Sunday, July 19, 2009

Capitalism

Capital is unavoidable. It is the only way out of a life of subsistence. The key issues is ownership of capital. The choice is between public ownership and private ownership.

A key difference between privately and publicly owned capital is that private owners have a strong incentive to look after their capital and make sure it does not deteriorate or become obsolete. If private owners do not shepherd their capital they suffer.

With public ownership of capital no one has an incentive to care for it. Look at the way the military wastes and damages valuable capital equipment for evidence. Likewise in the Soviet Union capital was often wasted.

Capitalists are often accused of greed. The reality is that greed, avarice and pride come out of the human heart, so they can manifest in any area of life. The great irony is that in the free enterprise system, capitalists are forced to care and serve. To become wealthy, they have to provide a service or product that people want.

If you start a business in and free enterprise economy with the goal of becoming rich you will almost certainly fail. Capitalism actually forces people to serve other people. If you talk to any person running a modern business, you will find they are flat out trying to provide the service that their customers need. They know that if they do not care about their customers enough to find out what the need, they will lose them. The business that does not serve its customers will eventually fail.

On the other hand a public bureaucracy does not have the same incentive. Dealing with the bureaucracy is often compulsory, so they do not need to worry about serving customers. People get ahead in a bureaucracy by working the system, not by caring for customers or serving their needs. The party hacks in the Soviet Union got their dacha’s by being ruthless and greedy.

12 comments:

Anonymous said...

Greetings,

Your post on Capitalism was very well written. I think I'll have to disagree with some of your arguments though. Let me first mention that I'm a Christian and currently find capitalism unconvincing from a Christian's perspective. I'm not an economist so maybe you can convince me to become a capitalist.

"The main difference...is that private owners have a strong incentive to look after their capital and make sure it does not deteriorate or become obsolete."

On what basis do they have this incentive? So that they could maintain or/and increase their capital? why else would they want to look after their capital? if nothing else, then doesn't this support the accusation that capitalism is based on greed? From a Christian's perspective, I don't think this "incentive" is commendable.

"With public ownership of capital no one has an incentive to care for it."

This statement is not necessarily true. I can find many counter-examples:

Take the Kiwibank/Postshop as an example, they are state owned yet doing really well (i.e. they are well "cared" for).

I don't agree with your military example. The regulations and discipline in the military is extremely strict. The maintenance of gears and equipment (even their personal hygiene!) are heavily enforced. I doubt you'd find bedding, gears, shoes thrown all over the place in an army barrack. They are actually well looked after!

Lastly, look at the various religious orders of the Catholic and Orthodox church. Members barely own anything privately, yet the properties of the orders (monasteries and church buildings) are very well looked after.

"The great irony is that in the free enterprise system, capitalists are forced to care and serve."

That's a very bold statement. Perhaps there are several businesses that "care and serves" the community (right now I can't think of one). But I think it's safe to say that most businesses were created to make profits. Otherwise, why the need to make profits from their "service"? Charities and non-profit organizations are the ones that genuinely serve and care for people.

continue pt 2 (sorry, word limit)

Anonymous said...

pt 2 cont.

"To become wealthy, they have to provide a service or product that people want."

"Capitalism actually forces people to serve other people."


Very true, but from a Christian's perspective, this could lead to immoral ventures such as providing "service" inside brothels or offering pornographic products (which I've heard, is a very profitable business).

So the free enterprise economy does not necessarily mean that people are encouraged to provide a good/moral service or product. On the contrary, it allows undesirable businesses to flourish. This is not really a good argument for capitalism from a Christian's perspective.

Furthermore, who said that only free enterprise economy and capitalism would encourage people to serve others? What about the individuals working in public hospitals and education providers? aren't they serving their community? What about missionaries and volunteer aid workers? aren't they serving people? There are also plenty of missionaries from "socialist" countries.

"If you talk to any person running a modern business, you will find they are flat out trying to provide the service that their customers need. They know that if they do not care about their customers enough to find out what the need, they will lose them. The business that does not serve its customers will eventually fail."

I'm inclined to believe that most businesses serve and endeavor to satisfy their customers in order to increase their profits/capital, not because they genuinely care about people. If they really care, they would not charge customers with such a hefty profit margin for their "service". Just consider the mobile phone providers in NZ and the criticism made in the news recently.

"On the other hand a public bureaucracy does not have the same incentive. Dealing with the bureaucracy is often compulsory, so they do not need to worry about serving customers."

Are you saying that the volunteers and aid workers working for development projects run by the government don't really care about serving people?

Sorry for the long post but my point is that all these arguments for capitalism seems to generalise things and are unconvincing. Maybe I'm just misinterpreting your post. Nevertheless, I look forward to reading your reply.

Blessed Economist said...

Anonymously setting up straw men.

David Taylor said...

This is indeed a straw man argument, which is unfortunate, because better questions could easily be asked.

For example:

"The main difference...is that private owners have a strong incentive to look after their capital and make sure it does not deteriorate or become obsolete."

To which is the anonymous objection:

On what basis do they have this incentive? So that they could maintain or/and increase their capital? why else would they want to look after their capital? if nothing else, then doesn't this support the accusation that capitalism is based on greed? From a Christian's perspective, I don't think this "incentive" is commendable...

The definition of greed is "An excessive desire to acquire or possess more than what one needs or deserves...":

In order for capitalism to be based on greed, it would require that all capitalists have an excessive desire...etc. This is not true. Some capitalists may. But not all. Since this is not the case of all capitalists, it cannot, by any rational argument, be said to be the basis for capitalism. Even the words used in the objection show how foolish this accusation is: "...So that they could maintain or/and increase..." Maintaining is not of necessity the '...desire to acquire or possess more than what one needs or deserves...'

I would point out that all forms of involuntary wealth redistribution schemes are based upon greed - for the very reason that people who want this do so that they can partake of wealth which they did not create, nor earn - wealth which is not what they deserve (see Eph. 4:28 for example).

Blessed Economist said...

Anonymous
I am not interested in turning you into a capitalist, but I wonder how you have earned your living. I presume from your dislike of capital that you have depended on capital saved and owned by other people to make yourself productive. I presume that you are quite happy to consume good and services that are produced by business owners. It is a bit rich then to accuse them all of being greedy. Of course some will be greedy. Buy many more enjoy what they are doing, and choose to be good stewards of what has been entrusted to them.

Some of arguments are a just confused.

Kiwibank has done nothing but feed the housing boom, which has done so much harm to the NZ economy. Kiwibank is a gross waste of scare capital. (If it were not for the subsidy from NZ Post and the housing boom, it would probably have failed).

Monasteries are not state owned, but privately owned. They are good example of private owners looking after their assets, which supports my point.

Anonymous said...

Greetings David Taylor,

I think you have failed to comprehend my post. Blessed Economist(BE) wrote a series of arguments/suggestions to present how Capitalism/free market is great. He/she made numerous generalizations about private owned enterprise/capitalists and its state-own counterpart. I just simply responded with some counter-examples to refute the generalizations.

He suggested that no one would take care of capitals that are state-owned. I provided some counter-examples to debunk this.

He argues that capitalists (notice the lack of the "some" quantification) cares and serve people. I question whether this is true for capitalists running brothels, etc.

BE made arguments (by generalizing everyone), I just simply responded with counter-examples. I don't see how that can be called straw man arguments.

As for your example:

Where did I accuse anyone of being greedy? I ask BE to give me some explanation of how the private owners have this incentive to care for their capital? I ask if there are any reasons other than to increase/maintain their capital and whether this is greed...IF so, then it is not commendable.

Having ignored your arrogant language, I still do appreciate your reply (and find it convincing). Semantically, I do agree that associating the word "maintain" with greed is incorrect (or foolish). Furthermore, I agree that greed cannot be the basis of capitalism as there are capitalists who possess capitals and run companies to acquire no more than what they need (i.e. they give away capitals/profits beyond their need). Do you know any capitalists of this type? I would love to meet them.

By the way, most people in the developed world have more than what they need ;-)

"I would point out that all forms of involuntary wealth redistribution schemes are based upon greed - for the very reason that people who want this do so that they can partake of wealth which they did not create"

I would like to see wealth being redistributed actually. I'm also not interested in partaking the "wealth" of someone else (I'd probably have less). Therefore, your argument is invalid.

Eph 4:28 is talking about thieves, not people who benefits from wealth distribution. Funny you didn't mention the end of the verse where it say "...share with one who has need."

Anonymous said...

Blessed Economist,

I sensed that you were offended by my post, that's not my intention. However, you have ignored my reply and try to discredit my character instead. Let me know if you want a dialogue or not.

You have provided some arguments why capitalism is good. My objection is that you've made too many generalization to make those arguments strong. I've provided counter-examples to your argument and still waiting for your response. Accusing me of raising straw man without any examples is not really convincing, nor having a go at my character is a good strategy.

"...you have depended on capital saved and owned by other people to make yourself productive."

Is this an argument for capitalism? if so, answer my objections to your original arguments first before we deal with this one.

"I presume that you are quite happy to consume good and services that are produced by business owners."

No I'm not, hence my new interest in economy,capitalism, etc.

"Kiwibank has done nothing but feed the housing boom..."

You're ignoring my point. You suggested that no state-owned enterprise will be looked after. I pointed out that kiwibank and NZpost is doing well. Besides, do you really think that the private banks did not contribute anything to the housing boom?

"Monasteries are not state owned..."

Technically monasteries are not state-owned. But the fact is that the religious members looking after the properties does not "own" them in the capitalist sense. I can concede that this counter-example is not the best but you still have my other counter-arguments to address.

Blessed Economist said...

Anon
I am not offended, just confused; as you seem to be rebutting an argument I did not make, with examples that seem to be mostly irrelevant.

First, if you think I am saying that capitalism is good, I have not made myself clear. Capitalism will always be a mixture, reflecting the goodness or badness of the people in society. Some people will do good with their capital and some will do evil.

I have commented elsewhere that capitalism tends to provide what people want, whether that is good or bad. If people want brothels, someone will provide them provide them. That does not make them good.

Likewise, some owners of capital are greedy, but some are not. Some just enjoy what they are doing. Some have chosen to be good stewards.

Greed and lust come out of human hearts. The only way to get rid of them is to change human hearts.

Second, my point was that private owners of capital have an incentive to care for it. In a bureaucracy that incentive does not exist. That does not mean that they will not care for the capital, but there will have to be a different motivation.

Some may choose to be responsible, but that is not a motivation that we can always count on.

One possibility as you suggest is the drill sergeant. The army forces soldiers to polish their boots, but that is not form of motivation that is practical for the general organisation of an economy.

A more relevant military example is the air force skyhawks. Their value has declined dramatically because air force personnel damaged the seal and let water into their avionics. The people responsible do not have to bear the loss. If the owner-driver of a truck lets his truck roll into the sea, he does not just lose his income he also loses his asset. He has quite different incentives to the air force personnel.

Kiwibank is very relevant. Because governments do not save, so they do not have capital, only current income from taxation. Goverment capital is scarce so it must be used really wisely. Kiwibank has not done anything new that would not be done, if it were not there, so from the point of view of making our economy more productive, Kiwibank is a waste of capital. It exists for political reasons.

The people living in a monastery have a different motivation again. They care for their assets, because they have taken a vow of obedience. Again, that is not a practical motivation for a functioning economy.

So your examples are interesting, but they are not really relevant to the discussion, because they do not have widespread application.

Third, I said that businesses are forced to serve, if they want to survive and succeed. I did not say that other groups do not serve, (as you suggest). Of course charities and public hospitals provide a service. The problem is that charity will never provide most of what we need. I find that I get most of what I need from businesses, not from charities.

Fourth, my comment was not a personal attack. I was just reiterating the point made at the beginning of the post: capital is unavoidable unless we want to live on subsistence.

The question then becomes: will we provide our own capital or depend on the capital of someone else. A basic problem with the New Zealand economy is that we are not good at saving. That makes us dependent on other people for our capital. That is not a good position to be in and is one reason that we are poorer than we would like to be.

Blessed Economist said...

See Markets and Morality.

David Taylor said...

Hi anonymous!

First, I apologize if I ever sound arrogant - not intended! I look at statements, not people, and try to simply point out where I disagree.

Second, I do not believe I failed to comprehend your post, although I would never rule out such a possibility! Your objections are framed in such as way as to characterize the economic theories without actually addressing them. Hence the straw man charge: your objections are not against capitalism, nor the free market. They are against something that would be the opposite of your beliefs - whatever that something is.

Side note: I hold that capitalism and the free market are the Biblical forms of economics.

He argues that capitalists (notice the lack of the "some" quantification) cares and serve people. I question whether this is true for capitalists running brothels, etc.

Equivocating on words muddies up any argument. Even in a brothel, the proprietor has to provide the goods the customer wants, moral or not. The terms 'care' and 'serve' here are not used in the same way that you intend them to be used. For a capitalist business to work, the product the customer approves of must be offered at a price the customer is willing to pay. Any capitalist has to take care of the customer - if he doesn't, the customer will not come back, and the capitalist will go out of business.

David Taylor said...

...Where did I accuse anyone of being greedy?...

Here is your accusation: ...if nothing else, then doesn't this support the accusation that capitalism is based on greed?..."

My point in defining greed is to show that the accusation (whether YOU believe it or not) is in error. As I said, I argue against statements, not people. You made the statement, I argued that it is a misrepresentation of capitalism.

Furthermore, I agree that greed cannot be the basis of capitalism as there are capitalists who possess capitals and run companies to acquire no more than what they need (i.e. they give away capitals/profits beyond their need). Do you know any capitalists of this type? I would love to meet them.

You are looking for individuals who donate time, money, or goods to churches or charities?

By the way, most people in the developed world have more than what they need ;-)

That may be - and it may also be a wise and good thing (and Biblically correct) to donate of those extra goods to the less fortunate. They key word is donate - implying voluntary action.

I writed: "I would point out that all forms of involuntary wealth redistribution schemes are based upon greed - for the very reason that people who want this do so that they can partake of wealth which they did not create"

Your reply: I would like to see wealth being redistributed actually. I'm also not interested in partaking the "wealth" of someone else (I'd probably have less). Therefore, your argument is invalid.

I went back over my argument to see where it might be invalid - I cannot see it. Perhaps you could show me the erroneous proposition! In case you missed it, I used the word 'involuntary' - any use of force makes attainment of wealth theft. The exchange MUST be voluntary, or else one of God's direct commandments is broken. Giving to church or charity, for example, can be voluntary.

Eph 4:28 is talking about thieves, not people who benefits from wealth distribution. Funny you didn't mention the end of the verse where it say "...share with one who has need."

It wasn't necessary. The point is that ANY wealth distribution scheme, wherein one person, or a group of persons forces or appoints another person or group of persons to take wealth from a person or group of persons by force has directly contradicted Paul's words - regardless of the reason

If a thief puts a gun to your head, demands money and then gives it to a poor person, does this make his action valid? More importantly, what if the poor person appoints the thief to take this action. Who then, is culpable?

In any scheme of involuntary wealth redistribution, the poor are culpable of theft - If they authorize of approve of the action of attaining their needs through force (say, by voting for a State welfare system)- whether they personally point the gun or not. So Eph. 4:28 applies.

Anonymous said...

Two quotes on economics and capitalism from Winston Churchill:

We make a living by what we get, but we make a life by what we give.

and...

The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.

Blessings
Brendan