Why Does Capitalism Which Delivers Fail to Inspire, While Socialism Which Does Not Deliver Does?

James Buchanan in his essay "The Potential and Limits of Socially Organized Humankind," published in The Economics and Ethics of Constitutional Order, poses the question --- how can it be that classical liberalism which promised simultaneously to achieve individual autonomy, generalized prosperity, and peaceful social relations (and basically achieved those more than any other system of political economy), proved to be so vulnerable to the critique of social justice?

Deirdre McCloskey often asks why there are no folk songs for capitalism the way there are for socialism?  Her book Bourgeoise Virtues provides ample evidence of the moral goodness of open markets as opposed to the horrors of state dominance in human history.  But people still distrust market processes and turn to the state to provide security and stability.

Why?

Here is a nice discussion of these matters.

Thanks to Arts and Letters Daily for the pointer.

Comments

[Steven Horwitz]

"Nice discussion" is an understatement. That is a *terrific* piece and one that would be very useful in the classroom, I'd think. Nice catch Pete.

[GuyF]

I think it's pretty obvious. The bad side of competition, innovation, specialization, new technology, etc. is that they can make your job redundant at any time, and so the threat of having your livelihood taken away is always there. The good side is that the prices of everything else gradually and practically undetectably go down while quality goes up, and that's just diffuse and hard to see.

[R M Daza]

This one has been on my mind recently. My first round of thinking says it has something to do with personal contra impersonal markets & mutual contra polycentric coordination (apologies to Klien, concatenate may fit but I have yet to internalized his paper). Both point to an increase in the level of certainty (used as a relative measure of trust) thus predictability, continuity, security, etc. Small homogenous groups are able to cheaply do this - as long as they can exclude. But isn't it predominately the large heterogeneous groups that wax poetic about socialism?

The state, as a common knowledge generating institution, is the best focal point to mimic the small. It can force homogeneity. However it lacks the same incentive structure. But that is no problem. For "maintenance," it can enact legal devices to create a separating equilibrium between cooperators and cheaters. Socialist norm entrepreneurs will assist.

The certainty, security, and trust that come from a internalized cost structure where deviation incentives are lacking are primarily due to homogenous preferences. Romantic notions distort the reality human diversity.

The future is uncertain. Capitalism can turn this into risk; socialism want to turn this into certainty.

[DPrychitko]

Pete, you more than anyone else will recall that I also asked the same McCloskian question back in about 1986. It is quite intriguing!

Also -- don't discount the grass is always greener argument. Okay, you say, but why didn't those in the statist regimes sing the greener grass tunes? Easy answer -- unlike here, the State over there didn't allow them to. "And that makes all the difference."

[Vedran Vuk]

Who hasn't asked this question???

A problem with saying "this system delivers" and "that system does not deliver" implies an objective scientific evaluation. However, this is not how things really work in the masses. People in labor unions are convinced that they are responsible for raising wages in the past one hundred years. In their viewpoint, collective behavior and anti-competition has delivered.

Further, the same as we point out that something failed because it was not privatized enough (a recent topic of debate on this blog), socialists themselves constantly make the same argument that government did not have enough control. There are a million excuses out there. The Soviet Union only failed because leaders were corrupt or they spent too much time building weapons instead of Utopia....etc.

Delivering and not delivering is in the eye of the beholder. It is not that people know that communism has not delivered but rather that we still haven't fully proven to the average Joe that socialism in all aspects does not work.

[Mark]

How about the fact that classical liberalism and market capitalism is premised on no utopian ideals. It defends a process without promising no specific outcome for idealists - and political opportunists - to hang their hat.

[matthew mueller]

This is a very good topic. It is important that classical liberals and defenders of market capitalism state their position clearly and completely. Once this is done, it will be seen that their support of free markets comes from the impenetrable belief in "self-adjusting" economic forces. Any deviations from this ideal are summarily blamed on outside or external interferences, whether it be Jevons' Sunspot Theory or Rothbard's theory of rapacious government.

One can easily dance intellectually with Quine on this point and insist that their theory is perfect and irrefutable, for any contradictory evidence is the result of exogenous and perverse influences that impact adversely the otherwise equilibrating and well-functioning market economy.

Now Hayek's contributions to the defense of a free market economy are profound, and to this day have not been adequately appreciated. He correctly understands the essential role law plays in the development and exercise of market activity. Indeed, the market cannot be discussed independent of the surrounding legal environment. This, in my view, is the "Achilles Heel" of laissez-faire, and more imporantly, Austrian economics.

Instead of repeating endlessly the pronouncements of Rothbard and Mises, I think we would do well to respond to some of the more devastating criticisms by opponents of market capitalism and the "neutral and evolving" rule of law that supports and sustains it.

Theodore Burczak wrote an excellent book entitled "Socialism After Hayek" and refutes completely Hayek's account of a just and efficacious legal system. Dr. Horwitz wrote a review of this book, but concentrates his efforts on attacking Burczak's case for socialism rather than responding directly to his criticisms of Hayek's account of the rule of law. Again, if Burczak is right, that does not mean we should all drop what we are doing and embrace socialism (which seems to be what Horwitz is implying). Instead, we should head back to the drawing board and try to improve Hayek's account of spontaneous order.

To conclude. Economic forces or laws depend to a large extent on the existing legal milieu. For this reason, economists should base their defense of markets on a legal system capable of accomodating their theories of market forces. Similarly, opponents of markets should follow Dr. Burczak's lead in this respect and show how their defense of markets is inconsistent with their account the legal rules responsible for securing efficient economic outcomes.

[dg lesvic]

"How can it be that classical liberalism...proved to be so vulnerable to the critique of social justice?"

Remember that it wasn't always so, that "classical liberalism" was once triumphant over "the critique of social justice."

What turned its triumph into defeat?

Its triumph was that of economics.

Before the advent of economics, "Social problems were considered ethical problems...The discovery of the inescapable interdependence of market phenomena overthrew this opinion. Bewildered, people...learned with stupefaction that there is another aspect from which human action might be viewed than that of...just and unjust...the 'industrial revolution' was an offspring of the ideological revolution brought about by...the economists." Mises

And they did it with plain English, the language of amateurs, for that's what they all were in those days. There were no professional economists. Even the university professors of economics were but semi-pros, teaching it along with other subjects such as Law, Ethics, and Philosophy. It was not until they were able to mystify and complicate it with mathematics that they were able to dominate economics and alienate it from the public. It is no coincidence that, as it advanced in the universities, it declined in the world. For the real job of the economics teaching profession was not to teach but professionalize economics, to put it beyond the reach of amateurs, and reserve it, like a dead language, for academic specialists.

So, as the world gained a profession, it lost a science. And the lost message of economics was that of economic freedom.

The message was not complete. Economics was triumphant so long as the focus was on production, but faltered once it shifted to "distribution." That was its Achilles' Heel, and remains so to this day. It is the issue above all that we must face, not the "pet project" of one man, as we have heard so often here, but "the crucial issue on which the whole character of future society will depend," as we heard from Hayek, the forgotten man of the Austrian School.

[Vedran]

dg lesvic,

I like your points regarding the isolation of academic economics from the masses. Many advocate focusing all efforts on taking over academia in order to push some societal movement

These thoughts, in my opinion, are headed for the wrong direction. Look at other academic fields which are predominantly conquered by the left such as sociology .

The radical left has conquered academics, but their ideas are still under represented amongst the average citizen showing that perhaps academics is not such a powerful route to change as we would like to believe.

[dg lesvic]

It is indeed not a "powerful route to change" but an obstacle in its path.

[Brian Pitt]

Matthew: It is nice to see that you are reading some contemporary Austrians. Also, I believe that you could not be more right. Classical Liberals have not done a great job in interpreting the wonders of the marketplace; partly due to their lack of focus on how individuals are empowered by the structure of the market. Here it is Black History Month, and nary an historian/politician/etc. has spoken about how the marketplace empowered the Montgomery Improvement Association. While the courage of the folks in Alabama is to be lauded, without the institutional incentives of the marketplace, the boycott is another of over a half-dozen failed boycotts.

To the star-studded list of names on the Intellectuals and Socialism, I would like to add Bertrand de Jouvenel. de Jouvenel states, "in every condition of life and social position a man feels himself more of a man when he is imposing himself and making others the instruments of his will, the means to the great ends of which he has an intoxicating vision." And classical liberalism is the near diametric opposite of this...that's my answer why.

[Ron B]

While there are complex explanations at a very basic level people want to believe we are in control of our lives, socialism offers the hope that we can control our destiny, capitalism offers the "invisible hand" of the market with uncertain outcomes. Unfortunately, many people find this an easy choice.

[Steven Horwitz]

Ron: why are so many who think that way about the social world so easily able to accept our lack of control over the natural world? The same leftists who want to control the social world are the ones who have no problem with Darwinian or ecological models of spontaneous order.

See my thoughts on this here: http://hnn.us/blogs/entries/19793.html

[Ron B]

Steven: I am afraid that they are no longer content to think that way about the natural world, I believe that much of the support for the environmental movement and specifically global warming comes from leftist who are frustrated over the failure of socialism, i.e. the fall of the soviet union, and need a new cause in which to direct their energy. What better cause than "controlling" the climate and saving the world from itself. Now that I think about it isn't that what socialism is/was supposed to do, save us from ourselves? It seems now they are unable to appreciate social or natural snowflakes.