Why do you assume 'pure' capitalism the ideal we want to achieve?
To me that's like saying we need to stop playing football with all of it's unnecessary rules and regulations and get to the purest form of sport: kill the man with the ball.
All sports put arbitrary restrictions into the game. You can't touch the ball with your hands. You have to dribble while running. You can't pass to a teammate when he's too far down-field. All of these are to make the sport better for the players as well as the spectators. The players often complain about the rules, try to get around them and/or fight with the refs, but the appropriate response is generally to call them big whiny babies.
That's not to say the refs should be corrupt and influencing the game too much; that needs to be called out when it happens.
The way I see it, the game spun out of control (mostly because the rules were changed to favor risk-taking) and now the Fed is trying to reset it to a point where we can all start playing again. Can we at least agree that a game with the rules removed is not always better?
The "truly free market" can never achieve the "pure" capitalism you propose in practice, then, because deregulation involves a great deal of involuntary choices forced on the consumer (as opposed to being forced onto the business.)
And that's why you need regulation: it ensures that interactions are indeed voluntary, and that both parties have access to the same amount of information.
This analogy doesn't hold true in reality. Pure capitalism doesn't mean no rules, just no rulers. Look at Github, for example. Spontaneous standards, conventions, communities, etiquette, etc. happen all the time. Now, I know the Fed is private, but is still hugely influenced and tied to the US Gov. Why can't we have competing currencies in the market? And then we can see what kind systems & rules evolve and come into being. Fiat currency is like a single point of failure.
Pure capitalism doesn't mean no rules, just no rulers.
Who enforces the rules when someone breaks them? The community? Sounds great! Do all of the people have to vote on every infraction every time? …or are we going to designate some people who understand the rules and regulations deeply (let's call them referees and/or regulators) and put them in charge of making decisions on our behalf. That sounds like a great optimization to me! We just need to make them answerable to the people and not the players. You know, the players would love to have these guys on their side. They will probably even try to corrupt the refs by paying them off.
Why can't we have competing currencies in the market? And then we can see what kind systems & rules evolve and come into being. Fiat currency is like a single point of failure.
Firstly, we do have multiple currencies. Each nation has one and there's nothing from stopping you and all of your friends from doing business in a different one. Yes, you still have to pay your taxes in the one the US gov accepts.
Secondly, why is innovation in currencies important? I'd rather have companies building new types of ship rather than trying to reinvent water. I think something like bitcoin or a gold-backed dollar is interesting to think about, but I haven't seen anything compelling to say it's worth the switch. Maybe some smaller nation/economy somewhere should try it out. I think they will find that it's not all roses as they think it is.
In europe they said: cell phone infrastructure is extremely expensive to build so let's pick one standard, and force all companies to compete and build it out on the same standard. Kind of like how the US originally approached the incompatible railway gauge problem.
With cell phones, the US didn't do that so now we have multiple incompatible standards that all have kind of half-assed coverage. More competition and innovation! Except it's worse for the consumer. If you want to buy a cell phone, it might only work at your home but not well at your office. It might have to have 2 different kinds of radios. I wish the US had picked a different set of priorities to compete around.
I think you're mistaken by one big thing, in a "pure" capitalist state, there would still be court systems in place to enforce human rights, contracts, lawsuits etc.
A privately-run court system which is prone to corruption wouldn't last very long, when a competitor could easily pop up who offers transparency and a lack of vested interests.
If there were competing courts to choose from when entering into contracts, people would pay careful attention to which ones were more fair.
An unfair court would be less likely to be trusted by both parties and would not be as able to compete as a fair one.
Consider what options there are when there is only one court and it is terribly unfair. And that has happened many times.
People who are chronically treated unfairly would be much better off having a choice. And they and people that deal with such groups would have an incentive to choose a fair court.
And this is already there to a slight degree. Many companies incorporate in Delaware because they think its more favorable.
Of course, most things are governed by courts where you do business, so for most things it doesn't matter that much. In a more competitive situation, it could matter much more.
Do you people ever know what you're talking about? Don't you think you owe it to everyone to explain first why the current system of private arbitration does, or could potentially, render better justice than public courts?
The private arbitration system approximates to a high degree exactly what you idiots are proposing, and yet it conforms to almost nobody's definition of justice. (except corporate lawyers'?)
But no. Let's dismantle hundreds of years of common law and the notion of equality before the law, the fundamental basis of our society, because some naive, uninformed kids were convinced by a couple of half-assed comments on Reddit.
Your entire argument hinges on the implicit assumption that all parties have the full and unlimited right to choose the venue in which their case will be heard. That is a complete fiction, given everything we know about human behavior and history.
I did not assert that all parties have full and unlimited right to choose the venue in which their case is heard.
I made no assertions about today's situation.
I was proposing an alternative where people could choose who they do business with based on the proposed final arbiter of the contract.
People can already do this by choosing to business in a different country where a different final arbiter is in charge. I'm just proposing that sort of competition within a country.
I guess today's contract arbitration could be interpreted as exactly that. But people certainly have a choice to sign or not.
A privately-run court system which is prone to corruption wouldn't last very long, when a competitor could easily pop up who offers transparency and a lack of vested interests.
Oh, really? If that were the case, then why does it take so long for people to overthrow the regimes in decidedly corrupt third-world dictatorships, like Libya, or Egypt? Those states were well known to be corrupt and unsustainable, yet it still took decades before Qaddaffi and Mubarak were overthrown.
The fact is, a court system needs a way to enforce it's judgement. Such enforcement necessarily requires force. And once a court system has a monopoly (or near monopoly) on force, then it becomes very difficult and painful to get rid of that court system and replace it with a competitor. In fact, we have a name for that process: revolution, and it's not exactly as easy as you make it out to be.
Hmm you're comparing the pace of change of a facist totalitarian regime that ruled for decades via strict force to a laissez-faire marketplace? Of the all the analogies to choose from, that one is quite weak.
As I mention in other comments, I personally favour minarchy which supports a system of law courts and enforcement, as well as state run military and police.
There are thousands of things more important and much more obviously broken than the court system (military expansionism, war on drugs, domestic surveillance, federal reserve etc, etc).
Are you sure it wouldn't be some kind of private arbitration circuit? I'm pretty sure that in a "pure" capitalist state, the preference would be to allow the market to discover a solution to the problem of injustice. Indubitably, the foundations of such a system would be, essentially, pay-for-play.
Those with means would prefer, rationally, to have a system where the measure of justice they receive is proportional to the means they possess. As long as we're buying and selling justice, who would want to pay more, and receive less justice? I'll take my business elsewhere, thank you.
I somehow doubt, then, that such a system would tend toward what most people consider fair and justice -- those notions today, at least ideally, embody the concept that all participants are equal, regardless of any other consideration.
> those notions today, at least ideally, embody the concept that all participants are equal, regardless of any other consideration.
Equality as defined by the government/state... which as we have seen, is susceptible to corruption and enforcement of laws that were created with influence from special interests.
Yes, the selection and implementation of equality is open to suspicion.
I reject your implication that the state/government are somehow separate from those governed, however. Without that, all you are saying is that equality is a flawed concept, owing to the fact that government has so many stakeholders, with disparate, wide-ranging and sometimes conflicting interests -- and therefore any notion of equality formed by consensus will fail to completely satisfy someone.
The ideal of equality before the law, however, remains -- something which cannot be said for a pay-for-play justice system. You are changing the subject by drawing attention to the flaws of the current justice system. The original statement you made was a positive assertion about the qualities of a theoretical private arbitration system.
I see that you added "when a competitor could easily pop up who offers transparency and a lack of vested interests" since I wrote my comment. To this, I can only groan and roll my eyes. Who will pay for such a system? Why would someone who can pay prefer a fair system to an unfair system? All other things being equal, if you have to pay $X for justice, would you rather have a fair hearing or one where a favorable outcome is determined?
Well, I personally favor Minarchism [1] over anarcho-capitalism.
> (Minarchism) maintains that the state is necessary and that its only legitimate function is the protection of individuals from aggression, theft, breach of contract, and fraud, and the only legitimate governmental institutions are the military, police, and courts.
But I still believe theoretically a private court system could
exist and function properly.
This is based on the concept that private court firms would have to have a good reputation in order to stay in business.
1) What individual/business acting in their own self-interest would enter into a contract enforced by a court system that favours the other party?
2) No judge would ever get hired again if he was found out to have been bribed, so why would they risk their career?
3) The courts would have their own policies to maintain a good reputation, for example, they could have a very strict contract with the judges they employ and enact policies to maintain fairness (such as transparency measures).
4) The courts would also be exposed to lawsuits from citizens just like any other business. Any type of malpractice would expose the court to a large amount of legal/financial risk.
1) Someone who has no choice e.g. there are no "honest" courts, or all service providers with whom an individual could contract with demand the right to choose courts of arbitration.
2) First, this is an unsubstantiated statement of faith. Second, we're not talking about bribes but systemic bias i.e. the entire private court is lopsided. You're thinking that the problem would be of the form of "I'll just pay judge X to render my preferred verdict." I'm talking about a problem of "all courts have a fundamentally pro-business bias and impose a severe burden of proof on plaintiffs pursuing business defendants."
3) Again, bribery is not the issue. Selection of the judges is the issue.
4) And in which court will these suits be heard!?
Perhaps you think that there will simply be other private court systems set up with select mostly "liberal" judges. Who will pay for these? Wealthy individuals?
And which business would insist on being heard in these courts? As it stands, almost every large business with whom you contract has an arbitration clause which you accept when you engage them. Those clauses always reserve for themselves the right to select the arbitration venue. Why would that change? Which business would ever decide to concede that right, or to choose a consumer-friendly venue?
4, a higher legal association, that deals with lawsuits against courts. The association would be in as much market pressure to be honest and reputable.
You would choose courts based on their contracts with these associations.
But as I mentioned above, I personally don't believe in having a private court system. I support a state run law court (ala minarchy).
There are thousands of things more important and much more obviously broken than the court system (military expansionism, war on drugs, domestic surveillance, federal reserve etc, etc).
That being said, I fully support the non-aggression principle in all other contexts and (obviously) in the efficiency of the market model.
Because the purpose of a society is to promote a stable, peaceful condition within which people can be safe and prosper. (See: Thomas Hobbes, Leviathan)
To the end that prosperity requires economic forces in order to create opportunities for people to rise disproportionately to their effort, we have a market. But the market serves our society, not vice versa -- the purpose is to control and tame the beast to make it serve us, not to expose ourselves to the wild fluctuations of uncontrolled (or poorly restrained) profit motives. The extent to which market control is reduced raises the bar of informed-ness for all market participants.
In theory we can all be served by an efficient market, if all participants are perfectly informed. In practice, perfect information is unavailable, and lacking that, we will all spend every available minute either seeking information or being duped.
Or: we can sacrifice the goal of theoretical market purity and accept that the rest of us have better things to do with our lives.
I'm not entirely sure why you're being voted down. I would like to see more detail from you, but I get the feeling that a Reddit mentality of "I don't like this, down boat for you" is at play.
He's being voted down because he deserves it. His comment is based 100% on ideological handwaving. It's really no different than saying that something is "blasphemy" except he's espousing a different religion.
A sound, stable currency is an essential component to a free market. When a currency is manipulated it can drastically upset the natural balance within a marketplace.
When money is cheap (i.e. artificially low interest rates combined with Fed pumping new money into system) it leads to malinvestment.
Consumers buy things they wouldn't normally buy. Companies invest in projects they normally wouldn't invest in.
There is an initial "boom" (i.e. asset prices rise) that comes from people spending the easy money. But it can't last because the spending didn't come from savings or underlying productivity increases. It came from artificial stimulus.
I'm glossing over a lot of points here, but it's called "business cycle theory" if you care to investigate.
So you talk about elegance. Okay, let's talk about that. Maybe this will be more helpful than the usual mud-slinging that comes with these sorts of discussions.
People tend to denominate their contracts in the base currency. In the old system before the Fed, the value of this currency in the US would fluctuate as much as 50% in one year.
It is hard to imagine with what bizarro world economic actors is this an elegant and sound basis on which to conduct trade, that a bank could find that all of its customers suddenly find it 50% harder to pay off their loans, or conversely, that its capital stock is worth 67% (1/150%) of what it was before. Now imagine how that feels for the customers, or shareholders. Imagine a society when the money can come or go in floods and what this means for every contract, every wage, every price.
Why would you want this? So you can satisfy some Rothbardian itch about an "elegance" constraint that means very little in practice?
The Fed tends to target price levels. In addition to being a very elegant basis with which to conduct trade and form contracts (as Milton Friedman pointed out), stable price level targeting has the advantage of actually working out pretty well, unlike 'free market' currencies or fixed standards. NGDP targeting is probably better but that's outside the scope of this discussion...
Prior to the introduction of the Federal reserve system which would be 1913. And prior to 1913 boom-bust cycles were more common and quite harsh. I think that's what he's referring to. As to 50% fluctuations I can't say if that's true or not, but I know busts happened much more frequently and took much longer to work through.
> The Fed's market manipulation is abhorrent to pure capitalism
Perhaps, but systems should use managerial feedback systems to dampen large deviations. The incompleteness or the ineffectiveness of money-supply controls does not lead us to conclude that no managerial feedback should occur at all.
EDIT: expanding on that, I'd say we often go 'round with that binary question, when we rarely ever ask, "what would be a more effective way to handle disruptions to the economy?" in which case we'd begin to examine the available and potential metrics, the tools of affecting behavior, and whether those tools can be used without violating autonomy. If we have successfully optimized for efficiency and available capital, as the article suggests, then how could we next optimize for risk, experimentation, and innovation?
It's not like there is a spectrum of capitalism with a federal-reserve type system at one end. You need to throw currency into the economy some how. The argument is about how. Doing it at the rate you can mine gold isn't really any more sensible than doing it at the rate the Fed decides to.
> Doing it at the rate you can mine gold isn't really any more sensible than doing it at the rate the Fed decides to.
Ah, but you're making the false assumption that somebody needs to make this decision, from the top down. But the real alternative is a free market in money itself.
All it really requires is the repeal of legal tender laws and the ability to enforce the settlement of contracts in whatever currency the parties agree to. No need to abolish the Fed or end government-backed currency. Just force them to compete on even footing with anyone else who thinks they can do better.
Monopoly is bad for consumers, and it always leads to abuse. And you don't need monopoly to have interoperability -- especially given our digital technology.
While government currencies would likely continue to enjoy certain benefits (like being acceptable for taxes, and being used to settle civil damages), there's no reason that large swaths of the economy couldn't operate under entirely different currency terms, and trade back and forth across currency regimes through freely moving exchange markets.
The entire concept of currency is that there's a single shared medium of value used for exchange. "Competing currencies" is an oxymoron. Plus, once the government decides which currency is used to pay taxes or to pay damages after a civil suit, you're pretty much set.
Bimetallism was fundamentally unworkable because it presupposed a fixed ratio between gold and silver that didn't account for changes in their respective market values. In any case, both metals were pegged to the U.S. Dollar, which was the currency. There were no competing currencies, but rather the fiction of bimetallism.
If you are seriously proposing bimetallism as a workable system in the year 2012, you are a total and complete kook and have no business discussing the matter because you clearly have no fucking idea what you are talking about.
You made a blanket statement that multiple-basis currencies cannot and haven't existed.
I showed two counterexamples.
I'm not sufficiently versed in contemporary currency matters to discuss the feasibility or actuality of significant currency bases presently. But that wasn't the question.
With regards to governments deciding on currencies: it's not that alternate payment methods cannot be considered. It's that a payment in the legal tender for a debt cannot be refused (without prior arrangement) without voiding the debt. If you make a credible offer to pay in legal tender and the payee refuses, the debt is void. Doesn't mean you can't make payment in gold or cowrie shells, so long as you both agree to that. Including to the IRS (e.g.: property seizures to pay back taxes).
> You made a blanket statement that multiple-basis currencies cannot and haven't existed
No, I said that there's no such thing as competing currencies. Having a single currency with more than one base has obviously been tried, but it didn't work.
> it's not that alternate payment methods cannot be considered. It's that a payment in the legal tender for a debt cannot be refused (without prior arrangement) without voiding the debt
Right. It just so happens that this provides enough of a nudge for the entire currency base to switch over to the legal tender currency.
> e.g.: property seizures to pay back taxes
I never thought of that as an alternative form of payment. Heh. It's clearly a bit of a corner case, and at any rate, if I own a house, that's not really a commodity I can use as a medium of exchange, even if the IRS can seize it or my bank can foreclose on it.
>> You made a blanket statement that multiple-basis currencies cannot and haven't existed
> No, I said that there's no such thing as competing currencies. Having a single currency with more than one base has obviously been tried, but it didn't work.
I still say flat out that you're mistaken. We have (and have had) multiple currencies in the world, used within a single area (quite often, especially during wartime), regionally, and worldwide. How do you deal with multiple currencies? Via exchange rates. These may be floated or decreed, but they exist. Dollars, Euros, Yen, and gold are all commonly used for current-day international transactions (with a strong preference generally for US dollars, though this may change). The dollar also has special standing as the preferred reserve currency, but again, this is largely a matter of convention, liquidity, and stability.
Over historical time, there have been (usually local and smaller-scale, though not always) systems in which multiple currencies managed by multiple sovereigns circulated and were commonly used. Sometimes usage is specific to transaction types (e.g.: use currency A for large and multi-region transactions, use B generally for local/smaller transactions).
On England's tri-metalism, Adam Smith discusses this at length in On the Wealth of Nations. The standards date to Roman times (copper basis), with silver emerging from the Saxon tribes, and gold from mainland Europe.
I'm not saying there aren't alternative structures. I'm saying there is no one correct structure you can label "pure capitalism."
The monetary system is an engineering problem. The goal is to keep enough new money flowing into the system, but not too much, and make it robust in terms of political pressures, etc. Unfortunately, the debate over the issue is always reduced to ideological handwaving. That's not how engineering problems are solved.
I disagree that it's an engineering problem. How are you going to model the supply & demand, the wants and desires, and complex transactions occurring among hundreds of millions of people? It just seems like hubris to me, but I'm open to the possibilities.
The same way we predict how the trillions of trillions of air molecules behave when we predict the weather: we build models of aggregate behavior, try to understand relationships, run simulations and test our predictions. We're not 100% right all of the time, but we now have the ability to prepare for disasters days in advance and re-route airplanes around storms before they hit. Weather prediction and the activity around it was once an intractable problem but now is a huge, huge benefit to society.
The things you bring up are not even the hard part… The difficulty is that the system is dominated by feedback loops. I still think it's within the realm of 'engineering can improve this'.
The field of Economics has been attempting to answer that for a rather long time. I don't mean to be glib - it turns out to be a damnably hard problem that's been battled by thousands for centuries. There's easily enough modeling, math, and intellectual know-how going into it to make it a fine engineering discipline (albeit ununified). Heck, the quants basically weaponized it into a science.
Of couse, the real problem is which model(s) to use, since that affects the system. The answer to that is probably "all of them", picking whichever one seems more appropriate. I'm thinking like a physicist here: sometimes you ignore gravity, and sometimes you ignore wave-partical duality.
I'm a libertarian and I love the free market and pure capitalism.
OTOH, the great depression made a strong case for an intervention by governments at the macroeconomic scale - if only to smooth out bumps that could certainly sort themselves out in the long run, but which could still be uselessly painful for tens of years.
Fiscal policy is IMHO wrong, but monetary policy is not that damaging, especially since it doesn't do much damage to real assets (like say gold)
Often, people will defer to an "expert", who they assume knows more about a subject than they do. However, in many cases, and especially in economics, the expert thinks he knows something to be true, but it turns out that what he knows completely wrong, but he has invested his entire life building knowledge on top of bad knowledge, so he is not willing change his mind. A person who knows something that is wrong is much more dangerous than a person who knows nothing.
Then what happens is that the expert will say something, and people will accept it as truth, because after all, he is an expert. And then it goes viral. All of a sudden, everything thinks something is true, even though it is completely false.
Then entire books are written. An entire field called economics is created. Universities teach economics using these books that are based on incorrect assumptions. An entire generation of people build their knowledge on top of these false assumptions. And the cycle repeats, perpetually.
I'm convinced that the entire foundation of economic thought is wrong, and that the entire field of economics contributes negatively towards humanity.
Regarding the great depression, you can make the argument that government intervention in fact created and prolonged the great depression. You'll never really know, because you can't go back in time and run the experiment again.
If you don't understand how something works, it's probably best to leave it alone, rather than try to fix it.
"As already noted, major factors bringing on the Great Depression were the severe monetary contraction that the Federal Reserve presided over, unit banking laws that made it almost impossible for small-town banks to diversify their portfolios, high-wage policies that made it more expensive for employers to hire people, the 1930 Smoot-Hawley tariff that throttled trade, and the 1932 tax hikes that took money out of people’s pockets."
Banking, education and healthcare: all too important to be left in the hands of government, if for no other reason than they are too important to each individual to be left to the whims and ignorance of the general electorate and/or their representatives.
I agree wholeheartedly. Strong monetary policy is essential to maintaining a strong economy. In the case of deflation, the Federal Reserve expands the money supply to counteract disincentive to invest. Unfortunately, the Fed often overshoots and ends up causing inflation instead since it's very hard to predict exactly how much is necessary. The Fed's job is not to pick winners and losers; it's just to keep the monetary base stable so that individuals can make investments without having to anticipate changes in the value of the currency.
Free markets fuel capitalism.
The Fed's market manipulation is abhorrent to pure capitalism; it throws the elegant system of free competition and trade horrifically out of balance.