Killing capitalism softly

John Holbo has a question:

I’ll state my question first: to what extent did people believe, in the 30’s and early 40’s, that capitalism was doomed?

I’ve been reading James Burnham, The Managerial Revolution (1941). And I would like to propose (but I am happy to be corrected) that he was the anti-Fukayama of his day. Just as everyone violently attacked Fukayama’s bestseller as speculative and rather wishful prophecy, while basically agreeing that, yes, it looks like liberal democracy and globalization will be dominant for the foreseeable future; so it seems lots of people attacked Burnham’s bestseller as speculative and even wishful prophecy, while basically agreeing with his major premise that capitalism and liberal democracy were on their last legs. (In case you don’t know, Burnham is one of those who started as a Trotskyite and ended by writing for National Review.)

To a first approximation, everyone in the 1930s and 1940s seems to have believed that capitalism, and quite possibly democracy, were headed for the ashbin of history; the hope (or fear) appears in the writings of everyone from Orwell to Hayek. The question I have is, given this near-perfect consensus, how did we manage to snatch victory from the jaws of defeat? Or did we? We are, it seems, gearing up to nationalize an industry that accounts for 16% of national output--and even libertarian bloggers have been known to speak out in favor of that most socialist of institutions, the Federal Reserve.

Comments

The Federal Reserve is a socialist institution?

It doesn't seem to me that the Federal Reserve owns or controls the means of production. It merely imperfectly trys to maintain a stable store of value in the money supply.

Posted by Robert Brown | February 19, 2008 3:02 PM

The question I have is, given this near-perfect consensus, how did we manage to snatch victory from the jaws of defeat? Or did we? We are, it seems, gearing up to nationalize an industry that accounts for 16% of national output--and even libertarian bloggers have been known to speak out in favor of that most socialist of institutions, the Federal Reserve.

I'm out of my depth commenting in detail on Orwell and Hayak, but I don't think that Orwell, at least, was primarily concerned with the possibility that capitalist societies would grant too much power to central banks, or nationalize health care. My impression is that he was more concerned with the philosophical, political and military ascendancy of militaristic and explicitly expansionist totalitarianism, as represented by Soviet Russia and Nazi Germany.

We snatched victory from the jaws of defeat by destroying Nazi Germany and accepting the division of the world into American and Soviet spheres of influence. The lion's share of credit for that "victory" belongs to the Soviet Union, which proved that a Leninist state with a very large population could devote more manpower and industrial power to waging war than a fascist state with a smaller population.

The war also showed that the American economy wasn't quite as moribund as it seemed to be during the Depression, and could ratchet up industrial production to a level none of its real or potential enemies could ever match. And it also disproved--as the US suffered hundreds of thousands of soldiers and Marines killed in Europe and the Pacific--right-wing and left-wing critiques of America as too decadent to fight for its own interests.

That industrial, military and civic strength, along with the appeal of American culture compared to Soviet culture, was probably decisive in the Cold War.

I'm not saying that monetary policy and health care reform are insignificant, but they mean a lot more to discussions about reforms of capitalist societies than they do to discussions of whether capitalism will "survive," and how it competes with systems like Nazi Germany and Leninist Russia.

Posted by JB | February 19, 2008 3:20 PM

Capitalism is dead; has been for a long time. "Mostly-capitalism" is alive and doing well.

I figure capitalism will die off completely from success. Someday, long after our grandchildren are in their graves (probably their grandchildren too and maybe a few dozen more generations), "wants" won't seem so unlimited. We're already at the point where we are manufacturing "wants" at a non-trivial level. When that inverts, and most demand is induced just to keep the market functioning, we'll hopefully realize this and give it a rest.

Posted by Njorl | February 19, 2008 3:20 PM

Njorl,

Since 10^-11 seconds after the big bang when the quarks condensed into protons and neutrons the universe has grown ever more complex. The protons and neutrons formed simple atoms - these atoms formed into stars, stars into galaxies. As stars in these new galaxies exploded, ever more complex atoms were formed, these condensed into new stars, and around those new stars planets formed. On at least one of those planets life evolved, simple at first, but growing ever more complex. All that leads up to the most complex thing in the known universe - the human brain. Now, that brain has been building ever more complex technologies (stone, bronze, iron, steel, silicon, etc.) Until we reach the point we're at now.

Do you really think that in a few generations we will have reached the end of the Universe's ever growing complexity? Or will things begin moving faster and faster growing ever more complex...

Also, consider the possibility that there is a reason for this ever growing complexity... what that reason might be I can't begin to imagine...

Posted by jmo | February 19, 2008 3:54 PM

Exactly what industry are we gearing up to nationalize?

Posted by Stan | February 19, 2008 3:57 PM

I think it's the predilection of the people of pretty much any era to believe that they live in end times, and that the world will remain essentially as it is in the time that they live. I'm quite certain capitalism will go, at some point, though in which direction I couldn't tell you. Despite the beliefs of the less-temperate of my critics, I'm neither a socialist or an anti-capitalist. I do recognize, though, that capitalism is a human system, and that every human system is flawed and temporary. Would I like it if the next step in human social evolution is to a system that more equitably divides resources among the world's people? Very much. Will that happen? I don't know.

It just seems to me that the most sensible and damning critiques of Marxism or any of its variants are ones that also apply, in some ways, to capitalism. Religious style belief in any human system seems to me to be counterproductive and dangerous; and yet you invite a lot of invective if you question that kind of belief in capitalism.

Posted by Freddie | February 19, 2008 4:19 PM

We won't have to nationalize 16% of GDP (health), since half of it is already nationalized. The government already accounts for about half of total healthcare spending.

Posted by P O'Neill | February 19, 2008 4:23 PM

"Capitalism" and "democracy" as understood and practiced in the 30's and 40's are dead; as one German social democrat I knew put it when speaking of his father, "He's still fighting for the proletariat, which doesn't even exist anymore!" And of course "democracy" as understood by the machine bosses and Southern Democrats is mostly gone.

We took the flaws of what was known 70 years ago and patched some of it up, while meanwhile the flaws of alternative systems, which were not known then (or as well known, at any rate) became quite impossible to deny.

"Capitalism," defined as voluntary exchange with prices set by markets, has always existed and will always exist no matter what the government tries; even the Soviets had a black market internally and charged something vaguely resembling market prices on the international arms market. Whether liberal democracy persists is another matter.

Posted by Rob Lyman | February 19, 2008 4:48 PM

Capitalism's 'victory' after the Depression was snatched from the jaws of defeat by the philosophy which deliberately includes the vagaries of human nature while simultaneously unleashing human creativity.

As for socilaized health care, perhaps the unintended benefit of the welfare state applies: no modern market economy has ever experienced a socialist's 'proletarian revolution,' by the simple expedient of using capitalism's wealth generation to subsidize the most needy. Essentially, why revolt against a subsidy? Whether 'needy' will eventually mean that capitalism's prosperity will pay for socialized health care, a look at the geometric growth in prosperity by world-wide capitalism over the past several hundred years forecasts that socialized health care will eventually become affordable as an unintended benefit of so much capitalist prosperity.

We'll hold our noses, eventually pay for health care for the 'needy,' and move on to the next creative opportunity to make some money. Capitalism is the Golden Goose; socialism is just one argument over how to spend the golden eggs. Protect the goose; argue over how to spend the eggs.

Posted by a Duoist | February 19, 2008 5:09 PM

I think it was due to the tilt towards central planning of industry that began after WWI and reached its peak after WII that created that preception. The US didn't go as far down that road as Europe did, but central planning was supposed to be the wave of the future at the time. The rather spetacular failures of these central planning, peaking in the 1970s and provoking a backlash in the 1980s, more or less killed off any future interest in them, as is evidenced by the fact that the idea of nationalizing the auto industry in order to increase efficiency would be rightly laughed at these days. So, capitalism won more or less by the dramatic failure of its alternatives.

Posted by MattXIV | February 19, 2008 6:29 PM

I'm out of my depth commenting in detail on Orwell and Hayak, but I don't think that Orwell, at least, was primarily concerned with the possibility that capitalist societies would grant too much power to central banks, or nationalize health care. My impression is that he was more concerned with the philosophical, political and military ascendancy of militaristic and explicitly expansionist totalitarianism, as represented by Soviet Russia and Nazi Germany.

Orwell wasn't concerned with the possibility of expanding government, he was actively for it. He was a committed socialist who had a deep antipathy for capitalism. (One program he proposed, in The Lion and the Unicorn had as its first two points: "1. Nationalization of land, mines, railways, banks and major industries. 2. Limitation of incomes, on such a scale that the highest tax-free income in Britain does not exceed the lowest by more than ten to one.")

He hated totalitarianism more, but he pushed socialism both because he thought it was right and because he thought that capitalism was fundamentally, inherently at a disadvantage in competing with a planned, organized economy. From the same book: "What this war has demonstrated is that private capitalism – that is, an economic system in which land, factories, mines and transport are owned privately and operated solely for profit – does not work. It cannot deliver the goods." The modern understanding that wholly-planned economies fail spectacularly simply wasn't conventional wisdom at the time, and certainly wasn't part of Orwell's worldview.

(Orwell did liked some things that capitalism had produced which he thought would pass with it-- in much the same way that a modern person might appreciate Notre Dame, or Renaissance art, without being nostalgic for the political systems under which they were produced.)

Posted by Mike S. | February 19, 2008 6:46 PM

Njorl,

The "hedonic treadmill" effect ensures that such a state will never come to pass. What makes people happy is not specific things, but rather improvement in their circumstances. We have an emotional homeostasis that is independent of our absolute material well-being. When we feel better than it, it is because we experience some form of improvement in our circumstances, and when we feel worse, some decline. And once our expectations adjust to our new circumstances, we return to our baseline emotional state, which seems to be mostly a characteristic of an individual's neurological traits.

That's why economic systems that emphasize growth are here to stay. Stasis doesn't meet people's psychological need to improve their circumstances in order to feel happy; we need our wants.

Posted by MattXIV | February 19, 2008 6:46 PM

jmo,

So we can reach the Singularity, what else?

Posted by Rex | February 19, 2008 7:59 PM

There was a trend toward totalitarianism in the 1920s and 1930s so people just went on that. Trends change though. Although in this case the Marshall Plan and the stagnancy of Communism definitely had a role.

From 1988-2002 there was a trend toward increasing democracies and liberalized markets. So people imagined that going inexorably forward. There's some evidence the "democracies" trend is starting to reverse itself. Many poor nations found their transition to democracy awkward. It did, or was blamed for, exacerbating ethnic tensions and civil disorder. Others saw the rise in development China and Singapore so possibly think that's a better way to go. (China has loosened up on markets and to an extent on religious freedom, while maintaining Party control and strict censorship on sensitive matters. Singapore is freer than that, but they have one-party rule with opposition parties remaining powerless) This is a trend which may also change though.

On the capitalism part I think only a few nations are as capitalist as the US. I think most modern nations are less capitalist than they were then. Even the US has much more regulation and wealth distribution now than it did in 1941.

Posted by Thomas R | February 19, 2008 8:29 PM

The question I have is, given this near-perfect consensus, how did we manage to snatch victory from the jaws of defeat? Or did we?

I had much the same question when reading H.G. Wells' History of the World written in the 1920s. He was convinced the world must end up socialist.

Then I read his description of socialism. Welfare, large government sector, mass ownership of industry... that's what we got.

Remember, the workers DO own the means of production, via their pension plans.

Posted by doctorpat | February 19, 2008 8:34 PM

Re: We won't have to nationalize 16% of GDP (health), since half of it is already nationalized.

No one with a remote chance of achieving power has propopsed nationalizing healthcare. A few folks (most of whom also have very little chance of getting their way) have proposed nationalizing health insurance. The proposals by the Democratic frontrunners do not go anywhere near that: we are NOT going to nationalize healthcare (or even health insurance) even if Hillary or Obama win in a 50 state landslide and have 70 Democratic Senators to keep them company. We may (and should) universalize healthcare, but that's not a synonym, for nationalization. If you don't believe me, ask yourself how many naked people you see walking around and then note that we have universalized clothing without nationalizing the garment industry at any level.

By the way pessimism about capitalism and democracy was not limited to the 30s and 40s. Well into the 70s serious intellectuals on both right and left were still preaching that it wads doomed and Communism (or some form of totalitarianism) was bound to win out.

Posted by JonF | February 19, 2008 9:08 PM

It's always been fashionable to talk about imminent doom, or at least entertaining. That's why we have and remake disaster movies. But also, anybody in Europe in the 30s (or in the US during the Depression) who wrote that everything was coming up roses would have been deluded. People make fun of Neville Chamberlain for saying "Peace in our time," after all.

In fact, the European order of things in the 1930s was destroyed and reshaped. What we wound up with resembled capitalism plus social democracy, but it's only easy to crow about that in hindsight. At the time, there was no way of knowing it was going to come out anything near okay. I don't think you can separate anxiety about the future of capitalism from anxiety about the future of democracy, given that everyone, even Neville Chamberlain, saw the imminent clash of nations, and of democracy vs some form of totalitarianism.

Incidentally, most of the European countries have some form of nationalized healthcare, and we would still call them basically capitalist. Or at least, I would.

Posted by Ben | February 19, 2008 11:38 PM

"That's why economic systems that emphasize growth are here to stay. Stasis doesn't meet people's psychological need to improve their circumstances in order to feel happy; we need our wants."-Posted by MattX

First, that's not generally true. Plenty of societies existed in stasis that was far less appealing than anything we could make today. They tended to be destroyed by societies that encountered them, and didn't feel the same way. If there is only one society at some point in the future it could enter stasis at any time, and there would be no one to conquer them out of it.

Second, even if there is a natural inherent drive for change in people, it has been a competitive advantage in the past, but would not necessarily be one in the future. If we assume all material needs are met, the ambitious would probably be at a survival disadvantage rather than advantage. The brave, intrepid and daring would face greater risks with no greater likelihood of reproducing. If we are talking of cultural evolution rather than genetics, then we're already halfway there. We've gone from people wagering their lives on entrprenurial adventures to wagering their life savings, to wagering venture capital. A man who loses his life savings nowadays is just considered a dumbass.

And to revisit this particular phrase, "...Stasis doesn't meet people's psychological need to improve their circumstances in order to feel happy..." genetic engineering, or even really good chemistry, could. We're talking about arbitrary timeframes, and this is very foreseeable.

All of that is on the bleaker side. I'm not even talking about a static existance. I'm postulating a de facto egalitarianism. When there is nothing to gain but the satisfaction of effort, effort would be done for it's own sake. When the market can offer nothing of as great a value as the satisfaction of egaliterian action, the market disappears.

Posted by Njorl | February 19, 2008 11:56 PM

Jmo,
Complexity is decreasing, not increasing. You are describing a peculiar type of observer bias. Since only complex forms can observe, and they occur only at locallized maxima of complexity, they see a complex universe. Those of us with a less parochial view of the time-space continuum think things just ain't what they used to be.

Posted by Njorl | February 20, 2008 12:06 AM

Freddie wrote: Religious style belief in any human system seems to me to be counterproductive and dangerous; and yet you invite a lot of invective if you question that kind of belief in capitalism.

Right, especially if your questioning of it is clearly a diversionary measure to avoid defending your proposed alternative on such real-world grounds as the Law of Unintended Consequences and cost/benefit relationships.

It is one thing to propose that a golden egg-laying goose might distribute eggs more equitably if gently resituated on the nest, and then to suggest some practical ways in which that might be done while providing a fair analysis of the risks associated with upsetting the goose into a non-laying spell. It is quite another to claim that the ongoing inequitable distribution gives moral imperative for shooting the flawed and unfair goose and replacing it with one of your own devising which, you assure us, will lay as many or more golden eggs in an equitable fashion.

Some of us are old enough that we no longer fall for that kind of trick twice.

Posted by anony-mouse | February 20, 2008 12:09 AM

Njorl wrote: Second, even if there is a natural inherent drive for change in people, it has been a competitive advantage in the past, but would not necessarily be one in the future. If we assume all material needs are met, the ambitious would probably be at a survival disadvantage rather than advantage. The brave, intrepid and daring would face greater risks with no greater likelihood of reproducing. If we are talking of cultural evolution rather than genetics, then we're already halfway there. We've gone from people wagering their lives on entrprenurial adventures to wagering their life savings, to wagering venture capital. A man who loses his life savings nowadays is just considered a dumbass.

The alternative is that we replicate the decline of -- was it Greece? -- where a wealthy and extraordinarily knowledgeable society on the verge of a million new inventions became disinterested and lazy, because it was rich enough to coast through most of life, satiating needs with an unlimited supply of labor slaves and indulging wants with an unlimited supply of hedonistic entertainment. Suddenly, a shock brings the sytem to an unanticipated halt, and nobody remembers how to restart it again.

Posted by anony-mouse | February 20, 2008 12:19 AM

JonF got there before me: we're not going to nationalize health care, we're going to nationalize health insurance, and actually we're not even going to do that, we're just going to make sure everyone has private or public health insurance. "Nationalized health care" is just a scare word -- though it actually isn't much of a scare word, since these days it apparently polls pretty well. Anyway, the government is by law the sole buyer of fighter planes in the US, but if you call the executives of Boeing, Lockheed or General Dynamics I believe they'll tell you they're still in the private sector, thank you very much.

given this near-perfect consensus, how did we manage to snatch victory from the jaws of defeat? Or did we?

This is too wide open a question for a meaningful blog response, but the short version is that people underrated the vulnerability of highly centralized top-down political and economic systems. The question of our times is whether the Chinese (in Singapore and Beijing) have managed to create a viable new synthesis which allows for economic and social productivity and flexibility but with mass political choice replaced by a delegation of politics to an internally meritocratic and consensus-based ruling party, a sort of gated-community Communism. Conversely, one might ask whether a variety of factors in Western democracies have, even more than in the past, turned mass democracy into a shadow-puppet show, with the real struggles for political control taking place between extremely wealthy corporate and media structures and non-political bureaucratic actors in a fashion that has little moral difference from Singaporean authoritarianism.

Posted by brooksfoe | February 20, 2008 1:38 AM

Right, especially if your questioning of it is clearly a diversionary measure to avoid defending your proposed alternative on such real-world grounds as the Law of Unintended Consequences and cost/benefit relationships.

Are you capable of arguing in good faith? I mean it, I'm really asking. Are you so utterly infected with the politics of resentment that argument simply ceases to be possible? You have no idea what my "proposed alternative" is. If you think that capitalism is immune to the Law of Unintended Consequences, you're a fool; if you suppose that those who don't live in the same comfortable, ignorant affluence as you do should share the same cost/benefit analysis, you're deluded.

Posted by Freddie | February 20, 2008 8:09 AM

"Suddenly, a shock brings the sytem to an unanticipated halt, and nobody remembers how to restart it again."-- anony-

This should concern most, if not all, of us...

especially, given: "The Federal Reserve is a socialist institution?

It doesn't seem to me that the Federal Reserve owns or controls the means of production. It merely imperfectly tries to maintain a stable store of value in the money supply.

Posted by Robert Brown | February 19, 2008 3:02 PM

That this type of ignorance walks, among us, unchallenged, should be seen as a measure of how far, from sustainable reality, we have veered...

Posted by MEH | February 20, 2008 8:09 AM

I think we need clear definitions when discussing topics like this.

First, markets for goods and services have existed as long as we have been homo sapiens sapiens. They have existed in every society, with and without the consent of state authority. They will always exist given our inherent nature. Now, is this capitalism? My answer is that markets are a necessary but insufficient condition. The next necessary ingredient is the secure right to property-what is mine is mine, what I produce is mine, to be disposed in the manner I choose. This right to property is absolutely essential for material progress, because without it, no one saves and builds capital. Without capital accumulation, there is no progress.

Looking over history, I see cycles of property rights. At the moment, I see property rights being eroded in most of the West, at varying rates. I strongly suspect we will see capitalism die off for a time until the poverty that ensues sparks a revolution that prompts the up-cycle once more.

Posted by Yancey Ward | February 20, 2008 11:04 AM

If we assume all material needs are met, the ambitious would probably be at a survival disadvantage rather than advantage. The brave, intrepid and daring would face greater risks with no greater likelihood of reproducing

That assumes, probably incorrectly, that the selection pressure will be survival, not mate selection. As medical technology improves, selection via death before mating will become less signifcant relative to selection by failure to secure a mate (especially as increasingly high-quality mate substitutes become available). And the best way to secure a mate, especially in a society where material wealth isn't much of an issue, is to be aesthetically impressive, either through ones looks or one's cultural output. I anticipate a robust material safety net paired with an increasingly hedonic and aesthetically-focused culture where competition for social status achived by self-refinement results in entertainment and education being increasingly large sectors of the economy relative to the provision of more concrete goods. You could dope people up enough that they don't care, but why eliminate the driving force behind so much human accomplishment, especially when the stakes of competiton increasingly become over who gets the best seats at the concert.

Posted by MattXIV | February 21, 2008 3:11 PM