What You See Depends Upon Where You Stand

Steven Horwitz

My colleague Petrik Runst and I had a lovely chat this afternoon at a local bistro to discuss a paper project that we're working on.  Over the course of that conversation, I articulated a point that neither one of us had thought about quite so clearly before and I want to take it for a test drive here.

Part of the argument of this paper is noting the evolution of socialist thinking, specifically from the emphasis of the early Marxists on exploitation and alienation to the Frankfurt School's more singular fixation on alienation.  One reason we put forward for this change is that it became harder and harder to argue that really-existing capitalism had somehow materially impoverished workers in the way Marx argued it would.  With rising living standards, the socialist critique shifted away from economic exploitation to a more narrow focus on alienation, often with a psychological twist (thanks to Freud I think) that Marx would have rejected given that he saw alienation as totally the result of the anarchy of commodity production under capitalism. 

In the course of our conversation, I raised a point that Don Lavoie used to make all the time:  much of Marx's critique of capitalism is like a photographic negative of what he imagines the socialist world will look like.  In other words, the reason that exploitation and alienation are problems of capitalism is that Marx can envision a world in which neither one exists.  Specifically, if the participatory but still unified planning of all economic activity (and the elimination of exchange/markets/prices/commodity production) is possible, we will eliminate alienation and exploitation.  The particulars of the argument aren't that relevant here, but this is, in my view, a plausible reading of Marx.

Of course if the socialist future is not achievable, what becomes of the critique?  If the "settled plan" can't be created or is doomed to generate poverty and misery, and therefore it is impossible to end exploitation and alienation by Marx's own definitions of those terms, what does it mean to say that these are flaws/shortcoming/imperfections of capitalism?  Are they not, instead, simply features of the world?  Perhaps we can dislike them, but are they "flaws?"  I think we really are "alienated" in some sense that Marx meant it, but I think we simply can't change it and that the benefits of the process that produces what Marx calls alienation so overwhelmingly outweigh the costs that it is not that much of a worry.  If we can't change it, is it even meaningful to call it an "imperfection?"

Suppose I can imagine a world in which humans can flap their arms and fly.  Standing in that world, looking back at our reality, I see all kinds of "flaws" of our grounded world.  Think of all the resources wasted to help us combat gravity (e.g., elevators, airplanes, pulleys).  See how imperfect the grounded world is because it wastes so many resources on such things?  I think we'd see such an argument as silly, but given the socialist calculation debate, is it any less silly than Marx's discussion of exploitation and alienation?  (Note:  I'm focused here only on Marx.)

Now let's fast-forward to the 1950s and 60s.  The number of economists who believe in Marxian central planning has become small.  However, for most critics of capitalism, the ground has shifted to "market failure" type arguments.  But here's the kicker:   the rhetorical strategy is exactly the same as Marx's!  What are normally considered "market failures" are only "failures" because the economist is standing in the hypothetical perfect world of general competitive equilibrium and seeing how the real world fails to live up to the model.  Isn't this the essence of the technical notion of "market failure?"  Real world markets are condemned as imperfect or failures because they do not live up to a utopia, but now rather than central planning, it's GE.  As many have asked, is it even reasonable to call these "failures" if the absence of failures defined that way is not even achievable?  Just as with Marx, you only see "failures" and imperfections if you are standing in the perfect future.

And even more recently, the ground has shifted one more time.  As criticisms of market failure arguments have become persuasive, we now see a new emphasis on what I earlier called "agent failure" theories of the imperfections of markets.   I wrote there:

One thing that has always struck me about behavioral economics are the parallels to arguments about market failure (such as externalities).  Much of BE shows us that economic agents are not the rational utility-maximizers of standard theory (as does much of psychology of course).  But what this result implies for economics and policy depends upon whose hands the results are in.

One school of thought seems to say "a-ha!  Agents don't act like our ideal models of behavior, therefore agents fail to behave in the way necessary for those models to work."  Thus, in this view, "agent failure" leads to "market failure."  And notice the parallel structure of the two "failures:"  in both cases, failure is defined as not matching the idealized, perfect result, either perfect rationality or perfect competition/general equilibrium.  The remedy, of course, is some combination of paternalism and intervention to bring the failed agent or market closer to the modeled ideal.

What unites all of these "failure" theories is a lack of attention to real-world institutions.  For Marx, it was the role of market institutions as epistemological ecosystems.  For the market failure crowd it was both an underappreciation of how, to use Pete's phrase, markets solved their own "failures" and an overestimation of government's ability to improve upon imperfect markets.  And for the behavioral economists, it's an underappreciation of how markets enable "imperfect agents [to] learn sufficiently well to generate outcomes that are still not perfect, but are much closer to rational than any alternative."  They too also seem to have too much faith in government's ability to nudge us the right way, as Mario Rizzo and Glen Whitman have argued.

In that earlier post, I also wrote:

It would also be interesting to see whether the move to BE in recent years is the result of market failure arguments failing to be as persuasive in light of decades of criticisms of the sort noted above [i.e., public choice and Austrian critiques].  If one wants to be more cynical, one might see the failure of market failure theories (there's a great paper title!) as the motivating force to turn away from markets and toward agents as the element that fails to match the model and thereby brings down, in the eyes of the market failure crowd, the argument for the market.

I'm more convinced of that than I was a year ago.  In fact, one could argue that the whole line of critiques of capitalism from Marx to market failure to the agent failure version of behavioral economics is a process of seeing the prior argument defeated by good mainline economics, requiring the critics to come up with a new form of failure to condemn capitalism by comparison to some hypothesized ideal, whether central planning, general equilibrium, or Max U.

If this is right, I'm not sure of what all of the implications are, and this is not the focus of the paper Petrik and I working on, but the more I think about it, the more I think this is important and perhaps worth of a paper in its own right.

Petrik and I would love any feedback you all might have.

Comments

[Lawrence H. White]

Exactly. To see if they get the concept, I ask my students: "Market failure" occurs when markets fail to do what? Answer: fail to achieve perfect efficiency, aka Pareto Optimality, aka Walrasian GE. By this definition, real-world markets always "fail."

[infini]

Just to be the devil's advocate - what does it mean than in this same context to say that Marxism has failed to prove/show that central planning can eliminate alienation and exploitation?

To say it has failed would require evaluating from another perfect system yet the one that it is often held up against is that of capitalism.

In actuality, so long as capitalism is alive, central planning can never work (who controls the planning and distribution? who places the market value on goods? what will happen to commerce and trading? etc).

Does this mean that central planning has 'failed' or that it fails in our 'perfect system'?

[Cornelius]

I think, Steven, that you're approaching socialism from an overly narrow sense (i.e. state planning). You fail to adequately address the various strains of libertarian socialism and anarchism, which are also socialist philosophies. Socialism is not a static ideology; it is a set of ideologies, which often conflict with one another. Bakunin and Kropotkin, for instance, were not fond of Marx, and vice versa.

Furthermore, I have talked with various Marxian/socialist scholars, and none of them claim that Marx was 100% correct. Marxism is a model with which to view the world, not an irrefutable set of facts. And anyway, even to this day there is debate over what Marx truly meant in Das Kapital.

[Jerry O'Driscoll]

Perhaps Steve should explain that "alienation" and "exploitation" are terms of art in the Marxian system. They have little relation to how those terms are used in ordinary discourse.

(Only a non-Marxist could load Freudian content on to them.)

Central planning has failed. It has actually been tried.

[Greg Ransom]

With Marx you can't neglect two core things: the Locke/Smith labor theory of value & ownership tradition and the young Marx working in the "alienation" tradition of Feuerbach and Hegel.

It's a weird thing, but Marx seems very serious about the "alienation" of labour idea -- sort of combining the F & H stuff with the L & S stuff.

So right at the beginning your have a sort of combined psychological/mystical/justice/value mish mash where exploitation is "alienation" -- cpitalists expropriate the labor/capital of workers.

Workers don't have to be completely empoverished to have large parts of their labor/capital expropriated -- the be exploited/aliented from their rightful stuff.

The attack on Marx here comes in the domain of ttheory -- not empirical results, i.e. the destruction and replacement of the labor theory of value and just distribution by Menger and Clark and Bohm-Bawwrk and Hayek & Kirzner.

[infini]

Sorry Jerry but Central Planning in a capitalist economy has been tried and failed.

If private property is the source of inequality and alienation - then any system with currency cannot be said to be a true socialist system.

Central planning has never been tried nor may it ever have a chance to be (except in Star Trek NG where they solved that in the 22nd or 23rd century)

[Womens Wedges]

In the course of our conversation, I raised a point that Don Lavoie used to make all the time: much of Marx's critique of capitalism is like a photographic negative of what he imagines the socialist world will look like. I think perfectly right.

[Greg Ransom]

Just to be clear, I'm saying the hypothesized ideal of Marx imagines alienation via expropriation of labor/capital ending -- he really doesn't say how.

So the ideal isn't about idealized welfare states experienced by workers, it's about the fantisized elimination of machinaries of exploitation.

Marx even fought against the idea of thinking about what the replacement machinery would look like.

But whatever it was, Marx did sponsor wild fantisizing out the fantastic wonders of wealth which would be available for all in his paradise.

If you've had leftist Post Modernist professors or the sort I've had, you've heard these stories, and they are very muchnstill believed by many Marxists.

[infini]

People forget that Marx was writing in a time when the industrial revolution was in full swing in England and what he 'idealized' was the direction England had to head in or else alienation and exploitation would grow and lead to social discontent.

We are currently in the post-industrial era and arguably the beginning of the technology revolution where we can control sub-atomic particles at a distance and even create light bending material. Yet we still do not allocate money or resources to lift even a few people in this world out of poverty.

Marx was right. The West, Asia and now even SE Asia are going through periods of intense industrial growth. Alienation and exploitation are still existent and growing throughout the world in spite of our technology revolution.

The extremes of capitalism have lead to the 'creation of debt' and 2 if not more recessions and/or depressions where those controlling the means of production (read here money) are the ones that benefit and control this means of production (US Treasury, quantitative easing, junk bonds, etc)

Combine this with patent wars in the technology industry and we see here a flawed system held up by the greatest source of inequality out there - money.

Marxism at it's core is dialectical materialism. Looking at modern society through these lens can we really claim that this system is 'best'? Or are we just continually fixing failing parts while refusing to admit that the machine is broken?

For a modern 'socialism' within a capitalist society and perhaps the direction we should head in I would lean towards populism and Adrian Kuzminski.

http://www.historycooperative.org/journals/nyh/89.2/br_2.html

[austrian away]

This is nothing new. NIE has called for institutional economics for decades now. I agree that idealized constructs are a misleading way of evaluating real world economies, but keep in mind that the Austrian equilibrating argument fares no better. Market equilibration presumes the identification of equilibrium, for how else can you speak intelligently of equilibrating tendencies?

The market, as we all know, though are loathe to admit, is very much like a kaleidoscope, subject to rapid and destructive change --- I think I remember Rizzo and O'Driscoll dedicating a book of theirs to this sort of sentiment. What has happened?!?!

[John Papola]

Gitmo. Corn Ethanol. Torture. Sugar Quotas. War. Cash for Clunkers. Prohibition. Department of Education.

If one chooses to believe that the selfish, oafish, often-evil buffoons responsible for these and other atrocities are somehow willing or able to pinpoint and correct either so-called “agent failures” or so-called “market failures”, well, who am I to question someone's religion. After all, it must be a religion because it is a belief based on nothing but faith in the unseen. Some of us believe in a God. Some don’t. But then there’s those who believe not in free men but in a government composed of the same men after they’ve won a nasty popularity contest where lying correlates with success.

I call it “government of the gaps”.

[Martin]

Steve:

"What unites all of these "failure" theories is a lack of attention to real-world institutions."

If anything what unites these "failures" is a failure to take into account opportunity costs.

You could call this the 'second failure' of the Marxian/Market failure system, the first of course being the labor theory of value. Considering Marx wrote before both opportunity costs and the marginal revolution, this is understandable.

Your characterization of BE as agent-failure theory is spot on.

[Rafe Champion]

infini, do some serious historical research! Marx was refuted before Kapital was even written, while it was written and after it was written. Sitting in the library and cherry-picking journalistic and literary reports of living conditions, he didn't notice that the condition of the workers was on the up. In Britain during the IR the population increased by a factor of three and wages by a larger factor, across the board. See Hutt and the collection ed Hayek "Capitalism and the Historians".

[Rafe Champion]

Moving on to the Frankfurt School, it is possible to read a lot of Habermas and some of the others without finding anything that looks like policy analysis or fieldwork. What policies do they advocate? What would be the indicators of success of failure of those policies? Have they done comparative studies to identify places where some of their favorite policies have been tried? Do they know enough about what we call economics and political economy to do policy analysis?

[Daniel Kuehn]

I see it somewhat differently, because I've never been under the impression that so-called "market failures" implied the market "failed". I've always thought that was a terrible name for it in that sense.

So-called "market failures" (I prefer "externalities", which fits most market failures) are situations where private action doesn't completely satisfy social welfare. So, it seems reasonable to think about these situations as situations where social groups might want to act - either through governance or government. Or maybe not. But it's an opportunity where it would make sense to expect them to.

I see you all often doing the same thing that Marx does with the negative photo. Whenever I talk about governance or government having a reasonable opportunity to act you get all antsy about the public choice problems associated with government, as if we aren't aware of it, and also as if anyone ever thought government would be perfect or always have the answer.

And here you're also doing the same thing the Marx did of assuming enemies where there aren't any. You assume that people who talk about market failures are critics of markets rather than people who actually are generally strong supporters of markets, just like Marx assumed market liberals were callous towards the interests of workers.

[Rafe Champion]

Daniel it is possible to take a neutral attitude to social engineering and government actions or interventions, which means that experience and appraisal are required to sort out whether a problem (such as an externality, or poverty, or inflation) calls for more intervention, less intervention (deregulation) or no action at all.

Do you accept that there has been a bipartisan tendency to adopt the "more regulation" or "more intervention" or "more spending" approach which has produced Very Big Government, big debt and a massive amount of unhelpful regulation?

[Martin]

Well Daniel, the only reason to deal with social problems through government is when the transaction costs are lower there. They are often not and the have a history of being revealed as more costly by later research than first imagined.

Not to mention that reliance on government to solve social problems is a very fragile solution to those problems.

Just look at the government and the federal reserve in particular. People in the mainstream, think that the Fed should do more and could do more, yet it doesn't do more. Add to it, that the mainstream broadly agrees that the Fed caused the Great Depression and research by Selgin & White showed that output volatility under the Fed was much greater than before. What you get then isn't exactly a great track record and one is hard pressed not to argue that alternative arrangements would likely be superior.

Considering the above, and not more mainstream skepticism of an institution such as the Fed, implies in my opinion that the mainstream is not aware of these problems with these kind of institutional arrangements.

History and this example in particular shows that we're likely to be more likely to be overoptimistic about the transaction costs of government.

[Dave Prychitko]

On Lavoie's original argument about Marx's vision of socialism as a negative foil to evaluate capitalism, see his Lecture Notes that I had published, pp. 144-45 and 159-60 in "Don Lavoie's Graduate Lectures on Comparative Economic Systems: George Mason University, Fall 1985: Notes taken and edited by David L. Prychitko," REASERCH IN THE HISTORY OF ECONOMIC THOUGHT AND METHODOLOGY vol. 27-A, pp. 137-204. The earlier unpublished version can be found here: http://www.donlavoie.org/docs/CESLectureNotes.pdf

I further developed Don's basic point, specifically focusing on praxis and alienation, in the early chapters of my book, Marxism and Workers' Self-Management: The Essential Tension (Greenwood Press, 1991). A brief version of my argument appears in my "Marxisms and Market Processes" entry in Boettke's Elgar Companion.

I believe the Yugoslav Praxis Group (Petrovic, Markovic and others) and some of the socialist humanists (Fromm) provide a more important and well developed discussion of Marxian alienation than did their Frankfort School contemporaries, which is why I focused on them in my own critical work on the alienation theme and its implications for socialism. See Predrag Vranicki's "Socialism and the Problem of Alienation," Svetozar Stojanovic's "The Statist Myth of Socialism" and Zagorka Golubovic's "Self-Realization, Equality, and Freedom," all in Gerson Sher (ed), Marxist Humanism and Praxis (Prometheus, 1978). Erich Fromm's edited book, Socialist Humanism (Anchor Books, 1965) offers more pieces, including a critique by Marcuse.

The most well developed discussion of Marx's Praxis philosophy and alienation during this period is probably Mihailo Markovic's From Affluence to Praxis (University of Michigan Press, 1974). (Yes, that's the same Markovic who would later become the chief intellectual ideologist of Serb nationalism under Milosevic).

Again, these people are relatively more important because they explicitly discuss *planning* under a non-alienated socialist future or, at the least, more clearly imply planning in their critique of capitalist alienation. The Frankfort School does less of that. *And* they suggest that Marx calls for comprehensive planning but not in the form of centralized planning, as that would still engender alienation.

[Troy Camplin]

I have written a few posts on some of these topics. For example, on alienation in capitalism:

http://zatavu.blogspot.com/2010/01/on-beauty-and-feeling-at-home-in.html

http://zatavu.blogspot.com/2011/05/trees-of-life.html

And on market failure:

http://zatavu.blogspot.com/2010/11/disequilibrium-economics.html

http://zatavu.blogspot.com/2011/03/no-market-failures.html

On reason:

http://zatavu.blogspot.com/2011/03/passing-off-partisanship-as-reason.html

http://zatavu.blogspot.com/2009/12/on-sandefurs-response-to-klein.html

http://zatavu.blogspot.com/2009/08/instinct-spontaneous-order-reason.html

http://zatavu.blogspot.com/2008/02/reason-and-property.html

the above overlaps a bit with this one:

http://zatavu.blogspot.com/2005/04/on-adam-smith.html

Humans are not perfectly rational. Markets are not perfect. There are not agent failures or market failures. I do prefer "externalities," as one can have as many positive as negative ones. The same is true of unintended consequences.

Bottom line: the same people engaging in so-called agent failures in the economy are those in charge in government, making decisions not for themselves, but for others (or, more accurately, making decisions for others that will primarily benefit themselves).

The fact is that economies are so complex, they cannot be controlled. They are not organizations that can be directly controlled or even guided. They are scale-free, ateleological self-organizing networks. Until and unless people understand that fact, we will continue to have socialist theories insisting we can transform the economy into an organization, or at least insisting that we can know what our interventions will cause.

[Peter Boettke]

Prychitko's work is fundamental on these questions of the socialist critique and the implications for planning, etc.. See not only his Marxism and Workers' Self-Management (1991), but also Markets, Planning and Democracy (2002).

I would also humbly suggest my The Political Economy of Soviet Socialism (1990), especially chapters 1-2, and the references listed. I also would like to point to my 9 volume reference work Socialism and the Market: The Socialist Calculation Debate Revisited (2000), especially Vol. 1.

My slight disagreements with Dave turn on the organizational logic of planning --- even decentralized planning, and thus the centralizing forces at work.

On the point about the critique being based in a future world that is not possible, and what that demonstration in fact does --- I have also argued with with regard to Rawlsianism. I very much like the way Larry White addressed the broad issue about market failure as well.

There is a way to interpret all of this as one form or another of Demsetz's critique of the "nirvana fallacy". Not only is there the problem of the costless transition, but also the depiction of a possible world that in fact may not be possible, and therefore the critique while romantic is not serious.

One final thing, Jerry O'Driscoll is 100% that these words (alienation and exploitation) have specific meanings within the Marxist literature that is unique rather than shared with common language. The great Marxist idea was that justice could only be served through transcendence and not through any piecemeal or evolutionary fixes. It was an abolition of commodity production project. Again --- see Vol. 1 of my reference collection for the original source material on this.

[Dave Prychitko]

Pete, I agree that there are centralizing forces. That's my argument regarding self-managed socialism, that, even in theory, the model creates centralizing "iterative" processes, etc. And in practice it leads toward political centralization (a Tito and Communist Party power at the lower levels), contradicting the model's idea. In other words, decentralized socialism engenders an "essential tension" (the subtitle of my first book).

[Dave Prychitko]

*ideal

[Michael]

I recently started reading Hayek's "The Counter-Revolution Of Science", and I am thinking that there are some similar ideas here. Although I admit that there is a difference between identifying a flaw or inadequacy as a failure due to an idealized perspective, and identifying a scientist's perspective as relevant in a field other than their field of study; I do see a similarity in the concepts of perspectives being considered absolute or perfect, when I think most can agree that perspective often times are anything but absolute or perfect.

[Russnelson]

I've been saying for a while that "market failure" is crank-talk: http://blog.russnelson.com/economics/bad-economist-no-donut.html
http://blog.russnelson.com/economics/market-failure.html
http://blog.russnelson.com/economics/market-failure-2.html

[Greg Ransom]

"the critique while romantic is not serious" -- yet much of academia is populated by people who ultimately are not serious and who have created a culture hostile to the non romantic.

In the first instance --and at his core -- Krugman is the kid reading Asimov who believes in the fantasy of a button which can be pushed putting "psycho-history" into motion, curing all human ills.

(Interesting. My spell check knows "Asimov" but not "Hayek" ... ).

[Roger Koppl]

Steve and Petrik: This issue comes up in the judiciary too. Wednesday the NJ Supreme Court addressed the very real problem of faulty eyewitness testimony. The trouble is that the solution mandated in State v. Larry R. Henderson puts it all on the judge to weigh out just how reliable each bit of testimony is. So we are addressing what we might call "testimony failure" by asking the judge to make a Solomonic judgment of reliability, thus further depriving the jury of its role as trier of fact. No one seems to have thought to model the incentives and cognition *of the judge*! Very frustrating. The case was reported here: http://www.nytimes.com/2011/08/25/nyregion/in-new-jersey-rules-changed-on-witness-ids.html?_r=1

NYTimes has a piece explaining witness fallibility today too.

[Greg Ransom]

Marx isn't giving us a real alternative mechanism -- and then showing how the actual world fails to match the ideal mechanism.

He gives us no mechanism -- he condemns people who offer programs and mechanisms in advance.

So it's _not_ a "market failure" type argument, where the real world is contrasted with a formal construction. There is no mechanism or construction in Marx.

Instead, Marx condemns capitalism on the ground of justice & humanity, invoking the picture of value and rightful ownership taken from Locke & Smith, and exploiting the "alienation" metaphysics of Feuerbach on Christianity along with all sorts of inherited baggage from Hegel thrown in for good measure.

The contrast isn't between a social coordination ideal and the failed market.

It's between an idealized lone individual in the state of nature & the fallen / systematically unhealthy / unjust social world of the capitalist system.

In other words, it has more in common with Rousseau than it does with neoclassical welfare economists and neoclassical central planners.

[Daniel Kuehn]

Rafe -
re: "Do you accept that there has been a bipartisan tendency to adopt the "more regulation" or "more intervention" or "more spending" approach which has produced Very Big Government, big debt and a massive amount of unhelpful regulation?"

I don't think we can honestly answer one way or another on this. Some things are very under-intervened-in. Many things are over-intervened in. And that's just if I accept answering the question as you posed it. There is no variable "intervention" or "regulation" that you have less of or more of. There are lots of different ways to intervene.

But let's be careful not to act like this is a government thing alone. We have more than just government action and market action at our disposal. Lots of the quirks of market action can be solved by non-government, non-market solutions.

Martin -
re: "What you get then isn't exactly a great track record and one is hard pressed not to argue that alternative arrangements would likely be superior."

I am in strong disagreement with this statement. If you look at constitutional market democracies, it is these societies that have by far and away outperformed other societies, even given their faults. And when societies move towards being market democracies we see them improve considerably. Now, we don't have a libertarian society to compare that to. In some ways, that should be instructive. It might suggest something about the feasibility of such an option. But maybe not - I suspect a libertarian society is unfeasible, but I don't know. But clearly the examples that we have of my preference - a constitutional market democracy - have performed incredibly well. That's precisely why I support them.

[Daniel Kuehn]

If anyone's interested I discuss Steve's post and then Peter's previous post here: http://factsandotherstubbornthings.blogspot.com/2011/08/ending-up-in-bedlam-boettke-and-horwitz.html

Particularly going over that at least in my experience, "market failures" are not presented in the way that Steve suggests. I think this insinuation that a huge share of economists are somehow skeptical of markets because they are realistic and inquisitive about markets is a massive red herring that has the potential to do a lot of damage in discussions. Don't expect people who take "market failures" seriously to take you seriously if you insinuate that they're arguing that "real world markets are condemned".

[Current]

The term "market failure" seems to mean different things to different people.

I can see why people would link market failure with externality. But I'm not sure that's what everyone means. I think some people see these as quite separate.

Aren't market failure arguments things like Stiglitz & Akerlof's asymmetric information? Or Frank Fukuyama's recent argument about wealth distribution?

[Bob Layson]

If a tax-funded armed market-failure correction committee is established it will find much ''failure'' and do whatever it can get away with by way of ''correction''.

It is always fancifully supposed that such an authority can know what must be corrected, how to correct it, cheaply and swiftly do it and, most unlikely of all, know the danger of remaining in power and so immediately conclude that it must dissolve itself and oblige its members to return to the voluntary economic order to earn their livings.

[Daniel Kuehn]

Current -
I figure market failure is intended to mean everything that's not perfect competition.

The term "market failure" means whatever we assign it to mean, but obviously as this post demonstrates it may give the impression that people are condemning markets so I personally think it's a bad term (particularly because some "market failures", like externalities, are a problem PRECISELY BECAUSE THERE IS NO MARKET, so it's weird to say that people who talk about externalities are condemning markets!).

I think three classes of market failures usually come to mind: externalities, information problems, and market power problems. I figure we oughta just call them those three things and forget about this "market failure" talk.

[Daniel Jacobs]

“In other words, the reason that exploitation and alienation are problems of capitalism is that Marx can envision a world in which neither one exists”

Not quite. Most of the point of Marx’s critique, especially of the early critique of his contemporary Left, was the fact that they tried to imagine a future so much that they constrained themselves to their own dogmatic thoughts.

“Not only has a state of general anarchy set in among the reformers, but everyone will have to admit to himself that he has no exact idea what the future ought to be. On the other hand, it is precisely the advantage of the new trend that we do not dogmatically anticipate the world, but only want to find the new world through criticism of the old one. Hitherto philosophers have had the solution of all riddles lying in their writing-desks, and the stupid, exoteric world had only to open its mouth for the roast pigeons of absolute knowledge to fly into it.” – From the Ruthless Critique of Everything Existing

“With rising living standards, the socialist critique shifted away from economic exploitation to a more narrow focus on alienation, often with a psychological twist (thanks to Freud I think) that Marx would have rejected given that he saw alienation as totally the result of the anarchy of commodity production under capitalism.”

Few things: 1) Marx did not by any means deny the productive capabilities and living standards were undeniably improved under Capitalism. He uses the term as a process of production and traces his thought in Volume 4 (Capital) from both the shortcomings and insights of Physiocrats and certain classical economists (Smith, Ricardo). The fact that it has been conflated, especially by the Modern Marxist Left, with a sort of normative significance, i.e. all of the distributive justice, no one cares about the poor, slogans from the 60’s, etc, is a HUGE problem that has plagued the socialist Left and at times, made it perhaps ineffective.

I think you might also be confusing the market and commodity production. Marx notes that the anarchy of the market or circulation of commodities and competition of enterprises but the (in his view) despotism of the capitalist workplace.

Looking forward to the paper. What journal is it gonna be published in?

[Gene Callahan]

""Marx never denies that real wages may rise under capitalism. . . . The notion that he propounds a theory of the growing poverty of the working class is just folklore Marxism". -- Mark Blaug

[Troy Camplin]

The only reason a libertarian political economy is unfeasible is because there will always be people who want to have power over others, and who will use whatever means necessary to get that power, including using anti-market rhetoric. (The free market is terribly inconvenient to the vast, vast, vast majority of people who go into government -- those who want power over others.) A libertarian political economy is not unfeasible because of the nature of the system qua system, but because there will always be those who want to lord it over others. It is actually telling that the economies closest to being true free markets have always outperformed those farther away -- it's a pretty impressive curve. But such facts are not persuasive to those who want power over others, as that isn't the point anyway. It is unfortunate that there are those who, while not wanting to be in charge, are more than willing to help others to gain power. But then, that's to be expected too -- it happens among chimpanzees as well.

[Daniel Kuehn]

re: "It is actually telling that the economies closest to being true free markets have always outperformed those farther away -- it's a pretty impressive curve."

Troy, please. You know better than this. You are not arguing against people who have a problem with markets. What we observe is that market democracies do better than non-market democracies and non-market/non-democracies.

You are taking an agreed upon successful institution - the market - and using it to shoe-horn in your other institutional preferences (opposition to representative governments).

The most successful cases we have are constitutional market democracies. We have no real examples of a libertarian polity. So don't tell me that the mainstream's preferred institutional arrangement - constitutional market democracies - is somehow evidence of your preferred institutional arrangement.

[Rafe Champion]

In case people need to be reminded about the abuse of market failure theory by both supporters and opponents of markets, see Pete Boettke's Critical Review piece from a few years back (give us the cite Pete, I can't remember).

Daniel makes the case for constitutional market democracies, on the basis that we have no real examples of a libertarian polity. But we do have historical records of governments that were more limited than others and that is the basis of the classical liberal critique of big government, dirigism and interventionism of the wrong kind (see Mises on that from the 1920s).

As for contemporary evidence, I will bet Daniel a big fat Aussie dollar that wherever in the world things are getting better in a sustainable way, one or more of the elements of the classical liberal agenda are the active ingredient in the policy mix.

[Martin]

Daniel, I am not in disagreement over the need for a constitutional market democracy, but where we differ is that I probably see fewer cases of market failure than you are likely to see.

For the record: I am not a libertarian, I consider myself somewhere between a neo-liberal and a classical liberal.

[Current]

I think I've just got one of Mises more obscure jokes...

"Hitherto philosophers have had the solution of all riddles lying in their writing-desks, and the stupid, exoteric world had only to open its mouth for the roast pigeons of absolute knowledge to fly into it." - Marx in his letter to Ruge quoted by Daniel Jacob's above.

"Economics, as such, figures all too sparsely in the glamorous pictures painted by the Utopians. They
invariably explain how, in the cloud-cuckoo lands of their fancy, roast pigeons will in some way fly into the mouths of the comrades, but they omit to show how this miracle is to take place." - Mises in the first page of "Economic Calculation in the Socialist Commonwealth".

[Jerry O'Driscoll]

I was the senior editor of Heritage's Index of Economic Freedom for 4 years. The data were overwhelming.

Free market economies performed best over time, whether democracies or not. (Hong Kong and Singapore were always #1 and #2 on economic freedom, and neither is a democracy. Ditto in the Fraser/Cato index.)

There is evidence that economic freedom drives political freedom, which was Milton Friedman's hypothesis (rather than the other way around). Look at the pressures for political change in Hong Kong, Chile, and now even Singapore.

Democracies respond to pressure for greater economic freedom. That has been most evident in Nordic and Northern European countries. Sweden is perhaps the most surprsing example of that. It is the fastest growing economy in Europe.

The relationship between economic and political freedom is complex. For economic growth, however, economic freedom is the necessary ingredient.

[Daniel Jacobs]

I thought I responded but I guess it didn't go through. Maybe I just hit preview.

I think "roasted pigeons" might be a saying in German.

For example, the German poet Johann Hebel

"Man indeed has the opportunity every day, in Emmendingen or Gundelfingen as well as in Amsterdam, to speculate, if he wants to, on the inconsistency of all earthly things and to become satisfied with his fate, even though there aren't many roast pigeons flying about in the air for him."

http://evans-experientialism.freewebspace.com/hebel.htm

I think both Mises and Marx are using the term sarcastically, as in "brilliant ideas" or the like.

However, I am not sure if Mises is directly referring to such a letter, considering it was Marx's point that it is of utmost necessity to critique such socialist Utopias (such as Robert Owen's communes or Charles Fourier's twilight zone idea that we could turn the sea into lemonade - Engel's later outlines this in "Socialism: Utopian and Scientific"). In such a case, Mises' strong points in the "Economic Calculation in the Socialist Commonwealth" would side more with Marx's point, despite his intention to critique such ideas.

[Daniel Kuehn]

Rafe -
re: "As for contemporary evidence, I will bet Daniel a big fat Aussie dollar that wherever in the world things are getting better in a sustainable way, one or more of the elements of the classical liberal agenda are the active ingredient in the policy mix."

You will not find me arguing with you over the point that classical liberalism has a positive impact on society. But let's not pretend that liberalization is the same as some sort of minarchism. It all depends on what you're calling "libertarian". I'm a libertarian on the margin in lots and lots of cases. But most libertarians aren't this sort of "libertarian on the margin" and instead expect a minarchist order and call libertarians on the margin like me "statists". So again Rafe, I'll tell you what I told Troy - please don't take credit for the achievements of constitutional market democracies and use them as evidence for some sort of libertarian/minarchist society.

[Current]

"I think 'roasted pigeons' might be a saying in German."

Ah, that would make sense.

"In such a case, Mises' strong points in the 'Economic Calculation in the Socialist Commonwealth' would side more with Marx's point, despite his intention to critique such ideas."

Yes, Mises is agreeing with Marx here. But, this shows the problem with Marx's argument though. He's holding out the possibility of a socialist utopia without actually explaining how it's supposed to work, indeed criticizing those who suggest ways.

Marx is making the most utopian of utopian arguments, that somehow we will reach utopia. Though he's not sure how, he's sure it will all work out.

[Rafe Champion]

Daniel, would you like to nominate a western democracy that would not be improved by shifting in the libertarian/minimum state direction. Maybe we agree on this. What are we disagreeing about? The extent of the minimum state? The institutional essentials for the success of the western democracies?

Most likely democracy (the ballot box) had next to nothing to do with it. Secure property rights under the rule of law and limited government were most likely the keys. Maybe we can disagree on that?

[Troy Camplin]

I'm pretty sure Daniel has no idea what I consider to be an "ideal" political arrangement. But be that as it may, in the comments on more recent posting, Pete Boettke links to a paper that demonstrates there is in fact a "slight negative" correlation between democracy and economic growth. Daniel might go see my questions about the paper in that thread before he comments about what I think about that correlation.

[Daniel Jacobs]

"Yes, Mises is agreeing with Marx here. But, this shows the problem with Marx's argument though. He's holding out the possibility of a socialist utopia without actually explaining how it's supposed to work, indeed criticizing those who suggest ways.

Marx is making the most utopian of utopian arguments, that somehow we will reach utopia. Though he's not sure how, he's sure it will all work out."

1) Marx's determinism was of course off and this is evident by the change in thinking first with Lenin/Trotsky/Luxumburg and then later with the Frankfurt school (and also specifically Lukacs) who recognized that such a change didn't spontaneously implement itself.

2) "Without actually explaining how its supposed to work" - that I would have a problem with. Did someone sit down and design Capitalism? No, it developed out of the historical development of mankind, brought about between specific tensions between feudal nobility and a new class of wealth owners and Then its processes were explained by the intellectuals of the day (Smith/Ricardo etc - also the Physiocrats). There was defintely thought prior to the beginning of its life that hinted at the motion of human thought towards Capitalism - probably Quesnay most emobodied this, with his ideas later being carried by his pupils at the beginning of the Revolution. Specifically, Marx elaborates (Vol4) on Ricardo and Smith's signficiant position in the development of thought. It was their thoughts that basically signified, to be cliche, a new dawn - a conscious rethinking of how we exist. As James C Scott notes in his book Domination and the Arts of Resistance, the peasants at the beginning of the French Revolution were calling not for Capitalism but for a sort of "Reformed feudalism"
http://books.google.com/books?id=tl9q9DbnkuUC&printsec=frontcover&dq=domination+and+the+arts+of+resistance&hl=en&src=bmrr&ei=kE5eToaUJZLH0AHqq_GJAw&sa=X&oi=book_result&ct=result&resnum=1&ved=0CCoQ6AEwAA#v=onepage&q=monarchy&f=false

That didn't stop the development of something else. Yes, I 1000000% agree Marx is deterministic and if you want to call that utopian, sure. But the so called lack of explaining it is narrow thought - like I said two posts ago, such drawn out plans of grand projects are usually constraining and almost always lack insight into one's contomperary condition. I would rather (and have) read Human Action over any sort of "visionary book" like Schweikart's Market Socialism or Parecon or that stuff any day of the week. plus Mises is more insightful

[Current]

Daniel Jacobs,

I mostly agree with you, but I think you're still being too easy on Marx. Doesn't Marx say that the new socialist world will be established soon after the revolution. If that's the case then how can it have time to evolve?

[Daniel Jacobs]

On the contrary:

"What we have to deal with here is a communist society, not as it has developed on its own foundations, but, on the contrary, just as it emerges from capitalist society; which is thus in every respect, economically, morally, and intellectually, still stamped with the birthmarks of the old society from whose womb it emerges...But these defects are inevitable in the first phase of communist society as it is when it has just emerged after prolonged birth pangs from capitalist society. Right can never be higher than the economic structure of society and its cultural development conditioned thereby." - Critique of Goth Programme

That is sort of the beginning of the transformation. Starting the flame of the oven to cook the food. There will be tons of problems and tons of things to be hammered out. Remember Marx, borrowing from Hegel, refers to the transformation as a "negation of the negation." Such a revolution would simply be, "the negation."

I'll concede that this area of Marx's thought is his weakest (and the part I personally think least about). But I often feel that this ambiguity is jumped on and beaten to death and conflated as being central to his whole thought. Marx didn't invent communism, he became one through Engels persuasion. More so, talking to my friend the other day (libertarian), he said "you know, I think Marx is more a capital-theorist, than a communist-theorist." Agreed. If one wants to say Marx was totally wrong about economics - understandable. Or wrong about Hegel - understandable or human nature, etc. But the hyperfocus on his thoughts on communism is like saying what's wrong with the movie Battlefield Earth is the costume design or lightening. idk. Its kinda like the 5-6th thing i think about.

Who knows what will happen. Maybe this is, as Hegel implied, the final stage. Or maybe (more likely than communism by 100x at this point) if we have an actual people revolution, it heads towards some sort anarcho-capitalism (seasteading? The dude from Paypal). im down

[Rafe Champion]

I would have been prepared to bet a US dollar that democracy would have a small negative correlation with economic growth:)