Capitalism

On Dec. 3, 2017, we began a discussion contrasting the books Capitalism & Slavery by Eric Williams (1944) and Capitalism & Freedom by Milton Friedman (1962)  [Note: free electronic versions of books at those links.]

Our next meeting will be Sunday, March 4, 2-3 p.m. We will be discussing chapters 8 & 9 of both books. There are free on-line copies, though not in the easiest-to-read formats, at the links above.

The idea of discussing these two books jointly was suggested by Prof. Fred Moten at NYU.

Books recommended by participants during the discussion:
Racecraft by Barbara Jeanne Fields (Jarrettia recommends the article Slavery, Race and Ideology) by Barbara Jeanne Fields
The Half has Never Been Told, Edward Baptist
Shock Doctrine by Naomi Klein “Discusses Milton Friedman’s contribution to promoting neoliberal (or Free Market) Ideology.
Great Transformation —  Karl Polanyi
Economics in One Lesson   Henry Hazlett (Bible of Libertarians)

15 Replies to “Capitalism”

  1. One way to challenge Friedman is to show that his free market program leads to disasters. One doesn’t have to look far for the evidence of these disasters — the history of the US industrialization in the 19th century provides more evidence than any debate would need. However, this tactic against Friedman is an old story that his supporters respond to by citing free market successes, of which there are plenty, and alternatives to the free market that also led to disaster.

    I’d prefer to look at the flaws in Friedman’s own arguments on his own terms, that is, accepting his premise that markets should be free, show that his specific arguments fail to demonstrate his case; that his arguments, taken seriously on his own terms, demonstrate that free markets are imperfect, as he himself understands the meaning of “imperfect.”

    First, what does he mean by “imperfect”? In chapter VI, he observes that the free market is imperfect with regard to the distribution of education. Institutional private investment in education, he says, is curtailed by a conflict between two of his fundamental premises, the liberty of the individual and the freedom of the market. Individual freedom allows people to use their education freely, so free market capital investment in education cannot be ensured the way a machine or a material resource might be. In other words, if people are at liberty to use their education or not use it at all, the free market will not have an immediate interest in providing an optimal distribution of education. He meticulously avoids considering the long-range social benefit of education for the free market, probably because he is well aware that the free market tends to be short-sighted by nature. In any case, this is his notion of a free market imperfection.

    In the next chapter, he argues against equal opportunity laws. If one store hires a minority that the community doesn’t want, then the store will fail and everyone loses. But that’s only true if only one such store does this. The point of such a law is to require that all stores must hire minorities, so the community have no choice but to patronize. So his analysis is wrong.

    But he’s right that such a law curbs the freedom to be racist. He makes it seem as if this is an unintended consequence of the protection of minority labor, but he utterly misses that our society is founded on the principle of equality — “all people are created equal” with respect to the inalienable rights to life liberty and the pursuit of happiness, not just liberty. He forgets essentially that liberty is impossible without equality. If A has more power than B in society, then B is not fully at liberty. Therefore liberty requires equality, otherwise life and the pursuit of happiness cannot remain within the hands of all the members of the society. In a free market, it is possible to be racist, if there is only one race; it is possible to have diversity, if there is no racism. But it is *strictly impossible* to have racism and diversity *and a free market as well*. That’s an imperfection of the free market.

    It is true that forcing people to accept diversity is an infringement of their freedom and many racists will resist and resent that force. But racism violates the foundational principles of our society and nation — it is and should be criminal — so it should be eradicated by means that least sacrifice the rights of the members of the society.

    The analogy between race and singers demonstrates another imperfection in the free market. Capital chases demand where there’s profit. Opera is expensive, so if there’s a small market, opera will be lost. He thinks this is just fine, but it’s actually a failure of the market, since opera does offer a benefit, just not one that is self-sustaining. That the free market can’t sustain it is not a virtue of the market, it’s a flaw or failure of the market.

    The discussion of race shows that the market is fundamentally flawed. His argument goes like this: In a free market, capital chases after demand and therefore everyone is served. So if the majority has a demand for white people servers, then white people will supply that demand by serving for pay.

    But being white is not a skill or a talent that can be acquired. It is a credential without merit or intrinsic value. The only perfect free market solution then for minorities is to be white. That this is not possible entails that the free market is imperfect with regard to race or racial perception.

    His arguments in these chapters prove the opposite of his intentions. Taken seriously on his own terms, his arguments demonstrate failures and imperfections of the free market, not its successes.

    • I agree with the bulk of what you said. Since Friedman is making an abstract argument, it is important to address it on its own terms.

      I do want to differ with your aside that Friedman would be “well-aware that the free market tends to be short-sighted by nature.” I’m not sure this is true. It is certainly true that much of Wall Street is excessively focused on short-term results. But, that was much less true in the 1960s when Friedman was writing. Even today, while there is a lot to criticize the Koch brothers, Jeff Bezos and Warren Buffett for, they are considering the long term.

      • One of Friedman’s central beliefs is that markets regulate society better than any individual’s ideas of how to benefit society, including majority consensus ideas. That implies a sharp distinction between how markets “think” in aggregate — which ranges from the relative short-term of a year or so (markets are expected to reflect inflation targets and tax laws, e.g.,) to the immediate short-term of a nanosecond — and individual policies or ideologies that might be timelessly long-term. The Kochs’ ideological intentions, for example, are not a fact about the market. They’re politics (designed to get politics out of the market).

        • I’ll accept that the Kochs’ actions are probably ideologically motivated, not market actions.

          Although, I suspect you could justify their expenditures as wealth-maximizing for a couple of billionaires whose main businesses are dirty energy and other highly-polluting industries. That is, the deregulation, tax cuts and favorable court rulings that they’ve gotten over the years may more than pay for the extremely large funding they have provided to many politicians, think tanks, etc. That’s especially true if you consider that much of those expenditures are tax deductible — so we are subsidizing them.

  2. Just a word on the role of labor in US abolitionism.

    The19th century white abolitionist movement seems to have had its roots in the Second Great Awakening and the Fundamentalist Methodist movement. It spread among northern white elites in the Republican Party where abolitionism was consistent with industrialization with its use of cheap immigrant labor.

    The price of labor in the industrial northeast was considerably lower than the cost of slaves — the volume of immigration from Ireland and Germany allowed industry to pay wages lower than the cost of the reproduction of labor. (The social result was rampant criminality and gangsterism among immigrant males and ubiquitous sex-work among immigrant women, both of which provided convenient fodder for the deep anti-Catholic sentiment among Protestants.) In fact, among many Protestant elites there was a broad and strong public sentiment that these Catholic immigrants should not be allowed to reproduce, especially in this country settled and formed by Protestants. Charity was discouraged since it would only serve to increase the ranks of the Catholic poor, and eugenics emerged as a popular ideology. This hypocritical disparagement and simultaneous abuse and use of immigrant labor perfectly matched the needs of industrialists. Abolitionism, on the other hand, afforded the industrialist a conscience and, conveniently, slavery was not necessary to industrial profit.

    Immigrant laborers, in response to Protestant resentment, tried tirelessly to prove that they were just as American as the American-born. Immigrant labor viewed abolitionists as anti-Union, dividing the nation and tearing it apart, giving speeches at home and abroad disparaging the US, labor’s new home of which labor was inordinately and conspicuously proud. The Astor Opera House riots in 1849 give a sense of the intensity of the division. As northern labor resented these elite industrialist Protestant Republicans, the Democratic Party found an available constituency. Republican elites committed to abolitionism, the Democratic Party became the party of slavery and immigrant labor.

    It should not be forgotten that although the South instigated the Civil War in order to preserve slavery, the North engaged in the war initially not to end slavery but to defend itself and the Union. Lincoln was not elected as an abolitionist — he was elected to contain, but not end slavery in his term. New York City labor favored slavery and the South for reasons that were more emotional than practical — supporting slavery was in the interests of their self-identity. It’s not clear that they were worried about either competition from the freeing of slaves or competition from slave labor. The many lynchings and attempts to burn down black institutions and homes during the Draft Riots suggest that immigrant labor might have been more worried about competition from freed slaves.

    • While Friedman doesn’t advocate eugenics, he does express sympathy for the idea. In Chapter 5 on education, he argues for the families bearing more of the cost of their children’s education (particularly secondary education and college). He goes on to say:

      “Finally, but by no means least, imposing the cost on the parents would tend to equalize the social and private costs of having children.and so promote a better distribution of families by size.” [emphasis added, Page 87 in the paperback edition.]

      In case the point is too subtle, he adds a footnote where he notes that the problem he wants to fix is the lower birth rate among the “higher” socio-economic groups. Friedman wants to achieve A “better” distribution by making the cost of educating their children more burdensome to the “lower” groups [that is, the poor] from having so many babies .

      • Moynihan too. Family size has been a troubled question across the globe. There’s a lot of research on the economic impact of family size, from subsistence farmers who prefer many children to the Hasidim who, as a close knit group, support large families — twice the rate of the average American family and more than twice the rate of other Jews — and who get a lot of welfare from the state to support those large families. The Moynihan question as I understand it is whether the large family size benefits the family, as with subsistence farmers in developing nations or, in a more abstract, legislated or complexly integrated economy, a burden to the family itself because of the nature of the economy or the culture or its racist inequalities and racist politics.

  3. I’ll miss the meeting and book discussion this Sunday. I’ll try to post some comments on chapters 8 & 9.

    While Friedman is mostly blaming the wrong causes (government and unions) but he is identifying some real problems. Monopoly’s are bad. The last paragraph of chapter 8 talks about corporations becoming too powerful. He’s right. Those are major problems.

    I would give him more credit for raising these concerns if he seemed more genuinely concerned about them. Arguably, these were not such major problems in 1962 (or earlier) when he was writing this but he lived and was active until 2006 or so and they definitely were. Still, he never made a big deal of them. The same is true of environmental regulations. Consistent with his theory, he says we need environmental regulation because pollution is a market failure. But, while he takes that position quite clearly, he never gets very excited about promoting regulations to address it. It seems that if government is needed to address the problem, he’d prefer to ignore it.

    The same is true of his followers — even the more intellectually consistent of them. You never hear Russ Roberts or Rand Paul calling for anti-trust enforcement or decrying the removal of environmental regulations.

  4. Friedman again has some good points about licensing. There are areas where an industry has used government licensing to reduce competition so they can earn excess profits.

    On the other hand, there are areas where restraints (or some solution) is needed to keep wages up. We’ve seen that with taxis. Uber broken the system restricting the number of cabs and greatly expanded the number of cars for hire. This has been bad for all drivers — yellow cabs, uber drivers and others. On the other hand (yes, three hands), the restrictions on medallions were not helping drivers that much. The benefit was going to the fleet owners who owned the medallions and were just extracting rents. Maybe a better approach would have been to require that drivers earn at least minimum wage each shift. If there are too many cars out, the fleet owner needs to make up the loss. Then, the fleet owners would hold back taxis to avoid having to do that.

  5. I’m grateful to Jarretia for choosing the books and conducting and guiding the book club. For me it’s been one of the most valuable Altbank projects. Congrats!

    I wish the entire group had done more to take on Friedman’s arguments head on. The history of capitalism from its start to today demonstrates the failures of prioritizing personal freedom and property over the collective well-being of all the members of the collective — the history is an empirical refutation of Friedman’s view — but the history doesn’t address his individual arguments. What I wasn’t able to say at the end, is that I thought we missed an opportunity to engage with his arguments directly point for point. I felt we dismissed it as racist and classist (which it is) but didn’t take it on on its own terms. Maybe that’s too much to take on in a large group in a book club but I feel I’ve only begun to deal with his book and his strong defense of appalling inequalities.

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