Wednesday, July 30, 2008

Defining Capitalism

Catholic (and other) discussions about economics are often clouded by ambiguities of language. The word "capitalism" is especially problematic. It seems to me that capitalism is routinely used with at least the following three definitions:

1. A free-market economy, in which prices are driven by supply and demand, rather than moral or legal imperatives

2. An investment economy, in which "capital" is separated from labor, so that I invest my money in, and make money from, someone else's work

3. A cultural mentality in which nothing matters except profit

These definitions are different, but related -- and therein lays the trouble. The distinction between the last one and the first two, I think, lies in the difference between believing the market is something, and believing the market is everything. Critics of capitalism, I think, tend to reject, or seem to reject, the market (1) and investment (2) because they think it is identical with a materialist mentality (3).

But defenders and practitioners of the market and investment tend to overstate their case in such a way that they seem to be promoting this mentality. They do this either for reasons of argument (trying so hard to get their interlocutors to admit that capital is something that they seem to make it everything) or for pragmatic reasons (a businessman's job is to make the market work, so he tends to speak in exclusively market terms). Either of these practices may incline the market-man to the materialistic mentality -- but he may also be pushed in this direction when those who preach economic morality seem to deny that the market is anything at all, and thus deny a very real good. In any case, we do well to distinguish.

The market is something (in defense of the first position above). Prices are not merely a means of sticking up for number one, but a way of coordinating information. For example, I was recently talking to a friend of mine who is a civil engineer. He works with water utilities for municipalities. He's a smart guy, and it's smart work, and I think he sort of enjoys it, but he doesn't live for it. He lives for his family, and designing water utilities for municipalities is a good way to support his family. The price mechanism makes sure someone is willing to do that job. My friend likes his job alright, but if they paid much less, he'd do something that better provided for his family. On the other hand, if he charged much more for his services, they wouldn't be worth it to the cities who hire him. They negotiate a price in order to make sure the services they need are available; because both parties enter freely into the bargain, they can establish a price that works for both of them. It's not about selfishness. It's about finding a price that satisfies both parties.

(Romantics sometimes like to think that in the good old days, farmers just worked because it was fulfilling. I think -- and I hope -- that farmers worked because it provided for their family. Part of that provision, to be sure, was decent work. But most of it was getting enough for more important things. A subsistence farmer farms till he has enough, then quits. So does my engineering friend. True, a farmer might decide to plant corn instead of soybeans because picking corn seems less back-breaking -- but my engineering friend has far more options than the old-time farmer: he stays in this line of work precisely because he does not find it dehumanizing.)

Our local co-op has smoked trout from a farm in Wisconsin. It's good. I wouldn't pay $100 for it, but the price is reasonable, so we get it and put it on bagels for breakfast. On the other hand, someone has to produce that trout, and someone has to make it available. If the farmer, and the smoker, and the truck driver, and the people who run the store don't all get reasonable pay for that smoked trout, it isn't going to be worth it for them. The price I pay at the co-op actually coordinates an amazing amount of information: what the trout is worth for me, what it's space in the store is worth for the co-op (who must pay the builders of their building, the providers of their utilities, the clerks at the counter, and the managers who manage it all), what it costs for the truck driver to get it to Selby Ave. from northwestern Wisconsin, what it costs the smoker to smoke it, what it costs the farmer to produce it, and more.

The example is useful, I think, because it shows the complexity of economics. It's easy to talk in abstractions about what the cost of fuel, or food, or rent, or whatever, should be. But what should the price of smoked trout be? It really depends on what it's worth to all the parties involved. How much am I willing to pay? There might be a trout farmer who just lives for trout, and would be willing to produce it even if he could barely scrape by. There might not. That is hugely significant to what the price of trout will be. There might be a truck driver who is already going that direction (Star Prairie, Wisconsin, is not too far from the Twin Cities, but it is in the middle of nowhere), and there might not. That matters. There might be people who just love to drive, and there might not. The market is a way to coordinate this information.

How else can we determine a "just" price for smoked trout than by asking each person along the line, what is it worth to you? If the truck driver can find enough business, and get a good enough cut from it, to make that drive worth it to him, then we have a driver. If not, then we either have to press one into service, or do without smoked trout. The price mechanism -- the market -- is the only way to coordinate all that information. As Friedrich Hayek said, the free market isn't the opposite of "planning." It's just the greater defusion of planning: it allows all the players in the game -- all the people considering a career in trout farming, or truck-driving, and all the people considering what to have for breakfast -- to participate in that planning, and coordinates their decision. The price mechanism is a beautiful thing.

It is not a mercenary thing. The example of smoked trout brings out the complexity of the market. Not everyone wants to be a trout farmer. But maybe someone does, and he needs enough money to make it work for him and his totally unique situation. I'm now working as a blogger at a bookstore: and I need enough money for me to say that this cool job is worth it; if I thought my particular family couldn't live what we consider a dignified live on this wage, I'd be willing to consider working for the IRS. Not everyone wants smoked trout. And you know, if people aren't willing to pay $15/lb. for it, then the trout farmer, and everyone else between him and the store shelf, need to think whether they really want to stay in that game.

This is not a consumerist thing. The market is not just about everyone getting bigger and better and uglier. It's also about people getting nice things. I'm paying for smoked trout because I don't want mass-produced cereal, which would be a lot cheaper. The bookstore is paying me the wage I demanded because they think people will be interested in what I have to say. That's not consumerism. That's the promotion of the good. Goodness requires intelligence: it requires people with discernment saying, you know, this trout is pretty good, but let's try another bagel place. In itself, the market promotes greater intelligence. We can talk in other posts about what produces consumerist stupidity.

The market is also not demeaning to workers. Quite the contrary. If my civil-engineer friend, or the truck driver, found his work demeaning, he could either say he does not want to do that job or he could ask for more money, so that, for example, he could work fewer hours, or cut out a couple particularly ugly stops, or even just make his cab more comfortable. What is demeaning is forced labor and the absence of good things. And if we don't want to pay people what they think their work is worth, we will either have to give up the goods they produce (for example, leaving all the smoked trout in northwestern Wisconsin) or force someone to do it. The market is essentially the ability of people to negotiate what work is worth to them, both from the side of the worker himself and from the side of the consumer (who wants smoked trout, with all the work that goes into it).

The market is a good thing. It allows people to do work they enjoy and sustain the lifestyle they want. And it recognizes that people are legitimately different -- not everyone wants to be an academic, and I wouldn't enjoy being a trout farmer as much as some people would. It recognizes that a beautiful world is not one where everybody eats the same breakfast every day, but one where smoked trout is available for those who want it, bacon and eggs for those who want that, and breakfast cereal, whether run-of-the-mill or fancy Kashi, for those who like that. This is not consumerism. It's the pursuit of beauty and the recognition that monotony is neither natural nor good.

The market is not everything. Indeed, the examples we're working with show that it cannot be. Without sales, there is no market. If no one were buying smoked trout, no one could make a profit off of it. If no one cared to drive big cars, or go on road trips, or pick the neighborhood they live in, no one could "profiteer" off of gas. If people didn't care about sewers, municipal-water engineers would be out of work. Even the worst profiteers are not pure "capitalists" in the third sense defined above: they still want to support a certain style of life. The market is always, necessarily, hemmed in by values, by what people care to spend money on.

It should be more hemmed in. I would like to live in a world where sexual perversity was not available for sale. I would like to live in a world where people didn't subject themselves to so much mass entertainment. I wish people could live on more carefully produced food. Profit is not everything. But the market is something. To rage against "capitalism" as if anyone who works for profit, or defends profit, must care about nothing but money is to eliminate great good from the world. Those of us who defend the market, who say that prices should fluctuate freely, as a matter of contract and negotiation, not moral or legal fiat, are not "idolators of the market." (That's Obama's phrase.) We just recognize that there is something here, and that it is good. The free market serves a valuable purpose in providing for a good life. It is not everything, but it is a praise-worthy something.