5 ms·

In an unregulated market, capital very naturally tends to accumulate more capital - while, if you have nothing, it's very hard to build up capital in the first

In an unregulated market, capital very naturally tends to accumulate more capital - while, if you have nothing, it's very hard to build up capital in the first place. Which means that, if this continues indefinitely, more and more things belong to fewer and fewer people - which is exactly what we've been seeing over the last couple of decades.

ethanbond 3y ago
Also: externalities.
gms 3y ago
You have it backwards. Regulation has gone up a lot over the last two decades which is why you're seeing what you're seeing. Historically in America or current day in developing countries, the rate of growth in living standards negatively correlates with the amount of regulation.
- Tainnor 3y ago
  You haven't responded to my main point: do you believe that a completely unregulated market doesn't lead to wealth accumulation in the hands of few people? It is of course true that some (bad) regulation, like protectionism of various sorts, can also lead to the same outcome in a different way.
  - gms 3y ago
    Yes, completely unregulated would lead to that. We need laws to protect against coercion and adjudicate in the case of disagreements between parties. Warring tribes where physical force wins is not a good place to be.
    - Tainnor 3y ago
      I don't think you're seeing the whole picture if you think only about physical force. People who are well off have more opportunities to start other ventures that make them even more well-off, and if they're especially powerful, they can use that influence to further their benefit. I don't think that's particularly controversial.
      - mikeyouse 3y ago
        To wit, I live in a mid sized town in the Midwest - about 80 years ago a family started a business that was pretty successful and is on its third or fourth generation of ownership now — that’s all well and good but it’s insane how much of the town is owned or directed by them now. Do you want to buy a car, foreign or domestic? Host a convention? Rent a hotel room in the urban core? Put on a concert? How about go to the hospital or buy health insurance? Go to college? Send your kid to preschool? Build a commercial building? Capital begets capital.
      - gms 3y ago
        It’s not easy to start successful ventures. Most new ventures fail. Even the best VCs only have a 30% success rate.
        Tainnor 3y ago
        That doesn't contradict anything. Most people can't afford to start a new venture, so they have a 0% success rate.
  - mindslight 3y ago
    After pondering this question from time to time over a few decades now, I will say I still really don't know. Sure, it makes intuitive sense that wealth can be used to create setups that capture more wealth. But most examples we see of this (especially the galling zero-sum ones) are regulatory capture and regulatory escape, where wealth is used to affect government action/policy to further concentrate wealth. The most glaring of these, that facilitates many others, is the fountain of newly-created USD that the politically connected get the first cut of. That value doesn't come from nowhere - it's the central collection of technological and economic progress that would otherwise show up as distributed price deflation. On the other hand, we have the diminishing marginal utility of money - rich people overspend all the time, often on frivolous stuff. Musk bought an entire publicly traded company and crashed it on the way home, the way an upper middle class person might a shiny red Dodge Viper. One might say the VC ecosystem is chiefly 'dumb' money sloshing around trying to not be left out of the next big thing, while having no clue what that might be. Talking about "completely unregulated" markets is also somewhat specious. In a completely ancap context, we'd likely get structures similar to governments, funded by wealthy people cooperating rather than continuing to compete in less-productive ways (say through physical force). In fact some might even say that this is the character of the current US government in a few different regards.
fallingknife 3y ago
But you are wrong. Inequality has not grown over the last 20 years. https://fred.stlouisfed.org/series/SIPOVGINIUSA https://fred.stlouisfed.org/series/SIPOVGINIUSA
- Tainnor 3y ago
  Why are you only looking at income inequality, only in the United States and only in the last 20 years? Look at where that graph was in 1980, for example.
  - fallingknife 3y ago
    Because you said "over the last couple decades"
    - Tainnor 3y ago
      But I didn't intend 2000 to be an arbitrary cutoff. 1980 is important because it's right before Reagan- and Thatcher-style economics. And if you look at measures of wealth inequality (e.g. the share of wealth owned by billionaires), that's actually become worse especially during the pandemic.
J_Shelby_J 3y ago
This was described in adam smith’s original writings about “capitalism” and he was clear for the need in government intervention to maintain a free market long term.
- Tainnor 3y ago
  Do you have a specific reference by any chance?
Geee 3y ago
This is a very good thing, and the reason why capitalism works. The idea of pure meritocratic capitalism is that capital is allowed to accumulate to those who use capital most efficiently. There are fewer of those, naturally. Increasing capital efficiency benefits everyone; it means less work and more production, i.e. there's more of everything and everything is cheaper. The actual issues of our current world happen because this pure version of capitalism doesn't happen. There's all sorts of things which lead to non-efficient people / organizations accumulating a lot of capital.
- Tainnor 3y ago
  > there's more of everything and everything is cheaper And I don't believe that this is what we should optimise for. "More of everything, for cheaper" somehow doesn't seem to make people happier. I think that more shared ownership is more important, especially if you consider the effects of increased inequality on intangible goods such as democracy (e.g. how currently a few tech companies can influence global political discourse). But even if I was willing to concede your point, somehow most people who argue for "pure meritocratic capitalism" never seem to suggest that we should have a 100% inheritance tax. Because people being born into wealth is exactly one of the reasons why "non-efficient people" (a problematic term in and of itself, btw) end up accumulating a lot of capital. (I don't personally believe we should have a 100% inheritance tax, although I think it should be higher than it is right now in most places, but I think that this would be an almost inevitable conclusion of a "purely meritocratic" conception of economics.)
- atmavatar 3y ago
  I feel like you're missing an important detail: in an unregulated market, it is often times far more efficient from an individual corporation's perspective to buy up or merge with competitors than to actually compete, whereas the societal-level efficiencies you're lauding come from competition itself. Without some form of regulation, capitalism trends towards monopoly, which is the antithesis of efficiency.
  - Geee 3y ago
    I don't think this is generally true. There are exceptions, such as a monopoly on some scarce natural resource. However, there's a quite limited market for such opportunities. It's extremely difficult if not impossible to completely corner some market, even without regulations. In general, it's not true that companies would merge without regulation. Why would Apple merge with Samsung? It doesn't make any sense. Usually, regulation causes monopolies to form. A prime example is the patent system, which literally grants a monopoly to an idea. There would be much more competition without IP protection laws, which in my opinion doesn't belong in capitalism. For example, if all Apple's patents and copyrights were openly licensed, there would be much more competition with higher quality, but cheaper products.

ethanbond 3y ago

Also: externalities.

gms 3y ago

You have it backwards. Regulation has gone up a lot over the last two decades which is why you're seeing what you're seeing. Historically in America or current day in developing countries, the rate of growth in living standards negatively correlates with the amount of regulation.

Tainnor 3y ago
You haven't responded to my main point: do you believe that a completely unregulated market doesn't lead to wealth accumulation in the hands of few people? It is of course true that some (bad) regulation, like protectionism of various sorts, can also lead to the same outcome in a different way.
- gms 3y ago
  Yes, completely unregulated would lead to that. We need laws to protect against coercion and adjudicate in the case of disagreements between parties. Warring tribes where physical force wins is not a good place to be.
  - Tainnor 3y ago
    I don't think you're seeing the whole picture if you think only about physical force. People who are well off have more opportunities to start other ventures that make them even more well-off, and if they're especially powerful, they can use that influence to further their benefit. I don't think that's particularly controversial.
    - mikeyouse 3y ago
      To wit, I live in a mid sized town in the Midwest - about 80 years ago a family started a business that was pretty successful and is on its third or fourth generation of ownership now — that’s all well and good but it’s insane how much of the town is owned or directed by them now. Do you want to buy a car, foreign or domestic? Host a convention? Rent a hotel room in the urban core? Put on a concert? How about go to the hospital or buy health insurance? Go to college? Send your kid to preschool? Build a commercial building? Capital begets capital.
    - gms 3y ago
      It’s not easy to start successful ventures. Most new ventures fail. Even the best VCs only have a 30% success rate.
      - Tainnor 3y ago
        That doesn't contradict anything. Most people can't afford to start a new venture, so they have a 0% success rate.
- mindslight 3y ago
  After pondering this question from time to time over a few decades now, I will say I still really don't know. Sure, it makes intuitive sense that wealth can be used to create setups that capture more wealth. But most examples we see of this (especially the galling zero-sum ones) are regulatory capture and regulatory escape, where wealth is used to affect government action/policy to further concentrate wealth. The most glaring of these, that facilitates many others, is the fountain of newly-created USD that the politically connected get the first cut of. That value doesn't come from nowhere - it's the central collection of technological and economic progress that would otherwise show up as distributed price deflation. On the other hand, we have the diminishing marginal utility of money - rich people overspend all the time, often on frivolous stuff. Musk bought an entire publicly traded company and crashed it on the way home, the way an upper middle class person might a shiny red Dodge Viper. One might say the VC ecosystem is chiefly 'dumb' money sloshing around trying to not be left out of the next big thing, while having no clue what that might be. Talking about "completely unregulated" markets is also somewhat specious. In a completely ancap context, we'd likely get structures similar to governments, funded by wealthy people cooperating rather than continuing to compete in less-productive ways (say through physical force). In fact some might even say that this is the character of the current US government in a few different regards.

fallingknife 3y ago

But you are wrong. Inequality has not grown over the last 20 years. https://fred.stlouisfed.org/series/SIPOVGINIUSA https://fred.stlouisfed.org/series/SIPOVGINIUSA

Tainnor 3y ago
Why are you only looking at income inequality, only in the United States and only in the last 20 years? Look at where that graph was in 1980, for example.
- fallingknife 3y ago
  Because you said "over the last couple decades"
  - Tainnor 3y ago
    But I didn't intend 2000 to be an arbitrary cutoff. 1980 is important because it's right before Reagan- and Thatcher-style economics. And if you look at measures of wealth inequality (e.g. the share of wealth owned by billionaires), that's actually become worse especially during the pandemic.

J_Shelby_J 3y ago

This was described in adam smith’s original writings about “capitalism” and he was clear for the need in government intervention to maintain a free market long term.

Tainnor 3y ago
Do you have a specific reference by any chance?

Geee 3y ago

This is a very good thing, and the reason why capitalism works. The idea of pure meritocratic capitalism is that capital is allowed to accumulate to those who use capital most efficiently. There are fewer of those, naturally. Increasing capital efficiency benefits everyone; it means less work and more production, i.e. there's more of everything and everything is cheaper. The actual issues of our current world happen because this pure version of capitalism doesn't happen. There's all sorts of things which lead to non-efficient people / organizations accumulating a lot of capital.

Tainnor 3y ago
> there's more of everything and everything is cheaper And I don't believe that this is what we should optimise for. "More of everything, for cheaper" somehow doesn't seem to make people happier. I think that more shared ownership is more important, especially if you consider the effects of increased inequality on intangible goods such as democracy (e.g. how currently a few tech companies can influence global political discourse). But even if I was willing to concede your point, somehow most people who argue for "pure meritocratic capitalism" never seem to suggest that we should have a 100% inheritance tax. Because people being born into wealth is exactly one of the reasons why "non-efficient people" (a problematic term in and of itself, btw) end up accumulating a lot of capital. (I don't personally believe we should have a 100% inheritance tax, although I think it should be higher than it is right now in most places, but I think that this would be an almost inevitable conclusion of a "purely meritocratic" conception of economics.)
atmavatar 3y ago
I feel like you're missing an important detail: in an unregulated market, it is often times far more efficient from an individual corporation's perspective to buy up or merge with competitors than to actually compete, whereas the societal-level efficiencies you're lauding come from competition itself. Without some form of regulation, capitalism trends towards monopoly, which is the antithesis of efficiency.
- Geee 3y ago
  I don't think this is generally true. There are exceptions, such as a monopoly on some scarce natural resource. However, there's a quite limited market for such opportunities. It's extremely difficult if not impossible to completely corner some market, even without regulations. In general, it's not true that companies would merge without regulation. Why would Apple merge with Samsung? It doesn't make any sense. Usually, regulation causes monopolies to form. A prime example is the patent system, which literally grants a monopoly to an idea. There would be much more competition without IP protection laws, which in my opinion doesn't belong in capitalism. For example, if all Apple's patents and copyrights were openly licensed, there would be much more competition with higher quality, but cheaper products.