no third solution

Blogging about liberty, anarchy, economics and politics

“Free Markets” Are Not “Capitalism”

May 3rd, 2011

The word “capitalism” was coined by the socialists, often used as a pejorative, and has historically described a system of state-granted privilege and plutocracy. This is the definition to which most people subscribe, and which I would argue prevails today. A contrary definition is one that is synonymous, or nearly synonymous with “free markets”. My best guess is that this “definition” is a the result of a revisionist attempt to hijack the term “free markets”.

Adam Smith, Karl Marx, Joseph Schumpeter, J.M. Keynes

Adam Smith, Karl Marx, Joseph Schumpeter & J.M. Keynes walk in to a bar...

Bill Wurst, the author of this post highlights these two competing definitions of “free market capitalism” and argues that the term is not an oxymoron (although strictly speaking it may not be an oxymoron, I believe that it is certainly a null program). The first definition is prevalent in particular among American libertarians:

  • In one sense, “free market capitalism” may be viewed as a system in which individuals make voluntary arrangements involving the exchange of capital.

Although Wurst does go further with this definition (every imaginable transaction) it’s silly and sloppy to put emphasis on “capital” when (and I think he’d agree here) a truly free market is a “system in which individuals make voluntary arrangements involving the exchange of goods and services (i.e., not limited to “capital” but also to include non-capital goods, labor, land, etc.). Unfortunately, this definition of the term has never been widely accepted, and to this day 99 out of 100 people would probably not even come close to approximating this elegant definition.

The second definition of the term free market capitalism, he goes on to say:

  • In another sense, “free market capitalism” may be viewed … as a phrase combining words interpreted via historical realities and implications.  In other words, “free market” implies voluntary arrangements, whereas “capitalism” has become (rightly so)  known as a system in which business and coercive state forces collude to serve whatever arbitrary interests may be lobbied for by the businesses or championed for reasons of power by the politicians.

Words have meanings! And in order to have any meaningful, relevant definition, words must be “interpreted via historical realities and implications” regardless of whether we like them.  Whereas the former definition sloppily suggests that the properties of “free markets” dominate the term and carelessly ignores the historical and popularly understood definitions of “capitalism”, the latter definition is much more precise in defining both terms separately. Additionally, Wurst admits that this definition is the one that is popularly held, and as the language belongs to the people and their common use, I see no reason to pretend that it means something else.

So why bother trying to apologize for “capitalism” when “free markets” are what you (and I) really wish to obtain? That is, if you really do believe in “free markets”, then you should probably distance yourself from the word “capitalism”.

If it’s a free market, it’s not capitalism. And if it’s capitalism, it’s not a free market.

Those of us who believe in free markets need to stop trying to save the word “capitalism”. If anything, we need to save “free markets” from “capitalism”, because the two should never have been joined.



The Recession is Officially Over

September 21st, 2010

Yesterday when I got home from work I flipped on the TV and heard one of the talking heads say that the recession is officially over.  And not only is it over, it’s been over, for over a year.  They said that the official end of the recession was June, 2009. Lolwut?

A catastrophic implosion of a magnitude never-before-seen, is over and nobody noticed it except the bow-ties at NBER after they had a year and a half to study, clean, analyze and massage the data?  Yeah, right (and monkeys might fly out my butt).

But look, it’s right there on the graph!

NBER-recession-overPretty sure I dropped an f-bomb or two.

What happened was that the fraudulent system persuaded or blackmailed the government in to bailing them out on the backs of the working class by theft and extortion writ large.  And guess what? The working class is still working, they’re still poor, they’re still living paycheck to paycheck, and most of them are struggling to regain whatever sense of security they might’ve held before the economy went belly-up.

If you want to pick nits and say, “Well the NBER defines a recession’s end as the low point”, I’m not going to get in to a semantic pissing match with you. The fact of the matter is that for most people, this hardly registers as an end to the recession because for most people things haven’t gotten better, they aren’t about to get better any time soon, and it will take years to get back to wherever they were prior to the implosion.

Many forecasters estimate that output needs to grow over the long run by about 2.5 percent to keep the unemployment rate, now at 9.6 percent, constant…

…The broadest measure of unemployment, including people who are reluctantly working part time when they wish to be working full time and those who have given up looking for work altogether, also was at its highest level since World War II. [NYT]

I don’t know how you interpret that, but 10-percent unemployment rate (one that is considerably higher if you account for underemployment) hardly strikes me as an end to a recession. As long as 1 in 10 people looking for work to pay their bills are unable to find work, something is terribly wrong. Until the economy has in-fact “recovered” it’s still a goddamned recession in my book.

To put this all in proper context, we need to juxtapose the fact that 1 in 10 people are unemployed and probably 1 in 5 people are underemployed, with the slave-like systematic dependence on Wall Street, NBER and their respective oracles (who throughout the years have done absolutely nothing but engineer the sort of monetary collapse we recently lived through).

This is the paradox of modern capitalism: masses of people are out of work, fighting to keep their homes if they haven’t already lost them, starving, dropping much-needed expenses like insurance policies, or prescription medications, etc., in order to stay financially afloat…

All of these people still need food, shelter, warmth, leisure, whatever. Everyone still wants goods and services; everyone still wants stuff, and those needs can only be satisfied by production, which requires people [doing work and getting paid for that work]. [link]

It is this way because they want it this way.They want it this way because this is how they maintain control: convince the masses that they can’t take care of their own, convince them that they can’t survive, convince them that they need the government or the multinational corporations of the world to “provide” them with “jobs” and paychecks, convince them that there are powers at work which are infinitely beyond their comprehension.  And every once in a while you stir up some shit, or fail to take the appropriate preventative measures, or maybe go a little (or a lot) overboard.  For a few years everything goes sideways and upside-down.

But it’s enough to remind those working idiots that they aren’t in control, there are things they don’t understand or can’t comprehend, and reinforces the illusion that they do need the parasites.

They don’t.  But until they — we — can wake up and shake the cobwebs out of our collective brains, and systematically withdraw support for such an abomination, it’s going to continue.

This concludes today’s lesson in futility.

Marx’s General Formula for Capital

February 2nd, 2009

In Chapter 4 of Capital, Marx begins to discuss the transformation of money into capital.

Marx imagines two sorts of abstract circuits of exchange: C-M-C’ and M-C-M’. In the former, Peter brings to market a commodity, C, and sells it in exchange for money, which he then uses to purchase another commodity, C’. In the latter, Paul brings to market money, M, and sells it in exchange for a commodity, C, which he then sells in order to obtain M’.

From the former Marx concludes that, “The circuit C-M-C comes completely to an end, so soon as the money brought in by the sale of one commodity is abstracted again by the purchase of another,” which is to say that Peter has exchanged one commodity for another commodity of equal value. In the latter circuit Marx objects to the “surplus value” created by capitalist Paul, who merely exchanged £100 for £110, the difference of £10 being “surplus value”.

Now let us examine the circuit M-C-M a little closer. It consists, like the other, of two antithetical phases. In the first phase, M-C, or the purchase, the money is changed into a commodity. In the second phase, C-M, or the sale, the commodity is changed back again into money. The combination of these two phases constitutes the single movement whereby … a commodity is bought with money, and then money is bought with a commodity. The result, in which the phases of the process vanish, is the exchange of money for money, M-M. If I purchase 2,000 lbs. of cotton for £100, and resell the 2,000 lbs. of cotton for £110, I have, in fact, exchanged £100 for £110, money for money

At least two objections come immediately to mind:

  1. The M in C-M-C may at any time be either M or M’ in the circuit M-C-M, and that as such, these are not independent circuits but rather interlocking parts of a greater whole.
  2. What Marx is really describing is an arbitrageur, although painted as a thief and usurer.

In the first instance, Peter does not keep the money he receives any longer than is needed for his own security. He may of course immediately effect the C-M-C by exchanging the money he receives for another commodity item. Or, he may enter into an M-C-M circuit, exchanging the money for a commodity, to which he adds his labor over a period of time, the completed product which he expects to exchanges for M’ in the future. The farmer, for instance, spends money M on the purchase of new seeds, stock and tools with which to work the soil, in hopes of selling them in the future for M’.

Is the lack of transformation (as in the example of the farmer) what riles Marx? If so, this is barely worthy of scorn: where the farmer creates value, the arbitrageur has at the very least prevented the destruction of value, thus allowing its creator to realize value in exchange far greater than he could’ve on his own accord. The “capitalist” function in this instance is, if nothing else, Pareto efficient. One must not lose sight of the fact that the arbitrageur performs a valuable service of allocating scarce resources across an economy. Without the “capitalist” in Marx’s M-C-M circuit, the commodity is sold at a steep discount (if it is in-fact sold at all) and the most urgent need as measured by opportunity cost remains entirely unsatisfied. The problem of “surplus value”, posed by the M-C-M appears only as a result of Marx’s imaginary demarcation.

In the real world, C-M-C and M-C-M, are indistinguishable parts of a complex economy, in which economizing individuals are to some extent, constantly in the midst of performing both roles.  Even Marx’s vulgar capitalist holds and acquires money in order to satisfy some future need to consume.

Or, to put it another way, even the vulgar capitalist, at some time in the past had to provide valuable goods; he had to contribute materially to the economy in order to earn that first chunk of money, which Marx scorns.  What he does with it after that is of no man’s concern but his own.

no third solution

Blogging about liberty, anarchy, economics and politics