Two Letters on the Market

by Don Boudreaux on May 27, 2008

in Complexity & Emergence, Environment, Everyday Life, Myths and Fallacies, Seen and Unseen, Social Responsibility

Today’s edition of USA Today published this letter of mine:

Commentary writer Alan Webber applauds the idea of the so-called social business — one that “has a social cause, not just a financial goal.” Webber also tells us: “Think of it as capitalism with a human face” (“Giving the poor the business,” The Forum, Wednesday).

I don’t question Webber’s uncritical assumption that social businesses will work.

I do, however, question his hackneyed suggestion that the face of for-profit capitalism is inhuman.

No other economic system but capitalism has lifted billions of people so decisively out of poverty.

Economist Joseph Schumpeter noted this fact in 1942: “Electric lighting is no great boon to anyone who has money enough to buy a sufficient number of candles and to pay servants to attend them.

“It is the cheap cloth, the cheap cotton and rayon fabric, boots, motorcars and so on that are the typical achievements of capitalist production, and not as a rule improvements that would mean much to a rich man.

“Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort.”

And today’s edition of the Baltimore Sun published this one:

Julie Sensat Waldren eloquently explains the difficulties of “being green” (“It’s not easy being green,” Commentary, May 17).

For example, consumers cannot possibly know how the environmental impact of disposable cups compares with that of ceramic cups whose production consumes lots of energy.

Contrary to a profusion of claims by naive pundits, the economy is far too complex for any person or even a committee of geniuses to trace the full environmental consequences of any of the hundreds of ordinary decisions consumers and producers make daily.

Economists since Adam Smith have taught that the best we can do is to have well-defined property rights that owners use and exchange as each judges best.

The unplanned result isn’t an earthly paradise, but it’s vastly superior to what emerges when people consciously aim to bring about a specific outcome in the overall pattern of economic activities.

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{ 10 comments }

The other Eric May 27, 2008 at 9:44 am

You used Schumpeter in a USA Today letter? McPaper readers might respond better to more brutally direct argument. i.e….

If capitalism is so inhumane then it should be opposed and protested against at the primary practitioner level– your own town. Greedy, inhumane capitalists can be found in you local grocery, tire and oil shop, construction company, clothing store. Think of those rotten conspirators getting together at the local diner (it too run by another capitalist). They shamelessly meet together in plain sight in Chambers of Commerce, Rotary Clubs, and even most local churches. Let's all rise up and stop our friends and neighbors before it's too late and yet more wealth is created all around us– by us.

Schumpeter? Really?

shawn May 27, 2008 at 10:08 am

simply invoking Schumpater's name as a 'finished' argument would have been a problem. You could take out his name, plagiarize the quote, and the point still stands, quite well and quite eloquently…not that yours is bad, Eric, but there's nothing wrong with including it…in fact, it gives someone something to look up on wikipedia, if they want to.

And, let's McFreaking stop with the McDamning McReferences, especially as McDonalds is a wonderful example of efficiency, consistency, and competition/profit motive…the very things you're assumedly commending.

Avatar300 May 27, 2008 at 10:43 am

"The unplanned result isn't an earthly paradise, but it's vastly superior to what emerges when people consciously aim to bring about a specific outcome in the overall pattern of economic activities."

This was a great line. In my experience, whenever I bring up the possibility of free markets instead of governments in conversation, something like this always gets thrown at me. We know we're not arguing for utopia, why don't our opponents acknowledge this honestly.

And really, when looking at the present election, who is really advocating for utopia, the statists with all of their wonderful programs, or the free marketers, who just want to be left alone?

Flash Gordon May 27, 2008 at 12:47 pm

The recent reality show on cable "America's Port" about the port of Los Angeles really demonstrates a free market doing something that could not possibly be done by the government, i.e., efficiently moving vast quantities of merchandise into the country and distributing it to hundreds or even thousands of separate points of ultimate purchase.

A recent show demonstrates what the government can do when some customs agents break open a clothing shipment labeled "Baby Wear" which carries a low import duty, and discover it is really "Girls Wear" which carries a much higher duty. The "illegal goods" are then seized and the importer is levied a heavy fine. That is what government can do, and for the most part that is all it can do.

It would be better if the government concentrated on finding things and people who pose a threat to our lives and our liberty instead of finding things that pose only a threat to government revenue.

Seth May 27, 2008 at 5:01 pm

"Think of it as capitalism with a human face" -Alan Webber

Or, as I would refer to it, capitalism.

Sam Grove May 27, 2008 at 7:15 pm

"Think of it as capitalism with a human face"

Webber needs to learn about mercantilism so he can distinguish it from capitalism.

Freedom_Lover May 28, 2008 at 11:10 am

Capitalism is simply what free humans do. Leftists try to make it out to be something oppressive. My guess is life itself is oppressive to them.

Charlie May 28, 2008 at 7:18 pm

Obviously lots of people didn't click over to the article, but here is the relevant quote as to why it's "capitalism with a human face"

"Social businesses have investors — but they're neither hoping to maximize their profits nor writing off their investment as a charitable gift. The first profits from a social business go to paying back the investors. Once they've recouped their investment capital, investors forsake additional returns."

It is just a hybrid of investing and charity. It has some market discipline that it must make returns and be self-sufficient, but it is subsidized like a charity because the risk of the initial investment and the usual return required for such an investment is forgone. Why would investors do this? Because they are being charitable, giving their own money to a cause they value. A whole host of economic activity unfolds along similar lines, from a person accepting a lower paid job they find more meaningful to charity itself.

I'm not so sure this is the way of the future, but Yunus is an innovator and I love it. How interesting to use Schumpeter to attack someone telling a story about someone trying to innovate in the market for charitable giving? You use the prophet of creative destruction to attack a new innovation, such an ironic choice.

mobile May 29, 2008 at 4:38 pm

To a very good first order approximation, there is surely a way that consumers can compare the environmental impact of their choice of cups, or of any other commoditized consumer good. It's called the cost. The purchase price of the disposable cups is relatively low because it takes a small amount of resources — material, energy, labor, and overhead — to produce the cups and get them to your market. The costs of other resources — water and energy to wash the ceramic cup, or landfill space consumed by the used paper cups — might be harder to measure, but only a little harder. The local price of water, electricity, dishwasher detergent, and municipal waste services can be used without too much trouble to estimate the relative impact of either choice.

The great thing about this method of comparison is that as long as the prices are relatively free from distortion, the wise consumer will usually make the best choice for the environment at the same time that he/she makes the best choice for himself/herself.

Charlie May 29, 2008 at 9:53 pm

-mobile

The problem is that things the environmentalists care about don't have prices. The obvious example is carbon emissions. If you are worried about global warming, you may worry that the price of an item is distorted because you don't have to pay for the cost you levy on this or future generations.

Also, landfill space poses a problem, because landfill space is subsidized. That is, I don't pay the marginal cost to house the garbage I produce. Someone producing a lot of garbage pays the same as someone producing no garbage. Maybe it would be better if we moved towards a cost per bag or something, I'm not sure. I think it is being tried to some degree. The counter argument has always been, if the city charges me for garbage I might just throw it out the window. I might (I'm pretty poor and sneaky).

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