Karl Marx (3)

Following on from my post on Karl Marx, I want to argue against the idea that Capitalism will not fail because it has not failed yet.

Nassim Taleb would call this the “Turkey Problem”. It is the problem of predicting the future based on past behaviour. Tha turkey knows that the farmer has treated it well for the past few years. Based on that experience, the turkey can confidently predict that the farmer will continue to do so. This works until the farmer kills the turkey in order to sell to the meat processor.

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Karl Marx (2)

Following on from my post on Karl Marx, I want to argue against the idea that Capitalism is the only system that allows individuals to develop themselves.

In Capitalism, the only people who can develop their full potential are the Capitalists. They have the independent means to own the means of production. This gives them the freedom to develop themselves.

The workers, on the other hand, have their individuality crushed so as to be better integrated into the production process. What the boss says, goes.

Thus for everyone to be able to develop themselves, everyone has to own the means of production. This is the basis of Communism.

However, the productive forces has to be developed to such an extent that the people involved no longer have to be crushed to fit into the system.

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Karl Marx

Just watched a TV program about Karl Marx which is part of the Masters of Money TV series.

My problems with the program are:

• Capitalism is the only system that allows individuals to develop themselves
• Communism is all about enforced collectivism
• Capitalism will not fail because it has not failed yet
• Communism oppressed the workers
• There is no longer any distinction between workers and owners
• Automation has changed the way Capitalism works

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Friedrich Hayek (4)

Continuing my thoughts about Friedrich Hayek directly from my previous post here.

My third objection to the central thesis of Hayek is that the lack of understanding does not preclude intervention.

I think Hayek believes markets to be a natural phenomenon. I disagree with this idea of markets being natural. Markets are an artificial construction. Humans have constructed markets. They obey rules perculiar to humans.

Yet, the essence of Hayek's objection to government intervention in the workings of markets is that noone understands how markets work, and therefore any intervention is likely to be incorrect.

This seems to be an argument that academic knowledge is superior to practical knowledge and therefore must precede it. Nassim Talebi in his book, "Antifragility", argues strongly against this superiority of academic knowledge. He woild argue that practical knowledge is superior and precedes the emergence of acadamic knowledge.

Talebi seems to argue that intervention must be justified in that benefits must exceed the cost of doing nothing. Talebi's argument against intervention is based on cost-benefit analysis rather than ignorance in Hayek's argument. Talebi would argue that intervention would work under conditions of ignorance.

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Capitalism is so broken it can’t be fixed

Yves Smith points to Capitalism is so broken it can’t be fixed.

The amazing thing is this an article in the Wall Street Journal! Are Capitalists doubting Capitalism?

The question raised is:

This obsessive short-term thinking is capitalism’s biggest problem, and a huge one for America. But nobody wants to ask the hardest question of all: If capitalism is America’s core problem, why save capitalism?

But what is this Capitalism the article rails against? It would be that the idea of Capitalism is self-evident to the readers.

The author does not delve into what Capitalism is. Not like what Karl Marx did. In order to understand what Capitalism is, one must define it in its essentials. Marx said that the essence of Capitalism is the cycle of converting Money (M) into Commodities (C) which are converted to Money (M'). Hopefully, the quantity of Money (M) starting out is less than the quantity (M') ended up with. That is, a profit was realised as a result of the investment in the production of the commodity (C).

Once one has a definition of Capitalism, one can see that what people sees as problems in Capitalism is the result of what Capitalism. These problems are not caused by the improper implementation or having the wrong people involved.

The problems with Capitalism arise from the realisation of profit. A capitalist who makes a profit has more money and is therefore able to make greater profits in the next investment cycle. So, the wealth accrues to smaller and smaller fractions of the population. Inequality results from the natural functioning of Capitalism.

This rising inequality results in underconsumption by the rest of the population. They lack the means to purchase the commodities produced, so profits cannot be realised as readily. Thus, a bust follows. Hence the business cycle.

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Friedrich Hayek (3)

Continuing my thoughts about Friedrich Hayek directly from my previous post here.

There I asserted that markets are not optimal determiners of prices or demand.

Say that there a market of 100 people each with $1. And 90% want product A and the remainder want product B. So, the efficient allocation of investment would be 90% for production of A and 10% for production of B. In reality, nearly all investment would be for the production of A leading to an oversupply of A and a shortage of B.

Now assume that ten (10) people have $10 each, and the rest nothing. Of the ten (10), nine (9) want product B and one (1) wants product B. Of the rest, 81 wants A and nine (9) wants B. This is the same proportion of people who prefer product A or B as in the previous example. Now, the efficient allocation of investment is 90% for production of B, and 10% for A—a reversal of the previous example. In reality, we would get an oversupply of B and a shortage of A. This is contrary to the wishes of the population.

The disparity of wealth in the market leads to distortions in investment allocation.

Even if the market starts with equal distribution of wealth, disparities in wealth develop over time as the people who make more profitable investment decisions accumulate wealth at the expense of others.

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Fredrich Hayek (2)

Continuing my thoughts about Friedrich Hayek directly from my previous post here.

Five years ago, I made a more extensive comment at "Who’s Afraid of Friedrich Hayek?".

Yesterday, I asserted that governments serves the interests of the ruling class.

Hayek seemed to be saying that governments are a foreign element in the market economy. He says that it is the intervention of governments that inhibit the efficient working of markets. The origin of this inefficiency is the inability for anyone to completely understands how markets work.

Under Capitalism, the mythology is that the government sits in a Bonapartist position of mediating between competing interests. These interests are assumed to be between business, unions, and the public. In fact, the government mediates between factions of the Capitalist class. The relative strength of these factions determines the direction of government policy.

Any policies that seem to benefit persons outside of the Capitalist class are bribes to keep the non-Capitalists quiet.

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