G.A. Cohen against capitalism

by Chris Bertram on February 2, 2011

Just when you think “he can’t possibly be saying that, there’s an obvious objection” – he anticipates, and replies … great stuff. From some time in the late 1980s.

{ 149 comments }

1

F. Blair 02.03.11 at 12:05 am

It’s not clear to me that the “the origins are illegitimate and immoral, therefore the current system is immoral” argument really has much weight. But even on its own terms, I’m a bit confused. Cohen argues that the earliest owners of private property couldn’t have gotten their property from legitimate owners, that they just took their property. But surely it’s possible for a group to collectively decide that private property is a better and more productive way of distributing resources than sharing them. This is, after all, precisely what China, in some sense, did in the late 1970s. Even if you accept the social-choice problems involved, it’s not obvious that a minority that prefers a collective-ownership model should have preference over a majority that prefers private ownership. Collective ownership of property surely carries with it the right to dispose of that property as the group sees fit. Now, Cohen will want to say that this isn’t how the move to private property happened, at least in England. But it’s exactly how it happened in the U.S. — colonists had the opportunity to set up whatever system of property ownership they wanted, and they chose private property. So in Cohen’s terms it’s not obvious to me why the system would be considered illegitimate.

2

enzo rossi 02.03.11 at 12:09 am

The stuff about how education shouldn’t cater to the exploitation needs of capitalism sounds especially timely.

3

Patrick Quin 02.03.11 at 12:19 am

Supporting F. Blair Jerry lost me at around 8.30.
Government has become much better at making sure the public benefits immediately from collectively owned property, since capitalists obtain the right to exploit a public resource in exchange for royalties, licence fees or whatever payments to the state.

For example, publicly listed mobile phone companies did not “grab” the collectively owned “land” of radiofrequency spectrum – they paid huge sums to the state for the ability to deliver services at a profit for a limited period of time.

4

Zephyrus 02.03.11 at 12:23 am

Minor point, Blair, but American colonists’ setting up of a system of private property is one of the worst possible historical examples to bring up. Might as well cite the relative wealth of contemporary white Southerners…

That said, I find his argument weak as it stands. Its main strength comes from locating the origin of private property on social desires and needs, not on some great chain of Justice and Right. If private property could be arbitrarily constructed in one way historically, then there’s no reason per se to say it can’t be reconstructed differently in response to modern desires and needs.

5

Charlie 02.03.11 at 12:25 am

But surely it’s possible for a group to collectively decide that private property is a better and more productive way of distributing resources than sharing them.

And their descendants?

6

Myles 02.03.11 at 12:33 am

It’s not clear to me that the “the origins are illegitimate and immoral, therefore the current system is immoral” argument really has much weight.

This argument is silly beyond comprehension. It is of the exact same species of argument as Nozick’s Wilt Chamberlain example, in fact its very obverse. After all, Nozick’s original state was legitimate and moral. If bad can arise from good, so can the reverse.

This is, after all, precisely what China, in some sense, did in the late 1970s.

I actually have the exact history of this. This transpired at the very beginning of Chinese economic reform, when a village in the Province of Anhui, a traditionally peasant-rich, land-poor province, decided to divide up their commune and contract out individual plots to each family. They were in fact so committed to this idea that they drew up an oath, and the head of each household (or something approximate) affixed their fingerprint to the document, swearing that if the commune chief (who would have been the responsible official in relation to higher-level governments) were to be imprisoned for the division of land, they would take turns to take food to him in prison; and were the commune chief to be shot, every household would provide for his offspring.

This is pretty much as clean a demonstration as it gets.

7

Myles 02.03.11 at 12:43 am

Hold on (here’s the link):

http://preview.tinyurl.com/63a33gv

It’s actually a bit more drastic than I thought.

“The decision by the twenty farmers in Xiaogang Village, Fengyang County, Anhui Province, in December 1978 to divide the land of the Production Brigade [i.e. commune] among themselves triggered one of the most significant reforms in recent Chinese history…Back then, these farmers were risking their lives to introduce this system of household responsibility. In the secret document that bore the signatures and fingerprints of the twenty farmers, they declared that, if the government disavowed their act, they were willing to be jailed or executed. Their only request was to have fellow farmers take care of their children until they were eighteen years old.”

8

Doctor Memory 02.03.11 at 1:11 am

But it’s exactly how it happened in the U.S.—colonists had the opportunity to set up whatever system of property ownership they wanted, and they chose private property.

I’m not sure that the extermination of the pre-existing communalist population and expropriation of their lands is really the warm, fuzzy alternative to the enclosure acts that you seem to think it is.

9

F. Blair 02.03.11 at 1:26 am

“I’m not sure that the extermination of the pre-existing communalist population and expropriation of their lands is really the warm, fuzzy alternative to the enclosure acts that you seem to think it is.”

It’s not a question of warm and fuzzy. The extermination/expropriation of the Indians would obviously make any regime that existed on the North American continent today, regardless of its property system, morally problematic in Cohen’s sense. But given that Europeans did take over North America, and could have chosen to distribute property however they wished, the fact that they freely chose to adopt a capitalist system counters Cohen’s insistence that capitalism’s origins are inevitably coercive. Unless you want to argue that only capitalist regimes are interested in annexing the land of other peoples.

10

Straightwood 02.03.11 at 1:32 am

The crucial fault of Capitalism is predation. Whatever its theoretical pretensions, Capitalism in practice is consistently predatory, taking from the weak resources that can be used “more efficiently” by the strong. When a predatory business community can nullify laws and regulations, as it has in the US financial sector, its potential for harm is enormous.

11

F. Blair 02.03.11 at 1:38 am

I’d also say that this whole thing is far less impressive than the introduction makes it sound. Cohen’s manner conveys the impression that he’s offering up a rigorous philosophical critique of the defenses of capitalism. But for the most part, what he offers instead are bald assertions from unprovable first principles, like “the capitalist system operates to ensure that people’s desire for goods is never satisfied,” with its implicit assumption that in a socialist state, there would be no longing for material improvement. I’m also mystified by his discussion of increased productivity and leisure. It’s certainly true that in a capitalist system, increased productivity is generally used to produce more goods rather than more leisure (although the experience of Europe obviously demonstrates that this is not a universal rule). But the choice isn’t between the “more goods produced by increased productivity” of the capitalist system on the one hand and the “more leisure produced by increased productivity” of the socialist system on the other, because socialism is simply unable to come close to matching capitalism’s productivity. The choice is therefore between “more leisure and a vastly lower standard of living” on the one hand and “more production and a vastly higher standard of living” on the other. Cohen may think people would prefer the former (this again is another one of his unproven assertions), but we had a pretty good test of this in 1989 (as well as in China), and it’s pretty clear what option people freely chose. Indeed, there’s something peculiar about praising a video claiming that, if they had their druthers, people would prefer communal ownership, when that video was filmed just before the fall of the Soviet bloc — an explicit collective democratic rejection of communal ownership.

12

Edd 02.03.11 at 1:41 am

See also these great videos (more philosophical / less political) from a lecture in 1998
G. A. Cohen – Wisconsin-Madison Lecture – Part 1

13

shah8 02.03.11 at 2:11 am

/me grabs popcorn.

This is an *interesting* and loquacious troll.

14

Myles 02.03.11 at 2:20 am

The crucial fault of Capitalism is predation. Whatever its theoretical pretensions, Capitalism in practice is consistently predatory, taking from the weak resources that can be used “more efficiently” by the strong. When a predatory business community can nullify laws and regulations, as it has in the US financial sector, its potential for harm is enormous.

“Under capitalism, man exploits man…” Don’t think I need to finish that one.

I am surprised that it took as long as it did for the bogeyman of “US financial sector” to be raised. It’s like a cure-all. Like, as someone once said, a Ramones song. That’t tight, dude.

15

ScentOfViolets 02.03.11 at 2:45 am

But given that Europeans did take over North America, and could have chosen to distribute property however they wished, the fact that they freely chose to adopt a capitalist system counters Cohen’s insistence that capitalism’s origins are inevitably coercive. Unless you want to argue that only capitalist regimes are interested in annexing the land of other peoples.

This makes no sense whatsoever that I can see, any more than the fact that there are some odd numbers that are nonprime refutes the statement that all primes greater than two are odd.

16

Sandwichman 02.03.11 at 2:46 am

Compare: “The same system that overworks people in the interest of profit also deprives them entirely of work when its not profitable to employ them. And what we get as a result is not something that we could imagine — a reasonable amount of work and a balanced existence for everyone — but grotesque overemployment for some together with rending unemployment for others.” (Part 2, 5:28)

With “That society in this country exhibits the strange anomaly of one part of the people working beyond their strength, another part working at worn-out and other employments for very inadequate wages, and another part in a state of starvation for want of employment…” (resolution to establish The Society for Promoting National Regeneration, adopted November 25, 1833 at Prince’s Tavern, Princess-street, Manchester. by a meeting of “Working People of Manchester, and their Friends”).

17

william u. 02.03.11 at 3:31 am

‘ It’s not clear to me that the “the origins are illegitimate and immoral, therefore the current system is immoral” argument really has much weight. ‘

Well, I suppose the question is: What sort of ‘memory’ does the capitalist system have? How much do descendants of the primitive accumulators own?

And does it matter? Even if we had an equal and therefore ‘just’ initial distribution of property, there is a sort of spontaneous symmetry breaking in the dynamics of capitalism (sorry, physicist here) whereby society divides into two major classes (at least in the classical model.) Some individuals can move between classes, but it is structurally impossible for everyone to do so — regardless of their virtue, thrift, etc. Cohen makes this argument in the ‘Structure of Proletarian Unfreedom’, which is better than this (though I liked the schmoos.)

18

Gene O'Grady 02.03.11 at 3:57 am

Reducing colonial and early American history to a free choice to adopt a capitalist regime is beyond bizarre.

19

Kvn 02.03.11 at 4:03 am

What a mess.

I don’t understand his point about private property. Because raw materials come from the earth, anything derived from raw materials should not be owned privately? That premise is underwhelming enough, but it also gets muddled by his description of pre-capitalist family farmers. Who owned the products produced by those idealized family-farmers in pre-capitalists societies? Oh, who cares… It’s an all an irritating oversimplification.

But then there’s his point about artificial scarcity. Capitalism creates scarcity? It’s amazing how little that particular Marxist syllogism corresponds with reality.

Finally, the fact that people work for a living is not a capitalist phenomenon. I know, I know.. He’s not complaining about working for a living, but about the exploitative dynamic whereby people rent their labor… Yeah, that’s working for a living. Sorry, it happens in Cuba too.

Honestly, the whole argument is so dated. I consider myself far left of center, but at this point, I think “capitalism” is more an abstraction than an actual thing.

I know I’m out of my depth on this forum, and I’m very good about never posting, but then the terms are already so poorly defined, what do you do with this mess? “How can anyone think that this is a system which promotes human benefit when it projects the message that the only way to self esteem is to be the owner of a BMW…”

20

Omega Centauri 02.03.11 at 5:19 am

I’m with william here (but maybe it’s just us physicists sticking together). I find the moral arguments -especially about origins akin to arguing based upon Ad Hominen. I’m not so interested in a moral justification (or condemnation) of the state of the world I was born into, I’m interested in how to better it. The later is essentially a utilitarian philosophy*, although moral values inform the metric to be optimized. I really dislike the longterm moral memory concept, sins of the father’s and all.

* Although having been Buddhist, the concept that we could only change things “from this moment onward” has been an important one to me.

21

awy 02.03.11 at 5:51 am

Cohen’s argument about original possession was just a reply to a version of defense for capitalism. How much it means to him isn’t explicitly stated, and it would be unfair to hold him responsible for inflating its importance.

22

hartal 02.03.11 at 6:44 am

GA Cohen is not a reliable analytical reader of Marx. He completely misses Marx’s argument in chapters 22 and 23 of Capital, volume I. That is where you find the first part of Marx’s reply to the capitalist who says that his invested money capital derives from his own savings and that his hiring formally free labor violates no norm or law. Marx grants that this is situation in the beginning but clearly says that after a few successive periods of production, not an atom of the capitalist’s original savings forms the money capital with which he now hires labor power; the original savings has been fully consumed [the capitalist after all does not live on air] and had the capitalist not been able to replace the consumed savings with appropriated surplus value he would had nothing left to continue to hire labor power.

Cohen does not even recognize this argument!

Of course in Part VIII of Capital Marx argues, secondly, that even the original invested money capital did not come from the savings of small, frugal, forward-looking men.

It is rather remarkable that Cohen who seems in this video to be preparing for his later failed attempts at stand-up comedy so totally misses Marx’s argument when his student David Conway who is a fierce anti-Marxist understands it well enough.

I have yet to understand what GA Cohen’s reputation stood on. It’s not as if analytical and rigorous exegeses of Marx’s work began with him. Korsch, the Austro-Marxists, Popper, Z.A. Jordan, Nikolas Lobkowicz, Maurice Godelier all offer rigorous, analytical accounts of Marx; some of them are quite critical.

23

Chris Bertram 02.03.11 at 7:13 am

I’m assuming from some of the above comments that some of you people didn’t listen as far as the part where he says that some people may think that all the stuff about the origins of private property is irrelevant and may be focused on the great benefits it has brought instead ….

24

Chris Bertram 02.03.11 at 7:34 am

(Also some context. This is not an address to postgraduates on Marx interpretation. It is a bit of advocacy aimed at a popular audience, replying to a pro-capitalist programme the previous week, perhaps featuring Milton Friedman (?).)

25

NomadUK 02.03.11 at 7:56 am

The above nitpicking is ludicrous. The fact that the vast majority of the population has never been exposed to or even contemplated the concepts presented here is the reason that capitalism, only a few months ago brought to its knees by its own excess, is busy staging a comeback as though nothing had happened. This presentation should be broadcast several times a day on every television and radio station.

26

js 02.03.11 at 7:58 am

Under capitalism, citizens cannot always feed their children sausages. Under Schmoo, sausages are plentiful!

27

Zamfir 02.03.11 at 8:57 am

But then there’s his point about artificial scarcity. Capitalism creates scarcity? It’s amazing how little that particular Marxist syllogism corresponds with reality.
I think you are misunderstanding the claim. The claim is not that capitalism creates the situations we call scarce, the claim is that capitalism created the concept of scarcity in its modern, economic sense.

The word scarcity used to refer to exceptional situation. Periods or places where people couldn’t get the amount of food they would normally consider enough. That concept has an opposite: a period of plenty, when there is more then you need.

But its modern economic meaning assumes that demand, for everything, is in principle infinite. Scarce resources are always scarce. All you can do is create more or be more efficient, but that doesn’ t make the resource non-scarce, because there will always be demand for more . And it’s not restricted to food or other directly needed stuff, everything is scarce.

This economic way of looking has been part of a greater movement towards a more rational, scientific approach of the world. And the result of that movement has of course been an enormous increase in our efficient use of resources, and in our ability to create more resources. Presumably, seeing every situation as one of scarcity is a very useful drive to create and provide more.

But this creates a paradox that is arguably rather central to capitalism: the combination of an industrialized society with a capitalist economy can create something very close to what people used to call plenty, but only if we don’t think there is plenty, but that things are scarce. A central assumption of every modern society is that there is not “enough” of nearly everything, and we spend most of our energy and time on making more stuff. We measure the well-being of societies by GDP numbers. But at the same time, every firm needs a marketing department to create demand for its products.

28

hartal 02.03.11 at 9:52 am

No, NomadUK, as GA Cohen never worked out Marx’s crisis theory presumably because he thought capitalism had evolved beyond the possibility of a serious crisis, there would be no reason to expose the masses to his video antics in the face of the events of 2008. Why would we turn to Cohen to understand the strengths and limits of the Minsky financial hypothesis or the nature of the global savings imbalance or the reason that the profit rate remains weak (if we exclude returns on foreign operations and the returns of the financial sector super-juiced by monetary policy) or the present political and economic limits on Keynesian stabilization policy?

29

Chris Bertram 02.03.11 at 10:14 am

hartal: I don’t now whether it is sad or amusing that you think that a piece of advocacy like this should address the Minsky financial hypothesis or why you presume to think your know what Jerry Cohen’s views were on the possibility of future capitalist crisis (or, in the other thread you’ve contributed to that you think that undergraduates shouldn’t be permitted to graduate until they’ve read the academic tomes you approve of – list provided). I doubt that you understand the kind of commenter you are, but I do. You are henceforth permitted exactly one (1) contribution to any thread which I initiate here at CT – and keep it short.

30

Henri Vieuxtemps 02.03.11 at 10:57 am

If I unpacked his “origins” argument like this:

Some people long ago agreed that land and other resources should be privately owned. But some people long ago also agreed that individuals from conquered tribes should be privately owned, and that women from their own tribes should be privately owned. Some of these conventions have since been questioned and rejected, and so there is no reason to insist that the rest of them are beyond reproach either.

would there still be a problem with it?

31

Tim Worstall 02.03.11 at 11:22 am

“But its modern economic meaning assumes that demand, for everything, is in principle infinite. Scarce resources are always scarce. “

Erm, no, not really. Economics is about scarce resources, yes. But we don’t then go on to claim that all resources are scarce. We don’t talk about the economics of seawater because the supply is so hugely larger than demand that it’s effectively infinite.

Economics only comes into play when a resource really is scarce: when it isn’t scarce we’re not really talking about economics.

32

Kieran 02.03.11 at 1:15 pm

It is a bit of advocacy aimed at a popular audience, replying to a pro-capitalist programme the previous week, perhaps featuring Milton Friedman (?).)

I don’t suppose the ‘point’ to Cohen’s ‘counterpoint’ is available somewhere, by any chance? It’d be useful for this class I’m teaching. Or maybe I should just use some bits of “Free to Choose” or something.

33

Zamfir 02.03.11 at 1:25 pm

Yes, but the number of things we consider scarce enough to use economics on has grown a lot. That’s the paradox.

The oceans are still pretty big, but near-shore seas have economic zones, shipping lanes, fishing quota, pollution limits etc. They are clearly not big enough anymore to consider as an endless resource.

34

Chris Bertram 02.03.11 at 1:52 pm

I’m not even sure if it was Friedman, but there are quite a few Free to Choose videos on Youtube. John Roemer, of course, came up with the great title in response Free to Lose.

35

Erik 02.03.11 at 2:17 pm

Why, why, why, why, why, why, why, why do people continue to confuse ”capitalism” and ”market economy” – the are two completely different concepts.

What is “capitalist competition”? How would it change if the factory was owned by the workers instead of the capitalist? I don’t see why it would change one bit – and that’s why getting rid of the capitalist (in favor of market socialism) is a no brainer.

The other point, unrelated to “capitalism”(except by the probably different distribution of wealth), is whether an unregulated market economy will maximizes welfare. It probably (certainly) wouldn’t. But that’s a different topic. That’s equally problematic under e.g. socialism.

36

Erik 02.03.11 at 2:25 pm

P.s. I agree that the argument of “the origins are illegitimate” is kind of nonsensical – except in one situation, which I however frequently encounter.

Whenever someone argues that “he (yes – it’s always a he) certainly hasn’t agreed to some “social contract”” – I reply; “You really want to go down that road? OK. Then how can these things you call “yours” be yours? I haven’t signed up for it. … (followed by the argument of the origins)”

37

hartal 02.03.11 at 2:35 pm

Dr. Bertram:
Why don’t you read Cohen’s book on Karl Marx’s Theory of History to see yourself how he reconfigures or explicitly discards Marx’s theory of capitalist crisis? Then we can answer the question of whether Cohen’s Marx would actually be of much use to understanding or making sense of the economic events, post 2008. I have already argued that Cohen’s rather unpersuasive reply to the morally self-assured capitalist in this video misses the actually defensible argument that Marx made. Notice that you did not speak to that.
I was also rather bothered by the smug dismissals by many commentators here of Milanovic as someone so analytically challenged that he does not deserve a fair and full reading; that is why I suggested that some readings about the nature of third world poverty and global inequality should have been required for the posters here.
Perhaps you don’t understand what kind of academic you are that you will henceforth be censoring me?

38

hartal 02.03.11 at 3:17 pm

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39

Chris Bertram 02.03.11 at 3:29 pm

Right Hartal. Since I was Cohen’s student at UCL and have myself written on historical materialism, you’ll be unsurprised to hear that I have, in fact, read KMTH. I did say one comment and you made two. The second will therefore be disemvowelled. I’m not censoring you – you have the whole of the rest of the interwebs available for your thoughts. (You could even start a blog with lots of recommendations for us to read.) Also, see our comments policy.

40

hartal 02.03.11 at 3:30 pm

ls nt rptng th rgmnt n hs Thry f Hstry bk, Chn flts cptlst fr n “ncrsng tpt” prfrnc, bt ths s t flt cptlsm fr ncrsng tpt rrtnlly, nt fr t dng s pncttd by prtrctd prds f dcrsng tpt nd nmplymnt. Tht s, Chn lbrts cptlsm frm th chrg f nhrnt cnmc crss. t’s bd rdng f Mrx, nd t’s bd scl scntfc thry f cptlsm.

41

chad satterlee 02.03.11 at 3:58 pm

Well these pleasantly rare videos reignite the always thorny question of what the contemporary socialist / Left project should precisely be pursuing. All that viably remains, it seems to me, is the notion of industrial democracy. Politically, this seems most achievable through the state subsidisation of democratically-controlled firms, or worker cooperatives. (If such a viable alternative becomes reality, surely workers will leave capitalist firms in droves?)

As far as political philosophical justifications go, I suspect socialists and sympathisers may be able to mount a case for subsidising worker cooperatives by appealing not to a perfectionist argument in favour of the Marxian ideal of non-alienated labour (although I think that line has a lot of potential), but simply to the doctrine of liberal neutrality. That is, if we agree that the state should not endorse contested notions of the good life, then, since it already subsidises hierarchical capitalist firms, thereby making them artificially profitable over alternatively structured firms, it should subsidise democratically-controlled firms to make them a viable option for workers. Robert Nozick overlooks such dominance by capitalist firms when he asserts that, because we don’t see many cooperatives around, workers mustn’t value cooperative production in the way that socialists suggest.

As Cohen notes, there are obviously going to be lots of design conundrums. Even in a market socialist world where the state leases productive assets to cooperatives such that workers receive resources of roughly equal value, you are still going to have a (non-exploitative) managerial hierarchy that could potentially form its own political class and influence state policy. Roemer proposes a mechanism whereby workers can hire and fire managers to keep that in check. There is also the possibility of market monopolies arising and even exploitation occurring between cooperatives, which I guess could be rectified through taxation measures. The ultimate idea behind these firms, of course, is that workers should collectively decide how to distribute output; according to need or desert, or perhaps a combination of both. The obvious issue there is that I wouldn’t trust them to do so aptly without the guidance of a political economist / someone or thing skilled in optimisation.

But technical issues relating to design don’t detract from normative justification.

42

Myles 02.03.11 at 4:25 pm

Some of these conventions have since been questioned and rejected, and so there is no reason to insist that the rest of them are beyond reproach either.

would there still be a problem with it?

Women and slaves are capable of intelligibly communicating their disagreement with being privately owned. They are autonomous. Land (and as far I as am aware, cattle) are not. It’s not really a persuasive argument that the two are comparable as possessions. Herein lies the fact that land in and of itself has no autonomy, and some entity or another has to be sovereign over individual bits of it. Whether the entity exercising the sovereignty is “private” or not is entirely beside the point; the tragedy of the commons isn’t a tragedy of multiple ownership, it’s a tragedy of unclear and undefined ownership.

43

Griffin Bur 02.03.11 at 4:35 pm

Forgive me as I’m a lowly undergrad philosophy/polisci student and no Marxist (also not a hysterical Marx’s philosophy = Stalin’s policies type either, though)…but wasn’t that exactly Marx’s point, that the scarcity IS artificial? I’ve just finished reading selections of his for a class, and he certainly gives capitalism credit for its unprecedented ability to create a BUNCH of stuff. I think his critique is more that it doesn’t entirely fairly allocate said stuff. I’m fairly left of center but I don’t think anyone but the far right could claim that to be entirely false. Now, how often capitalism gets the distribution “wrong” is up to you – a Marxist will probably say “always, at least to an extent” – but very few will claim that capitalism is “bad at simply producing large amounts of things” or that “unfettered capitalism always distributes things as fairly as possible.”

44

Myles 02.03.11 at 4:35 pm

What is “capitalist competition”? How would it change if the factory was owned by the workers instead of the capitalist? I don’t see why it would change one bit – and that’s why getting rid of the capitalist (in favor of market socialism) is a no brainer.

The other point, unrelated to “capitalism”(except by the probably different distribution of wealth), is whether an unregulated market economy will maximizes welfare. It probably (certainly) wouldn’t. But that’s a different topic. That’s equally problematic under e.g. socialism.

Here’s a very simple answer: securitisation. Whoever thinks that a market economy is even desirable or would be efficient without capitalist ownership arrangements clearly hasn’t thought about the concept of securitisation at all. Capitalism arose in the same historical era when people started being able to securitise assets, and it is pretty much a function of the latter. It frees people from the land and the machine, so to speak. You can’t securitise in a market socialist economy, and thus by modern-economy standards the latter is useless.

45

Anonymoose 02.03.11 at 5:08 pm

The other point, unrelated to “capitalism”(except by the probably different distribution of wealth), is whether an unregulated market economy will maximizes welfare. It probably (certainly) wouldn’t. But that’s a different topic. That’s equally problematic under e.g. socialism.

Maximize it compared to what? If we take a theoretical utopian optimum with a benevolent all-knowing government able to internalize all externalities, then the answer is clearly no. A realistic case, however, must take into account useless lack of information, populist measures, corruption, idiot voters, idiot politicians, etc. Take the U.S. government for example: when GDP growth is positive, the fiscal multiplier is between 0 and 0.5. Add the tax multiplier on top of that, and it’s probable that for every additional dollar the government spends, GDP is decreased.

Which leads us to the question: is a small government, which fixes what it can fix while leaving the rest untouched, sustainable? Democratically, the answer is pretty clearly no. Perhaps a dictator would fare better, but that’s obviously problematic over the long term. As such I’m pretty sure an unregulated market economy will maximize welfare.

46

Erik 02.03.11 at 5:13 pm

@Myles
Are you talking about CMOs or some other form of “securitization”? Isn´t this a rather new invention (like post 1960:s)?

Anyway – why wouldn’t that be possible in e.g. Yunkers “pragmatic market socialism”?

47

Straightwood 02.03.11 at 5:21 pm

it’s probable that for every additional dollar the government spends, GDP is decreased.

The data don’t support this assertion. Since WWII, high US government outlays (and high tax rates) have been correlated with high growth. As Professor Krugman tirelessly observes, there is no factual support for the notion that government investment has been counter-productive. How many Enrons and Bear Stearns will it take to topple the invincible private sector myth?

48

Freddie 02.03.11 at 5:29 pm

Awful lot of commissars in this thread.

49

Erik 02.03.11 at 5:30 pm

@Anonymoose

You aren’t seriously denying externalities are you (or advocating the weaker form that government will fail so miserably that we might as well let anyone start e.g. a waste deposit wherever they please)?

But even as we go beyond the classical market failures – I think there exist a lot of additional issues.

I do not think society should be governed by some utilitarian technocrat king – but neither do I think that we all should be governed by the market. The market is the servant, the people is the king

There really isn’t even an half decent alternative to democracy.

50

Henri Vieuxtemps 02.03.11 at 5:31 pm

Myles 41, but humans had been intelligently communicating their disagreement with being owned for thousands of years, and yet general concept of owning people was commonly accepted, until recently. OTOH, nothing prevent humans from intelligently communicating their disagreement with private ownership of land and cattle either. Even on British TV, occasionally.

51

Salient 02.03.11 at 5:35 pm

Man, I’m glad \#37 didn’t get disemvoweled yet – Seeing some random internet troll attempt to excoriate Chris Bertram for allegedly not reading Cohen has got to be one of the funniest tone-deaf things I’ve seen on the ‘tubes in quite a while. And it’s the gear-up to U.S. presidential primary season, so that’s saying something.

Shmoo enthusiasts might like to know that Amazon currently has a few used $9 copies of the Li’l Abner Dailies 1948 volume, which (unlike some of the volumes with “Shmoo” in the name) contains most of Capp’s original Shmoo comics. These are sold by Powells, but not on Powells’ own website, as best as I can see. It looks like the folks who are republishing all of Capp’s work are covering about three years’ dailies per year, so it’ll be a while until these are newly republished, if ever.

(Thanks for posting these videos. Cohen is such a refreshing pleasure to listen to.)

52

Anonymoose 02.03.11 at 5:52 pm

@Straightwood

http://www.econ.berkeley.edu/~auerbach/measuringtheoutput.pdf

@Erik

Of course I’m not denying externalities. What I’m saying is that i) governments are not very good at fixing them because of politics, stupidity, lack of information, etc. and ii) the negative effects of government on the economy (taxation, corruption, bad regulation, etc.) outweigh the positive effects of fixing the externalities it can fix.

53

Myles 02.03.11 at 6:00 pm

Myles 41, but humans had been intelligently communicating their disagreement with being owned for thousands of years, and yet general concept of owning people was commonly accepted, until recently. OTOH, nothing prevent humans from intelligently communicating their disagreement with private ownership of land and cattle either.

The point isn’t how long people have been intelligently communicating their disagreement to own whatever, it’s that the two classes of assets you mentioned, slaves and women (not mutually exclusive), are autonomous beings in the modern consciousness; slavery was no longer acceptable once we have accepted the moral autonomy of the slave (antebellum slave-owners famously thought of their slaves as children, as an excuse to reject their moral autonomy).

Does property have autonomy? Clearly no. The question then is whether it should be owned by a person or klatch of persons (capitalism) or a less well-defined group or class of persons (non-capitalism). But that has literally nothing whatsoever to do with slavery or women’s rights, because the latter struggles were not about who owns them, or what form their possession took; it’s entirely possible (indeed, in the tribal days it would have been likely) that slaves were held by the collective community, but that offers no clarification whatsoever about the merits of capitalism, because it has nothing to do with it.

Unless you are proposing that we do not domesticate any cattle whatsoever (which is a fine position, but I don’t think you are advocating that) and release all animals completely from human ownership we are not talking about anything close to being parallel with the history of slavery at all; for anti-capitalists do not propose to rid themselves of all cows, but to rid of one class of cow-owners and replace with another.

54

Straightwood 02.03.11 at 6:07 pm

@Anonymoose

Where is the shining example of a thriving modern state with minimal government involvement? Your notion of an unfettered free market society does not seem to accommodate the mischievous behaviors of people like Rupert Murdoch and the Koch brothers. Your willingness to trust the motives of such players in preference to elected officials is as utopian as any socialist pipe dream.

Unfettered Capitalism is not self-regulating. It degenerates into stagnant plutocratic autocracy or destructive cycles of boom and bust. For the last 10 years, America has been a laboratory for the uncaging of the animal spirits of financial capitalists. The wreckage is all around us.

55

Erik 02.03.11 at 6:08 pm

@Anonymoose

Is this the case for e.g. Australia, USA, Sweden?

For whom in these countries does it apply – e.g. does it apply for a sick mother with three children? Does it apply for the poor in general? Does it apply for a rich person who happens to have a small preference for an clean environment, who prefeere not living next door to a waste dump or who doesn’t like to be extorted by his neighbor threatening to build one? Do you really think an unregulated market give pareto improvments to all (or any) of those above?

Does the regulations include material and nonmaterial ownership rights?

Are we facing an all or nothing choice? I.e. is the only way to get rid of bad policy to also throw out good policy?

56

Myles 02.03.11 at 6:09 pm

Are you talking about CMOs or some other form of “securitization”? Isn´t this a rather new invention (like post 1960:s)?

Anyway – why wouldn’t that be possible in e.g. Yunkers “pragmatic market socialism”?

Sorry I was a bit confusing. I was talking about negotiable instruments. The whole transformation of feudal society into a capitalistic (and modern) one transpired contemporaneously with Renaissance-era Italian bankers inventing negotiable instruments.

57

Erik 02.03.11 at 6:21 pm

@Myles

I still think you have to be a bit more specific if I am to understand why it wouldent be possible under market socialism.

Could you give a simple example?

58

bianca steele 02.03.11 at 6:23 pm

What I find odd, on the whole, is the apparent assumption that there was no landlord-tenant strife prior to capitalism and that peasants were never hungry. I’ve read some Marxist-tinged social science, and I don’t think this is the usual story. Dogmatic statements like “the leftist rejects Locke’s theory of the origin of private property before even having read Locke” are odd enough, the addition of such ahistoricism is downright bizarre.

59

Henri Vieuxtemps 02.03.11 at 6:23 pm

Fair enough Myles. Sounds like my case for “the origins are not necessarily legitimate, even if the original privatization was commonly accepted from the very beginning” is not very convincing.

60

Anonymoose 02.03.11 at 6:38 pm

@Straightwood

I was arguing against the possibility of such a state. And it does accommodate people like Murdoch. A large part of the inefficiencies created by government are in the form of protecting existing businesses against market forces that would wipe them out. Instead of only the possibility of economic power, they can now also wield political power, or at least influence it.

@Erik

The U.S certainly. Sweden to a lesser degree, as they’re smarter about what to tax and regulate (compare the index of economic freedom for the U.S. and Sweden; the Swedes have freer markets than the U.S.).

If you have a formula for creating good, stable government I would take it over free markets in an instant. Of course this is all theoretical, but yes I think it’s an all or nothing choice. Small and efficient government is not sustainable (see Tytlers predictions of the collapse of democracy for example; yeah he was wrong, but he erred on the direction of optimism). Even in the case of an enlightened people, with knowledge of history, politics, economics, etc. they will still vote for bad candidates due to the incentives involved. If we accept that, we are left to choose between free markets and big government. From a welfare maximization POV, I believe the former is preferable. Due to a personal taste for freedom, I find the former preferable. If you’re some type of egalitarian, then probably not so much. But that takes us back to the choice outlined in #11.

A good alternative would be rule by utilitarian technocrat kings, but is it even possible? Short of superhuman AI programmed not to respond to incentives, I doubt it.

As for the waste dump, why would anyone want to put a dump in a residential area? Real estate costs would be prohibitive.

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Myles 02.03.11 at 6:42 pm

I still think you have to be a bit more specific if I am to understand why it wouldent be possible under market socialism.

Well to be honest I don’t know finance well enough to give a detailed answer, but here it goes: securitisation is about assets. You can’t securitise collectively-owned assets, because then it wouldn’t be collectively-owned assets (i.e. demutualisation).

Think about the worker-owned factory. How is it owned? It is owned by the workers. Could the workers trade their slice of ownership for another piece of capital, say, a house, or a truck? No. When feudalism ended, the big emphasis was on disentail. What is disentail? It is the ability to sell the land in return for currency, so the owner can use the currency to invest in something else that is more productive and that thus generates greater income. Entail, in a sense, is the same economic arrangement as a worker-owned factory: the land generates rent, just as the worker-owned factory pays the individual worker a portion of its income. But the worker, in the theoretical ideal, cannot cash in on his stake in the worker-owned factory (which relies to varying degrees on capital stock, owned by the workers in gross), just as the feudal landowner cannot cash in on his land due to entail.

(to be cont’d)

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Anonymoose 02.03.11 at 6:51 pm

I believe that what Myles is trying to say is that if capital is not privately owned, it cannot be traded, and if capital cannot be traded then you lose the (somewhat) efficient allocation of capital which is basically what drives growth in capitalism. So you end up poor as hell, even with completely free markets otherwise.

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Myles 02.03.11 at 6:53 pm

By the way, I think a reasonable argument can be made that the modern Japanese economy isn’t very capitalist at all, even though it’s free market. Indeed it’s probably much, much closer to market socialism than the Nordic economies. After all, major economic assets in Japan don’t seem to be fungible at all.

(also to be continued)

64

Myles 02.03.11 at 6:56 pm

I believe that what Myles is trying to say is that if capital is not privately owned, it cannot be traded, and if capital cannot be traded then you lose the (somewhat) efficient allocation of capital which is basically what drives growth in capitalism. So you end up poor as hell, even with completely free markets otherwise.

Somewhat close to my point, yes. It’s important to point out that markets have existed since Mesopotamia, yet tremendous per capita economic growth only happened recently. To be continued.

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Myles 02.03.11 at 7:19 pm

(cont’d)

The concept of fungibility is that, you can substitute another asset for one asset of the same value. This is very important, I think, for capitalism.

It seems that in Japan economic assets aren’t actually fungible; theoretical valuations of assets and businesses exist, but they have less relation to the mechanisms of the actual Japanese economy. Predictably, it makes the stock market much less useful as an economic mechanism of exchange, because meaningful exchange isn’t actually happening.

66

Erik 02.03.11 at 7:19 pm

@Myles
“How is it owned? … Could the workers trade their slice of ownership for another piece of capital, “

Well I think there are about as many market socialist alternatives as there is market socialists – but, at least in more centralized versions, you usually can´t sell your capital and, at average, it wouldn’t even have a positive net value. The reason for this is that you would have a capital tax somewhere in the range of the average productivity of capital. I.e. the society makes the investments (through competing banks, investment companies etc., who in turn get some of the profit from their investments) and gets a rent on that investment. Also – you want inefficient companies to go under.

But it´s rather complicated to describe exactly what they (different market socialists) prescribe. You would have to read it.

The simplest (most similar to capitalism) is arguably Yunkers pragmatic market socialism. He essentially replace the capitalist by competing investment firms – who’s incentive structure and investment funds is decided through the democratic process. These investments firms would also decide on the management of the firms (so it is a VERY indirect form of socialism). They could also trade companies among eachother.The wider legal framework, e.g. taxes and regulations, would be determined as it is today.

PS. Most (all?) market socialist don’t want to forbid capitalist firms – in the same way as most capitalist countries wouldn’t forbid you and your coworkers to own your working place together.

67

Erik 02.03.11 at 7:28 pm

@ predicted objection
PS: No – I don’t think yunkers suggestion is state capitalism. China, Soviet etc. is state capitalism because the people don’t even have indirect control over the economy. But sure – it surely isn’t utopia either – not by a long shot.

68

phosphorious 02.03.11 at 7:34 pm

The argument s sound and powerful.

At a bare minimum, he forces capitalists to admit that the institution of private property should be judged on it’s consequences, and not on its absolute moral correctness, of which it has none.

69

Myles 02.03.11 at 8:04 pm

The simplest (most similar to capitalism) is arguably Yunkers pragmatic market socialism. He essentially replace the capitalist by competing investment firms – who’s incentive structure and investment funds is decided through the democratic process. These investments firms would also decide on the management of the firms (so it is a VERY indirect form of socialism). They could also trade companies among eachother.The wider legal framework, e.g. taxes and regulations, would be determined as it is today.

I think there’s actually a very good real-world parallel to what you are talking about, and it’s the keiretsu. It’s not exactly democratic, but I doubt democracy would make the outcome any better than it is now. It also happens to be, effectively, less capitalistic than some of your market-socialist proposals. And I would argue that a good part of Japan’s persistent economic problems are actually due to this kereitsu system, which really is the substance behind the capitalist facade of the Japanese economy, in which, strangely enough for a supposedly capitalistic economy, there is very little fungibility of productive assets.

70

Erik 02.03.11 at 8:10 pm

@Myles

Cool! Do you have any suggested reading?

71

Myles 02.03.11 at 8:23 pm

Cool! Do you have any suggested reading?

None. The Economist trafficks a lively business in jeremiads against the Japanese economic system, but I presume you want not wrathful jeremiads but actual information.

I think that your proposed investment-trust system is close enough to capitalism as to make little difference (indeed that’s what pension funds and sovereign wealth funds are), but it will have the same distortionary effect as the Japanese system in pushing private money toward real estate as the only reliable asset class. The most recent and obvious case is China, where newly minted millionaires have scrambled to take their money out of business and put it into Shanghai condos (that are sitting vacant), because they couldn’t trade their money into better productive investments.

72

Erik 02.03.11 at 8:56 pm

@Myles

From the little I read about keiretsu on Wikipedia, I saw that they apparently stagnated after Japan reached developed world status – but it didn’t really say why.

Also I don’t understand why it would force them to put money into real estate (which, by the way, a market socialist investment found probably shouldn’t deal with at all). They same thing happened in e.g. USA and most of Europe as well. But I also understand if you can’t explain it here – while core theory usually is clean and simple, the nuances of the real world of course aren’t.

And you are of course right in that such “socialism” would be kind of pointless.

73

Consumatopia 02.03.11 at 9:01 pm

One thing I liked about his argument on the legitimacy of capitalism is that it didn’t focus on the injustice of the original taking and usage (“what gave them the right, not merely to use the world, because that’s okay…”) but the intergenerational nature of what it was they took (“…but to establish permanent, bequeathable private property in it?”) It probably reflects my own naivete that I hadn’t thought enough about this, but the idea that moral human beings can claim a piece of the physical world for all eternity is kind of odd. The legitimacy of private property, then, isn’t about the individual making a claim against a community, it’s about whether the living should be compelled to obey the dead.

74

chris 02.03.11 at 9:28 pm

The legitimacy of private property, then, isn’t about the individual making a claim against a community, it’s about whether the living should be compelled to obey the dead.

I have sometimes felt that there’s no defensible moral or ethical argument against treating all inheritance and intrafamilial gifts as fully taxable income; it’s just that because of human instincts, such a system is politically impossible. Whoever you put in charge of a political system, they’re going to want to favor their own children over strangers, even if they know that it is unjust to do so.

Indeed, the moral argument against inherited wealth is so one-sided that practically every defense of wealth disparity as having some benefit to society starts with the implicit or explicit assumption that the wealth is self-made — even though this is the *minority* case.

75

Myles 02.03.11 at 9:49 pm

Also I don’t understand why it would force them to put money into real estate (which, by the way, a market socialist investment found probably shouldn’t deal with at all).

Real estate is where you put your money if you want it to grow but you can’t trust the economic system to take good care of your money if invested in business.

76

Myles 02.03.11 at 9:54 pm

(If you put your money in the Nikkei, you will be treated like dogshit and maximizing shareholder equity is probably the last thing on the keiretsu managers’ minds.)

By the way, the keiretsu were the heirs of the zaibatsu, which actually had a pretty feudal-paternalistic ring to them.

77

Anonymoose 02.03.11 at 10:02 pm

@chris

How could you possibly differentiate between inherited and gifted wealth? I can’t see any difference whatsoever between giving a homeless guy a dollar and giving your kids a hundred thousand. Unless you’re a utilitarian or something, but then inheritance is the least of your problems.

78

Erik 02.03.11 at 10:12 pm

@myles

But aren’t you then proving that the system will be inefficient by assuming it will be inefficient? And didn’t we see the same thing in the capitalist west?

Also: “feudal-paternalistic” – sounds like Japan alright?

79

chris 02.03.11 at 10:25 pm

I can’t see any difference whatsoever between giving a homeless guy a dollar and giving your kids a hundred thousand.

Aside from five orders of magnitude, neither can I — neither of the recipients did anything to earn it. Of course, the homeless guy is much more likely to need the money (although your kids might need *part* of it, if “kids” is really the right word you’re probably already providing them quite a bit of support in kind).

If 100,000 different people each give the homeless guy a buck, then he has an unearned income of $100,000 and should be taxed accordingly. But that’s very unlikely because if he really made that much, he probably wouldn’t stay homeless. (Although actually, a lot of the US homeless have major mental health problems, sometimes substance abuse too, and money might not be sufficient for them to find and keep housing, even if there’s some available on the local housing market.)

80

leederick 02.03.11 at 10:47 pm

“Does property have autonomy? Clearly no. The question then is whether it should be owned by a person or klatch of persons (capitalism) or a less well-defined group or class of persons (non-capitalism)… we are not talking about anything close to being parallel with the history of slavery at all; for anti-capitalists do not propose to rid themselves of all cows, but to rid of one class of cow-owners and replace with another”

What do you mean by property? You’re talking about it as if it’s some sort of tangible object – like a rock.

But it isn’t. Most lawyers think of it as a bundle of rights over what you can and cannot do. There are lots of these which range from the minor (the right to sue someone for copying your work) to serious (to shoot someone if they try and take something you have title to) or even more serious (to kill someone if they refuse to work for you). I think property ownership has a lot to do with slavery – as it’s all based on what the law allows you to do to other people in order to control capital. It’s not about ownership and objects.

81

Consumatopia 02.03.11 at 11:40 pm

the idea that moral human beings can claim a piece of the physical world for all eternity

I meant to say mortal human beings

82

Myles 02.04.11 at 12:00 am

I think property ownership has a lot to do with slavery – as it’s all based on what the law allows you to do to other people in order to control capital. It’s not about ownership and objects.

To own a cow is to own a cow. A cow is a cow is a cow.

That is all.

By the way, you just won the “most preposterous analogy about property rights” contest, flat. Property rights as slavery? Good grief.

83

Myles 02.04.11 at 12:17 am

But aren’t you then proving that the system will be inefficient by assuming it will be inefficient? And didn’t we see the same thing in the capitalist west?

That’s BS. In the West, when you put money in the NYSE, you are investing in companies that at least pretend to seek to increase the value of the bundle of money you just put in. Whether you believe it to be so is entirely beside the point. In the Tokyo market, you are putting the money in companies that explicitly do not seek to maximise shareholder wealth to anywhere near the same extent. Millions of people can believe that the listed companies of Nikkei will seek to maximise wealth, but that is not a belief based on reality. And indeed, it is a belief refuted by reality.

What we are talking about here isn’t what shareholders believe; what are talking about is what the corporate managers actually do, and what Japanese managers do is treat the object of growing shareholders’ money like dogshit, much more than Western managers ever would dare to do. This is an objective fact. And it has nothing to do with assumptions, because the entire structure of the Japanese economy is predicated on corporate managers treating shareholders like dogshit. That is a fundamental basis of the Japanese economy in its present form.

Also: “feudal-paternalistic” – sounds like Japan alright?

Try actually working for a large traditional Japanese company for a month and come back and tell me it’s not feudal-paternalistic.

84

piglet 02.04.11 at 12:25 am

I would be surprised if the money given to a panhandler wasn’t taxable income. Most panhandlers won’t make enough to owe taxes and the IRS presumably has other priorities – at least I hope it does – but in theory I don’t know why it wouldn’t be taxable.

85

piglet 02.04.11 at 12:38 am

“In the West, when you put money in the NYSE, you are investing in companies that at least pretend to seek to increase the value of the bundle of money you just put in. Whether you believe it to be so is entirely beside the point. In the Tokyo market, you are putting the money in companies that explicitly do not seek to maximise shareholder wealth to anywhere near the same extent.”

The US stock market hasn’t made any real (inflation adjusted) gains in more than 10 years. So the “pretend” is quite justified.

86

Erik 02.04.11 at 1:03 am

@myles
I wasn’t sarcastic about the Japan comment.

However – are you actually claiming that US and Europeans weren’t pumping money into the housing market? What planet have you been living on?

87

Adrian 02.04.11 at 1:19 am

It is not so much that there is any tangible difference in giving money to one individual over another, but there is a significant difference in authority which the giver has over how the money is spent. You exercise control over your children.

I see it as the inability for people to divest from themselves moral authority over other peoples actions and place it in some more explicitly/consciously structured institution e.g. welfare. Perhaps this is because they haven’t had much reason to be convinced that such a system could be created.

88

Myles 02.04.11 at 1:26 am

However – are you actually claiming that US and Europeans weren’t pumping money into the housing market? What planet have you been living on?

Ah. I rather carefully made no such claim. But the market in Japan was much more out of control. At one point the land underneath the Imperial Palace (2.86 sq mi) was more than all land in California combined.

And the U.S. and European markets haven’t gotten to the point where regular businessmen, of all stripes, have been putting a good chunk of their money into condos sitting vacant with no intention to ever rent them out. Condos as the alternative to stock investments and large savings accounts, basically. And the thing is, this is probably a wise move.

The US stock market hasn’t made any real (inflation adjusted) gains in more than 10 years. So the “pretend” is quite justified.

Over the longer term, the Nikkei has done far, far worse. Right now it’s impossible to judge, because we are in the middle of a trough.

Over the same decade, the Nikkei is down a third in nominal terms. The Tokyo market is basically a Potemkin village.

89

john c. halasz 02.04.11 at 3:26 am

@ 39:

So just what then is your assessment of G. Cohen’s account of “historical materialism”? I’ve not bothered to read it myself, but, from secondary accounts, I don’t care for it’s “vibe”. (Big hint: reductionist materialist determinism + technological voluntarism = Stalinism).
Hartal is a generally intelligent and literate commenter, from what I’ve seen, not just here, but on other blogs. I don’t think he deserves “disemvowelment” simply from academic pique.

90

Matt 02.04.11 at 3:45 am

I would be surprised if the money given to a panhandler wasn’t taxable income. Most panhandlers won’t make enough to owe taxes and the IRS presumably has other priorities – at least I hope it does – but in theory I don’t know why it wouldn’t be taxable.

I’m not a tax lawyer by any means, and I don’t know this for sure, but I believe the “gift exception” is pretty high- something like $30k/year that you can receive as a gift before it’s taxable. Is money given to panhandlers a gift? I’d guess so (it’s not for services, usually) but again, I’m not sure.

91

Matt 02.04.11 at 3:50 am

Well, a minute of googling shows why I’m not a tax lawyer- the gift exception is a bit more complicated than I say above, and depends on various factors, but the general point is that gifts are not taxed unless they are above a fairly large amount (I think now that it’s $13K per gift for a single person, but one can get more if the gifts are from different people) and I don’t see why money given to panhandlers wouldn’t count as gifts, from a quick look. Not that this is relevant to an of the main discussion here.

92

piglet 02.04.11 at 4:29 am

Hartal is a generally intelligent and literate commenter, from what I’ve seen, not just here, but on other blogs. I don’t think he deserves “disemvowelment” simply from academic pique.

Yep.

93

zamfir 02.04.11 at 9:00 am

@myles, I actually did what you propose above: work for a few months for a traditional Japanese conglomerate, founded in 1918. The head office in Japan was very Japanese, but as far as I could tell no more paternal-feudalistic as HQs get in general. According to the permanent staff, the previous non-Japanese owner was worse to work for in most respects.

Of course, they might restrict their feudalism to their Japanese subsidiaries and employees, but that wouldn’t make much sense in your explanation from their capital structure.

94

Myles 02.04.11 at 9:25 am

Of course, they might restrict their feudalism to their Japanese subsidiaries and employees, but that wouldn’t make much sense in your explanation from their capital structure.

They do restrict their feudalism to their Japanese employees, because otherwise they couldn’t have functioning Western subsidiaries. How many Westerners will sign up for 16-hour workdays, everyday, with one-day weekends, mandatory after-work binge-drinking with your workmates (if you are male), and with the prospect of karoshi thrown in, all for really mediocre pay by Western standards? If you are a Japanese employee working in Japan, tough luck.

In any case, I am not really understanding this part:

“but that wouldn’t make much sense in your explanation from their capital structure.”

I don’t quite see how much Japanese managers shit on their shareholders have to do with how much they shit on their own employees. Provided, they treat both like dogshit, but I don’t see the link. In any case, what I meant by feudal-paternalistic about the pre-war zaibatsu was in the Prussian-Bismarckian sense. My main point is that the whole concept of capitalism is completely missing in Japan. They might have a free market, a bunch of sweet electronics companies, but capitalism as an economic organizing principle is sort of just, missing, from big chunks of the Japanese economy. It’s all very odd to the Western mind, but if you want a real, live example of an economy where people don’t actually believe in capitalism and don’t operate along capitalistic lines, Japan is the one you are looking for.

This is why the Tokyo stock market is such a shit-show, because it does not reflect an underlying reality. The reason Japanese economic managers shit on shareholders is, simply, that shareholders don’t exist in how Japanese managers think about business decisions. They are superfluous. Thus the stock market is a foreign graft to give a capitalistic form to something whose content is not so.

95

ChrisOvarian 02.04.11 at 11:33 am

Can anyone point me towards Gerald’s explanation of what he might mean when he indicates that capitalism itself promotes unsatisfiable demand in order to perpetuate itself? I don’t doubt the effect, but I personally would apportion it to the part of human nature that seeks social prestige through material wealth and am interesting is what his take was. Thanks in advance.

96

smith 02.04.11 at 12:28 pm

@F. Blair

Being a capitalist at heart and conscience I still feel the need to remind you that North America was populated long before European settlers arrived, meaning the division of property among the newly settled was at the expense of those already established (even though the idea of private property was mostly unknown to Native Americans). I also doubt that “colonists had the opportunity to set up whatever system of property ownership they wanted”, as they were not a homogenous but rather conflicted interest groups. I dare to say that the emergent capitalist system was, among many other factors, a direct consequence of European heritage and culture.

97

Alfredo 02.04.11 at 10:50 pm

Can somebody send me the link to Cohen’s Against Capitalism video transcript. I would really appreciate it. Thanks in advance. My email is aluceromontano@gmail.com

98

Harold 02.05.11 at 8:51 pm

The United States gov. sold land at low prices to speculators who then re-sold it at a profit.

The Indian east of the Mississippi who had adopted farming and Christianity were forcibly ethnically cleansed from their lands, which were expropriated and sold to speculators. Even small farmers who bought land to settle on did it with and eye to re-sale (flipping).

Not a very edifying story.

99

Andrew Cooke 02.05.11 at 9:34 pm

This is great; thanks very much. Are there other people making clear, cogent, anti-capitalist arguments? I’d never heard of this guy – who else am I missing?

100

Andrew Cooke 02.05.11 at 9:49 pm

Just in case anyone else is asking the same – the Wikipedia page has a good list of books, related people, etc. http://en.wikipedia.org/wiki/Gerald_Cohen

101

Andrew Cooke 02.05.11 at 9:53 pm

In particular, http://en.wikipedia.org/wiki/Analytical_Marxism And I’ll shut up now.

102

bob mcmanus 02.05.11 at 10:51 pm

94:That’s a pretty extreme simplification of the Japanese economy, Myles. I would guess 60% of the Japanese economy isn’t connected to the keiratsu at all, even by subcontracting. The corner noodle-shop, which actually might be more typical, knows a little about markets.

And here is the Marxist Encyclopedia definition of capitalism:

“The socio-economic system where social relations are based on commodities for exchange, in particular private ownership of the means of production and on the exploitation of wage labour. “

I don’t really think that an sophisticated mercantilism or National System are disqualified. The ownership is concentrated enough in Japan, if disguised, that I feel safe in calling it capitalistic.

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LFC 02.05.11 at 11:08 pm

And here is the Marxist Encyclopedia definition of capitalism:

“The socio-economic system where social relations are based on commodities for exchange, in particular private ownership of the means of production and on the exploitation of wage labour. ”

This definition is syntactically ambiguous, stylistically awkward, and, in two words, a mess.

104

LFC 02.05.11 at 11:09 pm

sorry, the definition should also be in italics

105

bob mcmanus 02.05.11 at 11:32 pm

103:Thank you, grammar nazi, for missing the point

Commodities, private ownership, wage labour are in there. Shareholder democracy kinda ain’t.

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Myles 02.05.11 at 11:37 pm

I would guess 60% of the Japanese economy isn’t connected to the keiratsu at all, even by subcontracting. The corner noodle-shop, which actually might be more typical, knows a little about markets.

Yes, but I think that’s cheating a bit really, because the noodle shops don’t scale up. The corner noodle-shop doesn’t really need capitalism, and it exists in both capitalistic and non-capitalistic situations (I’m sure the corner noodle-shop existed even in ancient Mesopotamia). I think it’s rather important that capitalistic systems should ideally scale up, and the more “capitalistic” parts of the Japanese economy simply exist at a petty level and don’t scale up.

Working off the Wikipedia definition of capitalism (which is a bit easier to me to deal with):

“Capitalism is an economic system in which the means of production are privately owned and operated for a private profit; decisions regarding supply, demand, price, distribution, and investments are made by private actors in the free market; profit is sent to owners who invest in businesses, and wages are paid to workers employed by businesses and companies.”

There’s a few things that jump out when applying the above to Japan: “operated for a private profit” might apply to the noodle-shop, but it’s actually kind of incomplete in explaining the motivations of keiretsu-level managers.

But I think here’s a more fundamental point: “profit is sent to owners who invest in businesses.” What I have been going on about is that the concept of “owner” isn’t really extant in publicly traded Japanese companies. It’s there for the individual noodle-shop owner, but at a less granular level the concept is much fuzzier. It’s questionable if shareholders of large, publicly traded Japanese companies are regarded by their managers as owners at all, and once the idea of ownership is eased out, it’s rather hard to call it capitalism.

The problem isn’t really mercantilism or the National System (although Japan is mercantilist, and in the long run it’s not healthy even for the Japanese economy). The issue is that the conceptual logic of ownership itself, which exists in the National System or mercantilism (to varying extents), doesn’t really apply in the context of large, publicly traded Japanese companies that form what some have thought of as Japan Inc. When the law formally says that you own 1/5o, for example, of XYZ K.K., in publicly traded stock, but in fact the society within whose norms XYZ K.K. operates doesn’t actually regard you as a 1/50 proprietor of XYZ, but merely someone who happens to own that much in shares, there is a problem.

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Myles 02.05.11 at 11:46 pm

I think what’s interesting actually is to compare it with companies that have multiple share classes and multiple voting shares. You could say that even multiple-voting stock structures are more capitalistic than the Japanese system, as it’s an affirmation of corporate legitimacy deriving from some of the shareholding.

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Myles 02.05.11 at 11:50 pm

bob mcmanus @105:

Commodities, private ownership, wage labour are in there. Shareholder democracy kinda ain’t.

But I would argue that shareholder democracy is simply the joint-stock expression of private ownership, isn’t it? That absent shareholder democracy and the meaningful-ness of shareholding, how “privately” owned are joint-stock, publicly traded companies? In a sense they are more “owned” by their managers in their being public actors, by whose preferences they are directed.

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bob mcmanus 02.06.11 at 12:31 am

Myles, I have been working. One book I just glanced at calls the Japanese system “corporate capitalism” that essentially anthropomorphises (?) the corporation. And whether or not this is a neo-Feudalism (in the sense of custodial fiefdoms managed at bequest of the crown?) is interesting and important, especially because it feels like the US, for instance, is moving in the same direction. I see Morgan Chase as run more to the benefit of Jamie Dimon than for the stockholders, even JD doesn’t own Morgan.

My problem is that I have never focused on the forms of ownership as being central to capitalism, whether it be Rockefeller or a million shareholders, but on commodities, wage labour and capital accumulation and reproduction. And so the Soviet Union was called a “State Capitalism” system.

State Capitalism

State capitalism has various different meanings, but is usually described as a society wherein the productive forces are controlled and directed by the state in a capitalist manner, even if such a society calls itself socialist.[1] Corporatized government agencies and states that own controlling shares of publicly-listed firms, thus acting as a capitalist itself, are two examples of state capitalism. State capitalism has also come to refer to an economic system where the means of production are privately-owned and the state exerts considerable control over the allocation of credit and investment.

Within Marxist literature, state capitalism is usually defined in this sense: as a social system combining capitalism — the wage system of producing and appropriating surplus value in a commodity economy — with ownership or control by a state.

“capitalism — the wage system of producing and appropriating surplus value in a commodity economy” ..for another definition that shows the problem I have

If Japan is some kind of State Capitalism, Corporate Capitalism, or something else, you may have some difficulty with a class analysis. But there are rich people in Japan, so I think I can work with it.

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Myles 02.06.11 at 12:58 am

Yes, but I think it’s two completely different concepts.

Concept 1: businesses owned by the State, but operates in a capitalist, profit-maximizing manner. Describes the Royal Canadian Mint, various Chinese state-owned enterprises, various sovereign wealth funds. Operate like normal companies, except that the sole shareholder is a sovereign power.

Concept 2: privately owned business, but do not operate in profit-maximizing manner. In the case of Japan, keiretsu companies that are obsessed with market share (why? bigger factories, more employees, bigger company, more prestige for the managers) to the detriment of profit.

The former is capitalism, but even by your measures of “but on commodities, wage labour and capital accumulation and reproduction” or “the wage system of producing and appropriating surplus value in a commodity economy”, the latter is not capitalism. The only substantive difference between Japanese keiretsu companies and Yugoslavian worker-owned factories is that the former has the professional managers act as intermediaries. Surplus value is profit. Someone who seeks to maximize market share at the expense of profits, on a persistent, long-term, permanent basis, is not maximizing surplus value. That someone is the Japanese keiretsu company. Japanese companies are not capitalists.

How can you possibly be a capitalist if you don’t even seek to maximize and thus appropriate surplus value? That’s what the whole point of shareholder democracy is, to maximize profits and thus surplus value.

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Myles 02.06.11 at 5:15 am

By the way, this is really, really wrong:

I see Morgan Chase as run more to the benefit of Jamie Dimon than for the stockholders, even JD doesn’t own Morgan.

For 2010, JPMorgan Chase had profits of $17 billion on revenues of about $102 billion. If this is what “not running the company to the benefit of shareholders” looks like, I should like every single company in the world not the benefit of the shareholders.

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JJ 02.06.11 at 5:36 am

So what you all seem to be saying is that socialism and fascism are both transitory stages in the transformation of an agricultural, labor-intensive economy to an industrial, capital-intensive economy for those societies which are forced to compete with more mature capitalist countries by accelerating the transformation through warfare or revolution or, failing that, to become economically and culturally colonized by their capitalist competitors.

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zamfir 02.06.11 at 10:30 am

Myles, JP Morgan also gave out 800 million in dividends in 2010, out of that 17 billion in profits.

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Myles 02.06.11 at 12:10 pm

Myles, JP Morgan also gave out 800 million in dividends in 2010, out of that 17 billion in profits.

It still goes into stockholder equity and is (or at least should be) reflected in increased share values, doesn’t it? So it nonetheless is more or less maximizing profit for the (at least hypothetical) benefit of stockholders.

By the way, perhaps Bob McManus is right that Japan, like the Soviet Union, is a State Capitalist economy, but once you’ve defined yourself down to the Soviet Union the term is practically meaningless.

115

bob mcmanus 02.06.11 at 1:07 pm

the term is practically meaningless.

No, Myles, wage labour and commodification remain, and are very bad things.

I do want to thank you for making me think about where the surplus goes in Japan, and how important the surplus and ownership might or might not be. I don’t really know enough about G A Cohen to criticize him, but this appears to be another case of a socialism that focuses too much on the distribution of the surplus, and gets too close to welfare capitalism.

116

piglet 02.06.11 at 5:03 pm

I’m not really sure what Myles is trying to argue but I’m curious about this. A shareholder who has held JP Morgan shares for the last ten years has lost money despite the fact that JPM has, on paper, been fantastically profitable during that decade. Granted shareholders in many other companies lost even more money but still one wonders where all the profits went. And I’m not arguing that JPM isn’t capitalistic enough but the idea that capitalistic corporations are acting in the interest of shareholders is somewhat simplistic.

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Henri Vieuxtemps 02.06.11 at 5:18 pm

I think people who benefit most must be de facto owners, i.e. people who control it. Ordinary shareholders control nothing, so they mostly benefit coincidentally, and to the extent where their class-action lawsuit is not likely to succeed and harm the real owners.

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JJ 02.06.11 at 5:21 pm

Of course, communism and fascism are not simply transitory stages in the development of a mature capitalist economy.They don’t simply wither away and disappear once the wars and revolutions are won or lost. The purpose of the wars and revolutions are essentially the same: eliminate the surplus population that cannot be usefully applied to constructive industrial development. The transition from feudalism to capitalism (neo-feudalism) results in a corresponding transformation of the objectives of communism and fascism: communism for the rich and powerful, and fascism for the rest.

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Tom Womack 02.06.11 at 6:34 pm

Myles: I can see that a company like Shell, which pays out essentially all its profit in dividends, can count as run for the benefit of the shareholder. I can see that a company like ARM, which pays out no dividends but whose shares have gone up by a factor six over a decade, counts as run for the benefit of the shareholder.

But I don’t see how a company the price of whose shares has dropped over a decade, whilst not providing a dividend larger than the return you’d have got by keeping the money in a bank account, can remotely count as run to the benefit of the shareholders.

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Substance McGravitas 02.06.11 at 6:41 pm

Don’t deny the value of totems of success.

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Myles 02.06.11 at 7:52 pm

I’m not really sure what Myles is trying to argue but I’m curious about this. A shareholder who has held JP Morgan shares for the last ten years has lost money despite the fact that JPM has, on paper, been fantastically profitable during that decade.

Well, I just looked up the JPM stats, and the puzzle has been solved. There are essentially two parts to this.

The important part is the $800-million dividend figure is a temporary measure due to the financial crisis. It’s based on a quarterly dividend of ¢5 a share, or ¢20 a year. Before the crisis, however, it had been consistently paying about ¢34 quarterly a share, or about $1.36 a year. Which, on a stock price of around $40 or so, isn’t too horrible (although it’s not good either) and in any case much better than you could have reasonably expected in overall return from Japanese companies, as a shareholder.

Another thing is that JPM currently has a price/earnings ratio of about 11. In the long term, either the price rises or the earnings fall. I think the former is a lot more likely. With regard to Japanese companies, it’s not really the same situation. The fundamental matter is that Japanese companies aren’t very profitable at all.

I think people who benefit most must be de facto owners, i.e. people who control it. Ordinary shareholders control nothing, so they mostly benefit coincidentally, and to the extent where their class-action lawsuit is not likely to succeed and harm the real owners.

Entirely possible in the case of companies that used to be partnerships, although again, as with everything, it’s a lot worse in Japan where the very concept of maximizing profit (for anybody) has gone completely out of the window in favour of completely deranged schemes to maximize market share and company bulk and factory size.

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Myles 02.06.11 at 8:06 pm

I’m not really sure what Myles is trying to argue but I’m curious about this.

To be honest I am a bit lost too, but basically I think it’s imperative in the Anglo-American economies that at some point the companies answer to the shareholders. That’s the linchpin of the system. Without it Anglo-American capitalism is pretty absurd.

Which is why we see much stronger shareholder activism in the Anglophone world compared to in other countries, and why the SEC is so intent on providing proxy access for shareholders. And also perhaps why we have largely done away with dual-class multiple-voting shares (SEC had pretty much discouraged them heavily with Rule 19C-4). It’s no secret that minority shareholders that try to shake up management in Japan get a very bad reception, while in England and America at least the attitude is comparatively more liberal, at least when the management has done a particularly bad job. As meagre as our shareholder accountability is, it’s still much, much stronger than exists outside the English-speaking world (Foreign & Colonial, for example, has recently had its management kicked out on the initiative of the minority shareholder Sherborne Investors).

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Myles 02.06.11 at 8:17 pm

By the way, a pretty good example of the Anglo-American capitalism pushing back on Japanese-style, mindless management-aggrandizing rush for market share can be found in the current struggle between Oak Street Capital and Red Robin (the gourmet burgers chain).

Among the demands of Oak Street is one that might be relevant to the Japanese debate in particular: the request that Red Robin “stop opening new locations until the existing stores are profitable again.”

http://dealbook.nytimes.com/2011/01/24/activist-investor-oak-street-issues-demands-to-red-robin/

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bob mcmanus 02.06.11 at 8:21 pm

in favour of completely deranged schemes

Look, I am very far from knowledgeable about Japan, but even I know that a goal of achieving some kind of permanent stasis, balance, equilibrium, harmony where both a degradation of output or a possibility of breakout of destructive competition are minimized would be quite comprehensible. I would leave to others about whether this could be cultural (Japan has internal myths.) I guess this is far from unique to Japan, you have Herman Daly and steady state economics. Or Schumacher, looking at Wiki.

I don’t think Japan has intentionally moved to sustainable development since the disinflation, they have too many problems with inflated RE values and demographics, and there is still too much churn in production factors.

But I am considering that possibility, that with Peak Oil and AGW approaching, certain socio-economic structures are either naturally or intentionally being locked into place and stabilized, protected with efficiency, growth, mobility, and innovation sacrificed . This could include a 20% Pareto elite oligarchy, without any shifts between foxes and lions.

“history is a graveyard of aristocracies.” …Pareto

Fukuyama, F&^l Yeah!

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piglet 02.06.11 at 9:59 pm

<blockquote cite=""To be honest I am a bit lost too, but basically I think it’s imperative in the Anglo-American economies that at some point the companies answer to the shareholders. That’s the linchpin of the system. Without it Anglo-American capitalism is pretty absurd.

Maybe it is.

The fundamental matter is that Japanese companies aren’t very profitable at all.

If that is the case, does that speak for or against them? By the official numbers, US companies have “recovered” their profitability (http://www.good.is/post/corporate-profits-are-up-jobs-are-down/). Strangely, I don’t see many people celebrating. Of course we know about inequality and all that. But what is happening seems even worse than the usual. The premise that the capitalistic quest for profit maximization drives some sort of economic progress – a premise that of course most of us don’t believe in anyway – gets a bad beating from at least the history of the last decade.

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piglet 02.06.11 at 9:59 pm

To be honest I am a bit lost too, but basically I think it’s imperative in the Anglo-American economies that at some point the companies answer to the shareholders. That’s the linchpin of the system. Without it Anglo-American capitalism is pretty absurd.

Maybe it is.

The fundamental matter is that Japanese companies aren’t very profitable at all.

If that is the case, does that speak for or against them? By the official numbers, US companies have “recovered” their profitability (http://www.good.is/post/corporate-profits-are-up-jobs-are-down/). Strangely, I don’t see many people celebrating. Of course we know about inequality and all that. But what is happening seems even worse than the usual. The premise that the capitalistic quest for profit maximization drives some sort of economic progress – a premise that of course most of us don’t believe in anyway – gets a bad beating from at least the history of the last decade.

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Myles 02.06.11 at 10:22 pm

If that is the case, does that speak for or against them?

Well, I honestly don’t know if it speaks for or against them. I do know what the theoretical implications are for investment and so on, but I haven’t seen it in evidence. So I don’t know.

On the other hand, I would really fucking hate to be someone stuck investing in Japanese securities for one reason or another.

And I mean, you do have to look at a farther horizon. The Japanese economy has been doing a lot worse than the U.S. or European ones in the last two decades, and even in the last few years, one was nonetheless amused to find out whose economy fell the quickest when the economic crisis hit? Not the American or British one, but the Japanese one. So they always get the short end of the stick.

I don’t mean to treat lightly your point, but I think you’d be a somewhat more convinced by the merits of Euro-American capitalism if you were more familiar with just how bad things were in Japan even when the rest of the world was doing relatively OK.

Personally, I am not hung up about lecturing Japan about the evilness of its ways or whatever cause the Economist comes up with. I merely view Japan as another society who’s volunteered for a natural experiment in alternative economic systems. Which is fine. And especially so, given that if and when they fail, we will have learned the relevant lessons.

Amusingly, the millionaire former PM, Taro Aso, has all his money invested in land rather than investments in the productive Japanese economy (a $40-million Tokyo estate, for one). He seems to rather disbelieve in the Japanese economy himself.

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piglet 02.06.11 at 10:50 pm

My guess is that Japan has hit a limit on capitalist expansion earlier than the US has. That is a somewhat informal argument and needs to be fleshed out more but here’s a data point: 2000-2008 US per capita GDP increased 8.1%, Japanese 8.5%. The GDP figures are from OECD and they only go up to 2008. My guess is that we have reached the point at which developed economies transition to a low- or no-growth economy. After the demographic transition, the economic transition. I don’t believe that the 2000s will turn out to have been an outlier after which what most economists consider “normal growth” will resume. I think it is the new normality and Japan is perhaps doing a better job adapting to that new reality than our clueless political and economic elite here in the US most of whom are simply living in the past, unable to grasp the nature of the current crisis, hoping for a return to “business as usual”. The fake “profits” posted by companies like JPM (gosh, a 17 billion profit from 102 billion in revenue? How did they manage to beat Madoff??) are actually a case in point.

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Alex 02.06.11 at 10:54 pm

one was nonetheless amused to find out whose economy fell the quickest when the economic crisis hit? Not the American or British one, but the Japanese one

This was said about both Germany and Japan. It’s an artefact of being heavily export oriented. World trade tanked, Exportland did too. We heard a lot about how this showed the financial model was still great. Germany is now doing very well indeed. The people who said at the time that Germany was doing so badly, etc, now seem to be huge fans of Angela Merkel.

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Alex 02.06.11 at 10:57 pm

The fake “profits” posted by companies like JPM (gosh, a 17 billion profit from 102 billion in revenue? How did they manage to beat Madoff??)

Do you think a 10% gross margin is impossible and evidently fraudulent? Really? That’s far from obvious.

Of course, probably much of their asset base is shit and they should be bankrupt. But a 10% gross margin on operations? That’s about a fifth of Skype’s, for example.

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Myles 02.06.11 at 11:34 pm

Germany is now doing very well indeed. The people who said at the time that Germany was doing so badly, etc, now seem to be huge fans of Angela Merkel.

But Japan is decidedly not doing well, even now. Germany is rather different from Japan because of the Mittelstand, and also that its larger companies seem to be better managed financially than Japanese ones.

By the way, there are informal limits on corporate aggrandisement in Germany. There’s practically nothing restraining Japanese companies from endless and insane expansion schemes; after all, Japanese bankers are well-known for cravenly bailing out extinct dinosaurs if they go bust.

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Myles 02.06.11 at 11:39 pm

Do you think a 10% gross margin is impossible and evidently fraudulent? Really? That’s far from obvious.

And less than Apple’s, too. ($14 billion of profits on $65 billion in revenue) And nobody is about to go around calling Apple a fraud.

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piglet 02.06.11 at 11:48 pm

“Do you think a 10% gross margin is impossible and evidently fraudulent?”

I though that was 17%. And yes I think it stinks. Revenue has declined but profits jumped (http://www.nytimes.com/2011/01/19/business/19place.html).

All told, the banking industry’s profits rose to about $70 billion in 2010, with about $20 billion coming from the release of loss reserves, according to estimates by Foresight Analytics, a research firm. That is nearly a sevenfold increase in net income. Revenue, on the other hand, is down about 1 percent, to about $790 billion.

How are these profits “earned”? How do these guys manage to increase their profit margins during a recession?

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piglet 02.07.11 at 12:01 am

And less than Apple’s, too. ($14 billion of profits on $65 billion in revenue) And nobody is about to go around calling Apple a fraud.

Apple makes products that people want, and it has a brand monopoly on those products. People deliberately pay a higher price for the brand name. That explains a high profit margin. The banks? They all do basically the same thing. In a normal, competitive market, competition should drive banks’ profit margins down. But what happens is the opposite. Strange.

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Myles 02.07.11 at 12:05 am

How are these profits “earned”? How do these guys manage to increase their profit margins during a recession?

piglet, I advise you to try to keep track of the gradual retreat in your positions. First it’s claimed that Western companies don’t maximize profit anymore than Japanese ones and it’s all the same anyhow, then it’s claimed that it’s not at all benefitting shareholders, then it’s finally claimed that the profit is illusory. You are going around in circles, I seriously doubt you have any clue about the subject, and it’s pretty clear that at least some of your beliefs are propped up by sheer mumbo-jumbo.

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Myles 02.07.11 at 12:07 am

(Granted, this isn’t any more annoying than brash businessmen claiming to know all about forex and interest rates and swaps and so on, but it’s not that far off. There’s a reason investment banks don’t prefer to hire business/commerce graduates, and idiots not knowing their stuff is part of it.)

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piglet 02.07.11 at 12:30 am

“First it’s claimed that Western companies don’t maximize profit anymore than Japanese ones, then it’s claimed that it’s not at all benefitting shareholders” – Actually, what I said is:
- The US stock market hasn’t made any real (inflation adjusted) gains in more than 10 years.
- A shareholder who has held JP Morgan shares for the last ten years has lost money despite the fact that JPM has, on paper, been fantastically profitable during that decade. Granted shareholders in many other companies lost even more money but still one wonders where all the profits went.

Your response to that was that the Japanese stock market performed even worse, which I am not disputing but is beside the point.

“then it’s finally claimed that the profit is illusory” – I do think it is in the particular example of JPM, which was your example. You could of course have chosen to give the profit figures of some of those companies that are directly competing with unprofitable Japanese conglomerates. And explain why they sell so much more stuff to us than our experts in profit maximization manage to sell to the Japanese.

138

TGGP 02.07.11 at 1:11 am

Bryan Caplan chose to side-step the ownership of natural resources issue in Distributive Justice in a Pure Service Economy (which has more relevance than one might think since land and capital aren’t the source of as much income), but the second objection about leisure would apply.

I would have liked to hear him delve into why the firm reduces headcount rather than hours when demand is outstripped by productive capacity. It’s a perennial puzzle during recessions, and the sticky-wages explanation just doesn’t seem very intellectually satisfying (though it is the best answer I’m aware of).

In places his argument about the behavior of capitalist firms would seem to require some degree of collusion on their part (some sort of oligopoly theory). Would have been nice to have that fleshed out.

Robin Hanson argues that we don’t respect the wishes of the dead nearly enough.

139

piglet 02.07.11 at 1:15 am

“I would have liked to hear him delve into why the firm reduces headcount rather than hours when demand is outstripped by productive capacity.”

Kurzarbeit.

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Myles 02.07.11 at 1:20 am

And explain why they sell so much more stuff to us than our experts in profit maximization manage to sell to the Japanese.

Simple. As I noted before, Japanese industrial managers pursue market share and corporate bulk at the expense of profit. Thus, it’s dubious how much they are actually making off the stuff they sell to the West, because they don’t actually care that much.

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piglet 02.07.11 at 1:42 am

“As I noted before, Japanese industrial managers pursue market share and corporate bulk at the expense of profit.”

Or maybe they operate in a competitive market where profit margins are low because that’s what you’d expect from a competitive market?

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Myles 02.07.11 at 4:25 am

Or maybe they operate in a competitive market where profit margins are low because that’s what you’d expect from a competitive market?

This is fucking insane. I am talking about whole sections of corporate activities that are literally bleeding cash. This has nothing to do with margins. This has a lot to do with self-aggrandising Japanese industrial managers engaging in patently unprofitable activities.

Wal-Mart has low profit margins, but no one is about to accuse them of not caring about profits.

143

Substance McGravitas 02.07.11 at 5:15 am

This is fucking insane. I am talking about whole sections of corporate activities that are literally bleeding cash.

Is that performance bonuses for losing money and stuff like that?

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JJ 02.07.11 at 9:03 am

So the Japanese are pursuing market share at the expense of profits, and the Americans are pursuing profits at the expense of their laid-off or out-sourced employees. Fifty-two six-day workweeks of sixteen-hour workdays versus zero workweeks per year. The binge drinking, presumably, is constant and common to both cultures. The competition over which managers of which culture shit most efficiently on which workers must be fierce.

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Myles 02.07.11 at 10:22 am

The binge drinking, presumably, is constant and common to both cultures.

Spoken like someone who knows fuck-all about Japanese corporate culture. Perhaps it has not occurred to you that within Japanese corporate, binge-drinking after every workday isn’t a personal choice, or even a corporate or hierarchical one, it’s a societal imperative.

The competition over which managers of which culture shit most efficiently on which workers must be fierce.

Spoken truly like someone who has never heard of the term “freeter”, and certainly has never heard of the term dame-ren.

I am just amazed by the sheer, pigheaded stupidity of people who clearly have no fucking clue what goes on in Japan, yet feel qualified to opine ponderously on how great the Japanese economic model is, with no modicum of embarrassment at being exposed for their untrammeled ignorance.

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Myles 02.07.11 at 10:41 am

By the way, I am not unsympathetic to progressive critiques of the Japanese economy (especially Paul Krugman’s idea that what Japan needs at the moment is simply more inflation). But we’re kidding ourselves if we think Japan’s economy is otherwise structurally sound in any way, shape, or form.

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Zamfir 02.07.11 at 12:48 pm

Myles, aren’t you the one opinionating the most ponderously on the Japanese economy?

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piglet 02.07.11 at 3:43 pm

Zamfir, now you have given it all away!

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JJ 02.07.11 at 9:46 pm

“[F]ree{lance arbei}ters”? In other words: Arbeit macht frei. Forget about your cultural comparisons for a moment. After all, we’re all work-objects now. Industrial output depends upon the people who put out for the people whose freedom depends upon the work produced by the people they crap on.

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