Wednesday, February 22, 2012

Machinery of Freedom: Predictions of Marx

Here is David Friedman writing in 1973.
Much of the opposition to institutions of private property comes from popular beliefs about the effects such institutions have had in the past, beliefs largely unsupported by historical evidence. Marx was scientist enough to make predictions about the future that could be proved or disproved. Unfortunately, Marxists continue to believe his theory long after his predictions have been proved false. One of Marx's predictions was that the rich would get richer and the poor, poorer, with the middle class gradually being wiped out and the laboring class becoming impoverished. In historical capitalist societies the trend has been almost the exact reverse.

Friedman goes on to offer the (at the time) left wing explanation for the success of capitalism in the US:
Many modern liberals argue that Marx's predictions were accurate enough for laissez-faire capitalism, but that such liberal institutions as strong labor unions, minimum wage laws, and progressive income taxes prevented them from being realized.

Of course Friedman rejects that explanation, but since he wrote this labor unions have been severely weakened, minimum wage is now the lowest (in real terms) that it has been in half a century, and the tax code has become much less progressive. These are all shifts to a more laissez-faire capitalism. Seems to me that Marx' predictions were accurate.


HispanicPundit said...

Friedman is talking about absolute poverty, you are talking about relative poverty. No matter what, there will ALWAYS be relative poverty.

But are they really poor? Not by world standards. Click here. Oh and, lets not forget - absolute poverty is quickly decreasing.

Jon said...

The chart shown is absolute wealth, not relative wealth.

Remember that you don't want to just look at whether a middle class is coming into being. What you want to look at is whether a middle class is coming into being in places where laissez-faire capitalism is implemented.

So China and India have been making enormous progress. But they don't follow laissez-faire capitalism to the degree the US does.

And I would argue even the US does not follow laissez-faire capitalism to the degree done in Haiti, Latin America, and Africa. I know you disagree that these locations are more free market, but remember that Marx prediction is about laissez-faire capitalism, not just any economy anywhere. The US has become more laissez-faire since 1983, so whereas wealth gains were across all income sectors when Friedman wrote this book they have not been since then. That's telling, don't you think?

HispanicPundit said...


You write:

So China and India have been making enormous progress. But they don't follow laissez-faire capitalism to the degree the US does.

Can you provide proof for such claims? I've heard the opposite: in areas where China is especially growing, their "freedom zones", for example, the economic freedom can be even higher than that in the USA.

Either way, we can dispute how much capitalism is being implemented all day - but his general point is still valid: whatever the line, it's clearly not socialism. It's clearly in the direction of more economic freedom.

China, for example, has clearly been moving away from a socialist government just as it has been increasing in wealth.

Jon said...

Yeah, just a few key deviations from laissez-faire right off the top of my head.

1-China blocks speculative capital movements. Bain Capital type transactions are reviewed by a government panel, which routinely blocks sale and purchase of stock if it deems it is not in the national interest.

2-Tariffs. China imposes large costs on imports to suppress demand for them and encourage demand for domestic goods. The demand fuels the growth.

3-Currency manipulation. China manipulates the currency to make goods extremely attractive to foreign countries. Again it fuels demand. Goods are expensive for Chinese citizens though, so this also fuels demand. The Chinese and foreigners are incentive to buy Chinese products.

4-Direct subsidy of industry. I think you linked me to a long article in the NY Times about how Apple went to China and why. Apple executives arrived and saw the ridiculously enormous plants already built before the business was awarded. How can they do this? They can't without government subsidy, but the government wanted the business. Steve Jobs told Obama that the jobs were not coming back. It's not the cost of labor. China has the infrastructure to make products at the scale Apple needs them and the US has nothing like this. That was possible through government subsidy. If it were merely the cost of labor Apple could come back to the US, but it's not that. You want a million gaskets? That's across the street. A million washers? Down the block. It's all there.

5-China blocks currency speculation.

You are right that they are not at all socialist, but they are not laissez-faire either. Of course nobody is, but these are key deviations from free market capitalism, deviations that right wing theorists claim are harmful to economic growth.

HispanicPundit said...

You made a specific claim Jon. You said:

But they don't follow laissez-faire capitalism to the degree the US does.

I want sources and for you to address the specific claim, please.

Jon said...

When you say sources, are you saying you doubt that these are in fact Chinese policies?

Or are you saying even if what I'm telling you is true this isn't evidence that China is less laissez-faire than the US? If that's what you mean, what kind of evidence are you looking for?

I don't know what you are asking me.

HispanicPundit said...

Yes, you made a comparison. Are you saying that the USA doesn't have anti-laissez faire policies as well?

You have to weigh these against each other.

Jon said...

I'll just copy what I said before:

So China and India have been making enormous progress. But they don't follow laissez-faire capitalism to the degree the US does.

And I would argue even the US does not follow laissez-faire capitalism to the degree done in Haiti, Latin America, and Africa.

HispanicPundit said...

So are you backing down from your claim that China is not as laissez-faire as the USA?

Jon said...

No. I've always said China is less laissez-faire than the US and I'm still saying that.

HispanicPundit said...

With no proof, like your lack of proof that Latin America is more laissez-faire, etc.

Guess we can all speak in hypotheticals now...but Friedman is trying to address established facts.

Jon said...

I describe polices they have that we don't have that violate laissez-faire principles. If that's not proof what would be?

HispanicPundit said...

You stated, you didn't prove.

It's kinda like your "the US does not follow laissez-faire capitalism to the degree done in Haiti, Latin America, and Africa" comment. Sure, you can say this all you want. You can contradict established, researched, universally regarded standards - but doing so doesn't represent proof.

Jon said...

I didn't just state they are less laissez-faire. I described the policies they follow. If that's not proof, then you are going to have to tell me what qualifies as proof. I think this is the third time I've asked you that and you won't say. I don't think you even know what would in principle qualify as proof.

HispanicPundit said...

All I am asking for is basic proof: sources, an actual attempt at a comparison, etc. It doesn't even have to be highly authoritative. Just something more than your word.

For an example of a proof, click on the link I provided.

(Btw, I am not necessarily saying you are wrong with China vs USA - but I just think discussions like this, the asymmetry of our sources should be brought to light)

Jon said...

Your proof is right wing sources. You'd never accept similar left wing information from me as proof. Pretending you would is lying to yourself. Since the CBO hasn't issued a report there's basically nothing I could say that would qualify as proof.

HispanicPundit said...

Try me. Give me something Jon.

Your assertion is much more encompassing than simply China has "tariffs" and some financial regulations that the USA doesn't have.

You have to look at the overall picture. Does the USA not have financial regulations that China doesn't have too? You didn't address that. Does the USA not have some tariffs as well? Again, completely ignored. Also, what about labor regulation? Let's compare minimum wage laws. Does China, for example, have an onerous ObamaCare bill similar to that in the USA? etc. etc.

I honestly don't know. I've read that there are "freedom regions" in China where it's almost completely laissez-faire. Is it more laissez-faire than the USA? That's a stronger statement I would love to see addressed.

Again, I also want you to air your sources. I've already shown you mine. Were talking about world recognized institutions here. The International Monetary Fund, for example. If they are right-wing, why not provide sources from reputable economists disputing their rankings? Anything, from say, Paul Krugman would suffice.

Or just provide where you get your info Jon. Seriously, I promise not to laugh or poke fun - even if it is from Linguists and movie directors. :-)

Sheldon said...

Hey Jon,
Hispanic Pundit is distracting you with this absolute versus relative poverty, and laissez-faire issues.

It is still capitalism whether is is laissez-faire or not.

The fact of the matter is, in the U.S., the condition of the working class is more precarious and insecure, and wages and living standards are deteriorating relative to the Post WW II era. Marx can be considered correct in the general trajectory of capitalist development after a period of rising living standards for a sector of the U.S. white working class (yet blacks, hispanics and other minorities had been left out of that generalized prosperity).

Furthermore, indeed for a portion of the population in China, a middle class and upper capitalist class is forming, but this is also on the backs a working class that is super exploited.

Jon said...

HP, I think Sheldon is right that this is distraction. All of your sources say China is less free than the US, so why should we argue about the topic when we agree? Take a look at the prediction from Marx. Take a look at how Friedman rejected the leftist explanation for the success of capitalism post WWII. Consider how the institutions that the left said allowed egalitarian growth post WWII have been undermined and with it the prediction of Marx now appears to apply. I think that's something we can learn from.

HispanicPundit said...

My sources (which btw, you largely ignore in other circumstances) are talking about China as a whole.

The parts where China is flourishing are in its 'free zones'. Those are small subsets of China as a whole. Those are the area that are largely laissez-faire, especially compared to China as a whole. Are they more laissez-faire than the USA? That is an interesting question of which I would like to see answered.

You clearly think it is. You made the claim stating so. All I am asking for is what you based that claim on. Precisely because I find it interesting.

You ask me for sources and to back up my claims all of the time. What's wrong with asking the same of you??? I don't consider that a distraction.

Oh and, if you equate giant drops in world poverty as examples of the failure of capitalism, than you have a far different metric than I do.

Jon said...

Areas of China that are largely laissez-faire? Which areas of China are not subject to the capital restrictions, currency control, and tariffs? I suspect you're thinking back to that Brad DeLong article but you have deviated from what he was saying.

What I ask for with regards to your assertions is evidence. You say "All economists agree with me." That's fine. But you gotta show me. If you just say it but offer no evidence I can't evaluate it. Might be true, but why believe it? When I say all climate scientists agree with me I don't just say it. I provide the documentation that shows it. You can go look at it and decide if I've misused my source. In other words my claim is not based on my own authority. You don't need to believe it because I say it. But when you make claims I have nothing to base them on but your authority, and I think you would agree that this is not a good basis for a claim, just like my authority is not a good basis for a claim.

My claim that China is less laissez-faire than the US was based on more than a mere assertion. I offered evidence. It's the policies I referred to. You can go look into it if you like. Maybe I'm mistaken that these are Chinese policies. Or maybe you don't think these policies justify my claim that China is less laissez-faire than the US. We can quibble about semantics. Maybe it's hard to judge what is "more" or "less" in this case. We have different government interventions in the economy. They have several interventions that I regard as key that we lack. That's the main thing.

If you think my evidence is not good enough to justify even that claim, fine. Doesn't matter. What I'm doing that I think is different from you is I at least offer evidence. You can think it's bad evidence. But it's something. A bare assertion without even an attempt to justify it is what I've criticized you for.

Yeah, capitalism has produced giant drops in poverty. In the zones where there has been the heavy hand of government managing it. You can't deny that Latin America has also been capitalist. I think you try to claim they have a lot of government intervention in their economies, but I just find that to be completely the opposite of the evidence. The left wing governments are repeatedly overthrown violently. Right wing governments are installed and forced on the people with US military might, which is there to serve the interest of US corporations. Why would our government come in and impose by force leftist governments?

HispanicPundit said...

Jon, you made a comparative claim. You didn't claim that China deviated from laissez-faire in certain areas. That is precisely what your evidence would prove.

You made a more encompassing assertion. You said that China deviated more from laissez-faire than the USA.

Anyway, I am repeating myself now. Suffice it to say that your assertion, IMHO, is not backed up by evidence.

Lastly, yes, I would deny that Latin America is capitalist. Again, look at my objective metric (linked to above, repeatedly) - most, if not all (except for of course Chile), Latin American countries score shitty on the scale.

Of course, this flies in the face of what you have read/heard...but that is the difference between us. I prefer objective, verifiable claims. You don't.

Jon said...

What do you understand capitalism to be? If Latin America is not capitalist maybe we don't agree on what capitalism is.

HispanicPundit said...

As a rough sketch, and in order to have some common ground, I am fine with the IMF "Ease Of Doing Business" as a good heuristic for capitalism.

Requirements involve:

-Liberal free trade policy
-low regulations
-strong property rights


Jon said...

If you know what Socialism and Capitalism are you should know that a socialist system would probably score really high on that index and a capitalist system could easily score lower. Do you know why?

HispanicPundit said...

Control by the workers, etc.

I've already stated to you before, in fact it was the catalyst of recommending Friedman's Machinary of Freedom, that if you define socialism that way, it is not contradictory to capitalism. Friedman defends this and so do I.

In fact, if you think such a company would do so well, nobody is preventing you from starting one. The mere fact that we dont see one, given the competition argument of the market, shows that it's a pipe dream. As does history.

How would you define capitalism?

Jon said...

Socialism and Capitalism are definitely contradictory. I think the confusion here is you just take Capitalism to be something related to market exchanges that are voluntary. Absolutely not. Socialism as generally understood depends on markets to determine prices and generally stays out of it until you get market failures, like problems related to externalities and the like.

Capitalism is a system whereby a minority class generates income due to an ownership claim to the means of production and the majority of the population earns income through wage labor. There are different variants on that, from the more Laissez-Faire (Haiti is an example in my view) to the less (China). The key is you can make money through investment.

On Socialism nobody makes money by investment. You must work. The means of production are owned privately, but by the workers only. Nobody else is permitted to own. And your salary is not wage labor, but a function of your ownership in the company you work for, decided democratically by the workers. The goal is to maximize profit per worker, not profit for investors.

Companies can in fact be socialist within a market economy, even a totally free market. Mondragon is an example. No tariff restrictions are implied on Socialism, nor are onerous regulations required.

This is purely definitional, not a debators point. I'm just telling you what Socialism and Capitalism are. Based on these definitions, what type of economy is present in Latin America? The workers have absolutely no ownership claim to United Fruit, Hanes, Calvin Klein, etc. They make money by wage labor, and the investors earn profits by virtue of an ownership claim. This is the essential feature of Capitalism as distinct from Socialism, so you must concede that Latin America up and down is Capitalist.

What we are debating when we consider China vs the US vs Haiti is which is more Laissez-Faire and which is less, but they are all capitalist.

HispanicPundit said...

Clear things up for me Jon, are you then saying that socialism has private property?

Jon said...

Let's define terms so it's clear. If private property means a person or group controls the tools and others don't get a say in how they are used, then yes, Socialism can permit private property. The workers control the equipment. When you hire on you get a controlling stake. When you quit or retire you relinquish your ownership claim.

If private property means you own equipment and can earn income by renting that equipment to a laborer, then no, Socialism has no private property in that sense. That's what Ron Paul means when he says "property rights." Investors control the equipment and the control is never relinquished to workers or the state.

HispanicPundit said...

When the IMF is discussion private property...they are specifically referring to the latter.

So no, the IMF ranking would not include even your flavor of socialism.

Jon said...

Show me how you know that the IMF is referring specifically to property rights as applied to investor control of the means of production exclusively. I checked your report. It's absolutely not exclusive to capitalistic ownership. Registration of property, transfer fees, procedures, online databases of information. That's all equally applicable to socialist property relations. Why would you say it's capitalistic exclusively? Seriously. Are you just making it up as you go?

HispanicPundit said...

It speaks of property rights of all stripes. Owners by the workers would be acceptable yes, but so would investor ownership and control over the equipment.

Jon said...

First you say the IMF is talking specifically about investor control, not worker control when it speaks of private property. I ask where does your report say that. You do a complete 180. Now it's property rights of all stripes, worker control or investor control. Do you not see that you've contradicted yourself? And yet once again, now in the Africa thread, you pretend this IMF report is some sort of measure of Laissez-Faire Capitalism. Which is it?

HispanicPundit said...

Lets clear things up. Correct me if I am wrong here. You define:

Socialism: private property such that workers can control the means of production BUT investors CANNOT. Specifically prohibited in socialism, defined by Jon.

Capitalism: private property such that workers can control the means of production AND investors can as well.


Now, my claim is that the IMF, when speaking of private property, allows for BOTH "worker controlling the means of production" AND "investors controlling the means of production".

If my claim is true, by definition, the IMF is speaking primarily of capitalism type property rights. Why? Because socialism specifically prohibits investor controlling the means of production. So the IMF definition is prohibited! But not in the capitalist case.

Make sense?

Jon said...

On Socialist definition, that's pretty much right technically, but practically there would be allowance for some capitalist relations for smaller companies. Like if you are 10 employees or less maybe. Suppose I start a lawn service, take all the risk, etc. Try to expand by paying another worker some wages. Take on a few more and this allows me to run a small office while they are cutting grass. Practically speaking this is permissible. The problem a Socialist will recognize is that you can get so large that you create conditions where one guy in perpetuity is able to stop working entirely and use his concentrated power to retain that condition and extract more and more profit while squeezing the workers more and more. Capitalism is fine on a very small scale and creates problems on a large scale.

I want to add the same caveat on your definition of Capitalism. Practically speaking a capitalist system would allow workers to be owners, but when you have that condition what you have in that individual company is not capitalist. It's socialist. They are not working as capitalists. For an analogy consider a production line. You can say that you have an automated production factory and still have people within that factory doing isolated manual tasks. But the tasks they are doing are not automated. They are manual. If you have a worker owned factory the workers are not making money as capitalists. They are not paid wages. They are paid in virtue of the profits generated. To make money as a capitalist is to make money as an owner. We are capitalists in our 401k's.

I got your point on how Socialism has a greater restriction on property relations than Capitalism, but now I'm back to the question I asked earlier. How does this mean that a Socialist state would actually score low in the IMF rankings? You can distinguish between these two features, but what measure in the report likewise distinguishes these things? You'll need to get into the report and show me, not just tell me it's in there somewhere.