What Is Real Capitalism?

Reading David Simon (see previous post) got me thinking about the meaning of "capitalism."

Typically, when someone of the right hears our current woes blamed on capitalism, what they say is, "But we don't have real capitalism, what we have here is crony capitalism."

But by "real capitalism," what these people mean is a social system which has never existed anywhere. Any actually existing capitalism has looked to some degree or another like what we have today: Government intervenes in the economy for the benefit of capitalists. (Note: this is certainly what Marx meant by capitalism.)

It is as though a group of villagers are complaining they have a problem with tigers, since tigers are eating their children. However, there are "tigertarians" who tell them they have nothing to fear from tigers: "You see, those are not real tigers. Real tigers are the theoretical tigers described in our books, and those real tigers would never hurt anyone!"

Meanwhile, the actual tigers of our world would fund think tanks employing tigertarians, and use tigertarian literature as propaganda to ensure they can keep preying on the villagers.

26 comments:

  1. They play a wonderful game here. They proclaim the benefits of capitalism as the clinching argument, and if you point to the problems, they say, "but it's not real capitalism."

    ReplyDelete
    Replies
    1. But if those problems do indeed stem from the non-capitalists aspects of the current order, their argument is entirely consistent. There's no game being played.

      Delete
    2. KPres, you have just isolated certain aspects and CALLED them non-capitalist. Is there some reason we have to agree with you?

      Delete
  2. I don't get the criticism. Surely, someone is wrong to blame the financial crisis on capitalism if it's true that it was central banking's fault. I get that we have to judge a system by how it operates in the real world, and not in some fantasy, but it's also true that we could certainly move closer to that fantasy. "We need to move towards a more capitalistic economy" is certainly a reasonable policy prescription.

    ReplyDelete
    Replies
    1. "Surely, someone is wrong to blame the financial crisis on capitalism if it's true that it was central banking's fault."

      But Jonathan, this is exactly what is being criticized above! "Capitalism" in your eyes is a purely theoretical system that does not have any necessary connection to anything real.

      But in the real world, the central bank was created by capitalists to serve their interests. Why do you say that that is not "capitalism" well the capitalism you imagine is the real capitalism? That looks to me like an abuse of language.

      Delete
    2. Jonathan, you're basically saying this: "The fictional tigers in my book of Tiger theory do not eat village children. So how can you possibly blame the death of these children on tigers?"

      Delete
    3. Purely theoretical systems are useful for separating different causes in the real world. So state intervention causes welfare losses -- it doesn't make sense to blame capitalism for this. It makes sense to blame state intervention. The reason we build theories are so that we can distinguish between these causes.

      Tigers, as part of their nature, are violent animals. A free market fundamentalist does not think that capitalism is, by its own nature, prone to large coordination failures. i.e. You have to add something to capitalism to get repeated business cycles.

      Ultimately, it all comes down to how we define the separate systems, causes, factors, whatever, we're talking about. Marx might call define capitalism as corporate welfare. That's fine, and if we use his definitions then we'll have to change the way we make our point (because the terms no longer mean the same thing). But, somebody might say that that definition is not useful and it misses something important -- which people did say, which is probably why Marx's definition hasn't stuck.

      Delete
    4. Not to mention the idea that it was all the fault of the Fed is absurd.

      Huge asset bubbles, overleveraged banks, and then financial crises induced by collapsing asset bubbles have happened many times even when central banks do not even exist.

      Just look at Australia in the 19th century, probably a free bankers' dream world:

      http://socialdemocracy21stcentury.blogspot.com/2012/05/free-banking-in-australia.html

      But it all ended in disaster.

      Delete
    5. Well Jonathan, I can make up imaginary tigers that don't eat people. But I don't comprehend is why I get to search that those imaginary tigers are real tigers, and why the people who blame the tigers for the kids' deaths are wrong because my imaginary tigers never eat anyone!

      Delete
    6. Lord Keynes, I tend to agree with you here, but it is beside the point for this post. Even if "true free markets" were perfectly stable, in the real world we never see them, so what does that matter?

      Delete
    7. Why phrase it like "We need to move towards a more capitalistic economy"? Saying that "we need clean up this corruption" is the way most people would put it.

      Delete
  3. Or Jonathan consider: I say "let us create a model world full of sinless people." But then I become entranced with it and take it for the real world. When you try to blame real world problems on people's sins, i say "You are wrong! Look at my model: people are sinless!"

    ReplyDelete
    Replies
    1. One of the beauties of capitalism is that it doesn't require that people fit the rational agent model that economists use. If you behave irrationally, the market punishes you with less economic power in the future. It's outcomes aren't perfect, they're self-correcting.

      Delete
    2. @ Lord Keynes

      As you mentioned in the blog post, Australian free banking collapsed under the weight of foreign investment, not anything internal.

      Suppose you have a small social-democratic island surrounded by fascists that keep invading, making life miserable for the inhabitants. Would it be fair to say that social democracy fails because it leads to constant war?

      Delete
    3. "It's outcomes aren't perfect, they're self-correcting."

      Or so your model says.

      Delete
  4. Does the definition of a circle change just because perfect circles don't exist in nature?

    Does the fact that perfect circles don't exist in nature mean cars should have square wheels?

    When a capitalist complains that real capitalism has never existed, it's the not the same as the communists similar claim, because communism doesn't even work in theory, not even at the shallowest level. Common property is self-destructive, in theory and reality. Markets are pareto-optimal in theory. In reality...well, we've never seen real capitalism.

    ReplyDelete
    Replies
    1. "Does the definition of a circle change just because perfect circles don't exist in nature?"

      But of course, you've gotten this exactly backwards: capitalism was FIRST defined as the existing social system, and was only later REdefined as this ideal abstraction. It is as though car tires were redefined as perfect circles, and then tire makers tried to protect themselves against suits by claiming real tires can't go flat.

      Delete
    2. But capitalism was originally defined for polemic reasons, and it wasn't a very good definition. That's why it had to be redefined. Marx wants to set up an Hegelian dialectic that goes: Capitalism (thesis) - Socialism (antithesis) - Communism (synthesis). The problem with this is that the kind of cronyism that he condemns capitalism for exists in socialism as well (moreso, I'd say), so if you want to conceive of them as opposites then you can't include it in the definition of either, and the cry we keep hearing..."look at all this cronyism, we need to fix it with more socialism and less capitalism!" has no merit.

      Delete
    3. Wrong kpres: Marx hardly used the word "capitalism." Weber, on the other hand, used it extensively, to talk about an existing type of social organization, not an abstraction. And his usage was not polemical.

      Sorry, you are not the dictator of word usage.

      And a stage in Hegelian dialectic and its succesive stage are not "opposites" in the sense you are using the word.

      Delete
  5. "I tend to take the stance that Libertarianism is like Leninism: a fascinating, internally consistent political theory with some good underlying points that, regrettably, makes prescriptions about how to run human society that can only work if we replace real messy human beings with frictionless spherical humanoids of uniform density (because it relies on simplifying assumptions about human behaviour which are unfortunately wrong)."

    Charles Stross

    ReplyDelete
  6. Of course there's real capitalism, Gene. It's practiced by true Scotsmen.

    What I find most curious about libertarians' notion of capitalism is how unselfconsciously arbitrary they are in employing it. When the pope criticizes a form of capitalism, he gets denounced for attacking the real thing, when he could just as easily be considered to be criticizing, say, crony capitalism of a sort only made possible by that summum malum the Federal Reserve. But the pope doesn't get that benefit of the doubt because he's outside the family or extra ecclesiam: criticizing capitalism even when it's not "real" capitalism is a privilege reserved only to the ideological faithful.

    ReplyDelete
    Replies
    1. It hardly seems ridiculous to me to assume that the Pope is not making a distinction that, for example, Austrian economists would make, between capitalism (which they define as a private property system) and crony capitalism. After all, most liberal solutions involve taxing the entire rich, not just the cronies!

      Delete
    2. Interventionist, first of all, why not find out what he is talking about, rather than assuming?
      Secondly, the pope is not a liberal. Catholic social thought does not fit in the slots you want to put it in.

      Delete
    3. Is he not calling for increased taxes on the rich? If he is, it again, is hardly ridiculous for someone to point out that there is a difference between the wealthy that aren't cronies and the wealthy that are.

      Delete
    4. Not in any part of his exhortation that I read. He made no policy proposals at all, as far as I am aware.

      You wouldn't be someone critiquing the pope without reading his actual words, would you?

      Delete
  7. Interventionist, the question shouldn't be whether the pope is making a distinction; if you consistently believe that there is a distinction then the question is whether the pope recognizes it. But it's the pope's intentions or thoughtcrime that seems to bug market fundamentalists, not whether he might be describing something that they call by a different name but fundamentally agree exists--namely a corrupted (quasi-) capitalism. My observation is that Austro-libertarians are characteristically inconsistent here: they happily criticize "capitalism" (and certainly Reaganomics; was "trickle-down" ever associated with the Austrians' theoretically distinct version of capitalism?), any criticisms that come from the unbaptized must be condemned as socialism (or whatever). You'd think that if right-wing economic theorists and publicists can call out the flaws of actually existing "capitalism," then other people can too. But interestingly, it doesn't work that way--because most Austrians and other ideological capitalists in fact aren't as critical of actually existing capitalism as they sometimes claim to be.

    I like actually existing capitalism up to a point myself, but it has flaws and in attempting to recognize and remedy them I find it helpful to listen, for different reasons, to the pope, some of the Austrians, and a wide range of thinkers in different fields.

    ReplyDelete