of the sort Marx describes. (Or, rather, Engels in 'The Condition of the English Working Class' in which he was describing an urban population which was *not* tied to parishes)

>>Marx's understanding of labour is heavily dependent on Ricardo, and presumably his 'iron law' of wages (that they tend to the minimum). Which has not, over the decades, been the case.

Granted, welfare payments of any kind define the minimum. That's obvious.

<>

Ricardo (and Malthus, whose 'Malthusian' analysis of overpopulation was very similar to Ricardo's) performed his analysis at a time when wages for labourers were plummeting due to the Speenhamland subsidy, and there was widespread pauperism (as opposed to poverty) for the first time around then. Polanyi says that this was responsible for Ricardo's anaylsis that wages would always tend towards subsistence level, which hasn't turned out to be the case. Wages have risen in real terms over the last 200 years.

Ricardo did illustrate his theories with maths, and his 'comparative advantage' theory of free trade is still taught today, pretty much as he envisioned it. He was a very important economist, just wrong about some things.

Incidentally, I read somewhere that Malthus was wrong about overpopulation because he didn't realise the effect that using fossil fuels would have. Effectively, we discovered a form of energy that hadn't been utilised before, and this powered the incredible rise in population and living standards that we've had since then. That's kinda why I started the thread; I've got a vague notion that the explosive increase in wealth was initiated by using fossil fuels, and capitalism arose in response to that.

Re: Ricardo and Malthus's (and Marx's) error...

1) Does the Speenhamland factor meen they were totally wrong *in principle*...or merely a bit wrong over things like the *rate* of diminution of wages? My understanding of economics theories is that it identifies different trends, rather than describing invariants. Could the error be akin to, say, Galileo forgetting to account for air resistance when dropping objects of the leaning tower of Pisa?

2) So where's Polanyi coming from? Is he saying that subsidies and the like are the root of all evil and that if it weren't for things like the Speenhamland, the market would sort everything out? Or even if he's not that extreme...how robust is his analysis? Is he widely accepted as overturning Ricardo?

>> That's kinda why I started the thread; I've got a vague notion that the explosive increase in wealth was initiated by using fossil fuels, and capitalism arose in response to that.

Indeed - I hear where you're coming from. But aren't you making the case that, once fossil fuels kickstarted growth, it *was* dependent on Capital? The wealth creation potential of fossil fuels allowed an economy based on the assumption of future growth (hence shareholding, borrowing, futures trading, etc,) which further accelerated enterprise creation and hence innovation.

Plus...I'm wondering about the startup costs of things like coal-dependent smelting (and distribution; machinery production...etc.)

<>

Well, first off can I just say 'mothering g ! for accidentally erasing the first response I took ages writing



R&M(&M?) both had theories that were akin to Marx's withering away of the state; they used an economic mindset to try and make a deterministic prediction about how society would turn out, and they were both totally wrong. Polanyi reckons that really they were victims of timing, in that they lived through about 10-20 years of declining wages caused by the Speenhamland thingy. This led them to believe that wages would naturally fall to subsistence level, which is completely *not* what's happened. You can also imagine how motivated your average Joe would be getting paid less than enough to feed himself, and getting fed by the local parish.

I'd imagine that what really foxed R&M is the huge growth in productivity of both land and labour. They would have seen labour become less productive and followed that trend. A modern theory of wages would say that labour will be paid at a rate which reflects their productivity. And that productivity has increased enormously, as have wages. They were really rather wrong in both the particulars and the generalities in this case.


<>

Polanyi is a very clever guy, so much so that he tells you about all sorts of analyses without bothering to actually tell you about them. This wasn't much like a minimum wage though, it seems more like Soviet-style 'let's use everyone in the town cos we're not paying them anyway!'. He merely says that these particular subsidies led to an astonishing increase in squalor and all sorts of social disruption. He also says that the introduction of a purely economic basis for labour also led to all sorts of social disruption too. He very wisely points out the rafts of legislation passed in the 19th Century to protect society against the ravages of the market, as well as bursting the balloons, over and over, of free-market fundies.

Re Ricardo; all theories of value from classical economists are basically ignored in favour of supply and demand, which originated in the 1870s (I think, maybe a bit earlier. I'd love to know what Marx thought of it.) They're based on marginal utility, where the value someone puts on a good or service depends on how much of it they want. Earlier folk talked about 'natural' value, but economics got post-modern way before anyone else, baby!

That's kinda why I started the thread; I've got a vague notion that the explosive increase in wealth was initiated by using fossil fuels, and capitalism arose in response to that.

Indeed - I hear where you're coming from. But aren't you making the case that, once fossil fuels kickstarted growth, it *was* dependent on Capital? The wealth creation potential of fossil fuels allowed an economy based on the assumption of future growth (hence shareholding, borrowing, futures trading, etc,) which further accelerated enterprise creation and hence innovation. <<Ed

I'm not sure (I wasn't kidding about the 'vague..). I suppose I'd say that a modern financial system arose because it was more efficient? I dunno, but given that the Templars basically were bankers who allowed Crusaders to have access to their money in Palestine without the hassle of actually lugging it there, I'd guess that modern finance arose in response to the needs of the capitalists/entrepreneurs. Limited companies arose around this time, presumably as a way of managing risk; the 'limited' bit basically means limited liability if it goes tits up.

And there's also the fact that there was more wealth to be spent and invested. Just look at the last decade to see what them tricksy financiers do when they've time and money on their hands.

<>

Well, you'd expect them to start off small, eh? Then when some investors made a packet, more would follow. Some would lose *thousands*. Kinda like the dotcom boom.

>>R&M(&M?) both had theories that were akin to Marx's withering away of the state;

Ah. Now I *did* say that I'm 'not *that* kind of Marxist. In fact...I would have said that Marx contradicts himself on that. This 'Whig view of history' - that it is deterministic in a positive direction - seems to me to be the very opposite of slippery dialectic.

As you know full well...I'm the slippery, dialectical type of Marxist. .

btw...this is the best conversation I've had in ages.

Nah, just meant that it was more all-encompassing than the economics would allow.

<>

An argumentative sod, then?

Worse! An argumentative sod who's capable of holding equal and opposite opinions simultaneously.

Seriously, though...it's the dialectical approach that's important. Systems are dynamic.

With dialectics, why are there only two thingies competing against each other? Why not 3 or 4?

Ah. Now. Simply because that's an easy way of understanding things. We can easily conceptualise opposites...left/right; up/down; hot/cold; smooth/hairy. Reality is more multidimensional, of course. But it can be factorialised into these oppositions. That's one way of looking at it. anyway.

Compare and contrast in psychology: Repertory Grid Theory (Kelly).

Look - theories and models are nothing more than expressions of reality in forms that we can get our heads around.

Kierkegaard was an anti-dialectician. To him, truth was in the process of discussion, not its end points. Apparently he sat next to Marx during Hegel's lectures.