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George Gilder: Capitalism is based on information and knowledge, not greed

47 points by adrianscott 14y ago

robmiller 14y ago
Capitalism is based on there being a customer. All the capital in the world doesn't do any good if there's not a buyer on the other end. Another argument for a strong middle class.
- darrencauthon 14y ago
  Capitalism is not based on the existence of a customer. It's based in freedom, in the right of every individual to do what he or she wants to do with his or her own life and property. Of course, if there is no customer, there can be no sale. However, the sale itself isn't always the point. Sometimes people do things just for the fun of it -- and that's capitalism, too.
- smokeyj 14y ago
  > Capitalism is based on there being a customer. All the capital in the world doesn't do any good if there's not a buyer on the other end. Another argument for a strong middle class. I fail to see how these sentences form an "argument".
- michaelochurch 14y ago
  The idea that the upper class depends on the middle class is false. Establishment and talent are natural enemies. I would like to see us destroy the upper class (maybe "dismantle" is a better word; I don't see violent revolution producing anything good) and build a society that is robust against social elites and upper-class parasitism-- ideally a society where there are no entrenched social classes-- but I'm probably dreaming on that one. Yes, they need a healthy middle class if they want to keep a capitalist economy going. Here's the depraved little secret: they don't actually care that much about having a capitalist economy. Social elites are almost always parasitic and actually quite non-ideological. If we were a communist or fascist state, it'd be the same people in charge, but instead of being corporate executives, they'd be government bureaucrats. They don't give a shit about "capitalism" or "socialism" so long as it's them on top. The ideology is something they tune to the peasants' shifting tastes. It's not about economic well-being for them. It's about status. In a robust capitalist and technological economy, they get private jets. If the U.S. becomes Third World, they get white maids. Both are essentially status symbols, and they don't have an intrinsic attachment to one over the other, but they'd rather reign in hell than serve in heaven.
- adrianscott 14y ago
  humans have time. that is a form of capital. humans have needs. there is no shortage of customers. before currencies, there is trade. who is the customer in a trade before currency? it's an exchange, not a purchase by a customer from a seller.
zby 14y ago
Wow - this is so close to the FLOSS ideology! I'll need to read that book.
ollysb 14y ago
"In capitalism, the winners do not eat the losers but teach them how to win through the spread of information." This certainly casts patents in an anti-capitalist light...
- mtgx 14y ago
  Apple could certainly be seen in the light of greed here. They are doing extremely well anyway, making money hand over first, and yet they still can't sleep well at night knowing there are other touchscreen devices on the market besides their own, and they're abusing every piece of patent technicality to ban their products from the market.
- michaelochurch 14y ago
  I don't actually agree with that. Capitalism is ruthless. The winners do put the losers out of business. That's the moral justification for IP: without regulatory intervention, the winners are often not the generators of the IP. That has become more true in the age of the Internet, where a lot of natural monopolies are emerging, but it was probably always true. Size begets growth, coalition-building is inevitable (leading to conglomerates) and those who can't make nice with the big players often get crushed. The problem with capitalism is that it's not stable. People who become rich and powerful (and their generally useless heirs, friends, and hired-gun managers) don't actually want to live in a capitalist world, so they use their social connections to build a private safety net, which hampers innovation. Corporate bureaucracies have more in common with the Kremlin than a Silicon Valley startup, and even Silicon Valley isn't that innovative, because it's increasingly controlled by a well-connected VC/media social elite. Most people wouldn't want to live in pure capitalism, and the corporate elite especially doesn't want it. They want to keep what they've got. The problem with the problem with capitalism (or the problem with not-capitalism) is that every alternative to an at least mostly capitalistic economy is terrible. Command economies are not desirable. Most thinking people are essentially (small-l) libertarian. My use of this word has nothing to do with the current usage (conservative who likes pot). By libertarian, I mean the opposite of authoritarian: belief that people should, all else being equal, be free to do as they wish rather than controlled by a governmental or corporate authority. (Authoritarians believe it's intrinsically impossible for most people to do anything good unless told to do so by a central authority.) The problem is that libertarianism begets capitalism begets conglomeration begets corporatism. It's the Iron Law of Oligarchy. The only solution I can see is the Western European social democracy (i.e. a socialist infrastructure to provide a safety net, but a capitalist engine for innovation and to maintain individual freedom). You need enough of a welfare state to keep people from being exploited by emergent corporate power, but enough capitalism (economic freedom) to keep innovation alive.
michaelochurch 14y ago
Capitalism has its problems, but its critical selling point is that, if it works well, you don't need official approval to do business. In the USSR, it was a crime to compete with the one established business: the state. Fusions of state and business power (whether from the left, as in communism, or from the right, as in fascism) are almost always bad. The major win (practical and moral) in capitalism is the right of the individual to interact with the market without official approval. If you look at corporate hierarchies, however, you see that they're run internally like command economies. Headcounts and projects are written up and assigned by gloomy, bureaucratic committees detached from the actual heartbeat of the business. You're assigned a role, and if you try to "compete" by seeking a different role or starting a skunk-works project, most companies will fire you or otherwise work to shut you down. Companies are statist in the extreme. Corporatism is a system designed to give the best of both systems (capitalism and socialism) for a well-connected, parasitic social elite (called "the 1 percent", but really they're about 0.2%) and the worst of both for everyone else. You see this, for example, in commercial air travel, where you get Soviet quality of service but the bizarre, unpredictable pricing you'd expect from a runaway market (that is actually not so much a "market" as an algorithm designed to fuck you over).
- mlvljr 14y ago
  Actually, during Stalin times, the state delegated substantial part of no-high tech production to cooperative businesses ("артели"). Only later the system turned into a monolithic state monopoly.
- yummyfajitas 14y ago
  ...or from the right, as in fascism... Fascism was (by modern US standards) a center-left ideology. It emphasizes collectivism/corporatism, authoritarianism and nationalism. You are also using the term "corporatism" incorrectly. Corporatism is a political system which elevates the rights of privileged corporates (a better modern term would be "special interest groups") above the rights of individuals. A good example of modern corporatism would be disparate impact-based policies - e.g., "we shouldn't allow this neighborhood to gentrify because a privileged corporate might disproportionately move out of this neighborhood." I think what you meant by "corporatism" is actually "cronyism".
deleted 14y ago
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cynicalkane 14y ago
Capitalism is based on information, knowledge, greed for money, greed for ownership, desire for accomplishment, and a lot of other things. Information is one of these things. Information is a means to a lot of other ends as well. I look dimly on people who say "Capitalism is driven by X" where X is some narrowly defined band of things. From Rand to Marx, theories that look like invariably turn out wrong, sometimes disastrously so. In economic speak, an incentive is anything that a person in question might want. The desire to acquire information and the rewards of using it are one kind of incentive. It's common for random econ pundits to try to redefine "incentive" as "greed", and this should be the first clue that they either don't know or don't care what economists actually think.
mxfh 14y ago
I disagree. Capitalism in its current state is heavily based on securing advantages, meaning it's only fair in areas which are new and not saturated by established players.
- csense 14y ago
  Three beautiful words to a capitalist: "Sustainable competitive advantage." > it's only fair in areas which are new and not saturated by established players. What is your definition of "fairness," and why should we care whether it is a property of capitalism? I think you're saying something like "capitalism encourages incumbents to build fences to keep newcomers out." That's true. Antitrust law exists to discourage certain types of fences that we find undesirable. But other types of fences are perfectly OK -- for example, AMD and Intel spend hundreds of millions, if not billions, every year on R&D to keep raising their technology head-start fence, to keep competing chip vendors out of their markets. The result from the consumer's point of view is a virtuous cycle of continually improving products at the same price point from these industry leaders, with a "long tail" starting with successively older generations of obsolete processors on the secondary market, down to much cheaper ARM's which have much lower performance but are perfectly adequate for many applications. If incumbents can always build fences so strong that they are invulnerable: How did Google win against Yahoo? How did cable providers win against over-the-air TV networks? How did Netflix kill Blockbuster? How did Microsoft triumph over IBM? When incumbents fence themselves in, times are good for them for a little while -- but usually the incumbents end up as slow, fat targets for fast-moving, lean startups. This is especially true once the management team that established the incumbents has moved on or retired, and their replacements listen when the accountants tell them how much money they can make if they raise prices, cut costs, or reduce their investment in fences.
  - mxfh 14y ago
    Yes, there is no right for resting on your past achievements, there is arguably a fair way of getting advantages secured for a limited amount of time: innovation, adding to others innovations, combining others works, opening new markets. And the other "unfair" way: patent-abuse, monopolies, cartels, copycats with no added value, lobbying for the gains of a few who are already better off. Some of that has been made illegal some of it just feels morally wrong. Basically it comes down to moral norms, which society can turn into laws if considered important enough by a majority. Its all comes down to finding a balance, economics will never be perfect or fair for all, but I consider it the goal of politics to be getting it closer to that ideal state which should be beneficial to all in the long run.
_delirium 14y ago
I'm not sure this random collection of quotes is a great starting point for a discussion as broad as what "capitalism is". Especially quotes that come in an election year from a non-economist mainly famous for his GOP activism. If you do want an argument in favor of the information-aggregation view of markets, and what is required for them to work in practice, F.A. Hayek provides a better analysis.
- adrianscott 14y ago
  Thanks, have you found that Hayek incorporates technology and the flow of technological knowledge? I'd love to see a ref on that. I recommend checking out the book The Origin of Wealth as one ref that has a nice coverage of tech/knowledge in a behavioral economics context.
- michaelty 14y ago
  Some places to start: The Use of Knowledge in Society: http://www.econlib.org/library/Essays/hykKnw1.html http://www.econlib.org/library/Essays/hykKnw1.html Economics and Knowledge: http://www.econlib.org/library/NPDBooks/Thirlby/bcthLS3.html http://www.econlib.org/library/NPDBooks/Thirlby/bcthLS3.html
- 001sky 14y ago
  The form and the substance of this piece are characterized by bits and pieces of ideas and 'analyis' that are neither here nor there. So I agree with you. Also recommend adding Coase as a complement to your suggestion of Hayek.
- ilaksh 14y ago
  To what degree are Hayek's theories proven by scientific studies? In what manner does F.A. Hayek incorporate our contemporary social, physical, ecological, engineering, and systems science and technologies into his theories? Any field which purports to scientifically guide the operation of the planet must integrate these sciences and technologies. Economics is more philosophy, speculation and faith than it is science.
api 14y ago
I have a very tough time rationalizing this guy's futurism with the rest of his opinions. Of course, I guess compartmentalization and contradiction are common elements of the human condition. http://en.wikipedia.org/wiki/George_Gilder http://en.wikipedia.org/wiki/George_Gilder
- irickt 14y ago
  In particular, [excerpts from Wikipedia] Gilder is a founder of the Discovery Institute, the leading think tank of the intelligent design movement. Gilder has written many articles in favor of ID and opposing the theory of evolution.
  - api 14y ago
    A lot of engineers don't get evolution because engineers tend to think there is one best way to do something. How could evolution ever discover the "answer," they think? This is endlessly reinforced in school. You get right answers and wrong answers on tests, but that's because school tests are toy problems not real problems. In reality there are better answers and worse answers and worse-is-better answers and ugly-hack-to-ship answers. But think about the Church-Turing thesis a bit, and universal computation, and it becomes obvious that there are infinitely many ways of solving any arbitrary problem. They aren't all created equal, but there are also paths between them. Evolution works by discovering one answer and then following pathways through the fitness landscape to converge on better and better answers. Sometimes it actually does discover global optimums, or sometimes it just settles on something that works well enough given all the trade-offs. (In some problem spaces there is no clear global optimum.) But I see something more here. His opinions on gender are just batty. There is evidence for gender dimorphism in humans, but he takes that evidence and does a Forrest Gump run with it all the way off the field and into the bleachers. He also ignores huge numbers of counter-examples to his thesis and mistakes statistical means for universal laws.
    - pi18n 14y ago
      Also; engineers should be aware of genetic algorithms which work so well they are used by NASA ( http://en.wikipedia.org/wiki/Evolved_antenna http://en.wikipedia.org/wiki/Evolved_antenna ). Anyone who doesn't understand evolution is a fact is basically being willfully ignorant at this point.
fastball 14y ago
"Far from a system of greed, capitalism depends on a golden rule of enterprise: The good fortune of others is also your own." So... when competition puts your company out of business, that's a good thing? It was beneficial to local grocers when their businesses were bankrupted after being undercut by Walmart?
- adrianscott 14y ago
  Yes, it gave them an impulse to find areas where they could do something that people judged valuable enough to part with their money. (e.g. learn how to design web pages and make bad flash animations ;) It also did help people who buy groceries, including poor people.
  - fastball 14y ago
    But now the people who worked at the small town grocer are out of a job, so you are left with more poor people.
    - theorique 14y ago
      It's all good ... they can retrain in Ruby On Rails or Objective-C and become app entrepreneurs!
ktizo 14y ago
So, the claims are that capitalism is based on information and knowledge and not greed and that greed leads to socialism? Is certainly an interesting opinion. My first thoughts were that he seems to be confusing motives and methods. Information and knowledge certainly flow through a capitalist system and are definitely required in order to do well, but they are not the motive for most capitalists, In fact I can think of very few millionaires who are in business for the learning and philosophy, whereas the desire to own more stuff or money often is a driving force. As for saying that socialism is the end product of greed, and that it is greed that leads to a socialist welfare state, well. Someone should definitely tell this to some of the various murderous dictators that have been propped up by capitalists in the name of stability, security and favourable trading positions. They'd have a pretty good laugh about it while checking their numbered accounts. Also, if greed leads to the creation of welfare for the poor, presumably this means that the problem is the greedy poor. Which given that by definition they cannot be very good at being greedy as they have no stuff, makes me doubt that it was their greed that led to the creation of welfare, and that maybe having less than 100% employment might have more to do with the massive mechanisation and export of labour.
e12e 14y ago
Isn't Capitalism based on... capital? Investing in production in such a way that you increase your profit rate -- with the inevitable result being consolidation of capital, and therefore power over the means of production -- or in other words the consolidation of power? With globalization this becomes an even more serious problem, because the entities that control the capital are extra-national. So from the joyful history of the East Inda Company to the merry state of British Petroleum today -- you have entities that cannot on the whole be held accountable to one set of laws, because no (functional) jurisdiction exist that cover their entire area of operations. Even when regulation seemingly works, as with Microsoft, Netscape and the browser wars -- they fail. Microsoft won that one, despite loosing.
- adrianscott 14y ago
  "Microsoft won that one, despite loosing." (sic) please explain?
  - cedmart 14y ago
    I read it as: "By bundling IE with Windows, abusing (illegal) the Windows monopoly (legal) MS managed to basically kill Netscape... Despite losing the legal battle and being --forever-- regarded as a company that did abuse its monopoly to drive out a competitor". It's not about IE vs Chrome, it's not about IE vs Safari. It's not about whatever-MS-mobile-OS vs Android vs iOS. It's about IE vs Netscape and MS (illegally) "winning" that war despite losing in court.
    - e12e 14y ago
      Yes, that sums up what I meant. Also, if you look at browser stats even today, arguably IE has an "unfair" share of the market -- but such things are hard to be certain of ("What is a 'fair' market share for the now much, much improved IE browser?"). The biggest thing MS did was probably to give away the browser for free, subsidizing the development of the browser, with profits from windows licences. That dumping effort effectively killed the market for (paid for) browsers -- eventually even Opera gave up charging end users for its browser.
njharman 14y ago
Sure, whatever. It doesn't matter what "Capitalism" is. Evolution has made human-nature greedy. And all these systems (capitalism, consumerism, socialism, communism, anarchy, have one overriding commonality; they're implementors, regulators, and constituent parts are all human. Whom, in the aggregate, follow human-nature (by definition). No matter what system you think we have (or should), what system they tell us we have, or what system people actually try to enact, human-nature morphs it towards greed. And if you're irrationally alienated by the word "greed", feel free to replace it with the comfortable alternatives we've rationalized; "saving money", "efficiency", "winning", "being successful". They and others are all rooted in "getting the most for me" aka greed.
- thwest 14y ago
  Appeals to some evolution-determined human nature fall flat for me. The greatest thing evolution endowed humans with is conscious reasoning that can overcome our cognitive instincts. You will see even great humans revert to their instincts when situations are dire, but the project of civilization is to eliminate those situations. Trying to frame _every_ human goal as a form of greed/self-interest/winning is tautological. There are substantial differences in the way humans experience altruistic, compassionate self-interest and individualistic, combative self-interest. Certainly we can experience varied social arraignments emphasizing different negotiations between every individual's self-interest. When one's argument considers the vast history of human societies and reduces them to all to self-interest enablers, is it saying anything at all?
- MaysonL 14y ago
  Instincts are all well and good. The problems arise when they get out of control: whether it's the instinct for food, the instinct for sex, the instinct for more, the instinct for curiosity. When you are in control of your instincts, things work. When your instincts run you, you're headed for trouble. Greed, under control, can be valuable. Greed uber alles, leads to parasites like Romney getting filthily richer by doing things like bankrupting KP Toys.
  - csense 14y ago
ThomPete 14y ago
Capitalism as described is yes, but humans are based among other things on greed and they are part of the system. Please don't make the mistake of confusing the system with the agents in the system.
Tycho 14y ago
It's based on individual property rights, trade and reinvestment of capital accumulated due to said rights.
jberryman 14y ago
Flagged for being overly partisan political, and bringing little value as a launching point for discussion.
notlisted 14y ago
It sure is. Sometimes this information is in the form of insider knowledge shared within the old boys network, or misinformation spread to the masses to pump and dump a stock (hello facebook), or tell everyone to buy a house with a white picket fence (take on that mortgage, it's the best investment evah), or market "derivatives" that are "too complex even for the sellers to fully understand". We also have the knowledge on how to patent stuff so the hoi polloi don't get their grubby little fingers on it... It's all about the CONTROL of information, making use of it to enrich oneself at the expense of others. Let's not kid ourselves, it's not about sharing sh*t. It's about doling it out piecemeal and selectively, or obsessively, to control opinion and/or maximize profit. Perhaps not zero-sum, but there are lots of bags held by the partially informed and the less-informed.
001sky 14y ago
The competitive pursuit of knowledge is not a dog-eat-dog Darwinian struggle. This is demonstrably not true in the presence of Firms. Agents in the markets are hierarchies, and the internal competition in a hierarchy is very much darwinian. This second tier of this two-tiered chess game is not without consequence.
mtraven 14y ago
He gives the game away in the second sentence: > But greed, in fact, prompts capitalists to seek government guarantees and subsidies that denature and stultify the works of entrepreneurs. Yes, that is how real, as opposed to theoretical, capitalism works. And communism is all about selfless cooperation in theory, but in practice works out to something quite different. Speaking of communism and information, I can't recommend too highly the book Red Plenty by Francis Spufford, which is about the efforts by very early cyberneticians in the USSR to create an economy which was managed by information without greed.
T_S_ 14y ago
Not much content in this blog piece. Couple of isolated quotes from a Forbes article from a with no tl;dr on offer. Instead of "Capitalism is...beautiful" ideology it would be worth focussing on when it works and when it doesn't. Seems that there is strong evidence that capitalism harness human nature, property rights, and incentives to enable production. That's great. There is a lot less discussion about what it takes for markets to allocate resources efficiently. Two of the bigger prerequisites are "no externalities" and "symmetric information". Capitalism has no built-in mechanism to establish these conditions. A lot of our problems today go right to those factors. We could do something about it if our politicians would stop playing to the cheap seats. Sorry capitalism, you're ok but not that beautiful.
squonk 14y ago
Data Points: Since 1970, global population increased by 91% Since 1970, global aggregate GDP increased by 540% (in constant $) I think that means that 540/1.91 = ~2.8x increase in per-person productivity on a global basis over the last 40 years. I would contend that capitalism drives productivity increases to a greater degree than communism or socialism, simply based on the fact that 8 of the top 10 economies in the world are arguably capitalist. (counting France as socialist and China as something else, not sure what at this point). A better statistician than I can weigh in with wealth distribution, and I am betting that the average world citizen is better off today than 40 years ago, primarily due to capitalism.
batista 14y ago
"Capitalism is based on information and knowledge, not greed" Really? Then someone please inform the capitalists. So when, for example, a large multinational executes workers demanding better pay and conditions in third world country factories, it's all about information and knowledge. Mainly, the knowledge that killing those guys will send a message to the rest of the workers, and keep the factory costs down. http://www.amazon.com/The-Coke-Machine-Behind-Favorite/dp/1583334068 http://www.amazon.com/The-Coke-Machine-Behind-Favorite/dp/15... Just an example. There are million others, from lobbying and having special laws made for them in western countries, to setting up governments of people they approve and taking down governments they don't like in so called "Banana republics". http://www.amazon.com/The-Coke-Machine-Behind-Favorite/dp/1583334068 http://www.amazon.com/The-Coke-Machine-Behind-Favorite/dp/15...
ilaksh 14y ago
Capitalism is only possible where knowledge is shared unequally. For example, if many people knew how to obtain the proper license or whatever and where to go to buy wholesale, then they would bypass retailers entirely. Similarly, if many people had knowledge about how to start a business and knew several friendly venture capitalists or bank officers, many of them would start their own businesses and there would be few people to do the actual work. Having said that, I think its important to emphasize some of the things that capitalism gets right: it is still a relatively open and distributed system that is able to evolve more freely than systems that are less so. Open in that many people can actually apply for loans etc. and start their own businesses. Distributed in that there are numerous options and usually no single point of failure. I don't think that greed is necessarily fundamental to human nature. That's an oversimplification. Humans do need to compete sexually, but I don't think that extreme hierarchies are necessarily a requirement for that. Much of what is considered human nature is just the current state of our culture. I think its hard to create a system that operates consistently and soundly as a whole but at the same time is robust, distributed and free to develop in different directions. However, I believe sure that we can improve our current situation by injecting a more egalitarian belief system as well as more science and technology into the power structure and its operating principles, which means the financial system. For example, "economics" is now mainly gaming strategies for maintaining point (monetary) counts and the power that goes with them. But because economics is so critical to human decision making, it must at some point incorporate human needs, social science, and physical science such as ecology. There is a false belief that somehow these monetary gaming strategies and point/goods exchange systems (the economy) incorporate scientific knowledge, measurement, and technological knowledge automatically. That is not the case currently. One of the problems with all of the systems, capitalistic or anti-capitalistic, is the tendency to move, either quickly or more slowly, towards centralization. When wealth/power as well as goods and services production concentrates it leads to vast inequality, poor distribution, stagnation, inability to cope with local conditions, etc. I think we need to do a better job of centralizing information schemas and holistic knowledge but do that in a way that does not compromise the ability to evolve those knowledgebases and distribute production or lead towards centralization of power, etc. Its not easy, but I think its a technological problem we can solve.
- deleted 14y ago
iAinsley 14y ago
huh? Capitalism is about risk and reward. Capitalists look to government for a number of things: a) Infrastructure b) Political stability c) Market Regulation (e.g. fair competition, orderly markets, currency,etc) d) and risk reduction Capitalists are free to asks for any other thing that decreases risk, it doesn't mean the government has to respond in all cases. I disagree with George, there is not direct path between incentives and socialism.

47 points by adrianscott 14y ago

Capitalism is based on there being a customer. All the capital in the world doesn't do any good if there's not a buyer on the other end. Another argument for a strong middle class.

darrencauthon 14y ago
Capitalism is not based on the existence of a customer. It's based in freedom, in the right of every individual to do what he or she wants to do with his or her own life and property. Of course, if there is no customer, there can be no sale. However, the sale itself isn't always the point. Sometimes people do things just for the fun of it -- and that's capitalism, too.
smokeyj 14y ago
> Capitalism is based on there being a customer. All the capital in the world doesn't do any good if there's not a buyer on the other end. Another argument for a strong middle class. I fail to see how these sentences form an "argument".
michaelochurch 14y ago
The idea that the upper class depends on the middle class is false. Establishment and talent are natural enemies. I would like to see us destroy the upper class (maybe "dismantle" is a better word; I don't see violent revolution producing anything good) and build a society that is robust against social elites and upper-class parasitism-- ideally a society where there are no entrenched social classes-- but I'm probably dreaming on that one. Yes, they need a healthy middle class if they want to keep a capitalist economy going. Here's the depraved little secret: they don't actually care that much about having a capitalist economy. Social elites are almost always parasitic and actually quite non-ideological. If we were a communist or fascist state, it'd be the same people in charge, but instead of being corporate executives, they'd be government bureaucrats. They don't give a shit about "capitalism" or "socialism" so long as it's them on top. The ideology is something they tune to the peasants' shifting tastes. It's not about economic well-being for them. It's about status. In a robust capitalist and technological economy, they get private jets. If the U.S. becomes Third World, they get white maids. Both are essentially status symbols, and they don't have an intrinsic attachment to one over the other, but they'd rather reign in hell than serve in heaven.
adrianscott 14y ago
humans have time. that is a form of capital. humans have needs. there is no shortage of customers. before currencies, there is trade. who is the customer in a trade before currency? it's an exchange, not a purchase by a customer from a seller.

zby 14y ago

Wow - this is so close to the FLOSS ideology! I'll need to read that book.

ollysb 14y ago

"In capitalism, the winners do not eat the losers but teach them how to win through the spread of information." This certainly casts patents in an anti-capitalist light...

mtgx 14y ago
Apple could certainly be seen in the light of greed here. They are doing extremely well anyway, making money hand over first, and yet they still can't sleep well at night knowing there are other touchscreen devices on the market besides their own, and they're abusing every piece of patent technicality to ban their products from the market.
michaelochurch 14y ago
I don't actually agree with that. Capitalism is ruthless. The winners do put the losers out of business. That's the moral justification for IP: without regulatory intervention, the winners are often not the generators of the IP. That has become more true in the age of the Internet, where a lot of natural monopolies are emerging, but it was probably always true. Size begets growth, coalition-building is inevitable (leading to conglomerates) and those who can't make nice with the big players often get crushed. The problem with capitalism is that it's not stable. People who become rich and powerful (and their generally useless heirs, friends, and hired-gun managers) don't actually want to live in a capitalist world, so they use their social connections to build a private safety net, which hampers innovation. Corporate bureaucracies have more in common with the Kremlin than a Silicon Valley startup, and even Silicon Valley isn't that innovative, because it's increasingly controlled by a well-connected VC/media social elite. Most people wouldn't want to live in pure capitalism, and the corporate elite especially doesn't want it. They want to keep what they've got. The problem with the problem with capitalism (or the problem with not-capitalism) is that every alternative to an at least mostly capitalistic economy is terrible. Command economies are not desirable. Most thinking people are essentially (small-l) libertarian. My use of this word has nothing to do with the current usage (conservative who likes pot). By libertarian, I mean the opposite of authoritarian: belief that people should, all else being equal, be free to do as they wish rather than controlled by a governmental or corporate authority. (Authoritarians believe it's intrinsically impossible for most people to do anything good unless told to do so by a central authority.) The problem is that libertarianism begets capitalism begets conglomeration begets corporatism. It's the Iron Law of Oligarchy. The only solution I can see is the Western European social democracy (i.e. a socialist infrastructure to provide a safety net, but a capitalist engine for innovation and to maintain individual freedom). You need enough of a welfare state to keep people from being exploited by emergent corporate power, but enough capitalism (economic freedom) to keep innovation alive.

michaelochurch 14y ago

Capitalism has its problems, but its critical selling point is that, if it works well, you don't need official approval to do business. In the USSR, it was a crime to compete with the one established business: the state. Fusions of state and business power (whether from the left, as in communism, or from the right, as in fascism) are almost always bad. The major win (practical and moral) in capitalism is the right of the individual to interact with the market without official approval. If you look at corporate hierarchies, however, you see that they're run internally like command economies. Headcounts and projects are written up and assigned by gloomy, bureaucratic committees detached from the actual heartbeat of the business. You're assigned a role, and if you try to "compete" by seeking a different role or starting a skunk-works project, most companies will fire you or otherwise work to shut you down. Companies are statist in the extreme. Corporatism is a system designed to give the best of both systems (capitalism and socialism) for a well-connected, parasitic social elite (called "the 1 percent", but really they're about 0.2%) and the worst of both for everyone else. You see this, for example, in commercial air travel, where you get Soviet quality of service but the bizarre, unpredictable pricing you'd expect from a runaway market (that is actually not so much a "market" as an algorithm designed to fuck you over).

mlvljr 14y ago
Actually, during Stalin times, the state delegated substantial part of no-high tech production to cooperative businesses ("артели"). Only later the system turned into a monolithic state monopoly.
yummyfajitas 14y ago
...or from the right, as in fascism... Fascism was (by modern US standards) a center-left ideology. It emphasizes collectivism/corporatism, authoritarianism and nationalism. You are also using the term "corporatism" incorrectly. Corporatism is a political system which elevates the rights of privileged corporates (a better modern term would be "special interest groups") above the rights of individuals. A good example of modern corporatism would be disparate impact-based policies - e.g., "we shouldn't allow this neighborhood to gentrify because a privileged corporate might disproportionately move out of this neighborhood." I think what you meant by "corporatism" is actually "cronyism".

deleted 14y ago

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cynicalkane 14y ago

Capitalism is based on information, knowledge, greed for money, greed for ownership, desire for accomplishment, and a lot of other things. Information is one of these things. Information is a means to a lot of other ends as well. I look dimly on people who say "Capitalism is driven by X" where X is some narrowly defined band of things. From Rand to Marx, theories that look like invariably turn out wrong, sometimes disastrously so. In economic speak, an incentive is anything that a person in question might want. The desire to acquire information and the rewards of using it are one kind of incentive. It's common for random econ pundits to try to redefine "incentive" as "greed", and this should be the first clue that they either don't know or don't care what economists actually think.

mxfh 14y ago

I disagree. Capitalism in its current state is heavily based on securing advantages, meaning it's only fair in areas which are new and not saturated by established players.

csense 14y ago
Three beautiful words to a capitalist: "Sustainable competitive advantage." > it's only fair in areas which are new and not saturated by established players. What is your definition of "fairness," and why should we care whether it is a property of capitalism? I think you're saying something like "capitalism encourages incumbents to build fences to keep newcomers out." That's true. Antitrust law exists to discourage certain types of fences that we find undesirable. But other types of fences are perfectly OK -- for example, AMD and Intel spend hundreds of millions, if not billions, every year on R&D to keep raising their technology head-start fence, to keep competing chip vendors out of their markets. The result from the consumer's point of view is a virtuous cycle of continually improving products at the same price point from these industry leaders, with a "long tail" starting with successively older generations of obsolete processors on the secondary market, down to much cheaper ARM's which have much lower performance but are perfectly adequate for many applications. If incumbents can always build fences so strong that they are invulnerable: How did Google win against Yahoo? How did cable providers win against over-the-air TV networks? How did Netflix kill Blockbuster? How did Microsoft triumph over IBM? When incumbents fence themselves in, times are good for them for a little while -- but usually the incumbents end up as slow, fat targets for fast-moving, lean startups. This is especially true once the management team that established the incumbents has moved on or retired, and their replacements listen when the accountants tell them how much money they can make if they raise prices, cut costs, or reduce their investment in fences.
- mxfh 14y ago
  Yes, there is no right for resting on your past achievements, there is arguably a fair way of getting advantages secured for a limited amount of time: innovation, adding to others innovations, combining others works, opening new markets. And the other "unfair" way: patent-abuse, monopolies, cartels, copycats with no added value, lobbying for the gains of a few who are already better off. Some of that has been made illegal some of it just feels morally wrong. Basically it comes down to moral norms, which society can turn into laws if considered important enough by a majority. Its all comes down to finding a balance, economics will never be perfect or fair for all, but I consider it the goal of politics to be getting it closer to that ideal state which should be beneficial to all in the long run.

_delirium 14y ago

I'm not sure this random collection of quotes is a great starting point for a discussion as broad as what "capitalism is". Especially quotes that come in an election year from a non-economist mainly famous for his GOP activism. If you do want an argument in favor of the information-aggregation view of markets, and what is required for them to work in practice, F.A. Hayek provides a better analysis.

adrianscott 14y ago
Thanks, have you found that Hayek incorporates technology and the flow of technological knowledge? I'd love to see a ref on that. I recommend checking out the book The Origin of Wealth as one ref that has a nice coverage of tech/knowledge in a behavioral economics context.
michaelty 14y ago
Some places to start: The Use of Knowledge in Society: http://www.econlib.org/library/Essays/hykKnw1.html http://www.econlib.org/library/Essays/hykKnw1.html Economics and Knowledge: http://www.econlib.org/library/NPDBooks/Thirlby/bcthLS3.html http://www.econlib.org/library/NPDBooks/Thirlby/bcthLS3.html
001sky 14y ago
The form and the substance of this piece are characterized by bits and pieces of ideas and 'analyis' that are neither here nor there. So I agree with you. Also recommend adding Coase as a complement to your suggestion of Hayek.
ilaksh 14y ago
To what degree are Hayek's theories proven by scientific studies? In what manner does F.A. Hayek incorporate our contemporary social, physical, ecological, engineering, and systems science and technologies into his theories? Any field which purports to scientifically guide the operation of the planet must integrate these sciences and technologies. Economics is more philosophy, speculation and faith than it is science.

api 14y ago

I have a very tough time rationalizing this guy's futurism with the rest of his opinions. Of course, I guess compartmentalization and contradiction are common elements of the human condition. http://en.wikipedia.org/wiki/George_Gilder http://en.wikipedia.org/wiki/George_Gilder

irickt 14y ago
In particular, [excerpts from Wikipedia] Gilder is a founder of the Discovery Institute, the leading think tank of the intelligent design movement. Gilder has written many articles in favor of ID and opposing the theory of evolution.
- api 14y ago
  A lot of engineers don't get evolution because engineers tend to think there is one best way to do something. How could evolution ever discover the "answer," they think? This is endlessly reinforced in school. You get right answers and wrong answers on tests, but that's because school tests are toy problems not real problems. In reality there are better answers and worse answers and worse-is-better answers and ugly-hack-to-ship answers. But think about the Church-Turing thesis a bit, and universal computation, and it becomes obvious that there are infinitely many ways of solving any arbitrary problem. They aren't all created equal, but there are also paths between them. Evolution works by discovering one answer and then following pathways through the fitness landscape to converge on better and better answers. Sometimes it actually does discover global optimums, or sometimes it just settles on something that works well enough given all the trade-offs. (In some problem spaces there is no clear global optimum.) But I see something more here. His opinions on gender are just batty. There is evidence for gender dimorphism in humans, but he takes that evidence and does a Forrest Gump run with it all the way off the field and into the bleachers. He also ignores huge numbers of counter-examples to his thesis and mistakes statistical means for universal laws.
  - pi18n 14y ago
    Also; engineers should be aware of genetic algorithms which work so well they are used by NASA ( http://en.wikipedia.org/wiki/Evolved_antenna http://en.wikipedia.org/wiki/Evolved_antenna ). Anyone who doesn't understand evolution is a fact is basically being willfully ignorant at this point.

fastball 14y ago

"Far from a system of greed, capitalism depends on a golden rule of enterprise: The good fortune of others is also your own." So... when competition puts your company out of business, that's a good thing? It was beneficial to local grocers when their businesses were bankrupted after being undercut by Walmart?

adrianscott 14y ago
Yes, it gave them an impulse to find areas where they could do something that people judged valuable enough to part with their money. (e.g. learn how to design web pages and make bad flash animations ;) It also did help people who buy groceries, including poor people.
- fastball 14y ago
  But now the people who worked at the small town grocer are out of a job, so you are left with more poor people.
  - theorique 14y ago
    It's all good ... they can retrain in Ruby On Rails or Objective-C and become app entrepreneurs!

ktizo 14y ago

So, the claims are that capitalism is based on information and knowledge and not greed and that greed leads to socialism? Is certainly an interesting opinion. My first thoughts were that he seems to be confusing motives and methods. Information and knowledge certainly flow through a capitalist system and are definitely required in order to do well, but they are not the motive for most capitalists, In fact I can think of very few millionaires who are in business for the learning and philosophy, whereas the desire to own more stuff or money often is a driving force. As for saying that socialism is the end product of greed, and that it is greed that leads to a socialist welfare state, well. Someone should definitely tell this to some of the various murderous dictators that have been propped up by capitalists in the name of stability, security and favourable trading positions. They'd have a pretty good laugh about it while checking their numbered accounts. Also, if greed leads to the creation of welfare for the poor, presumably this means that the problem is the greedy poor. Which given that by definition they cannot be very good at being greedy as they have no stuff, makes me doubt that it was their greed that led to the creation of welfare, and that maybe having less than 100% employment might have more to do with the massive mechanisation and export of labour.

e12e 14y ago

Isn't Capitalism based on... capital? Investing in production in such a way that you increase your profit rate -- with the inevitable result being consolidation of capital, and therefore power over the means of production -- or in other words the consolidation of power? With globalization this becomes an even more serious problem, because the entities that control the capital are extra-national. So from the joyful history of the East Inda Company to the merry state of British Petroleum today -- you have entities that cannot on the whole be held accountable to one set of laws, because no (functional) jurisdiction exist that cover their entire area of operations. Even when regulation seemingly works, as with Microsoft, Netscape and the browser wars -- they fail. Microsoft won that one, despite loosing.

adrianscott 14y ago
"Microsoft won that one, despite loosing." (sic) please explain?
- cedmart 14y ago
  I read it as: "By bundling IE with Windows, abusing (illegal) the Windows monopoly (legal) MS managed to basically kill Netscape... Despite losing the legal battle and being --forever-- regarded as a company that did abuse its monopoly to drive out a competitor". It's not about IE vs Chrome, it's not about IE vs Safari. It's not about whatever-MS-mobile-OS vs Android vs iOS. It's about IE vs Netscape and MS (illegally) "winning" that war despite losing in court.
  - e12e 14y ago
    Yes, that sums up what I meant. Also, if you look at browser stats even today, arguably IE has an "unfair" share of the market -- but such things are hard to be certain of ("What is a 'fair' market share for the now much, much improved IE browser?"). The biggest thing MS did was probably to give away the browser for free, subsidizing the development of the browser, with profits from windows licences. That dumping effort effectively killed the market for (paid for) browsers -- eventually even Opera gave up charging end users for its browser.

njharman 14y ago

Sure, whatever. It doesn't matter what "Capitalism" is. Evolution has made human-nature greedy. And all these systems (capitalism, consumerism, socialism, communism, anarchy, have one overriding commonality; they're implementors, regulators, and constituent parts are all human. Whom, in the aggregate, follow human-nature (by definition). No matter what system you think we have (or should), what system they tell us we have, or what system people actually try to enact, human-nature morphs it towards greed. And if you're irrationally alienated by the word "greed", feel free to replace it with the comfortable alternatives we've rationalized; "saving money", "efficiency", "winning", "being successful". They and others are all rooted in "getting the most for me" aka greed.

thwest 14y ago
Appeals to some evolution-determined human nature fall flat for me. The greatest thing evolution endowed humans with is conscious reasoning that can overcome our cognitive instincts. You will see even great humans revert to their instincts when situations are dire, but the project of civilization is to eliminate those situations. Trying to frame _every_ human goal as a form of greed/self-interest/winning is tautological. There are substantial differences in the way humans experience altruistic, compassionate self-interest and individualistic, combative self-interest. Certainly we can experience varied social arraignments emphasizing different negotiations between every individual's self-interest. When one's argument considers the vast history of human societies and reduces them to all to self-interest enablers, is it saying anything at all?
MaysonL 14y ago
Instincts are all well and good. The problems arise when they get out of control: whether it's the instinct for food, the instinct for sex, the instinct for more, the instinct for curiosity. When you are in control of your instincts, things work. When your instincts run you, you're headed for trouble. Greed, under control, can be valuable. Greed uber alles, leads to parasites like Romney getting filthily richer by doing things like bankrupting KP Toys.
- csense 14y ago

ThomPete 14y ago

Capitalism as described is yes, but humans are based among other things on greed and they are part of the system. Please don't make the mistake of confusing the system with the agents in the system.

Tycho 14y ago

It's based on individual property rights, trade and reinvestment of capital accumulated due to said rights.

jberryman 14y ago

Flagged for being overly partisan political, and bringing little value as a launching point for discussion.

notlisted 14y ago

It sure is. Sometimes this information is in the form of insider knowledge shared within the old boys network, or misinformation spread to the masses to pump and dump a stock (hello facebook), or tell everyone to buy a house with a white picket fence (take on that mortgage, it's the best investment evah), or market "derivatives" that are "too complex even for the sellers to fully understand". We also have the knowledge on how to patent stuff so the hoi polloi don't get their grubby little fingers on it... It's all about the CONTROL of information, making use of it to enrich oneself at the expense of others. Let's not kid ourselves, it's not about sharing sh*t. It's about doling it out piecemeal and selectively, or obsessively, to control opinion and/or maximize profit. Perhaps not zero-sum, but there are lots of bags held by the partially informed and the less-informed.

001sky 14y ago

The competitive pursuit of knowledge is not a dog-eat-dog Darwinian struggle. This is demonstrably not true in the presence of Firms. Agents in the markets are hierarchies, and the internal competition in a hierarchy is very much darwinian. This second tier of this two-tiered chess game is not without consequence.

mtraven 14y ago

He gives the game away in the second sentence: > But greed, in fact, prompts capitalists to seek government guarantees and subsidies that denature and stultify the works of entrepreneurs. Yes, that is how real, as opposed to theoretical, capitalism works. And communism is all about selfless cooperation in theory, but in practice works out to something quite different. Speaking of communism and information, I can't recommend too highly the book Red Plenty by Francis Spufford, which is about the efforts by very early cyberneticians in the USSR to create an economy which was managed by information without greed.

T_S_ 14y ago

Not much content in this blog piece. Couple of isolated quotes from a Forbes article from a with no tl;dr on offer. Instead of "Capitalism is...beautiful" ideology it would be worth focussing on when it works and when it doesn't. Seems that there is strong evidence that capitalism harness human nature, property rights, and incentives to enable production. That's great. There is a lot less discussion about what it takes for markets to allocate resources efficiently. Two of the bigger prerequisites are "no externalities" and "symmetric information". Capitalism has no built-in mechanism to establish these conditions. A lot of our problems today go right to those factors. We could do something about it if our politicians would stop playing to the cheap seats. Sorry capitalism, you're ok but not that beautiful.

squonk 14y ago

Data Points: Since 1970, global population increased by 91% Since 1970, global aggregate GDP increased by 540% (in constant $) I think that means that 540/1.91 = ~2.8x increase in per-person productivity on a global basis over the last 40 years. I would contend that capitalism drives productivity increases to a greater degree than communism or socialism, simply based on the fact that 8 of the top 10 economies in the world are arguably capitalist. (counting France as socialist and China as something else, not sure what at this point). A better statistician than I can weigh in with wealth distribution, and I am betting that the average world citizen is better off today than 40 years ago, primarily due to capitalism.

batista 14y ago

"Capitalism is based on information and knowledge, not greed" Really? Then someone please inform the capitalists. So when, for example, a large multinational executes workers demanding better pay and conditions in third world country factories, it's all about information and knowledge. Mainly, the knowledge that killing those guys will send a message to the rest of the workers, and keep the factory costs down. http://www.amazon.com/The-Coke-Machine-Behind-Favorite/dp/1583334068 http://www.amazon.com/The-Coke-Machine-Behind-Favorite/dp/15... Just an example. There are million others, from lobbying and having special laws made for them in western countries, to setting up governments of people they approve and taking down governments they don't like in so called "Banana republics". http://www.amazon.com/The-Coke-Machine-Behind-Favorite/dp/1583334068 http://www.amazon.com/The-Coke-Machine-Behind-Favorite/dp/15...

ilaksh 14y ago

Capitalism is only possible where knowledge is shared unequally. For example, if many people knew how to obtain the proper license or whatever and where to go to buy wholesale, then they would bypass retailers entirely. Similarly, if many people had knowledge about how to start a business and knew several friendly venture capitalists or bank officers, many of them would start their own businesses and there would be few people to do the actual work. Having said that, I think its important to emphasize some of the things that capitalism gets right: it is still a relatively open and distributed system that is able to evolve more freely than systems that are less so. Open in that many people can actually apply for loans etc. and start their own businesses. Distributed in that there are numerous options and usually no single point of failure. I don't think that greed is necessarily fundamental to human nature. That's an oversimplification. Humans do need to compete sexually, but I don't think that extreme hierarchies are necessarily a requirement for that. Much of what is considered human nature is just the current state of our culture. I think its hard to create a system that operates consistently and soundly as a whole but at the same time is robust, distributed and free to develop in different directions. However, I believe sure that we can improve our current situation by injecting a more egalitarian belief system as well as more science and technology into the power structure and its operating principles, which means the financial system. For example, "economics" is now mainly gaming strategies for maintaining point (monetary) counts and the power that goes with them. But because economics is so critical to human decision making, it must at some point incorporate human needs, social science, and physical science such as ecology. There is a false belief that somehow these monetary gaming strategies and point/goods exchange systems (the economy) incorporate scientific knowledge, measurement, and technological knowledge automatically. That is not the case currently. One of the problems with all of the systems, capitalistic or anti-capitalistic, is the tendency to move, either quickly or more slowly, towards centralization. When wealth/power as well as goods and services production concentrates it leads to vast inequality, poor distribution, stagnation, inability to cope with local conditions, etc. I think we need to do a better job of centralizing information schemas and holistic knowledge but do that in a way that does not compromise the ability to evolve those knowledgebases and distribute production or lead towards centralization of power, etc. Its not easy, but I think its a technological problem we can solve.

deleted 14y ago

iAinsley 14y ago

huh? Capitalism is about risk and reward. Capitalists look to government for a number of things: a) Infrastructure b) Political stability c) Market Regulation (e.g. fair competition, orderly markets, currency,etc) d) and risk reduction Capitalists are free to asks for any other thing that decreases risk, it doesn't mean the government has to respond in all cases. I disagree with George, there is not direct path between incentives and socialism.