Does capitalism work?

nice post geoffP
completely agree with pretty much everything you say in here i just lack the patience to type it all out these days.
although would gladly get into a verbal discussion on it.
my hat is off on this one.

im picturing scrouge Mc Duck

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in some time capsule of the 1800s bent on mercury and lead poisoning prattling away in some dusty rancid manor house to a small group of festering old men like some dying cult trying to cling to an ideal that has been long washed away by the simple light of day.

 

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Thanks Riple. May you long Riple death indeed.

 

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Billy T:I have little respect for some of the others posting to this thread. You surprise me. I expect more from you, who has shown a lot of intelligence & critical judgment capabilities.

The inventions & production methods you mention were due to what? Perhaps government legislation or the activities of labor unions? It seems obvious to me that the use of those inventions & efficient methods was due to the activities of entrepreneurs & financiers. Some of the inventors were entrepreneurs. Without the entrepreneurs, many inventions would have been unused intellectual efforts.

The government did not finance or support inventiveness. The government did not finance or support efficient production methods. Labor unions were ineffective until the 20th century, well after laissez faire capitalism had greatly raised the standard of living of ordinary people & working conditions had improved due to the use of steam engines, internal combustion engines, & various labor saving devices like induction heating & powered machine tools (EG: Upset forges & automatic screw machines).

Relating to one of your points: Prohibition of child labor was 20th century legislation, which was passed when there was little child labor in the USA. At the time that child labor was widespread, productivity was so low that the adults in many families could not support the family above a slow starvation or minimum subsistence level.

Child labor gradually faded away as productivity increased. Very few families ever wanted their children to work under bad conditions. In recent times there have been some instances of American firms giving in to PR & ceasing to buy products from 3rd world nations who used child labor. The result in many cases was children being sold into sexual bondage out of necessity due to the loss of their jobs. I think one example was a sports shoe manufacturer.

Your following view is interesting & cogent.

I believe that equally or perhaps more important was increased political freedom & less influence from organized religion. The majority of people today are still superstitious & have very little scientific knowledge. It is the freedom of the best & the brightest that has had a huge effect.

If you study the development of labor unions, you will discover that they became effective when industry became more profitable and entrepreneurs could better afford to raise wages. The success of unions is more due to the success of industry than due to either government legislation or union activity.

There were very few effective unions prior to the 20th century. Did you know that the first successful strike occurred either in the in the decade prior to or the decade after the revolutionary war in the late 18th century. It was a printer’s union in Philadelphia. Why was it successful? It was successful because the industry was very profitable & the entrepreneurs felt it was not cost effective to allow a strike. This is an early example of the argument I presented immediately above.

Are you aware than Henry Ford in the early days of his company paid $5.00 per day to his workers when the going rate was $3.00? It was due to his view of the industry, not due to union activity (His workers were not unionized at the time). He believed that his company would be more profitable due to attracting & keeping the most productive workers, making up for increased labor costs.

He also had another very interesting motivation. He had a dream ambition: He wanted to have a company which manufactured & sold one million cars in a single year (an incredible goal at the time). He knew that there were not a million affluent people who could be customers. He actually believed (rightly or wrongly) that his policy would cause an a slow increase in the income of workers on a country wide scale, resulting in the customers becoming available as his company was working toward being capable of manufacturing a million cars per year.

Oddly enough, labor unions seem to have created problems in the 20th century. They were able to drive labor costs up to levels which made some (?many?) American companies unable to compete in a global economy. In many instances, leaders of unions in the last 50+ years have become more like politicians. The leaders have very lucrative jobs & are very motivated to preserve their jobs, making the welfare of the workers a secondary motivation. Demagogues wanting to win the next election, can oust a labor leader if they can present him as being too soft on management. This results in harder bargaining than necessary.

Have you ever noticed that many costly strikes have resulted in a compromise close to the average of the original demands of the union & the original offers by management? The labor leaders must look good to the workers & the negotiators for management must look good to upper management. The actual negotiators on both sides know that a compromise without a strike is in the best interests of both the company & the workers. However, an immediate compromise is not in the best interests of either set of negotiators whose primary motivation is to keep their own jobs.

 

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Dinosaur, I have little respect for some of the people posting to this thread. That being said: none of the advances you underscore, whilst deftly avoiding mention of drawbacks, could not have been performed by a socialist or communist system operating under the proper controls and ethics.

 

Perhaps our conflict centers on what is capitalism. "Entrepreneurs" exist under all systems as greed is part of human nature. I take the name capitalism to imply that capital investment is a characteristic of that system. Thus, few if any of the inventions I mentioned were made by individuals first attracting capital investments. I.e. they would have (and in my POV did) take place as superstition gave way to science. Surely, many of the inventors did hope for some financial gains basically from their own efforts, not capital invested in their research.

There are exceptions, of course. Watt was motivated by the problem of water levels in the coal mines and the lack of power for pumps (and the poor pumps themselves. The first steam engine was intrinsically a water pump - Steam blew the water and air from the prior cycle out and filled a chamber with steam, which condensed and sucked up more water.) I do not know who paid for his steam engine pump - possible that was invested capital. Certainly it was invested capital that then made many more for other mines, but even then the mines were often familly or small group owned, not what we would call a capital interprise. (Rich people have capital under any system, even in the old USSR.) Many others over the years made slight or large improvements. Probably the most important was for the steam to push a piston - make power and separate the pump from the power generation functions so each could be separately optimized.

Pasture was definitely employed by Capital (of the wine industry) but not the first to understand microscopic particle actions. Generally that credit goes to doctors working without any capital invested. Semilvise in Hungary and --------(I forget name just now) noting that milk maids never got small pox, and testing vaccinations for it.

Probably only my example (6) is clearly the result of a capitalistic system - I.e. the "Bessemer converter" took a lot of capital - more than one man and his knowledge could achieve, but many other parts of (6) - metallurgical advances - were cumulative advances independent of capital stretching over centuries - starting with the "Swords of Damascus" and copper and lead smelting - both available to the ancients, long before capitalism came to be. Legend has it that some Phonetian sailors used some bags of soda (I think) to make a wind break for their fire on a beach and next morning discovered glass, about 3000 years ago.

I tend to agree with your sentence I made bold, but note that government can be entrepreneurs too. Inventions by capital investment is I think only a 20th century introduction (Bell Labs and the transistor etc.) In your time frame I think capitalism made none or very few. Probably most that capital did make back then were via government capital - for example English government prize for a ship born accurate clock (to let ocean sailors know their longitude without the cumulative error of "dead reckoning" from rope measured speed - Why it is still called "knots.")

I noted and you did not comment on that most of these advances took place under what could better be called a mercantile system, than capitalism. I don't know the official definition of that so will give one for what I am referring to, which applies to both nations and individuals: The Mercantile system is one in which one tries to hoard wealth, and tries to avoid debt (certainly borrowing and paying interest on the capital is not part of it.) Thus the Nation or the baker tries to profit from what he sells (more than what he buys) and keeps his profits and is not inclined to borrow capital and expand. Often under the mercantile system technical advances are keep secrete - certainly not publicized to attract investors. For example how to separate the seed from cotton fibers was an English secrete and how to assist (with forcipes) the delivery of a baby was a secrete - passed down three generations (They always worked under a blanket to keep others from seeing the forceps grab the baby’s head.) - A very different approach from capitalism publicizing why their advance will make others obsolete so, invest in us, buy our stock, etc.

Yes I knew of Ford’s enlightened paying his workers “outrageous” salaries. And that others capitalists like Firestones were angry at him. I have posted about this on several occasions, usually noting that the main cause of the current economic mess in GWB’s era was his reducing the purchasing power of the typical Joe American’s salary. (Joe went into debt to keep being 72% of the economy as long as he could, but now the government must go into debt to replace Joe’s buying.) IMHO, giving tax relief for the already rich, instead of investing in technical education (and even prizes for desired advance as done years ago) was a huge mistake. – It made the more modern factories in Asian with the “Trickle Down” of this extra money available to the likes of Warren Buffett, now owner of 10% of BYD motors etc. Too bad GWB followed a policy exactly the opposite of Henry Ford. (Ford gets credit for the mass production economy, not the assembly line, in my book.) In a consumer lead economy when you screw Joe, you really are screwing yourself. For example, Warren’s personal fortune lost 10 BILLION dollar in the last year. Ford was smart. GWB was an idiot.

But I digress, so stop.

 

All of the advancements you listed Billy are certianly major achievements provided by science. But they could not have occured had it not been for the base of stability and resources provided by capitalism.

 

Perhaps, but that depends upon what you mean by capitalism. Not true under what I understand (and defined in prior post) that term to mean (capital being invested by many in the hope of profitable return) What do you mean by capitalism - a definition that would make the individual effort inventions of my list a product of "capitalism"

I.e. the transistor is a product of capitalism (capital of the share holder of AT&T which funded the R & D center known as "Bell labs." ) but not the invention of vaccinations etc. For me there was very little capitalism in Dinosaurs time period. Certainly there was capital (all system have rich people with capital). Certainly there were inventors and some became "entrepreneurs" but most were scientists, not even business men first.

You and Dinosaur seem to me to be equating capitalism and entrepreneurs. Very different concepts. The first is a system which attracts capital from any source it can with the implicit promise to the investors that they have good chance of making a profit. "Entrepreneurs" tend to be individuals who already have a product, not necessarily one they invented but it could be,* that their greed makes them promote, under any system. "Entrepreneurs" exist under any system as greed is universal. In the USSR, an "entrepreneurs" might have been the guy whose friend told him that the store he worked in got a shipment of toilet paper and as agreed he hid a box for him (to come and get for the promised bottle of vodka) - both were "entrepreneurs." What distinguishes capitalism is that its entrepreneurs, via others money invested, can be tycoons.

Again: Please tell what you are calling "capitalism" and show how it was even significant source of the inventions and developments I listed. AFAIK, there were no capitalists with R & D labs prior to 1900. Capitalists took the discoveries and inventions and made them into industries but that is all they get credit for in my book. The main cause of man's progress is typically the inventions and discoveries that science replacing superstition has made possible. Capitalism only spreads that into society much more quickly than other systems (and produces a lot of disruption and damage, especially to the environment, too while doing so)

As far as an economic system is concerned, I think the best yet developed is the one evolving in China (only the last 30 years, not the prior 30) State management of investments in infrastructure and market demand deciding what consumer goods get produced. For example, both US and China need nuclear power, but only the Chinese (or the French) are installing it via central planning of their infrastructure and it is much safer than letting business men design the controll rooms (The experts who arrived to take chage of the Three mile Isand accident did not understand the control room gagues - the French control rooms are all identical and saftey comes before profit. Three Mile Island plant was put on line on 31 December to get included in the rate base of the PSC for next year without many of the safety pumps yet installed. etc. Profit often dominates safety when there are shareholders to answere to. Same is why there are "toxic assets" and a collapsed banking system for tax payers to bail out.

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*Coronel Sanders is the proto typical entrepreneur before becoming a capitalist. He spent years traveling around in his car talking managers of small "greasy spoon" forerunners of today's fast food out lets into letting him cook up some chicken with his seasoning added. Eventually he turned to the capital markets and built the Kentucky fried chicken chain.

 

No that is not what I was referencing . I was using the term in a much broader context. Capitalism provided a social and physical infrastructure upon which invention could flourish. Look at the scientific advances of the last century. Communication and educational structures arose because capitalism generated the resources that could be diverted into scientifc advancements. It is not just the funding that supports specific research, but the resources that are used to support the environment that fosters an atomsphere which enables creative minds and the products of those minds.

Look at the plethora of inventions that occured during and after the Industrial Revolution. There were inventions before and the Industrial Revolution, but they were fewer in number and some never survived (e.g. Antikythera mechanism).

 

That is so broad as to be meaningless. The USSR made titanium wing leading edge airplanes and MIGs faster than any the US had in the Koren war before the US could even work with titanium. They made the AK47, space satellites first, great tanks, etc., developed eye surgery to correct vision. etc. Your definition (if that is what it was) makes the USSR a capitalistic nation as the USSR provided the atmosphere for invention and developments to flourish. Try to give a less broad definition that at least excludes the USSR or accept mine.

I agree post 1900 capitalism did make inventions (even mention twice Bell Labs’ transistor.) but many important ones were government funded to, such as the internet, digital computers, fuel cells, super insulation, and few if any institutes of higher learning were made by capitalism. You and Dinosaur cannot give capitalism (as I defined it) credit for everything good in man's progress, especially not in Dinosaurs' 200 year time period which ended 1900. Try to name nine capitalistic inventions in that time period with even 10% of the significance of my named nine non-capitalistic inventions and developments. I cannot think of any that were capitalistic funded other than the two I have named. (Watt's steam pump & Bessemer's converter) Yes post 1900 there are many.

 

That is not true, my definition does not include the Soviet Union. The Soviets were in no way Capitalists. Did they have a few inventions, sure. But they were fewer in number than those in capitalist societies. And ultimately, the Soviets could not maintain their inventions or even support their own people.

It is capitalism that provides the funds for government to allocate to research. Government research is a major driver of invention and the economy, on that we can agree.

 

Then you need to give a definition that clearly excludes the USSR such as mine did. I am not claiming the USSR was capitalists but only that they did meet your implied definition (foster inventions and developments). There is nothing in that definition which say they must invent as much as the US did.

I am not an expert on what all the USSR did invent or how much, but Russian was one of the two languages I chose to meet my Ph. D. language requirement (German the other) as at that time they both were among the world leaders in science. I happen to know about their skills in fabrication with titanium as I needed to get some fabricated one summer at LASL, which was one of the few US places that could do small pieces. - Nothing like an airplane wing the USSR could do. In almost any area of technology, the Russians claim to have done it first and often with good reason. Most of their world leading technology was of interest to the USSR’s military.

Your "foster inventions and development" is a terrible definition of capitalism. Any valid defintion should at least mention "capital" - how it is increased and used. ALL SOCIETIES HAVE CAPITAL and most non-Arabic, non-Moslem ones (now, not when Europe was in the dark ages) foster inventions and development. Your definition INCLUDES the USSR and that is ridicules.

Give one that at least mentions capital and excludes the USSR.

 

One, I did not intend to define capitalism when I entered this discussion. Nor did I intend for you to intrepret the reference to "fostering inventions and development" as a definition of capitalism. Because clearly that is not an accurate definition of capitalism...not even related. And I did not imagine that anyone would take it as such.

Capitalism is an economic and social system in which capital (means of production) is privately controlled and traded in a market. Resources are allocated by markets, not by fiat or command. That is my definition of capitalism.

My intent in posting was to say that invention and innovation are supported and flourish in a capitalist environment. A good economy facilitates innovation and invention. If resources are being allocated inefficiently, as in the case of the Soviets (non capitalist, totalitarian state), ongoing support for science cannot be sustained. So while there may be flourishes here and there in a non capitalist system, the advancements are not sustainable without viable economic and social insitutions.

The Soviet Union directed resources to defense projects. So they may have achieved some succeses and created some inventions. But ultimately they could not sustain it. Their economy collapsed, they could not support their military or related science projects.

 

We almost completely agree now. I like your definition of capitalism. Reason I asked for one if your implicit "foster invention and development" was not (and you make clear it was not) was your post:

In my 847 reply I said whether or not that was true depended on what you were calling "capitalism." Now that you have made that clear, I think the now bold ending of your post 846 is very over stated, if not false. What I can agree to, and perhaps what you intended, is that capitalism greatly speeds the practical application of inventions and development into society, because for this to happen, "up-front" capital, more than the typical inventor has, is normally required.

The state can supply that, but as even its resources are limited, it often "bets on the wrong horse." The capital markets do a much better job (usually)* in financing the more rewarding options (new inventions & developments) than salaried government bureaucrats with no personal interest in the results. (Sometimes they do have a personal interest, but almost always it makes the problem of wise resource allocation even worse - a stupid project by wife's brother, etc. gets funded.)

My main objection to your post 846 was that it states the invention (the nine of my list) would not have occurred without capitalism when in fact almost all did take place without any capitalism as you have now defined. So taken literally your 846 is false. That said, I think you were really intending to say, as I agree, capitalism both speeds the adoption/application of inventions and I would add: Capitalism (usually)* does a much better job at resource allocation to the available options*

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* This is not always true. In many infrastructure cases, related to the environment or projects with more than a decade of "pay back" time, the state can do a better job of asset allocation. For a US example, private industry would never have built Hover Dam. They could not collect a dime on the flood control benefits and the pay-back period was too long. Another example: private industry will not build levies along the Mississippi River. In general, many infrastructure projects badly needed by society fail to be attractive to private industry. Capitalism does not provide libraries or schools (except some pre college ones where the voters have allowed the public schools to become little more than institutions to keep kids off the streets.)

Also one must note that often what is attractive under capitalism is sometimes actually destructive to the public welfare. For example, especially after the end of WWII, builders made profits creating "suburban sprawl" and so did Detroit and oil companies. The result being that the basic infrastructure of the US now is one of the world's worst for coping with the coming high energy cost era. Instead of urban centers with parks and high apartments (upper floors and commerce / theaters etc. at ground level), rapid public transit, (including many commuting to their jobs by elevator) etc. we have dangerous urban slums for many central cities with the surrounding farm land paved over in 1/2 acre lot homes.

China is doing a much better job in providing energy-efficient high-density living, and public transport.

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It may not appeal to you now, but when Gasoline is $20/ gallon it will.

Note the tree lined streets and commerce on the lower levels (elevator commute to work)

SUMMARY: IMHO, China is developing a better than Capitalism hybrid economic system. (Market determines what consummer goods are produced and state plans the support infrastructure, with a 50 year time horizon.)

 

I think we are in agreement, perhaps I could have done a better job of stating my case. Ironicly China is as you point out becoming better capitalists than the US.

 

I suspected we agreed. but I have added a photo and summary to my post, after this post of yours which you may not have seen - on my computer my post is more than one screen. I am courious if you will agree with the new summary.

 

I think capitalism is somewhat defined as follows.

• Individuals & corporations allowed to own & control real estate, means of production, money, et cetera.
  
  
• Government at various levels to maintain a criminal justice system & a civil court system. These are necessary to prevent the use of force or fraud, & failure to abide by the terms of a contract, et cetera.
  
  
• A national government responsible for defense, diplomatic functions, & other activites relating to foreign nations. The national government of a large nation (like the USA or the USSR) should also be responsible for arbitrating disputes between states.
  
  
• Aside from the above, the government should have few addtional powers or responsibilites.
  
  
• There is an implication that a capitalist nation should have a very difficult to amend constitution which specifies limitations on the actions of a ruling class, monarch, or a democratic voting system. In a democracy with no limitations, a majority could vote to deport, imprison, or execute an unpopular minority. It could make & enforce other totally unethical decisions.

The founding fathers of the USA were astute when they made a national-level inome tax unconstitutional.

One feature not considered by political scientists (an oxymoron, perhaps) is the separation of economic & political power, which is what the founding fathers might have had in mind when they attempted to place limitations on the federal government.

One of the founding fathers (I forget which) wanted to write an interesting & worthwhile item in the constitution.

• The federal goverment should have no authority or powers not explicitly allowed by this constitution. Private citizens should be allowed to do anything not explicity forbidden by local laws or the provisions of this constitution.

Congress & the courts have made some very creative interpretations of the constitution. In particular, consider the phrase: "The federal government has the right to regulate interstate commerce." This clause has been used to allow for an incredible amount of legislation, much of which should not have been allowed.

 

To Dinosaur:

I think your five bullets define a society, not just capitalism. Joepistole definition is more limited and appropriate, I think.

For example, imagine a state in which all five of your bullets are satisfied, except women are not allowed to own properity.

Does that state then cease to be capitalistic?

It would not be under Joepistole's definiton or mine.

 

Interesting remark.

For probably 2000+ years women had approximatley no rights in cultures. At least they got the right to vote & own property under a capitalistic system in about 200 + years.

The basic definitions accepted for a long time are as follows.

• Communism: The state both owns & controls everything.
  
  
• Socialism: The state controls everything, but individuals are alleged to be able to own property & some means of production.
  
  
• Capitalism: Individuals are allowed to both own & control almost all property & means of production.

Each of the above imply a type of culture which is compatible with the basic definition.

Socialism & communism require a strong central govenment & a vast bureaucracy for enforcement, control of production, & allocation of the goods & services produced.

Capitalism does not require a vast bureaucracy & only requires enough goverment to maintain a criminal justice system & civil courts to take care of disputes relating to noncriminal economic activities (EG: Is the landlord living up to the terms of the lease?; Is the steel company delivering the promised items contracted for by the auto maker?; Did the doctor make a serious mistake or was the patient too sick to be saved?).

BTW: It is not always clear what situations should be judged by the criminal justice system & which are matters of civil dispute. EG: Is is it fraud or bad judgment by the investment manager? Is the doctor guilty of criminal negligence or did he make an honest mistake in his diagnosis?

 

To Dinosaur:

Now your three bullet definitions indicate that state controls everything except under capitalism, where I presume the state controls some things, such as purity and effectiveness of drugs, which would be more profitable if no requirements to demonstrate that were imposed by the state. (US’s FDA etc.)

I think "controls everything" is over stated even for communism. Certainly it has never been achieved, even when the "state" was only a small utopian group. If you want to speak of control, then I would agree that under communism, the state controls what is produced and has strong influence on how it is distributed, but even there individuals make many decisions (For example in the old USSR, whether to read Pravada or Izvestia or none; to raise tomatoes or potatoes* in the apartment buildings back yard, etc.)

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* BTW, during the worst years of the Lenshiko insanity, these small private plots supplied ~45% of the vegetables eaten in Moscow and barter was a major part of the Soviet economy. Communism with central direction never works well on the collective farm. The planting is done and the tractors are sent to the farm rain or shine as scheduled centrally. Try planting when the ground is still frozen.

I spent a couple of hours speaking with a pretty Russian girl, an economics student, on a train in Hungary. Her summer job was in a tomato canning plant. All three summers she told me about were economic disasters. One summer the central planners had forgotten to order can lids be made and sent to the factory, so the manager bribed the truck drivers delivering truck loads of tomatoes every day to deliver them straight to the town dump.

PS: What is the form of government found in Scandinavia - high taxes and high quality government services (free schools, free health care, etc.) with great per capita productivity and inventions and essentially no crime? And BTW women voting about 100 (or more?) years before they could in the USA.

IMHO, as stated before, the economic system China is evolving may be the best: State plans the infrastructure with ~50 year time frame and market place determines what consumer goods are produced. What I am sure of is that only the market can do that well - central planning of consumer goods is always a disaster, but few realize how much of it is done in the USA, via the complex IRS code - most production / corporate decision are strongly influenced by the tax consequences - That is "central planning" in disguise.

 

Billy T: The following is astute.

Even Chomsky & a few others in the Ivory Tower academic community have realized that a strong central goverment is potentially bad, no matter how good it looks in theory & how good it seems to be at times. That is why so-called libertarian aka anarchy) socialism is being sold by them.