Capitalism Vs. Mercantilism

There is a difference between capitalism and mercantilism. Capitalism is where competition occurs in the marketplace over the production and trading of goods and services. Mercantilism occurs in the political arena over who gets political favors. Eminent domaining people's property is not capitalism, even if the confiscated land is then given to a business concern. That is mercantilism. For two excellent examples of mercantilist activity see this USA Today article: Chinese peasants feel bullied over land grabs; and this Institute for Justice video: Inner-City Kids, Boxing Gym Fight Back.

Basic Beliefs: Non Aggression Pt. 1

All of our authors agree that government laws, edicts, and orders are ultimately backed by physical force. It is the job of the police, courts, and prisons to exercise this force against any and all violators. This is, in fact, the purpose of government: To force people do things they would otherwise not do. THE question for political theory is what can the government legitimately force people to do?

For Ayn Rand force is only justified in defense of a person’s rights to life, property, and contract. Notice, this is a point about when individuals may legitimately use force against other individuals. First and foremost it is a point about how individuals should act using their own minds and bodies.

However, defense (and offense) need not be purely individual affairs. Smart individuals either persuade allies or buy them. For Rand, now, the question centers on how third parties function in the defense of rights. Most agree that third parties can intervene to protect someone else, even if they were not initially in danger of having their own rights violated. What distinguishes her from mainstream political thought is that this legitimacy does not change when individuals band together in the form of government.

Metaphysically, and morally, governments are collections of individuals and possess no additional rights over and above the individuals who constitute it. It is this that separates Rand from both the political Left and Right. People seem to easily distinguish her from the left and clearly note that her theory prohibits any sort of state sponsored Social Justice. She thoroughly rejects any market regulations based on “Equality” or Fairness”. Similarly, who gets hired, and for how much, is solely the business of the negotiating parties. Oddly, though, those on the left can’t quite seem to distinguish her from the right.

The political Right clearly knows she is not one of them. For Rand, drugs, pornography, and gambling may be individually irrational, but they are protected by the same rights as the printers of Bibles. Her views on women and leadership as well as the propriety of sexual relations places her well outside the bounds of many religious/traditionalist conservatives.

However, what absolutely places her outside the circle of conservative philosophy is her belief that these rights are grounded in the nature of the individual. This actually places her far closer to liberal theory in that the individual is not morally bound by tradition, family, religion, or country. Of course, she also places herself outside of liberal camps by adding “society” to the list of entities that have no proper authority.

Her notion of proper authority is completely grounded in her conception of individual rights. Non aggression is a conclusion of her theory of rights. While Atlas Shrugged obviously focuses on the non aggression principle and how illegitimate government can violate individual rights, the real story is about how and why individuals possess certain rights. The deeper story of Atlas Shrugged is about the nature of the individual.

At this point then we now have two levels of Atlas Shrugged. The first level concerns the nature of individual rights. The second concerns the efficacy, and legitimacy, of government action. To understand her theory, think about why these are two different levels and how exactly they relate.

Villains of Atlas Shrugged: Part 1

From time to time the observation and/or complaint arises that the characters in Atlas Shrugged are “unrealistic”. While Rand purposefully distills character types to provide a clear picture of their logic, it is worth noting that often her distillations hit rather close to the “real world”. The following is a brief annotated list of real world politicos and business ne’er-do-wells that easily could be characters in her novels.

Dennis Kozlowski: Former CEO of Tyco International now serving time for treating the company as a personal piggy bank. For an overview of his case see this article. His two most famous excesses were a $6,000 dollar shower curtain and a personal party in Sardinia with an ice sculpture that urinated vodka. See both under lifestyles in the Wikipedia article here.

For more on his expensive shower curtain see this article.

For more onn the infamous party he threw see this article.

This, in fact, is a villain from Atlas Shrugged: Gerald Starnes, Jr., Director of Production, at the Twentieth Century Motor Company. After his father died Jr. treated the company as his own piggy bank. He even had a shower installed in his office complete with an expensive glass door with a mermaid cut into it.

Hugo Chavez and Venezuela:

Hugo Chavez nationalized the oil industry in Venezuela. The nationalization itself looks like a mirror image of the San Sebastian Mines. Furthermore, oil production in Venezuela has declined by about 700,000 barrels a year. On Chavez’s mismanagement of the economy see this article.

Finally, Chavez’s slogan “Motherland, socialism or death” (taken from Castro), could have been the slogan of a number of countries in Atlas Shrugged or even the Twentieth Century Motor Company.

Fedex vs. UPS:

Instead of competing in the market, these two companies are now competing to saddle each other with more onerous regulations. See this article. This is exactly the kind of behavior that was exhibited by James Taggert and Orren Boyle against both Dan Conway (Anti-Dog-Eat-Dog resolution against Phoenix Durango Railroad) and the cap on the amount of Rearden Metal that Hank Rearden is allowed to fill for any one customer.

Enron:

Here is a story of business fraud. It is also a story involving that nexus of government and business Rand worries so much about. See this article in Reason Magazine. FYI Brian Doherty writes for Reason although he did not write this article.

What I find particularly interesting here is what investors and analysts did not know. From the article: “Wall Street analysts admit to never really understanding how Enron made its money. "Enron's discussion of its finances reads like something written in German, translated to Chinese and back to English by way of Polish," cracked Forbes.com. Analysts didn't care, so long as the stock price stayed high. But when the bubble started to deflate, they started asking questions.:”

After reading this go back and read Francisco’s comments about the investors in the San Sebastion Mines. The story is frighteningly the same. One can also hear Keynes in the background talking about ignorant people. People often do not do the work it takes to invest wisely. Rand is not being unfair in her portrayals of this type of investor. They exist all around us.

Keynes "End of Laissez Faire"

Keynes on “The End of Laissez Faire is an important summary of common objections to radical capitalism. It is also a fine example of libel and ad hominem. Keynes’s objections have force, but his use of words makes his (lack of arguments) sound even stronger.

A couple of examples of his erudite insults include “We have not read these authors, we should consider their arguments preposterous if they were to fall into our hands” (Section I). With that he actually insults both the intellects who wrote them and the general public who has not read them. However, there is no need to read these as they are simply a matter of faith and “religion” (Section II).

His objections are not new, but it makes for a good summary of these positions. In Section IV he goes through all five of his major objections in the first paragraph. His first point that there is no “natural liberty” in economics can be found in John Stuart Mill (see Mill and Economic Liberty)

His second point that there is no “compact” that confers property rights to those who acquire is a criticism of Locke. David Hume in "of the Original Contract" likewise criticizes this notion of an “original contract”. From reading Keynes, you’d think Hume would never disagree with Locke.

His third point that self-interest differs from the public interest goes against economists in general, but especially Adam Smith. Karl Marx made this point as well.

His fourth point is actually two separate points. First, he argues that often individuals are too ignorant to pursue their own interests wisely. When he is being nice, this ignorance is a fact of the world: No one can know the future. When he is being less kind, this ignorance is the result of people being viewed as generally stupid. Second, he argues that individuals on their own are too weak to get what they want. Adam Smith actually made the same point about labor and business. Labor union leader Samuel Gompers would put into action those words 40 years before Keynes wrote them.

His fifth point is interesting – social units are not dumber than individuals. Recently, in fact, authors like James Surowiecki argue that crowds are smarter than individuals. Ayn Rand would object vociferously. Hayek would argue that it takes generations of crowds to form important traditions. We shall return to this point later in the semester.

The reason I include Keynes is because it is him and Marx that the radical capitalists argue against time and again. Keynes combined this critique of Laissez Faire with a positive work on economics called The General Theory of Employment, Interest and Money. It is this double shot of cutting criticism and putting forward a new theory, much like Marx had done, that eliminated radical capitalism from the academic and political map in the 1920’s, 30’s and 40’s. Three of our authors Hayek, Mises, and Rand lived and began their intellectual journeys in this time period. It is against this backdrop that these three authors will spend the rest of their lives arguing.

Mill and Economic Liberty

This is originally all one paragraph but I am separating out here three sections

1) Again, trade is a social act. Whoever undertakes to sell any description of goods to the
public, does what affects the interest of other persons, and of society in general; and
thus his conduct, in principle, comes within the jurisdiction of society ...

2) But it is now recognized, though not till after a long struggle, that both the cheapness and the good quality of commodities are most effectually provided for by leaving the producers andsellers perfectly free, under the sole check of equal freedom to the buyers for supplying themselves elsewhere. This is the so-called doctrine of Free Trade, which rests on grounds different from, though equally solid with, the principle of individual liberty asserted in this Essay.

3) As the principle of individual liberty is not involved in the doctrine of Free Trade, so neither is it in most of the questions which arise respecting the limits of that doctrine: as for example, what amount of public control is admissible for the prevention of fraud by adulteration; how far sanitary precautions, or arrangements to protect work people employed in dangerous occupations, should be enforced on employers. Such questions involve considerations of liberty, only in so far as leaving people to themselves is always better, cæteris paribus, than controlling them: but that they may be legitimately controlled for these ends, is in principle undeniable.

John Stuart Mill, On Liberty, Chapter V Applications

#1, As has been pointed out by many before me, applies to almost any action. If that is all it takes to nullify the "principle of liberty", then it seems almost everything comes under the jurisdiction of society.

#2, Mill continually argues that his moral theory is based on calculations of utility. How is it that any bona fide "principle" rests on different grounds?

#3, Mill is in line with other economists like Sidgwick who allow for a list of regulations. These lists are are much longer than those of the radical capitalists; it is the legitimacy of control that radical capitalists will challenge.