Society 2 (by )

Capitalism and Free Markets

I actually really like free markets, but I'm not so keen on capitalism.

Free markets mean that people can compete to provide things (such as services and goods) in exchange for other things (such as money). This is good because it forces suppliers to work to provide better quality-per-currency-unit, or their competitors will get all the business. It allows new suppliers with innovative new ideas to come and take the market, despite them being small while the existing suppliers are large and rich.

Capitalism, in a way, is the opposite of that, or at least the subversion of it. Capitalism means that "capital" - money and things you own - gives you power, such as the power to do things that earn you more money. Capitalism means that somebody with a million pounds can buy a smart suit and education and travel and convince people to give them jobs, credit, responsibility, and trust; while somebody with no assets other than their own not-necessarily-healthy body and a few relationships with friends (and no money!) will struggle to afford anything, so will be forced to buy low-quality goods (often on credit at punitive interest rates), incurring ongoing costs for their maintenance and replacement (not to mention that interest). And all of this bears no relation to how hard those two people work, or how much they contribute to society as a whole.

Capitalism allows large incumbent companies to spend their amassed savings on crushing new competitors who could offer a better service cheaper.

So I like free markets, but I see capitalism as a force the subverts them and turns them into monopolies. Competitors with a lot of capital can invest in large setup costs up-front and benefit from economies of scale, even if their underlying production methods and products are less efficient than those of smaller competitors on a like-for-like basis. It also enables the rich to sell their products at a loss so that new competitors get no sales unless they also sell at a loss - and the company with more capital can afford to keep going for longer; the other will go bankrupt. It enables the rich to spend on massive advertising campaigns, boosting sales of their product without actually changing the "quality per pound" of their product. And free markets, in theory, are supposed to result in the most efficient (in that sense) supplier dominating each local market; if marketing can change the sales you get with no change to your product or its cost, something's not right.

I think that free markets work wonderfully when all suppliers can offer their products to all potential purchasers (eg, there's equal access to the facility to place offers to sell stuff), and the products can be compared objectively by purchasers. But when products are found through paid advertising, that restricts the ability of suppliers to tell people about their products without capital. And when products are hard to test for quality before purchase, purchasers can be swayed by persuasive advertising (which, again, depends upon capital). People in shops can look at fruit for sale, and look at the asking price, and decide which shop to buy fruit from; but people buying medical procedures to combat an illness, unless they are medically trained themselves, will struggle to make an informed choice. Snake oil sellers thrive in free markets.

The solution, I think, is to carefully regulate markets in ways that make them free - seemingly a contradiction, but again, a tradeoff between freedoms that chooses the greater freedom. There need to be ways to find product information that are not amenable to manipulation by those with capital, there need to be rules against lying in advertising, and advertising itself needs to be discouraged in some way (I don't think it can effectively be banned without severe collateral damage).

And I'm not against capital. If people find good ways to do stuff, let them earn lots of money, and spend it as they will. The problem is when it's possible to use it to buy power. The importance and influence of capital in modern society is, perhaps, also what's behind the banking crises we've had over the last decade. Investment banking is the management of capital, after all; if we had an economy that encouraged people to spend their earnings rather than piling them up, then perhaps we wouldn't be such an incentive to use those piled-up earnings by lending them on, and we wouldn't have a huge, fragile, banking sector under commercial pressures to ignore risk. An individual who saves up a million pounds and then earn five percent interest gets fifty thousand pounds a year of interest, which is enough to live on comfortably (or spend some of the million on a house, and earn less interest, but not have rent or mortgage payments); and a company might need to save up billions in order to develop and build a groundbreaking semiconductor fabrication plant or a space launch system, so we shouldn't penalise the accumulation of capital in general - but perhaps we should encourage the earning of interest through shareholding in companies rather than in interest-charging loans. This can probably be encouraged through taxation.

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  • By Faré, Fri 8th Jan 2016 @ 8:42 am

    The big mistake many engineers make is to believe they as philosophers are somehow outside and above society and government is a magical tool that can mold society whichever way they want, for free.

    The one thing libertarians understand is that, no, nobody is either outside or above society, that government is not the tool of philosophers above, and not the tool of people below, but is a natural phenomenon with laws of its own, derived from its principle of unaccountable violence; and before to dream of what it "could" or "should" do, realize that not only its action isn't free (as in, it has a dear price), its action isn't free either (as in, it's constrained in what it WILL do — if it doesn't propagate its own survival through domination, it doesn't survive and is replaced by a conqueror that will do what it takes).

    See e.g. "The Calculus of Consent" by Buchanan & Tulloch on how democracy does work in practice (though with very favorable hypotheses), or "The Myth of the Rational Voter" by Caplan on how these favorable hypotheses do not even hold.

    Once you understand what government is, a lot of things change as to how you approach social engineering (if at all).

  • By alaric, Fri 8th Jan 2016 @ 12:27 pm

    I'm approaching the design of a government as a collective body to handle collective issues; I do agree that governments which become entities in their own right, whose interests may not align with the interests of the populace, then You Have A Problem.

    I've yet to see a convincing blueprint for how humanity can manage collective issues (dealing with emergencies, managing shared resources, dealing with disputes about stuff, etc) without forming some kind of forum to discuss it and agreeing to go along with the outcome of those agreements even if you don't like them - and making those agreements useful even if some people refuse to go along with them. Perhaps I am being too broad in labeling that as a "government" of sorts, and damning the whole concept by association with stagnant Western democracies...

    No, I'm not convinced my "second society" wouldn't also fall foul to the attractor of a power-hungry government propagating its own existence at all costs; I have merely tried to discourage it from going down paths I can think of that lead to that. It is my best stab at a model for a government in the traditional-nation-state sense; I would really like a few of those to be competing for citizens with each other, along with an ocean full of seasteads evolving their own forms of little micro-nation and competing with each other for citizens, and we get to see what wins out... As long as there's enough overall consensus that people should be very free to move to a different society, it should be hard for any despots to do a North Korea and lock their populace up without anybody noticing and doing something about it...

  • By Faré, Sat 9th Jan 2016 @ 6:16 am

    But that's the thing: the notional "government" that you're talking about has nothing to do with the institution of territorial monopoly of violence usually known as "government". If you define it as whichever "kind of forum to discuss it and agreeing to go along with the outcome of those agreements even if you don't like them" — then the closest common notion is market, not government.

    And yes, competition between "governing" entities via free association is the one and only force capable of preventing the otherwise non-competed entity from turning into tyranny.

    In any case, a lot of criticism against libertarianism boils down to confusion between these opposite notions, whichever names you use to denote them (society, government, market, etc.)

  • By alaric, Mon 11th Jan 2016 @ 10:45 am

    I do worry about how to stop "governing entities" from (a) absorbing each other, not necessarily through traditional military expansionism but maybe even just through all signing treaties with each other that make them interchangeable in the name of "standardising for the benefit of free trade", or through simple cultural hegemony; and (b) going North Korea and inhibiting flight of disaffected citizens!

  • By Faré, Tue 12th Jan 2016 @ 5:04 am

    (a) Indeed the Habsburg gained power through alliances and weddings (and ended up highly inbred for it). As long as citizens and landowners have an "exit" option, it doesn't matter how much the entities merge. If they don't then it's indeed guaranteed eventual doom as empires merge together and/or collapse.

    (b) All governments have already reserved the right to inhibit the flight of disaffected citizens: that's what border controls and passports are for. It's the other bad aspects of North Korea that they happily haven't copied (yet). "Citizen" control is precisely what government monopoly consists in.

    The idea that "governing entities" should NOT have a monopoly on either territory or citizens is what libertarianism is about.

  • By alaric, Wed 11th Oct 2017 @ 7:43 am

    Here's some more interesting insights into the problem of government:

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