On Arguing Economics

Just to get the main point across allow me to start this post by simply stating, there exists no such thing as the economic model from which we can impartially derive any sort of self-evident conclusions, policies, or values.  By which I mean that there is no purity test to determine which economic model is somehow more objectively “valid” than another.

For example, take two modern economic models that stand on completely opposite sides of the spectrum:  Marxist communism and laissez-faire freemarket capitalism.  [I’m aware that different people have over the decades attempted to give varying definitions within both these models, thereby making an overreaching analysis on my part impossible; hence, I will primarily be addressing elements that are agreed upon components by almost all professional voices in the aforementioned fields.]  Putting aside what Marxism has come to mean to the layperson through the various revolutionary forces that carried its banner in the 20th Century, at the core of the economic model is the proposition that societal development is best understood as the process by which humans–as a collective–produce the necessities of life (often referred to as historical materialism among Marxist scholars).  While the nuances of the whole thing can get very convoluted from here on out, the basic framework Marx was working off of, within this scope of historical materialism, is that human society is better served if the workers who physically produce the products necessary for the life of all of society retained economic control over said products.  From this he further postulated the emergence of a commune like market of commerce, in which production is owned and distributed equally among all sectors of society (i.e. communism), as a historical inevitability that human development is progressively heading towards in the modern era.

The theoretical problem of course in the Marxist economic model is that the validity of historical materialism is dependent on the notion that we accept the validity of historical materialism; this is otherwise known as a tautology (or circular argument), and is fallacious by definition.  The practical part being ignored in this model is that the perception of human progress as developing towards one specific sociocultural norm or another is only evident in hindsight, and any economic/social course that ends up developing can in retrospect be rationalized in terms of its preceding events; this is true even for identical situations that yield contrasting outcomes.  Not to mention, if we are to approach economics from a historical perspective (as Marxism claims) a decent case could be made that human nature (even in modern, industrial time) seems to be more conducive on creating hierarchical social structures, rather than collective communes.

Before any freemarket advocates who might be reading this start handing out congratulatory “Likes” to my dismantling of Marxism (I’m looking your way libertarians and self-styled classical liberals), it needs to be said that the reasoning underlying laissez-faire freemarket capitalism fares no better than its socialist antipodes.  The premise that economic sectors perform at their best when market forces are allowed to compete unmolested by non-market factors (like the government), rests on the idea that little to no regulation will in itself create an environment in which all the various forces that make up the marketplace will have to compete against one another; theoretically leaving the final word on what products/serves are to succeed in the freemarket to the consumers (i.e. all of us).  In theory, this sounds great; in practice, just like when it comes to Marxist economics, historical data casts a few doubts on the extent to which laissez-faire capitalism holds up.

First, the proposition that the freemarket is something akin to a self-sustaining, self-correcting organism ignores the fact that the freemarket is–above all else–entirely man-made.  The freemarket, as an economic plane in which human beings exchange commerce, is not a naturally occurring phenomenon, anymore than a locomotive is a naturally occurring phenomenon; we purposefully invented it to serve our economic needs.  Thus, to argue a “hands-off” approach to an entity whose very existence is owed to primarily “hands-on” interests, can be argued to be more than a bit narrow-sighted.

More than that, when we look at the era in which laissez-faire freemarket capitalism thrived unmitigated in the U.S.–the late 19th and early 20th Centuries–instead of seeing a marketplace of robust competition, driven by the needs of the consumer, we see a gradual concentration of market power in the hands of a handful of conglomerates.  The reason being that, economically speaking, the initial surge in competition experienced in a newly emerging market, left to its own devices, can in time have a minority of businesses surpass their competition to the point that they are virtually the only option on the market left for the consumer.  In this historical scenario, the presence of a laissez-faire freemarket did not create a healthy competitive environment, nor did it have any means to correct the centralization of commerce powers in the hands of the few over the many.  (In fact, in this case the government actually did have to step in and implement anti-monopoly laws to try and introduce competition back into the market.)  Therefore, the unanswered (or unanswerable) question concerning laissez-faire capitalism is the issue of–given the proposition that faceless, easily corrupted government agencies cannot be trusted enough to interfere with the business operations of the freemarket–why faceless, easily corruptible conglomerates ought to, for some reason, be seen as more trustworthy in this regard?

Although this much should be obvious by now, the point of this post isn’t to convince anyone to accept the superiority of one economic theory over another.  Even as far as the two (admittedly more extreme) examples cited above, I’m sure that given more time and interest we all could go back and forth listing all the sincere benefits and advantages of both Marxism and laissez-faire capitalism.  Acknowledging this, my greater point about economics remains the same, which is that while the historical study of economics can produce viable, scientifically tangible, insights about some aspect of human societies (primarily developments in the commercial and fiscal sectors), proposed economic theories themselves lack this level of scientific rigor.  All economic theories (be it Marxism, laissez-faire capitalism, or anything in between) by necessity begin with an assumed conclusion (“human society is naturally moving towards a collective communal state”, “the freemarket operates best when left unregulated”, etc. etc. etc.) and then go on to selectively interpret all socioeconomic developments through the lens of whatever situation is more conducive to the promotion of the favored economic conditions already accepted by the economic theory in question.

From this it certainly does not logically follow that all economic theories are equal in their outcome (whether for good or bad).  Or that any one economic theory couldn’t be claimed as more preferable for any specific society (I think most reading this can agree that feudalism would generally be a horrible model for modern society).  What it does mean is that there is no such thing as an all-encompassing, omniscient economic system deduced through unfiltered objective reality, as opposed to individual, subjective human preferences.  In light of that, I think perhaps talks of economics from opposing viewpoints is due a bit more humility and reservation about one’s own pet theories, than what is currently on display in public discourse.

Just some food for thought, savor it as you wish.

Civil Disobedience and Populism: An American History

A Tale of Two "Deflationary" Booms – The Gilded Age vs. Today - by Brendan  Brown

The Gilded Age was an age of industrialization, built on the backs of the working masses.  It was a time when a handful of eager individuals rose to prominence through a cutthroat agenda of business management based on the ideals of Social Darwinism, and the inherit superiority it bestowed on them.  This supposition of natural law entitling the wealthy with evolutionary rights established the framework for a system of unprecedented exploitation that sparked a downward spiral in labor-management relations.

Though the concept wasn’t new, the start of its practice in American business can be traced to the mid-19th Century with the closing of the Civil War.  After the Union won the conflict, a number of former war profiteers sought to invest the fortunes they had accumulated during the struggle into promising up-and-coming industries, which subsequently lead to the creation of virtual industrial empires for the tycoons who worked hard to monopolize their domains.  While there are several factors that can be attributed to the vast expansion of industrial giants, at its core it was the railroads that pushed the country towards urbanization, and began sealing the fate of the agrarian existence.  Steel manufacturer Andrew Carnegie made his money building bridges for the railroads; J.D. Rockefeller used Railroad Rebates to commandeer railroad support and expand his Oil Empire on a national scale; hence, it was not surprising when banker J.P. Morgan had his sights set on centralizing the railroad system under his personal control.

Looking at all this it becomes quite clear that the railroads are a pivotal component in the Industrial Revolution.  But the change did not only affect the commerce faction of American society.  As the railroad extended its tracks further west, new cities began to be founded (setting off a trend of mass urbanization), giving rise to more metropolitan jobs, which in return contributed to the production of more industrial goods.  The government itself aided in this process by giving hundreds of thousands of acres away in the form of Railroads Land Grants but otherwise refusing to implement much needed regulations on the railroads.  Thus, with not supervision, employers could administer over their corporations and workforce as ruthlessly as they pleased.  With urbanization moving steadfast over the once abundant farmland, many rural workers naturally migrated to the big cities in hope of employment, leaving the agricultural life and entering the callous existence of industrial laborers.

It would be an understatement to claim that conditions for the common workers of the Gilded Age were unfair.  From long hours, low wages, and unsanitary conditions for the city laborers, to shamelessly unethical double standards towards farmers in the fields, the efficiency of the Gilded Age was truly built on the plight of the “have-nots” of the era.  With the government maintaining its laissez-faire policy, industrial workers responded to the injustice by unionization.  Though union groups, such as the American Federation of Labor, showed great determination in their cause through several organized strikes (i.e. the Homestead Strike of 1892 and the Pullman Strike of 1894), employer persistence (and in some cases government involvement) prevented any true success to occur through union efforts.

The farmers, on the other hand, took a different route to settle their problems.  Farm Alliances began to spring up throughout the south, in an effort to combat their exploitation by the capital elites of the nation.  They felt the economic and financial system of the country was in need of much reform.  The banks often swindled the farmers on money loans, thus preventing them from marketing their crops cooperatively.  Railroads weren’t of much help either, as the made it a policy to overprice the short haul used by the farmer, while lowering costs for the long haul used by industrialists.  Not to mention the turmoil caused by the high rates charged by the Warehouses.  As appealing to the government was pointless, these Alliances responded by setting up their own banks to grant loans to farmers, and also worked to provide alternative sources of grain.  Unfortunately, little could be done regarding the railroads.  But even with all this apparent success, the Farm Alliances were unable to form a single national organization to radically transform the corrupt system.  Despite the call for nonpartisanship, Northern farmers voted predominately Republican, and Southern farmers continued to support the Democrats.  This petty strife confirmed that change was also needed on the political settings.

Much like today, the most important issue for politicians of the Gilded Age was to get elected.  Thus, as said before, for the men seated in government positions reforming the corruptions of society was not noteworthy.  With laissez-faire being implemented wholeheartedly as the rule of the land, the government saw no need to interfere on behave of the exploited worker.  Yet, when it came to helping business, exceptions could be made.  An example being the land tax imposed on farmers, while multi-millionaire tycoons were taxed for absolutely nothing.  The policymakers were also not shy to send out troops to aide employers against disorderly workers.  Clearly, favoritism was played by the wealthy caste of politics on behave of their rich contemporaries.  Several groups saw through this and demanded change.  Alas, their cries fell on deaf ears, as all the government did was issue out token reforms that sounded radical but were never seriously implemented.  Many of the have-nots began to realize that if change were to come it would have to be from their own ranks.

With discontent brewing on all sides of the workforce, and the reluctance of both parties to make concessions to their demands, the farmer Alliances set to organize a nationwide campaign to economically and politically reform American society.  Thus, the Populist Party was born.  Strung together from the underdogs of the system (farmers, laborers, and small-businessmen), the Populists ran on an unprecedented platform to alleviate the plight of the working masses.  Demanding regulations on railroads, flexible currency, a national income tax, and a subtreasury plan, but more than anything else, they demanded that the government take a stand for the people, and actually govern.  As their battle for the have-nots appeared to gain momentum at first, the Populist Party still failed to garner significant results in the election of 1892.  Even so, the Populists continued working on the sentiment that the other parties were not answering the need of the people.  As the 1896 election approached, the Populists went into battle headfirst, nominating William Jennings Bryan to take on Republican William McKinley.  Having also secured the nomination from the Democrats, Bryan campaigned fervently, preaching a gospel of change, but in the end it proved futile as McKinley won the presidency.  The Populists quickly disappeared from the national scene.

Although they lost the election, populism itself did not fully go away.  More accurately it became absorbed into the other political parties (mostly Democrats, at first, but Republicans utilized it, too, in the latter half of the last century), and eventually the issues compromising their platform developed into the major reforms of the 20th Century, which framed the system being debated over today.

Is the Free-market Self-regulating?

If you live in the American South, like I do, you will notice that there are few claims around here held as dearly (and uncritically) as the proclaimed ideal of the self-regulatory nature of the free-market.  And, as we enter an election year, the truth of this particular economic gospel is starting to be preached from all corners below the Mason-Dixon Line.  These days I consider myself to be largely apolitical.  I have certain opinions, as they regard to specific issues, which can individually carry political implications (or not).  But I do not try to make my opinions fit into a greater political narrative, and often, I find myself with one camp on one matter, and with the other camp on another.  Thus, my reasons for calling into question the veracity of laissez-faire style free-market economics is not based on a political ideology, but the fact that its supporters consider their personal preferences to be beyond reproach and absolute.

Roughly speaking, the free-market is a market system where prices are determined by supply and demand.  A free-market economy is an economy where all aspects of business are unregulated by any factors other than the market participants (ideally this means no government oversight, either placing restrictions on, or giving favor to, businesses).  When it comes to the Western world, the free-market serves a vital function in the operation of our economies, because it is the primary plane of operation we have erected by which to carry out commerce.  The problem I have with the arguments made by advocates of a complete laissez-faire free-market economy, is that they totally neglect the fact that the free-market does not exist independent of us; it is not a natural phenomenon, it came about through the direct, personal involvement of individuals. It operates through the direct, personal involvement of individuals.  So, in what way does it make sense to say that the system is (or, ideally, needs to be) self-regulating?

This is the primary problem with free-market fundamentalism in a nutshell; the idea that the free-market is some sort of self-correcting, self-sustaining, omniscient force, always able to yield the most egalitarian and utilitarian result.  Many laissez-faire advocates will no doubt object to this generalization, but in reality it is a very apt synopsis of how their ideas come across to outside observers.  If you are convinced that no sort of outside regulation (especially a governmental one), should be permitted to oversee and remedy the workings/progress/abuses of businesses, then you are by default claiming that the businesses, themselves, will always be capable of supervising themselves, as no doubt abuses and corruptions will occasionally occur (and then some).  Here, I have to applaud laissez-faire advocates for the amount of trust they place in faceless conglomerates, while at the same time dismissing the intentions of faceless federal agencies.  But one cannot help but point out the lapse in logic.

To claim that federal regulation can only mess-up the market, and then point to examples of government corruption as evidence for one’s claim, but then further on hold that any corruption seen on the side of private corporations is simply part of the self-regulating process, is a fallacious argument of special pleading.  In the current economic model we reside in, to entirely detach the government from the workings of businesses does not just remove a thorn out of the paw of CEO’s, or limit their money-making capacity, it also removes the provision of the health standard for our foods (which did not exist in the late 19th/early 20th century, nor was it much of a concern for the food conglomerates of the time), and prevent the import of potentially harmful material to enter the country (imagine if during the Chinese Lead Toys Scare, we decided that only the Chinese Company’s own regulators, who allowed the tainted product to enter the market to begin with, can do the proper investigations).  Of course, the government bureaucrats are shady, and constantly on the lookout for profit and self-promotion, but to pretend that business bureaucrats are any more trustworthy–especially when dealing with things that would decide their overall revenue–is plain delusional.  Remember how hard the auto industry fought in the 1960s against fixing a few measly safety hazards in their cars, even though the expense was negligible in light of their yearly intake on the market.  Luckily, they lost that battle, but it wasn’t because the omniscient guidance of the free-market led them to make the right decision.

Fundamentally, what needs to be understood is that the free-market does not have a mind, and it is not alive; it is a man-made system, limited by our capabilities, and directed by our faults.  And within the scope of the laissez-faire mindset, its capacity to correct the shady activities of corporate interests relies entirely on the self-interested corporations themselves.

Now, let me clear up a mistake often made by the political Left when discussing this issue; namely, the false assertion that corporations are evil in some way.  This is not true, corporations are not evil, nor are the people who make up their boards.  Corporations are for-profit institution, by which I mean that they are outlets which provide a service for the sake of gaining a profit.  This is not evil, but it is not—in any way—an ingredient of something that is concerned with promoting the well-being of the individual’s liberties.

Despite what laissez-faire advocates want to claim, there is no history of a business independently implementing much needed regulatory policies on itself, without external pressure.  No tycoon took a stroll through his factory, only to be struck by the urge to extend a reasonable minimum wage to his workers.  At no point did a business take a stand to condemn the use of child labor as a legitimate means to carry on its enterprise before child labor laws were passed.  All of this was brought about through outside pressure; either workers petitioning to local and federal agents, or the federal government itself clamping down on social inequalities in the work place (as slow to the draw as it might have been).  Because that’s what the whole point of a government is, to prove a service and look out for the interests of its citizens, not the corporations.  Too often it fails miserably in this department, but to suggest that the solution to the problem is to completely remove all third-party oversight from the equation is plainly unfounded.

A conglomerate exists to make a profit, if it can cut corners to increase profit, it will.  If it can ignore precautions to maximize revenue–even if it’s only in the short-term with detrimental effects likely to happen as a direct result–it will.  Again, this is not a condemnation; I also believe that for opponents of laissez-faire economics to say that such a thing is evil, while regulatory measures are innately good, would be equally simplistic and stupid.  My argument is about efficiency, and the fact that the laissez-faire stance that the free-market will always find a way to work out its problems by itself has no barring in reality, and seems to rely mainly on the frustration people have towards the incompetency of their government.  All of this is understandable, but what justification lies there in the presupposition that free-market participants will be more efficient in fostering a healthy economy for the rest of us?  Pointing to the inaptitude of one side, does not garner points for yours.