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  • Back to index of Communism Versus Capitalism
  • Communism Versus Capitalism

    Affirmative Case for the Assertion
    Francois Tremblay

    1

    Image by U.S. War Department
    Image: "Good News From Home" by the U.S. War Department

         Thank you to Punkerslut for accepting to debate me. It has been difficult for me to find statist debaters brave enough to tackle the question head on - finding someone as knowledgeable as you is a godsend (so to speak). I hope this debate will be fruitful and instructive to our readers.

         Readers of my site (www.objectivethought.com), please note that the following opening case is the same than for Tremblay vs "Sandino". If you have already read it, there is no use reading it again.

         The proposition that we must evaluate here is the following : "Capitalism is the economic system most favourable to man's life"

         This is a vast subject, and it demands that we look at all the evidence available and explain it dialectically, exploring all the ramifications. That is how I will proceed, while trying to remain as concise as possible.

    Definition and nature of natural rights

         A right is a political principle which must be respected in order to effect an optimally-constructed society, optimally being here defined by how favourable it is to man's life. It is the fundamental unit of politics.

         There is only one fundamental right, the right of self-ownership. This principle tells us that man is the sole master of his own body (and consequently of his own mind). It implies all other rights. If one owns his own body, then by extension one is also free to act in the exterior world by using this body - this is the right of action. And given this, one is also free to own things as property, as ownership is merely a category of actions.

         Other rights are combinations of these basic rights. The right of free speech, for example, is a combination of the right of property (owning a communications channel or access to this channel) and the right of action (being able to use it legally). This can be as simple as a person talking to someone else - he owns his own body, and he can use it to transmit sound to another person.

         A person who possesses his rights to the fullest is said to be free, and a person who possesses no right (either by state or criminal force) is said to be a slave. Capitalism is that system by which men are free in the economic realm.

         Since all mature human beings possess rights, we say that "the rights of one stop where the rights of another begin". This also has the consequence that rights are negative in nature. We do not have a right to coerce someone to give us their property : we only have the right to have property. The right of property is a principle against theft, not in favour of it.

    Definitions of capitalism

         Capitalism can be simply defined as "a social system based on the recognition of individual rights, including property rights, in which all property is privately owned de jure and de facto" (from the Wharton Objectivist glossary). This is a simple definition which gives the premises of capitalism but not its concretisation.

         Going at it from the point of view of the agents involved in the system, we can define it as such :
    Capitalism is a system where

  • the government's role is limited to ensuring individual rights,
  • and private individuals are free to own, trade and act without coercion.

         This is slightly more precise, in that it tells us how rights are recognized : by the government. The government is the formal coercive authority in a given society. The government ensures the existence and persistence of natural rights by protecting them from coercive action - force (physical coercion) or fraud (non-physical coercion).

         This translates concretely in the economy by a lack of coercive financing such as taxes (sales taxes, personal taxes, corporate taxes, and so on), government monopolies, and corporatist measures like subsidies. Enforcement against fraud or force, on the other hand, takes forms such as a judiciary, consumer protection, fraud detection, environmental protection, and other similar areas. The implication of these is that the only existing state intervention in the economy is protective, not redistributive, and individuals trade voluntarily.

         Note that this brief explanation may seem circular, since capitalism is optimally favourable to man's life by definition. However I am presenting the premises that we need in order to continue, not the evidence. I will start presenting the evidence at the beginning of the section "The relation between capitalism and prosperity" and then on.

    Meaning of the proposition

         Having established these basic definitions, how are we to understand the proposition "Capitalism is the economic system most favourable to man's life" ?

         On a theoretical level, it demands that we evaluate how closely it follows natural rights. Since capitalism is defined by its adherence to natural rights, it fulfills this criteria by definition.

         But this is not nearly enough. It is not the basic definition of capitalism that is in question, but its practical effects. We must therefore evaluate whether it is actually optimal in practice. And to do this, we must examine how the particuliarities of capitalism and non-capitalist systems (i.e. statist and anarchic systems) affect the efficiency and role of societal institutions, and by consequence the life of individuals. Finally, since the proposition is inherently and directly comparative, we must evaluate the data on a comparative basis as well.

    The relation between capitalism and prosperity

         The first obvious question is, which system is most efficient in terms of economic progress, that is, which system permits to extend the pie of resources the fastest, and therefore give us the best level of life ? The answer to this is given to us by economic freedom vs GDP per capita studies. The only extensive studies that exist on this subject are those made by Cato Institute, Heritage Foundation, and Fraser Foundation. All three report a positive correlation between economic freedom and GDP per capita.

         Cato Institute : Study done on 123 countries. "The economic freedom index is shown to correlate positively with measures of income per capita, economic growth, the United Nations Human Development Index, and longevity. It correlates negatively with indexes of corruption and poverty" (Economic Freedom of the World : Annual Report 2001). The report gives, amongst others, the following data :

    Economic freedom and income, by quintile :
    top - 19 846 $, 2nd - 9 607$, 3rd - 7 286$, 4th - 3 984 $, bottom - 2 210$

    Economic freedom and Human Poverty Index, by quintile :
    top - 14.6, 2nd - 17.17, 3rd - 21.79, 4th - 31.82, bottom - 36.62

    Economic freedom and life expectancy, by quintile :
    top - 76.18, 2nd - 69.19, 3rd - 68.01, 4th - 63.51, bottom - 52.18

    Heritage Foundation : Study done on 156 countries. "This is particularly significant for citizens of those countries that are classified as "mostly unfree" or "repressed"ómore than 50 percent of the world's countries. These people earn 30 percent as much as citizens of "mostly free" countries. In addition, the citizens of "free" countries enjoy a per capita income that is twice as high as their counterparts in these "mostly free" countries" (The 2002 Index of economic Freedom).

    Fraser Foundation : "Economic Freedom of North America", done on all states and provinces of North America. This study found that the jurisdictions at the bottom quintile of economic freedom had a GDP per capita of 21 056$US, compared to 37 268$US for the top quintile.

    Comparison of capitalist and statist resource-dynamics

         This is necessary but insufficient. Statists could argue, on the basis of this data, that while prosperity is present, there may be crippling disparity. Is poverty more acute in capitalist countries ? It is trivially true in one sense - the higher-level incomes rise more quickly as the pie of resources grows, following a Bell curve. Indeed, we find that the richest countries are also those with a higher index of disparity. On this subject I would refer you to the OECD 1995 study "Revenue Distribution in OECD Countries" (Atkinson, Rainwater and Smeeding), which shows a linear relationship between inequality and economic freedom as defined by the Heritage study.

         On that basis, one may argue that lower-level incomes do not in fact rise at all, and that only one category of citizens reap the benefits of resource expansion. This is incongruous. In a relatively free country, where people trade voluntarily, they both reap the benefits of that trade, given that there is no coercion. Everyone trades to his own perceived self-interest (I will discuss later the dynamics of trade). Furthermore, it is difficult to imagine what kind of production pattern would benefit only a minority.

         The data confirms this impression. Michael Roemer and Mary Kay Gugerty (of the Harvard Institute for International Development), in "Does Economic Growth Reduce Poverty ?", conclude from statistically studying underdeveloped countries that "an increase in the rate of per capita GDP growth translates into a one-for-one increase in growth of average income of the poorest 40%" and that "For the poorest 20% the elasticity of response is 0.921". This is what we would expect, and it is stunning that it applies even to heavily statist situations.

         United States data also confirms this - in "Conquest of Poverty" by Hazlitt, historical data about wages from the US Department of Commerce is discussed. Between 1939 and 1969, wages in constant prices rose by 108%. As productivity rose, corporate revenues went more and more to the workers, as we should expect : between 1955 and 1970, wages went from 85% to 91% of corporate profits.

         Measures of absolute poverty (as opposed to inequality) only drive home the point. The average poverty level in the United States, for example, is higher in absolute terms than the average prosperity of a vast majority of inhabitants of this planet.

         Such benefits are an important part of our issue, but not the only criteria. There are more things in society which permit or hinder the fulfillment of one's life than straightforward prosperity : political corruption, general hostility, disrespect for the environment, high prices for common goods, are various things which are dependent on economics and affect our life. This is what we will now examine.

    Social dynamics and stratification

         To understand the efficiency and social benefits of capitalism, that is, to get a global view of why capitalism best serves our interests, we must analyze the societal dynamics entailed by each system. This simply means to examine how individual and public action is affected by different systems.

         To understand these dynamics, we need to keep in mind that everyone acts in his own perceived self-interest. Whatever our motivation is, we believe that it is favourable for us to act in a certain way. Even in altruistic action (to take an extreme example, suicide), people do what they think is best for themselves. This is trivial, of course, but it is important to point out : it is the basis of the so-called "invisible hand" of the free market, which is nothing more than each individual desiring to fulfill the most desirable role in the economy.

         There are three basic categories of action in society : voluntary trade (non-coercion), political pressure (impersonal coercion, effected by the government), and crime (personal coercion). All three systems imply a different balance between these three categories.

         In a capitalist system, state action is designed to protect individual rights, thru the police and judiciary. This protection tends to make crime unprofitable. The limits imposed on state action also means that it cannot regulate markets or subsidize to the profit of one or the other economic agent. This tends to make political pressure unprofitable. Because of these two restrictions, the perceived self-interest of the economic actor will tend towards voluntary trade.

         In a statist system, state action can overstep its natural boundaries and coerce economic agents. Because the state is extremely powerful (being, as I have pointed out, the only formal coercive agent in the society), the benefits of political pressure become much greater than that of voluntary action - that is to say that pressuring the government to rule in our favour becomes more profitable than trade. Crime, on the other hand, is still rendered unprofitable by government protection (although more than in a capitalist system due to the sprawling black markets triggered by the illegality of various goods). Therefore the perceived self-interest of the economic actor in this case will tend towards political pressure .Thus we get monopoly trials incited by outdated rival corporations in order to topple a productive giant, we get subsidies and protectionism, we get social laws that censor a group of people in favour of another while mollifying individual responsibility.

         An extreme case of this is communism, where private trade is outlawed and the state regulates all production. In this kind of system, most non-trivial societal action is political pressure (with of course the black markets, which flourish due to inadequacies of supply in any purely producer-driven economy)

         These statist dynamics create stratification. In a capitalist system, everyone is equal to the law. In a statist system, the vast reach of political power creates castes - politicians at the top, "friends of the state" in the middle (generally the banking industry and other industries shielded by protectionism, pressure groups and minority groups, doctors and other professionals, stars and other visible personalities, and others), and the common people at the bottom. While this is radically expressed in communist and fascist countries, it is also visible in centrist countries such as Canada (where efficient health care is mainly a luxury of the politicians and their appointed friends). Such stratification is also reflected in politicians' immunity to the law.

         In an anarchic system, there is no government by definition, and political pressure is meaningless in the sense that we understand it now. Rather, we have informal coercive agents (be it corporations, syndicates, mafias, etc) which are now unrestrained. Given their own leverage, it becomes advantageous for these agents to coerce other people instead of trading with them, just as the leverage of the government pushes people to try to turn it to their advantage in a statist system.

         I have already noted that everyone acts in his own perceived self-interest. This entails that voluntary trade is an optimal means to deal with one another, since every single agent in the system is maximizing his benefit. At best a controlling agent (such as the government) can only mimic such trade patterns : at worst, disrupt them completely. Such optimality, however, is non-rational - people effect their perceived self-interest, not their actual self-interest. One may then argue that a controlled system can return rationally optimal results : however this is undialectical thinking, since political agents are as epistemically flawed as the rest of the population.

    The indirect consequences of widespread coercion as part of the economy are numerous.

         Take the example of foreign relations. A capitalist economy is by definition opened to the world, since freedom to trade with other countries is but another component of the right of action. The dependence between individuals (and therefore between nations) becomes stronger, as it does in a capitalist society (by opposition to a statist society, where individuals submit to a central authority). As free trade takes effect within a nation, people become specialized in order to maximize their utility to other people, and the same is true of nations within a geo-political system. This dependence makes war between nations considerably more costly, and unlikely.

         On the other hand, a statist country is most likely to shield its people from the attraction of freedom, and therefore control foreign trade. This also means that such a country has much less to lose by going to war.

         We do observe that most wars take place in unfree countries, that the two world wars were started by a monarchy and a dictatorship, and that most genocides are performed by statist leaders. An exception to this rule is the United States, which seems to have particularly violent and war-loving people. Such psychological anomaly is exceptional, but probably cultural.

         We expect the same to be true of corruption, which is highly dependent on political power. As we have seen, political pressure becomes a mode of living in statist countries. This pressure may be formal (election funding, for example) or informal. Bribes and corruption belong to that second category.

         According to the Transparency International Corruption Perceptions Index 2002, the least corrupted countries are Finland, Denmark, New Zealand, Iceland, Singapore and Sweden (please note once again the absence of the United States, which is in 16th position) - for an average economic freedom rating of 1.78. The most corrupted countries are Bangladesh, Nigeria, Paraguay, Madagascar, Angola and Kenya - for an average economic freedom rating of 3.11 (both ratings from the Heritage Foundation lists : lower is freer).

         These are just a few of the effects of the dynamics I have explained at the beginning of this point. Let me now get specifically in the economic effects.

    Economic problems of statism

         Tying together the principles presented at the beginning and in the last section, we can now examine six major problems particular to statism, which are entailed by its nature, its sub-optimality and its stratification.

    1. Public waste.

         The lack of competition inherent to public monopolies entails waste of resources and inefficiency. While natural monopolies do exist in situations where resources or demand are scarce, the resulting high prices are a normal signal to the market that the access to the resource must be restricted, lest a situation of penury exist. However, artificial monopolies serve no such role and only make waste. The apparent superiority of monopolies in reducing costs (such as laying down one ground line instead of many, or needing only one building instead of many) is illusory because it restricts competition and consumer choice.

    2. Private Interest Theory and political motivations.

         Private Interest Theory is the analysis of political decision from the point of view of political motivations. It has shown that politicians naturally take decisions in their own political interest. This is perfectly natural, but also has the consequence that political actions do not serve the interest of the individuals who have to suffer those decisions - while politicians themselves often escape the consequences of those decisions.

         PIT explains many of the idiosyncrasies that seem mysterious to private consumers of state services. The chronic shortages of beds in statist health care, the strange laws that tip the scales for corporations or for consumers seemingly without reason, the bad management of public forests are all manifestations of PIT. The prime motivator of political action is the private interest of the political agents, as influenced by pressure groups, corporate money, and all the other characteristics of centrist democracies.

         For a nice demonstration of PIT, see the example of "The Motivations Behind Banking Reform" in Regulation Magazine vol. 24 no.2 - when there is a lot of small lenders, for example, the insurance lobby opposes itself to the opening of the insurance domain to banks, and PIT predicts correctly that delays will be present, despite the obvious benefit of such opening to the consumers.

    3. Tragedy of the Commons situations.

         State ownership of natural resources necessarily creates Tragedy of the Commons situations, where it is in the best interest of the state, or to individuals given access to them freely, to consume the resource before others can do the same. This is especially detrimental from an environmental point of view, and can only be solved by private ownership or laws emulating private ownership (such as systems of flexible quotas).

         The Tragedy of the Commons is an established principle in economics based on the interest of agents towards a collectively-owned resource. Given a situation where no one in particular owns a given resource, and some agents are free to access the resource (regardless of any costs or penalties given for accessing the resource), it is in the best interest of those agents to get as much of the resource as possible before others do, instead of conserving it preciously as an owner would.

         A good example of this is the depletion of fish reserves in the coasts and in public lakes. The ToC, however, applies to political and social situations as well.

    4. Power grabs and moral deterioration of society.

         The moral deterioration of society can be seen as an indirect political variant of the ToC, in terms of freedom of action. Given a certain extent of political power, this opens us a certain amount of freedom to be legislated. If it could be legislated in an agent's favour, it is in the interest of that agent to lobby for such benefits, even though it is detrimental to others. For example, Microsoft benefits from the illegality of reverse-engineering of its operating system under the Millennium Digital Copyright Act, even though this is detrimental for the consumer's freedom of choice.

         Given that everyone desires the benefits of immoral legislation, society begins to align itself not towards the harmony of interests that is proper to a free society, but rather as a wrestling contest centered over politics. A good example of this is the conflict between parents as to how better legislate the education of all children, even though it would not be part of their sphere of influence if not for political power. Another, more insidious and scandalous, example is the politician who implements strong laws against drug use and then saves his children from getting prosecuted. Such things would be unconscionable in a capitalist society.

    5. Imposition of individual decisions on the collectivity.

         The nature of peaceful cooperation is that individual decisions stay within the sphere of action of the individuals involved. When a powerful state imposes a new law or a new institution, it overrides the freedom of action of the individual, and magnifies political motivation to the entirety of society.

         The imposition of individual decisions on the collectivity is the counterpart of the moral deterioration of society. While it is the prospect of political power that makes society align itself around power grabs, the consequence of those power grabs is the imposition of the results on everyone. While in a capitalist system mistakes are constrained and large-scale error only occurs when the state is fiddling with the monetary supply, a statist law made by officials of the state has far-reaching consequences in the entirety of society.

    6. Black market dynamics.

         When peaceful cooperation is prevented, we obtain un-optimal patterns. These patterns are compensated in various ways, including corruption, criminality and black markets. The black market dynamics are a necessary consequence of suboptimal trade patterns imposed by the state. There are three consequences to these dynamics : as long as there is a demand for a given product, whenever legal or not, people will exchange it - if something is illegal, then by necessity, only outlaws will have it - what is hidden, and therefore unregulated, is more likely to be damageable.

         In most cases an economy cannot reasonably be said to be controlled, and we observe that the more state control there is, the bigger a black market we find. In that regard, the only functional alternative to total freedom is total slavery - either we accept total freedom of action, or we justify more and more controls, which in return only create more control problems.

         What is the economic consequence of these inefficiencies ? Milton Friedman's Law, which states that services cost approximately half as much to provide under a free market than they do under government. This is, of course, not a precise measure : however it seems to be supported by observation.

         Examples can be seen when the government privatizes or opens to competition new markets (thanks to the Non-Non-Libertarian FAQ by Glen Raphael for these examples) : allowing multiple competing electric networks drives down utility prices and increases consumer satisfaction without noticeable additional environmental impact (Lubbock, Texas), allowing multiple competing cable companies can drastically reduce consumer costs, increase channel availability and increase consumer satisfaction (dozens of cities), big cities can exist and thrive without any zoning laws at all, using free-market mechanisms to anticipate and resolve disputes - in such a situation, housing costs are reduced, homelessness is reduced... (Houston, Texas), fire service can be provided through voluntary means, either with a nonprofit volunteer department or a for-profit subscription service (hundreds of cities), private libraries are cheap and can provide high-quality service even to people who can't afford to pay for it (in dozens of cities), security services can be provided either via contract or volunteer patrols (hundreds of cities), private services can deliver stuff faster and cheaper to more places with higher reliability than public services can (UPS, New Zealand). Statist systems are soundly defeated whenever they are put to the test alongside the private sector.

         Complicating the issue is the diversity of options between private and public - for example, charter schools are a more efficient midway solution which retains a form state control. Deregulation can be complete or partial. As was seen in the case of the California power crisis, partial deregulation done badly can be worse than public systems.

    Implementation and stability

         This discussion is not quite over. It is not sufficient to examine the merits of each system, if one or the other system is too unstable to survive. If a system is unstable, then we must restrict our praise for it on a purely theoretical or hypothetical level.

         The basic factors of stability are the same everywhere : if everyone is against a given system, it will crumble, be it capitalist, statist, or any variant thereof. Despite the claims of collectivists, political systems have no life of their own. Their institutions are composed of people, who work for or against the assigned purposes. Of course, if everyone agrees that the system is just, then it will survive, regardless of its benefits or problems.

         I see two major factors siding in favour of capitalism in this comparison.

         The first is the availability of resources. Given that people strongly prefer to have more resources than less, statist systems tend to be less attractive. This is why the latter have traditionally used laws against freedom of movement to keep their citizenry.

         The second is freedom. Capitalist systems permit people to trade and live in the ways they choose (including collectivism, if they so desire), and people seem to prefer to be able to live in the way they desire. Capitalism is therefore a context in which adherents of all political systems can create microcosms in the form of communities, organizations, corporations tailored to their own needs. This also ties in the statist damage to the social fabric I discussed in point 4 above.

         In recent history, we have seen one capitalist system come into existence and disappear (the American Republic), and a number of extremely statist countries come into existence and disappear (Communist USSR and China, Fascist Germany and Italy). While the American Republic, which was founded on the US Constitution, lasted longer than the others (approximately one century, depending on where one fixes the date of ideological death), this is not sufficient empirical data to draw conclusions on their relative stability. At least we know that all these systems are possible.

         The capitalist ideal in the American Republic was founded on the notion of constitution - a document which serves the role of law, fixing the checks and balances of various parts of the government, and limiting it to a certain area of action. The principle of constitutional rule is pretty simple in its basic nature, and there is no non-trivial objection against its stability. Notably, the US Constitution established in the fifth amendment that no one should "be deprived of life, liberty, or property, without due process of law". This principle was abolished by the 16th amendment (making income tax constitutional), ratified in 1913.

         There is no objection to be made against the anti-capitalist project, either, but with one understanding : such a project inevitably leads to dictatorship in the long run. There can be no stable anti-capitalist system without a slide into dictatorship. This is because dissociating economic freedom (capitalism) from social freedom (civil liberties) is a hopeless dichotomy. Economic freedom cannot exist without social freedom, and vice-versa.

         For example, the right of free speech means nothing if the state owns all means of communication. The right to work for your own happiness is meaningless if the state controls how and where you are to work. The right to one's privacy is ridiculous if the state owns the land you live on. Freedom of thought is meaningless if the state owns the children, controls all the schools and controls the media. And so on.

         The reason for this connection is that control over the economy necessarily gives one control over societal relationships, as their sustenance is founded on material means - and control over societal relationships necessarily gives control over the economy, as the latter is composed of trade relationships.

         I have presented four general lines of argument to show that capitalism is the economic system most favourable to man's life, all of which are complementary :

    1. Capitalism is best suited to material prosperity and growth, which is necessary for human life.
    2. Capitalism is best suited to promote voluntary trade in society, as opposed to coercion, the latter being detrimental to human life.
    3. Capitalism is best suited to ensure the efficient use of resources, which improves the services and production necessary for human life.
    4. Capitalism is as stable, or more stable, than statist systems, thus ensuring the actualization of points 1 to 3.

         Please note that this opening post is a quick overview of the case for capitalism as most favourable to man's life. Entire tomes have been written about the philosophical and economic details of this issue (most recently Capitalism, and I'm sure a lot of clarification will be needed in the course of this debate. Still, I apologize for the length.

         I will now let Punkerslut ask his questions on the affirmative case I have presented here.


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