(Note, 24 Sept. 2015— For what it’s worth, it seems that the Pope agrees with me. From a CNN article— “Amid criticism that he is overly critical of global capitalism and dismisses its place in lifting millions of people out of poverty, Francis acknowledged that ‘business is a noble vocation, directed to producing wealth and improving the world.’ But he cautioned that wealth should be shared and geared to “the creation of jobs as an essential part of its service to the common good.” …Which is right in line with my point here.)
I have “liked” several groups and organizations on Facebook that promote sustainability, and I enjoy perusing their posts as they pop up from time to time. But, as I read the items that they share, it is continually apparent that many, many thinkers on the left edge of the environmental movement have no fundamental understanding of economics. And I’m not talking about arcane elements of high finance here, but rather basic, fundamental, immutable economic principles that should be informing their thinking, but aren’t. To attempt social and environmental solutions that fly in the face of these principles is often a fool’s quest, or, at best, misguided efforts to “reinvent the wheel”.
Take this article, for example, that I saw yesterday— “42 Ways to Build a Liberated Society Beyond Capitalism“, by James Herod, who is apparently a noted thinker in the anarchist movement. Typical of such articles, it is replete with calls to overthrow the system, to end “wage slavery”, and the like, and discusses how we might live simpler, freer lives independent of outside control, lives free from “alienation” and forced labor, where we all could find authentic expressions of ourselves. BUT… much of this is crazy-talk. Let me discuss some basic economic principles that are nearly always ignored in these visions of alternative societies. Here’s the very very short version—trade leads to specialization, which leads to efficiency, which leads to productivity, which leads to the group being better off. And, this is an important point—these principles hold true whether or not money is in use, and regardless of the size of the group. It was true for a family of Neolithic farmers five thousand years ago, it was true for a hippie commune in the 60s, and it is true today for whole nations. At the risk of being too simplistic, let me just discuss each of those basic tenets—
— Trading things makes us better off. Let’s start with something that all economists agree on—voluntary trade benefits both parties. The more people trade with each other, the better off they are. Again, this is true even in societies that don’t use money, or that don’t recognize private property. It is true across cultures, and it is true across time. The Bushmen of the Kalihari, for example, even though they hold all property in common, still operate under this principle. The strongest, fastest tribe members hunt, because they’re better at it, while others process the mongongo nuts and do other tasks, and then they all trade goods and share. In an example from my own life, my neighbor has a excavator but no place to store it, and I have a barn that’s half-empty. So, I let him store his machine in the barn, and he lets me use it sometimes. We both come out ahead, because of trade. It’s true in a family, it’s true in a village, it’s true across nations, and it doesn’t necessarily have anything to do with money. How about this example—anthropologists talk about how certain stones “migrated” across continents in Paleolithic times. They didn’t migrate on their own, though, they were stones that were good for making points, and were traded by humans and carried hundreds of miles from their places of origin. And the early peoples who traded for such stones—they were better off after the trade than they were before.
— Specialization makes us better off. Trade is powerful on its own, but its effects are magnified when we use trade to get most of the things that we need every day, and instead spend our time doing something that we’re good at, instead of trying to do everything ourselves. To create an example, let’s just say that we live in a village where everyone enjoys bacon, eggs, and orange juice for breakfast. If we didn’t specialize, every single household would have to raise pigs and laying hens, and grow orange trees and press orange juice, not to mention sawing boards for lumber to build fences or pens, or raising the grain to feed the chickens, or smelting the steel for the saw to cut the boards to build the pens, or any of a thousand other tasks that precede a bacon and egg breakfast (in reality, without specialization and trade, we’d have no hope of ever having a bacon and egg breakfast with orange juice). If people specialize, then one person can raise the hogs, one person can raise the hens and gather eggs, someone else could grow the oranges, etc., and share or trade with each other for the other parts. Again, this principle of specialization is just as true if we live in a communal, sharing group, or if we have some sort of gift economy, or if we have a system based on private property. Hunter-gatherer groups specialize (for example, one person knows how to knap arrowheads or spearpoints, someone else prepares animal hides), as do families everywhere (one member of the family is a good cook, another is good at other tasks, and they each tend to do what they’re good at to help the family group).
— Efficiency creates productivity, and productivity makes us better off. To continue our train of thought, something else happens when we specialize—we invariably get skilled at doing the thing that we do, and we figure out what tools and methods to use to make it go even faster. In short, we get more efficient. Now, I’ve brought this up plenty of times before, enough that some readers get frustrated and ask me, “why do you focus so much on efficiency?” Well, because you ignore efficiency at your own peril, because efficiency across a society is at the root of that society being better off. If we farm in our hypothetical village, and we don’t pay attention to efficiency, then each person farming might only be able to grow enough to feed themselves, and the whole group would end up living like medieval peasants, at best. There would never be surplus wealth for travel, or free time, or better medical care, or anything else beyond scraping by. Long-time readers know that I like the ideas of Mark Shepard, and part of the reason is because he really gets this concept of efficiency. As just one example, in one of his talks he discussed the difference between having a chicken coop right outside the door, as opposed to 300 feet away (I don’t remember the exact figure he used, so we’ll just go with this one). Over the course of a year, if you checked on your birds twice a day, you’d end up walking 41 extra miles. Over ten years, 410 extra miles. That’s a lot of miles, and for nothing, in this example. Efficiency matters.
Now, you might declare that you don’t care if you walk 400 extra miles, or that the exercise is good for you, but, you still can’t escape the effects of this principle– if you aren’t efficient in your efforts, you can enjoy your extra walks and other inefficient activities all you want, but you will run out of hours in the day. Every day. You could live with all of your other spiritual brothers and sisters in your cooperative village, and still be very, very poor, in terms of food, shelter, free time, and opportunity. This is why members of nearly every group that sets out to live in self-sufficient communes ends up working for wages in a nearby town— their systems aren’t efficient, their productivity is too low, and they don’t create enough wealth. (For a related version of many of these economic topics, see my post “Wealth 101” from a few years ago.)
Once we understand these basic economic concepts, then a great many other things about our world begin to make better sense. Why do we use machines when we produce things? Because they are more efficient, and we are more productive with them. Why do we use machines that are powered in some way? Because we leverage the power to increase productivity. And here’s a big one—why do we use money? Because money makes trade more efficient. And why do we have banks? Because banks make the use of money more efficient. Etc. We then add in other factors that make the systems work even better—transportation and communication infrastructure, the rule of law, courts to enforce the law, education systems, etc. The result is wealth, in the form of social stability, food, shelter, medical care, and goods of all kinds.
So, do you want to see how every bit of this plays out? Here’s the trailer for a great film, “Living On One Dollar”, about four young guys who go to Guatemala and attempt to live at the international poverty line of $1 a day per person (it has been recently raised to $1.25). The whole film is available on Netflix, and clearly shows the effect of nearly every point I’ve made—
So, to get back to where I started, here’s why I think the arguments of people like James Herod are crazy-talk—they all want to throw away capitalism, and throw away corporations, and throw out our education systems, and throw away virtually every other aspect of our society that enables us all to survive (and prosper) every day. And when you ask them how this is going to work, you start getting answers about how people will work cooperatively in small groups, and make decisions at the small-group level, and band together with other small groups to form communities, and teach kids at home, and live close to the land using purposely de-industrialized tools and methods. But when you really start asking questions, you realize from their answers that only one of two thing is possible— 1) the society they envision will not recreate most of our social structures, and will therefore be unable to feed itself, or at best be poverty-stricken, or, 2) they have plans to reinvent every single bit of it. New forms of exchange (many are very motivated about “gift economies”, which is basically trade without using money, which is quite inefficient), new forms of money (local currencies, credit systems to reward work for the community, etc.), new education systems (home schooling, discovery learning…). New systems of law (community councils), new forms of insurance (community aid, I suppose), I could go on and on here. The point being—the culmination of visionary society #2 looks…. a whole lot like our own, just reinvented from scratch after incredible trial-and-error. And if they’re not careful, they would end up with the same problems.
The root problem with these alternative visions is that they’re reacting against the wrong things. In their quest to do away with the “evils of capitalism” they’re quite ready to throw the baby out with the bathwater. But here’s the deal—there is no ready demarcation between small-scale economic activity of the type I described, that clearly benefits everyone involved, and full-fledged “capitalism”. It is a continuum. Now, problems do arise as these systems get larger and larger, such as inequality, boring jobs, complexity that leads to instability, negative externalities, pervasive advertising that begins to distort people’s wants, and the like. But let me suggest that we fix these problems, rather than attempting to jettison the good along with the bad. Our path forward, economically, lies in “smoothing out the rough edges of capitalism”, and not in some poorly-thought-out revolution that leaves us poor, or with new systems that contain within them the same inherent tendencies.
(A “continuation” of this post here.)