Evolution of Capitalism, Essay Example

According to Kaletsky (2011), the main purpose of Capitalism is to develop an economic model that will be better-off than the last one due to new technology, globalization and social changes opportunities. An important task will be to understand “that governments and markets can both be wrong and that sometimes their errors can be near-fatal” as well as that the world we are living in “is too unpredictable and complex to be managed by any immutable institutional structure”. That fact implies that business and politics can collaborate and “it creates scope for leadership, creativity and experimentation” in both areas (Kaletsky, 2011). “If markets and political institutions are both recognized as fallible, the rational response must be willingness to experiment and a preference for reversible policies and business decisions, initially conducted at a modest scale and in a decentralized way.”

As stated by Kaletsky (2011), capitalism is taking the private economy and the government into a closer relationship. It is known that governments and markets make mistakes due to complexness and unpredictability. “The ability to operate by trial and error, to correct mistakes before they do too much social harm, is the greatest virtue of the market system.” Banking crisis and financial cycles are likely and returning features of any market system. In the future, “governments and central banks will have to take greater responsibility for managing growth and employment”. Additionally, they will have to focus on preserving financial stability (Kaletsky, 2011).

Even though the government will get greater responsibilities and influence, its size will start decreasing. The economy will be in need of more private financing and “education is likely to become more market-driven”. Just after the crisis, politicians and central bankers realized that they could, for instance, keep zero interest rates for long time periods, that public spending could be directed toward infrastructure and job creation and that export-led growth could be promoted by managing exchange rates. Thus, they understood they had “powerful tools at their disposal to boost economic growth”. It is important to keep in mind “that capitalism is prone to crisis, clouded by uncertainties, and dependent on government support for its survival”.

Kaletsky (2011) suggested that currency crisis, monetary inflation and rising interest rates will be easier to handle during the fourth stage of capitalism than during earlier stages. As soon as politicians and voters understand that an interaction between every aspect of policy is unavoidable, economic objectives will be managed in a more complex way. “The polarized dichotomies between the monetary and the real economy, between responsibilities for inflation and unemployment, between the aims of macroeconomics and microeconomics, will no longer make sense.” Central banks will be obliged to aim at numerous targets at the same time. Even governments “will have to accept much wider responsibilities”; growth has to be balanced internationally. Thus, under Capitalism 4.0 more effort will be put on greater complexity, broader political responsibility and tighter constraints (Kaletsky, 2011).

The Six Fallacies by Friedman

Fallacies of Relevance IV

An argument against the person (argumentum ad hominem) occurs when, rather than responding to the substance of someone’s argument, a would-be objector directs our attention instead to the person doing the arguing.

There are several types of ad hominem arguments:

– Ad Hominem Abusive:

Before he died, poet Allen Ginsburg argued in favor of legalizing pornography. But, Ginsberg’s arguments are nothing but trash. Ginsberg was a marijuana-smoking homosexual and a thoroughgoing advocate of the drug culture.

– Ad Hominem Circumstantial:

The Dalai Lama argues that China has no business in Tibet and that the West should do something about it. But the Dalai Lama just wants the Chinese to leave so he can return as leader.

Naturally he argues this way. So, we should reject his arguments.

– Tu Quoque (“you too”):

Child to parent: Your argument that I should stop stealing candy from the corner store is no good. You told me yourself just a week ago that you, too, stole candy when you were a kid.

Cautionary Remark: Ad Hominem is fallacious only if it aims to criticize a person’s argument by criticizing the person. This may not be the aim . . .

If the aim is to criticize the person, then there may be no fallacy at all. Osama Bin Laden planned the destruction of the World Trade Center, killing thousands of innocent people, and he supports terrorist causes all over the world. Bin Laden is therefore a brutal and violent person.

Here’s a more subtle example:

Mickey testi?ed that he saw Freddy set ?re to the building. But, Mickey was recently convicted on 10 counts of perjury, and he hates Freddy and would love to see him sent to jail. So, you shouldn’t believe Mickey’s testimony,

Fallacies of Relevance VI

The straw man fallacy is committed when an arguer (1) distorts an opponent’s argument, making it easily refutable, (2) refutes the distorted argument, and then (3) concludes that the opponent’s original argument has been refuted.

– Ms. Volmer has argued that we reduce the speed limit on our freeways to 55 miles per hour. Using her logic, we should go a bit further and reduce it to 35. Then we’ll just be crawling along. Think of the massive traffic congestion we’ll have. Total gridlock! I think we can all see that Ms. Volmer’s argument is a bad idea.

– Mr. Rankin has just given his argument against affirmative action for women. What he’s really saying is that women should stay out of the work place altogether — just keep them barefoot and pregnant! I think we are all smart enough to reject that argument.

Typically, the creator of a straw man will try to make their opponent’s argument sound more extreme or more controversial than it really is.

Fallacies of Relevance VII

The red herring fallacy is committed when an arguer diverts the attention of the reader by changing the subject to a different (maybe subtly related) one.

– The Auto Advisor column of the newspaper says that the Chevy Corsica is a great car. But the column fails to mention that General Motors executives make millions of dollars. Nobody deserves to be paid that much. In fairness, people should be paid according to the amount of work they do, and none of those executives does any more work than the average guy on the assembly line. Clearly the Auto Advisor is out to lunch.

– Animal rights activists say that animals are abused in biomedical research labs. But consider this: Pets are abused by their owners every day. Probably 25% of pet owners should never get near animals. Some cases of abuse are enough to make you sick.

Fallacies of Relevance VIII

An arguer is guilty of missing the point (ignorantio elenchi) if the premises of their argument support one (identi?able!) conclusion, but then they infer a di?erent (sometimes vaguely related), and illogical conclusion.

– Wage earners cannot currently live on the minimum wage. Therefore, the minimum wage should be abolished.

– Grade school children these days can neither read nor write. Clearly, prayer should be returned to the classroom.

You should always be able to identify at least one statement which the premises seem to logically suggest as an appropriate conclusion.

In cases of red herring and straw man, the conclusion drawn by the arguer is relevant to the premises they cite (it’s just that the premises they cite have nothing to do with the original argument!). Not so with missing the point.

Missing the point is sort of a ‘catch all’ category for fallacies of relevance. It is a ‘last resort’, if one cannot ?t a fallacy into any of the other categories.

Fallacies of Ambiguity

The fallacy of equivocation occurs when the conclusion of an argument depends on the fact that a word or phrase is used in two di?erent senses.

– Ms. Thomas said that she never swears. But she was just sworn in as a judge. Apparently Ms. Thomas does not tell the truth.

– Dense objects tend to sink in water. But Michael is incredibly dense. In fact, he never made it out of grade school. Therefore, Michael should stay out of the water.

The fallacy of amphiboly occurs when the arguer misinterprets an ambiguous statement and then draws a conclusion based on this faulty interpretation. The ambiguity usually arises from a mistake in grammar or punctuation.

– Christine said that she painted her picture hanging on the wall of her bedroom. Obviously Christine is quite an acrobat.

– Cyndi said that she saw a man walking a dog through her window. Clearly that man should be charged with animal abuse.

Fallacies of Grammatical Analogy

The fallacy of composition occurs when the conclusion of an argument depends on the erroneous transference of an attribute from the parts of something onto the whole.

– Each atom in this table is invisible to the naked eye. Therefore, the table is invisible to the naked eye.

– Carbon and oxygen are nonpoisonous elements. Therefore, carbon monoxide, which is composed exclusively of carbon and oxygen, is nonpoisonous.

The fallacy of division occurs when the conclusion of an argument depends on the erroneous transference of an attribute from a whole onto its parts.

– This chocolate cake is delicious. Therefore, each of its ingredients should be delicious.

– This nylon rope will withstand a load of 1000 pounds. Therefore, each strand in the rope will withstand a load of 1000 pounds.

PILLARS OF CAPITALISM

The First Pillar: Say’s Law.

According to Milton Friedman (1962), this is named for a key insight credited to a great French liberal of the 18th and early 19th centuries named Jean-Baptiste Say. Economist George Reisman, in an interesting article, makes a good argument that this insight was actually first made and enunciated by James Mill, father of John Stuart Mill. However, Say is the one who has, historically, received credit for it, and given that influential forces such as Keynesianism claim to have “debunked Say’s Law,” the advocate of liberty would be better served by knowing its usual name: SAY’S LAW.

This pillar supports the following claim: at root, all economies really function as barter economies; “money” is simply a generally accepted intermediary, or “medium of exchange”, so that, in the final analysis, goods ultimately exchange for other goods. So, if we abstract away money for the sake of analysis, we notice the following:

I can only purchase someone else’s supply of goods if I have produced my own supply of goods with which to trade. Or in other words:

The things I produce — my SUPPLY — are also my DEMAND. My supply (the thing or service I produce) is also the very thing that I require to exchange for someone else’s supply (the thing or service he produced). So, at root, my supply is the same thing as my demand (“demand”, of course, in economics, is not need, nor is it want or desire; it is my “purchasing power”, the thing or service that I make available for an exchange. If I have NOTHING to trade, I have ZERO DEMAND, even if I am starving, or even if I am greedy).

Well, for one thing, it means that, as long as I, and the rest of those in society, are producing “supply”, there can by definition never be a shortage of demand — because demand and supply are the same thing, just looked at from two sides of the exchange. Obviously, then, in order for there to be a “shortage of demand”, there would have to be a “shortage of supply” — as occurs, for example, after a major war in which the economy in question has been all but destroyed.

Uses of Say’s Law:

When a Keynesian like Paul Krugman claims that the problem with the U.S. economy (or the Japanese economy) is “insufficient demand”, you can immediately translate it into plain English: if there’s a lack of demand, then, according to Say’s Law, there must by definition be a lack of supply. So we need to ask ourselves: “Is it true that in 2011, we have a lack of supply? Does the U.S. economy have less supply — fewer goods and services — today, than we did, e.g., 20 years ago?” Answer: Don’t make me laugh. OF COURSE we don’t have fewer goods and services! We have everything we had 20 years ago, PLUS we now have PCs and iMacs and BlackBerries and iPhones and iPads. We have more and better pharmaceuticals; we have more produced; etc. So, since there is no lack of supply, there CANNOT BE a lack of demand — because, according to Say’s Law, at root, “demand” and “supply” is the same thing. Which economies truly have insufficient demand? Obviously, those economies that have a gross insufficiency of supply — e.g., Cuba, North Korea, Sudan, — economies that cannot produce themselves out of a paper bag, let alone actually produce paper bags (Friedman, 1962).

The Law of Comparative Advantage

This second pillar of capitalism upholds all arguments for free trade, and was originally enunciated by one of the founders of the British Classical School of economics, David Ricardo. I should mention that just as Einstein made important corrections to Newtonian mechanics that applied within a certain narrow context, so too did Ludwig von Mises amend Ricardo’s fundamental insight that also applied within a narrower context Mises, in fact, renamed it “The Law of Association”. However, the common name for the law is still the traditional one, so that’s the one that will be used in this explanation.

This pillar supports the following claim:

Even if country A is superior to country B in producing two goods because of the former country’s lower costs, higher productivity, greater efficiency, etc., it is still economically rational that is, it will lead to an overall greater amount of wealth for both countries — if country A focuses its productive resources only on producing the one good with which it has, comparatively, the greatest advantage, letting country B focus its productive resources on producing that particular good with which it is least disadvantaged compared to country A.

A better name for the Law of Comparative Advantage might therefore be “The Law of Comparative Least Disadvantage.” All right. Maybe it’s not a better name. Anyway, here’s a micro-economic example of the law in action:

Suppose you are a brain surgeon. You add a lot of value to the economy because a person is understandably willing to part with lots of wealth, if need be, to have you save his life. Obviously, the more brain surgeries you perform, the greater “service” you perform for your community, and the more value you bring to the economy as a whole. It’s not just that you, the surgeon, will get richer; it’s that the entire economy is better off, the more surgeries you can offer and perform (Friedman, 1962).

References

Kaletsky, Anatole, Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis, 1^st edition, Bloomsbury Publishing Plc, London, 2011

Milton Friedman, Economics of Monetary Union, 8th edition, Oxford University Press, New York, 1962

Branden, Internationell ekonomi, 2nd edition, SNS Förlag, Stockholm, 2008