Wednesday, April 2, 2014

Happiness, Materialism, and Injustice: The Three Non-Economic Objections to Capitalism

Chapter 4 of "Anti-Capitalistic Mentality" can be divided under two categories. Though Mises gave the chapter the title "The Non-Economic Objections to Capitalism," I see that only the first three sections speak about the subject. The subject of the remaining two sections is liberty, and so I think, it is suitable to treat them in a separate article. 

In this article, I intend to describe as concise as possible the three objections popularly used to discredit capitalism as an economic system. The three objections touch important matters in life such as happiness, materialism, and injustice. 

Happiness and Capitalism

Capitalism, with its promise of material well-being cannot make people happy. Mises' first objection deals with this subject of happiness, and he puts it in a way similar to this: Possession of the latest gadgets does not make people happy, and besides, there are lots of people who do not have those gadgets.

Mises did not question the validity of the proposition. He actually agrees with it. However, he could not see the connection of the proposition to the so-called "faults" of capitalism. 

Mises admits that market products do not make people fully happy, but they make people happier compared to their situation prior to the purchase of the products. He also adds that other forms of happiness exist and here he identifies "Buddhist mendicants" (p. 74) as examples, but to make them as models for the majority of people would be ridiculous for such life was unbearable to many.

Mises mentioned that "drop in infant mortality" is "one of the most remarkable achievements of capitalism" (ibid.). And perhaps none would object that infant mortality is a cause of human unhappiness. And so we can say that the achievement of capitalism in dropping infant mortality removes one of the cause of people's unhappiness. Again, though the result does not give people complete happiness, but compared to the prior state of society where infant mortality is high, people today are happier. 

Before closing the section, Mises brought up a related objection that not all people are benefited by "technological and therapeutical innovations" (ibid.) as if it is the mistake of capitalism that this thing is not happening. Mises considered this objection absurd for changes in society do not happen instantly. They are pioneered by innovators and only later on that the larger society gradually follows. 

Materialism and Capitalism

Capitalism promotes "mean materialism" (p. 75). Even though the complainers accept that capitalism has improved the material well-being of mankind, they grumble that the minds of men were diverted from superior pursuits in life to inferior ones. They say that materialism tends to give attention only on the needs of the body, and neglects the needs of the soul and of the mind (Ibid.). Capitalism causes the "decay of the arts," and produces nothing but "trash" (ibid.). 

Mises' response to this is quite long. He first accepted that evaluating art is not easy due to its subjective nature. And then he introduced a penetrating analysis of educated men afflicted by hypocrisy due to their lip-service given to art, and yet they despised living and promising artists. Among these men, Mises singled out John Ruskin and identified the latter together with Carlyle, the Webbs and Bernard Shaw as "gravediggers of British freedom, civilization and prosperity" (p. 76). The reason why Mises focused on Ruskin is due to the influence of the latter's idea in propagating contempt for capitalism (an economic system that Mises said Ruskin did not understand) by describing it as "a bad economic system," and as a system that "has substituted ugliness for beauty, pettiness for grandeur, trash for art" (ibid.).

And then Mises refuted the argument that capitalism gives mankind nothing but trash. It is only prejudice that blinds someone not to see that capitalism does not lack in terms of artistic accomplishments. Mises mentioned names of great musicians, novelists, poets, painters, and sculptors who made excellent achievements under capitalism. 

Mises agrees that only in one respect that the argument is correct, and that is, if we compare the architectural accomplishments under capitalism with "immortal" structures like the "pyramids, Greek temples, Gothic cathedrals, churches and palaces of the Renaissance" (p. 78). And of course there are valid reasons for such superiority. One of them is the conservatism of the churches that kills innovation. And still another, the passing away of dynasties and aristocracies. With their disappearance, the drive to build new palaces also disappeared. And also in terms of wealth, the capitalists' wealth cannot be matched to the wealth of royalties. These made the capitalists incapable to afford those "luxurious construction" (p. 79).

And still another response related to this "trash argument" is the failure to distinguish between ancient furniture and cheap goods produced by big businesses. Ancient furnitures that are preserved in museums are "collectors' items," whereas the goal of big businesses "was to produce as cheaply as possible without any regard to aesthetic values" (ibid.). Mises concluded that as "capitalism had raised the masses' standard of living, they turned step by step to the fabrication of things which do not lack refinement and beauty" (ibid.).

Injustice and Capitalism

A succinct way to put this objection: Capitalism promotes social injustice, and therefore must be discarded and replaced. 

The detractors' idea of justice is based on the concept that nature provides abundant resources sufficient for all. The only obstacle is the unjust capitalist system that promotes greed and inequality. The role therefore of both the church and State is vital to arrest these evils and to equally distribute resources for all. 

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The primary trouble with the above idea of justice is that it ignores scarcity, which is a fundamental economic reality. And not only that, apart from man's use of reason, there is no way for him to protect himself from the threat to human life displays by the operation inherent in nature. The truth is, the expansion of wealth is not natural. It is an outcome of the division of labor, which is a product of human reason.

Mises did not believe in the existence of either "divine or natural principle of justice" (p. 80), and so to him it does not make sense to appeal to this idea of justice for the distribution of wealth. For Mises, the important thing is not the fair allocation of natural resources, but the growth of social institutions that give people the ability to expand production to meet human needs (pp. 80-81).

And then Mises proceeds to refute the position of World Council of Churches particularly in reference to its 1948 declaration based on the mentioned idea of justice. Mises argued that the WCC misrepresented capitalism due to its failure to understand the nature of capital. Mises also argued that blaming the West for the povery of Asia and Africa is based on economic ignorance. It is not the fault of the West if the backward countries are unwilling to adopt the economic system that explains the wealth of the former. In fact, if one will closely examine the economic policies of these countries, you will see that these policies discourage foreign investment, the employment of more advanced technologies for production, and the growth of domestic capital. What underdeveloped countries need, argues Mises is "private enterprise and the accumulation of new capital, capitalists and entrepreneurs." The solution therefore is not the mentioned idea of justice, but the substitution of sound economic policies for unsound ones. It is not the "vague concept of justice that raised the standard of living of the common man." Instead, it is "the activities of men dubbed as 'rugged individualists' and 'exploiters.' "

At this point, to avoid misinterpretation, I will rely heavily on the actual quotations taken from the book. These quotations deal with the nature of capital, production, and wage rate. 

1. Concerning the Nature of Capital. In dealing with this topic, Mises explained the basic ideas surrounding the subject of capital and the relationship between capital and population growth. 

Here is Mises' exposition focusing on the generation, maintenance, and the benefits derived from the use of capital in production processes:
"The only source of the generation of additional capital goods is saving. If all the goods produced are consumed, no new capital comes into being. But if consumption lags behind production and the surplus of goods newly produced over goods consumed is utilized in further production processes, these processes are henceforth carried out by the aid of more capital goods. All the capital goods are intermediary goods, stages on the road that leads from the first employment of the original factors of production, i.e., natural resources and human labor, to the final turning out of goods ready for consumption. They all are perishable. They are, sooner or later, worn out in the processes of production. If all the products are consumed without replacement of the capital goods which have been used up in their production, capital is consumed. If this happens, further production will be aided only by a smaller amount of capital goods and will therefore render a smaller output per unit of the natural resources and labor employed. To prevent this sort of dissaving and disinvestment, one must dedicate a part of the productive effort to capital maintenance, to the replacement of the capital goods absorbed in the production of usable goods" (p. 84).

"Capital is not a free gift of God or of nature. It is the outcome of a provident restriction of consumption on the part of man. It is created and increased by saving and maintained by the abstention from dissaving" (ibid.). 

Neither have capital or capital goods in themselves the power to raise the productivity of natural resources and of human labor. Only if the fruits of saving are wisely employed or invested, do they increase the output per unit of the input of natural resources and of labor. If this is not the case, they are dissipated or wasted" (pp. 84-85).

"The accumulation of new capital, the maintenance of previously accumulated capital and the utilization of capital for raising the productivity of human effort are the fruits of purposive human action. They are the outcome of the conduct of thrifty people who save and abstain from dissaving. . . ." (p. 85). 
Turning to the relationship between capital growth and population growth, Mises explained: 
"Neither capital (or capital goods) nor the conduct of the capitalists and entrepreneurs in dealing with capital could improve the standard of living for the rest of the people, if these non-capitalists and non-entrepreneurs did not react in a certain way. If the wage earners were to behave in the way which the spurious "iron law of wages" describes and would know of no use for their earnings other than to feed and to procreate more offspring, the increase in capital accumulated would keep pace with the increase in population figures. All the benefits derived from the accumulation of additional capital would be absorbed by multiplying the number of people" (p. 85). 

"Consequently, in the countries of capitalistic civilization, the increase of capital accumulated outruns the increase in population figures. To the extent that this happens, the marginal productivity of labor is increased as against the marginal productivity of the material factors of production. There emerges a tendency toward higher wage rates. The proportion of the total output of production that goes to the wage earners is enhanced as against that which goes as interest to the capitalists and as rent to the land owners" (p. 86).

2. Concerning Production and Wage Rate. Here, two further subjects are elaborated: a necessary distinction between general productivity and marginal productivity, and the role of capital in the growth of productivity. 

Mises distinguished between general productivity of labor and marginal productivity of labor:
"To speak of the productivity of labor makes sense only if one refers to the marginal productivity of labor, i.e., to the deduction in net output to be caused by the elimination of one worker. Then it refers to a definite economic quantity, to a determinate amount of goods or its equivalent in money. The concept of a general productivity of labor as resorted to in popular talk about an allegedly natural right of the workers to claim the total increase in productivity is empty and indefinable. It is based on the illusion that it is possible to determine the shares that each of the various complementary factors of production has physically contributed to the turning out of the product" (ibid.).
Mises explained the question between labor and capital as the primary cause for the increase in productivity and wage rate: 
"What is required to raise, in the absence of an increase in the number of workers employed, the total amount of . . . industrial output is the investment of additional capital that can only be accumulated by new saving. It is those saving and investing to whom credit is to be given for the multiplication of the productivity of the total labor force" (p. 87).

"What raises wage rates and allots to the wage earners an ever increasing portion out of the output which has been enhanced by additional capital accumulation is the fact that the rate of capital accumulation exceeds the rate of increase in population" (p. 88).

"That the increase in wage rates does not depend on the individual worker's "productivity," but on the marginal productivity of labor, is clearly demonstrated by the fact that wage rates are moving upward also for performances in which the "productivity" of the individual has not changed at all" (ibid.).

"All pseudo economic doctrines which depreciate the role of saving and capital accumulation are absurd. What constitutes the greater wealth of a capitalistic society as against the smaller wealth of a non-capitalistic society is the fact that the available supply of capital goods is greater in the former than in the latter. What has improved the wage earners' standard of living is the fact that the capital equipment per head of the men eager to earn wages has increased. It is a consequence of this fact that an ever increasing portion of the total amount of usable goods produced goes to the wage earners. None of the passionate tirades of Marx, Keynes and a host of less well known authors could show a weak point in the statement that there is only one means to raise wage rates permanently and for the benefit of all those eager to earn wages-namely, to accelerate the increase in capital available as against population. If this be "unjust," then the blame rests with nature and not with man" (p. 89).

Source: Mises, L. (2008). The Anti-Capitalistic Mentality. Auburn, Alabama: The Ludwig von Mises Institute.

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