What Socialists Mean by Capitalism

I'm currently reading Le Grand and Estrin's book Market Socialism.

I have often complained that socialists misunderstand the market. Sometimes they do. Sometimes they understand it better than most conventional economists. Sometimes the most hard core Marxist will come so close to understanding the libertarian view - like Bukharin for instance.

Le Grand and Estrin did seem to understand markets in the introduction - at least as well as many "mainstream" economists.

Then an amazing passage occurred.

In this passage, these proponents of Market Socialism revealed that they distinguished "capitalism" from "liberalism" -- their use of "capitalism" was not synonymous with markets, but was distinguished from laissez-faire free market libertarianism. They still preferred market socialism to liberalism, but the complaints against capitalism are not complaints against free markets per se, but against a certain form of market system, which they call capitalism, but which arguably is really corporatism or crony capitalism.

Capitalism places the economic power in the hands of capital and its owners. Traditional socialism gives power exclusively to labour: the dictatorship of the proletariat, preferably exercised through a centralized authority. And the "New Right"--actually better characterized as traditional liberalism-- claims to locate power in the hands of the individual--particularly the individual citizen and consumer.

This is very interesting. Of course, I have argued this and heard whiff of this in socialist literature before, when they argue that the "ideal" of free markets is not possible, that concentration is delivering power into a few hands (a la Bukharin & Lenin, based on Marx), and so on, implying that it would be different if free markets did exist. Similarly, Lange's market socialist model was based on the use of state power to create a perfect market-- implying that if markets were less monopolized then they would be OK. But this is still a unique passage. Given this characterization,

In the following, replace "capitalism" with "corporatism" in your mind. It continues a bit below:

Full blooded capitalism is unattractive because it exploits labour through its monopoly of employment and because it exploits consumers through monopolizing goods markets. Traditional socialism expropriates capital and subordinates the interests of consumers to the interests of the workers. Indeed, with its penchant for centralization, it is far from clear that even the workers are properly taken care of. Liberalism puts people's livelihoods and their savings at the mercy of consumer taste and fashion; its emphasis on the narrow rights of individuals jeopardizes the collective activities of the community and hence the community itself.

What is needed is a model of society where power is more evenly distributed between these groups; where the interests of owners of capital, of workers, and of consumers are all taken into account with none taking automatic priority.

This struck me as fascinating. Now, I don't personally see how the group which liberalism represents - everyone - needs to be supplemented with the groups favored in corporatism and in socialism, which are partial. Nor that the interests of some "community" of individuals must be represented. In a free market (liberalism) such a group can form and defend itself, since all the individuals are protected by the system. But, the authors seem to believe that protection of each person, without protection of groups, leads to a loss of community-ness. Perhaps.

The fact that socialists have directed their main fight against corporatism this whole time and not against the free market is a critical point that we would do well to remember - and to make clear the distinction as often as possible. We have hardly tasted true liberalism, and socialists have tended not to start with models. In general, they, being people sympathetic to socialism and hence a softer sort of person, saw injustices in the world and began there. Seeing injustices, and seeing the market used by those with power and money, they blamed capitalists and they blamed the market. They did analyze different kinds of market societies, but they threaded them together in a dialectical historical account.

Market socialists are able to distinguish corporatism from liberalism. Starting there, the arguments are much easier to defeat. As above, sometimes it just boils down to "with liberalism, you lose the sense of community." There are some good books on how that isn't the case - that the opposite is true. When the state encroaches, as through welfare programs, it replaces community. In fact, the authors themselves cite "protection from the family" as a key feature of the welfare state (p. 21).

I'll post more on this book, maybe later today even.

update: I forgot to mention: Marxists describe the "crises" of centralizing capitalism, the movement from more to less competition, and consolidation into fewer hands. If capitalism is seen as rent-seeking driven corporatism, this makes sense. As rent-seeking drives policy, it necessarily does concentrate power into fewer hands, and also creates recurring crises (business cycles). As an example, consider how fixhousingfirst.com is calling for new increased low-income housing policies for its constituency, despite the fact that it was likely these policies which drove the housing bubble and caused the current crisis.

Update 2: I will also post more on this another time-- I would like to consider Marx and Bukharin's arguments in particular against "capitalism" as they may be estimated from a public choice perspective, as against corporatism (or mercantilism). It is possible that some Austrians have already done this - as it seems many Austrians see that Marx was really arguing against crony capitalism and not free markets - but probably not enough.

Then this can be tied together with the later market socialism literature and analysis. Marx was wrong with his labor theory of value, but perhaps right with his concentration, crises and ultimate end in planning (if he was studying the rent-seeking society); market socialists like Lange were wrong with their perfect competition models, but right in some of their understandings of the benefit of prices and competition. Very recent market socialists (like those above, and like Stiglitz) have greater understanding of many of the Austrian points than conventional economists. Perhaps bringing together all the good understandings of these various socialists could be useful in contributing to new, better models, and to a greater understanding of interventionism.

Property Rights and Coercion: Institutional Philosophy

A Marxian philosopher who is dating my sister was nice enough to have her forward a Marx reader and a link to an interesting critique of "libertarian parables" (from Arnold Kling at Econlog) which "conflate" coercion by government with coercion by other individuals.

Based on a utilitarian framework, the blogger argues that these kinds of coercion are not the same:

A well-ordered society is governed by the rule of law. This means that there are institutional processes to govern certain classes of action. The outcome of a just institutional process -- whether it be a guilty verdict, or minimum wage legislation -- has a different normative status than the corresponding action of a neighbour who takes it upon himself to unilaterally impose his will on others.

This is a good argument. However, it doesn't resolve the problem, it just kicks it down the road. What is this "normative status?"

True, institutional coercion is different from unilateral coercion; but it may be better or it may be worse: this depends both on what the government coercion achieves and also on how you define "better" and "worse". The institutional takings by the Soviet government were not - I'd argue - better than unilateral theft: they were worse. I haven't proven this in any framework; I could show it with efficiency as the endpoint; I could also try to show it with morality as the endpoint or with the magnitude or quantity of coercion as the endpoint.

What is the difference between coercion by individuals and coercion by government? Is it the organized nature of the latter? Or the equality before the law? Is it a matter of "fairness"? Or is it an efficiency thing? If the framework is utilitarianism, it would be efficiency - however, then only efficient coercion should count for that, and for example, a minimum wage certainly isn't that.

But libertarians who cry "coercion" are usually not taking a utilitarian framework; they are usually arguing "natural rights." So, we need to determine the "ends" and then judge the "means" on that basis.

Organized coercion by government could be said to violate more rights, not fewer. If government consistently violates rights, then one could argue this is "better" in some sense; if fairness not coercion per se, is the measure. Then, of course, "fairness" must be defined.

On the other hand, if government only punishes theft by an individual, then coercion is minimized; while if government punishes individual coercion but then violates rights on its own, then quantity of coercion is increased. So, if quantity of coercion is the measure, government violation is also worse.

The blogger also argues that the freedom from coercion is not enough, because common property implies a freedom to use of said property, and property rights invade this freedom. Hence protection of property and freedom from the takings neglects the freedom of others - and hence in its own way is coercive:

Freedom to use common land and resources is restricted by private property rights, which replaces it with a (particular individual's) freedom to dispose of property, and exclude others from use of it.

This reminds me of that quote I blogged about last week:

If someone is starving in the minimal state, yet in a ‘no-ownership’ world they would have been in a more advantageous position, then they do, in fact, have rights to compensation against all property holders (although not against the state) under the principle of justice in rectification. The Lockean proviso, or rather its historical shadow, would have been violated.

It appears to me as a natural rights argument, not a utilitarian one.

In reality, whomever has made a claim to the property is the rightful owner, whose rights must be protected. If someone buys it (under private property institutions) then he owns it-- there is no "right" to "common property" if someone has purchased it. The only way to claim that "freedom to use" common property has been violated is to invoke natural rights. Otherwise it is just the institutional framework, which either protects private property or it doesn't.

The blogger also slips in a positive freedom based on outcome, which far exceeds the institutional framework setup:

(2) It neglects other kinds of constraints that can impede us, leading to an impoverished conception of "freedom" that fails to track what really matters to us (namely, capability). Negative liberty is fine as far as it goes, but it makes for a rather one-eyed approach to evaluating policy. A better maxim would be to seek to enable people to achieve their goals. Economists (like everyone else) should be concerned with opportunities, not merely interference.

Now he wants to give people a right to certain outcomes. This goes beyond any protection of rights or freedoms (natural or otherwise) and seeks to determine outcomes. However, the assumption, of course, is that government could even get the outcomes desired-- something which is clearly a huge jump. It also has nothing to do with freedom. It may have to do with "welfare" but is has nothing to do with "freedom." And welfare - well that comes with its own bag of worms.

In Soviet America

The American soviet government will take firm possession of the commanding heights of your business system: the banks, the key industries and the transportation and communication systems. It will then give the farmers, the small tradespeople and businessmen a good long time to think things over and see how well the nationalized section of industry is working.

The commanding heights - the corporatist controls of the reigns - leading the United States, step my step toward socialism. Circa 1934, under the New Deal.

The most daring proposals of the Hoover commission on standardization and rationalization will seem childish compared to the new possibilities let loose by American communism.

Writing in 1934, Trotsky spoke of the "Hoover commission on standardization and rationalization" but this is not the official Hoover Commission, which was not enacted until 1947. He was writing during Roosevelt. I'm not sure what he was referring to but Hoover did talk about standardization and rationalization of the economy by business; he was influenced by Tugwell (who, by the way, is very interesting - I am reading him right now - and I will post on him soon).

Trotsky imagined much more than we had in terms of planning, but he saw the potential within the New Deal. Indeed, as a step along the way:

In the United States, through the science of publicity and advertising, you have means for winning the support of your middle class that were beyond the reach of the soviets of backward Russia with its vast majority of pauperized and illiterate peasants. ... Even the intensity and devotion of religious sentiment in America will not prove an obstacle to the revolution. If one assumes the perspective of soviets in America, none of the psychological brakes will prove firm enough to retard the pressure of the social crisis. This has been demonstrated more than once in history. Besides, it should not be forgotten that the Gospels themselves contain some pretty explosive aphorisms.

As I have argued! Or anyway, that religion is not so far from communist Utopian dreaming... one could say the same about a Utopian dream of anarchy too, of course. Of course, Trotsky argued that the NRA was not in place in order to deliver communism (I would not argue that it had those conscious intentions either, for the most part) but that it would contain the seeds of its own crawl toward communism-- as it corrected itself with further intervention.

The NRA aims not to destroy but to strengthen the foundations of American capitalism by overcoming your business difficulties. Not the Blue Eagle but the difficulties that the Blue Eagle is powerless to overcome will bring about communism in America.

He then speaks about the public mind:

The “radical” professors of your Brain Trust are not revolutionists: they are only frightened conservatives. Your president abhors “systems” and “generalities.” But a soviet government is the greatest of all possible systems, a gigantic generality in action.

The average man doesn’t like systems or generalities either. It is the task of your communist statesmen to make the system deliver the concrete goods that the average man desires: his food, cigars, amusements, his freedom to choose his own neckties, his own house and his own automobile. It will be easy to give him these comforts in Soviet America.

I'm not sure that we abhor generalities; but certainly people respond to these materialist incentives. Choosing one's own necktie is not the first thing I think of when I think of "Soviet America" though; nor one's own house and automobile.

And then he describes the role of the monetary system, which once communism emerges, will not be initially used to control the economy - at that point, it should be stable:

Your almighty dollar will play a principal part in making your new soviet system work. It is a great mistake to try to mix a “planned economy” with a “managed currency.” Your money must act as regulator with which to measure the success or failure of your planning.

Your “radical” professors are dead wrong in their devotion to “managed money.” It is an academic idea that could easily wreck your entire system of distribution and production. That is the great lesson to be derived from the Soviet Union, where bitter necessity has been converted into official virtue in the monetary realm.

There the lack of a stable gold ruble is one of the main causes of our many economic troubles and catastrophes. It is impossible to regulate wages, prices and quality of goods without a firm monetary system. An unstable ruble in a Soviet system is like having variable molds in a conveyor-belt factory. It won’t work.

Only when socialism succeeds in substituting administrative control for money will it be possible to abandon a stable gold currency. Then money will become ordinary paper slips, like trolley or theater tickets. As socialism advances, these slips will also disappear, and control over individual consumption – whether by money or administration – will no longer be necessary when there is more than enough of everything for everybody!

Through stable money will socialism slip into pure communism. Some intriguing ideas in Trotsky. I forgot how much I enjoy him. More Trotsky to come!

The Social Will

From the comparative physical impotency of man in his natural state, and from his inability to invent, make and use, unaided by his fellows, all the tools he needs to multiply his power of motion in the degree required for his safety and welfare, comes the social state, in which the tool is necessarily a social organ; social in its origin, social in its growth, social in its purpose, social in its incorporation of natural forces which of right belong to all; set in motion by human muscles, for the good of the social body, under the direction of the social will.

The common good, the will of the people, the drive of mankind. The people have spoken, it is an increase in social welfare, the "individuals as a whole" prefer it.

When we come together, are we stronger or weaker? Or rather, does collective purpose exist- and if so, when? Certainly "united we stand" in the short term can work; but just as clearly, imagining that we as a people have some aggregated preference is dangerous at best.