Wednesday, October 09, 2013

Public Spending as the Socialization of Risk and Unavoidable Losses that the Dominant Private Class in Capitalism Avoids Via Local, State and Federal Government

Men are by and large greedy, selfish yahoos (see Gulliver's Travels for the origin of the term) and that is why capitalism is so successful, because its economic and political doctrines are based on a recognition of that human condition.

One area of great and often unrecognized or unacknowledged selfishness is the socialization of risk and losses by the private sector using the government as their handmaiden.

No one who discusses capitalism and socialism can fail to deal with that issue because public debt is primarily the result of the socialization of risk and losses by the dominant economic class and not the result of waste by the have-nots, who have little to say in the running of the system.

Philosopher, life-long socialist, born-again capitalist, and economics historian Robert L. Heilbronner was one of the most popular economic writers of all time, and is the author of the following sentence (1989), written in the New Yorker magazine at "Reflections: The Triumph of Capitalism", just prior to the collapse of the Marxist-Leninist Soviet Union:
"Less than 75 years after it officially began, the contest between capitalism and socialism is over: capitalism has won... Capitalism organizes the material affairs of humankind more satisfactorily than socialism."
Heilbronner wrote further in 1992 in Dissent magazine, as referred to by David Boaz in the Free Republic:
"Capitalism has been as unmistakable a success as socialism has been a failure. Here is the part that's hard to swallow. It has been the Friedmans, Hayeks, and von Miseses who have maintained that capitalism would flourish and that socialism would develop incurable ailments. All three have regarded capitalism as the 'natural' system of free men; all have maintained that left to its own devices capitalism would achieve material growth more successfully than any other system. From [my samplings] I draw the following discomforting generalization: The farther to the right one looks, the more prescient has been the historical foresight; the farther to the left, the less so."
Heilbronner was a 100%-er rather than a man of prudence and judgment, who rather tended to make unsupportable and extreme statements and theories, whether on the subjects of capitalism or socialism, and thus was probably as wrong in supporting capitalism completely as he was previously equally wrong in being a staunch advocate of socialism. His strength is the recognition of problems and issues. His weakness is their resolution.

It is unfortunate that Heilbronner is often cited as an authority in the arguments between socialism and capitalism. He is simply too absolute.

The fact is, it all depends on what you define as "capitalism" and what you define as "socialism".

We ourselves are staunch capitalists because we acknowledge the selfish nature of humankind, and the necessity of a political and economic system that understands that. Hence, we define capitalism similarly to what is found in the Wikipedia:
"Capitalism is an economic system in which capital assets are privately owned and goods and services are produced for profit in a market economy."
Socialism in turn is defined quite the opposite, again taking the Wikipedia as a representative definition:
"Socialism is an economic system characterised by social ownership of the means of production and co-operative management of the economy."
The reason "pure" socialism as defined above does not work well is because people by nature tend to work for themselves and their loved ones and not for society as a whole. That is why Marxism-Leninism failed and will always fail.

On the other hand, we must be aware that pure capitalism exists nowhere, otherwise there would be toll booths on every street and road and you could not go anywhere without paying some private person or enterprise for the privilege of going beyond your front door, from one piece of property to the next.

PUBLIC property and especially PUBLIC roads, lands and services are an essential part of democracy, because they provide YOU, the citizen with freedom of movement. For that you need people in government, e.g. the Park Authority.

Indeed, many activities of human beings involve actions other than production of commercial goods and services, and that is where the problems begin.

Simple examples are the military and police protection.

Protection of the self, of loved ones, of private property (!), of one's local region, of the state, of the nation, or of an alliance of nations is not "capitalistic" per se, because it does not really involve an issue of the commercial production of goods and services. 

Rather, men and women "pool their resources" via varied forms of group taxation, fees or tithes in order to finance e.g. "a safe neighborhood" or, on a broader scale, "national security".

These things could of course be done "privately", and on a local level, and indeed sometimes are done privately, but all ultimately involve a "social" pooling of resources and money, especially at the national FEDERAL level. That is neither capitalism nor socialism, but it is the socialization of risk.

Heilbronner in his book The Nature and Logic of Capitalism talks about this side of the social order as the necessary:
"... provision of the law and order essential for the preservation of [the capitalist system and of private property]".
This encompasses the entire scope of local and federal civil government, including the legal system, its rules and regulations, the lawyers, the courts, the legislatures, etc., including of course the funding of that government.

As Adam Smith correctly wrote in The Wealth of Nations:
"The acquisition of valuable and extensive property ... necessarily required the establishment of civil government".

"...erecting and maintaining those public institutions and those public works which ... may be in the highest degree advantageous to a great society ...  [but these institutions and works ] could never repay the expense to any individual or small number of individuals [because they are not profit-making]...." [emphasis added by LawPundit]
 Heilbronner in this context correctly points out that:
"... the state foists upon the public the costs of those activities that would result in monetary "losses" if they were carried out by the economic sphere, while recognizing as inviolable the right of private enterprise to benefit from its profitable undertakings.

This socialization of losses applies to much of the the network of canals, railways, highways, and airways that have played an indispensable part in capitalist growth, as well as the provision of literate and socialized work forced through public education programs, the protection of public health, and the like.

All these are examples of "public works", behind whose manifest usefulness for the citizenry at large lies the latent economic function of providing necessary inputs for [the circuit of money to commodity to more money], and the political function of strengthening the regime of the dominant class." [emphasis and link added by LawPundit]
The problem in today's America is that the dominant capitalist elite who already control the mass of American wealth and income no longer want to pay anything near their fair share for those very same government services and advantages which benefit primarily the existing capitalist system that enables their wealth and their income.

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