THERE'S NO SUCH THING AS CAPITALISM

Freakonomics: Monkey Businesss (Stephen J. Dubner and Steven D. Levitt, NY Times, 6/5/05)

But these facts remain: When taught to use money, a group of capuchin monkeys responded quite rationally to simple incentives; responded irrationally to risky gambles; failed to save; stole when they could; used money for food and, on occasion, sex. In other words, they behaved a good bit like the creature that most of Chen's more traditional colleagues study: Homo sapiens.

OJ also comments on this article here.

About 12 years ago, when I was still young and foolish, I decided to give up coffee. I did pretty well for a while, but found that I missed the ritual of coffee drinking. So, for a about a week, I drank mugs of hot water. I was amazed at how much of what I thought of as the coffee drinking experience was actually the hot water drinking experience. I had neither the wit nor the nerve to add Half & Half to my hot water but, if I had, I'm sure that I would have found that at least 90% of coffee drinking is hot water and creamer drinking.

Similarly, we now see that, perhaps, a surprising porportion of what we think of as human economic activity has little to do with humans. The laws of supply and demand really are laws, and are inherent in the economy. This helps us be mindful of what capitalism is, and what it isn't.

Although he didn't coin the word, modern thinking about capitalism is based largely on the work of Marx. Needing a thesis for which socialism could be the antithesis, Marx created "capitalism" just to tear it down. It is no mistake that he focussed on the rights of capital, which is often resented by those without capital. But capitalism, as a theory of economic organization, doesn't exist. What exists is freedom.

The monkey experiment, along with the universal experience of mankind, shows that freedom and the protection of reasonable expectations (what we call the "rule of law") are the hot water and creamer of our economic life. If you allow people to control their own property, and they can be certain of reaping the benefits of their own decisions, then the universal rules of the market will express themselves.

The interesting question has to do with what happens when people can't control their own property, or if they must fear the arbitrary loss of the gains they have reaped. The economy becomes inefficient, and the people become miserable. But the laws of the market apply as fully as where the people are free. The "capitalist" economies used to be called market economies; with the implication that, under communism, the people weren't at the mercy of the market. But the market is everywhere. In free economies, the price mechanism works as a signal for the allocation of resources. Where people are not free, the price mechanism is not allowed to work and the market delivers misery: insufficient supply and shoddy quality bought only after standing in long queues. More to the point, freedom, it turns out, is indivisible. The freedom to invest cannot be separated from the freedom to protest. Whenever "capitalism" is attacked, it is attacked only as a proxy for freedom.

Posted by dcohen at June 5, 2005 9:52 PM