While awaiting the “second wave of crisis,” society is not wasting time. It busies itself inventing all sorts of scary stories and readily getting frightened by them. As in classic children’s tales or absurdist literature, these stories feature all-powerful and all-knowing forces that treat the heroes rather harshly. There is, however, one difference — it lies in the presence of a mandatory “shame on you!” attributing all evils to some cause. In the overwhelming majority of cases, this cause is something the authors call “capitalism.” Capitalism, they claim, is experiencing not just a crisis, but a systemic one, and its end is coming soon.
All these writings would hold purely academic interest if the authors did not trouble themselves with advice and prescriptions. In 99% of cases, these prescriptions consist of the need to prohibit something for other people. Since our behavior is determined by our knowledge, and therefore also by the ideas of others, the activity of the authors of these scary stories ceases to be harmless and becomes dangerous. Arguing with the “grave-diggers of capitalism” is difficult because their name is legion and each invents his own causes of death and burial rituals. However, they all share one common trait — their enemy exists only in their heads. It is to this circumstance that the present note is devoted.
For Ukrainians, anti-capitalist scare stories are in some ways forgivable, since they are experiencing cyclical crises directly for the first time. But generally speaking, “scientific” criticism of capitalism is a perfectly respectable occupation. The author once came across a remarkable text describing anti-capitalist works of different eras. Their authors convincingly proved mutually exclusive things about “capitalism.” What one author considered a virtue, another considered a flaw, so the overall picture revealed either a universal misunderstanding of the subject or simply its absence.
What is “capitalism”? Does it exist, and what is actually experiencing a crisis? Let us try to answer these questions briefly.
Humans differ from animals in that they are capable of extracting new quality from cooperation with each other. Moreover, the institutions that this cooperation procreates (called “society” or “the market”) are constantly developing. In the course of human activity, institutions arise that allow people to cooperate better and achieve increasingly ambitious goals. These institutions include law, money, morality, and courts. Interestingly, these institutions are very similar regardless of the era in which they arose.
Then, in society, there arose (let us leave aside the causes and nature of this process) a group of people having privileges relative to everyone else. Unlike other people, who work for each other’s benefit, ensuring their wealth by satisfying the needs of others, this group occupies itself with appropriating the property created by the first group. We are, of course, talking about the state.
In fact, the history of humanity is the interaction of two processes. The first is creative and voluntary labor and exchange between people, during which social institutions arise and develop. The second is activity aimed at creating all sorts of obstacles for these people and extracting the results of their labor. The first process is practically unknown, very difficult to describe, and historians only began to take interest in it relatively recently. The second process, on the other hand — in the form of the vigorous activity of kings, commanders, and various similar figures — is very well known, and it is this that is conventionally considered history.
It is not difficult to notice that, with very rare exceptions, the overwhelming majority of people at all times lived under tyranny, and even today this statement remains correct. That is, these people face maximum difficulties in cooperating with each other, creating new wealth, and exchanging it.
Now we come to “capitalism.” Both the numerous critics and the few apologists of capitalism agree that capitalism’s golden age was the 19th century, and the most capitalist countries were Great Britain and the USA.
Looking at the recent past of these countries, we see there a minimal state — by our current standards, virtually no state at all. In England, there was no regular army, no police, no prosecutor’s office, private jurisprudence in some of the most important branches of law (commercial and maritime), private medicine, private social insurance, private education. Money also did not belong to the state — the money was gold and silver. It is precisely this absence of the state, or rather the absence of interference in the process of people’s cooperation with each other, that is this very “capitalism.” It was this happy coincidence of circumstances (though far from random) that freed people’s energy and gave rise to the rapid growth of well-being, scientific discoveries, and technological breakthroughs with which the 19th century was so rich.
Now let us look at what we have now. Take any “welfare state” — they are all essentially the same, whether Ukraine or the USA. So we see a state with a regular army, state police (and often a prosecutor’s office), state courts, a state social insurance system, state medicine (in various modifications, predominantly in the form of compulsory “insurance” medicine), and state, again compulsory, education. The state has eliminated the gold standard and appropriated the monetary system. The state actively “regulates the market,” interfering in people’s activities.
Thus, the state has appropriated the social functions that were previously provided by voluntary activity. Now these functions have become a pretext for the extraction of wealth — which is what the state does. One may ask — what difference does it make who performs these functions? The difference is actually between voluntary and compulsory. Moreover, no state, even if composed of ideal, selfless, and well-intentioned officials, is capable of replacing the processes of voluntary coordination that the “market” or “society” provides. The issue here is the creation and transmission of knowledge — not some abstract “information,” but the specific circumstances of time and place that people use in their daily activities and which they themselves, as a rule, are unable to articulate clearly. The most universal tool for transmitting knowledge is prices. And it is precisely prices that are most affected by state intervention.
It is impossible for one person to live instead of another, purchasing goods on their behalf and determining the services they should use. Such activity creates chaos and disorder, disrupting coordination in society. It is precisely with this activity that the state occupies itself.
A separate word should be said about law. Previously, the task of the legislator was to single out from common law (that which people create in their everyday practice) the patterns that could be described in legal language. This is precisely why all attempts to codify common law, which we discussed above, are so similar in content — for the activity of people is governed by universal patterns. That is, ideally, the law was supposed to “improve” действующее обычное право, lending it all the repressive power of the state. Now the state has completely supplanted law with legislation. Modern law does not differ in its legal essence from directives, orders, and instructions. It differs only politically — the procedure for its adoption is more open and theoretically more accessible to public intervention than the instructions of the executive branch. Essentially, modern laws and executive orders are simply varieties of commands. Roughly speaking, one group of people imposes certain goals and the means of achieving them on the rest. This is especially visible in countries like Ukraine, where a law adopted by “people’s representatives” always contains references to future government decrees that can, if such a need arises, easily replace the essence of this “law.”
Does such a system resemble the capitalism described earlier? Can this be called capitalism? Obviously not.
Why, then, are the arrows of criticism directed at “capitalism,” which has long been absent anywhere in practice? The answer was given back in the 19th century by Frédéric Bastiat, who titled his collection of economic pamphlets “What Is Seen and What Is Not Seen.” As we have said, the daily activities of people are “not seen,” despite the fact that they, and only they, create material and spiritual goods and social institutions; on the surface, only state regulation is visible. Importantly, most often it is not visible even to the participants in the process themselves, since “society” or “the market” is a new quality that none of us possesses individually and which arises only in the process of cooperation among a large number of people unfamiliar with each other. Let us add here that professional economists and political scientists are trained according to state programs in the state education system precisely as future “regulators” — they are prepared in advance for the role of turners of various bolts.
So, state regulation creates chaos and discoordination, which, as a rule, do not manifest immediately. On the contrary, it often happens that for some time after turning another bolt, the state reporting — for the sake of which, actually, it exists — shows an increase in milk yields. However, over time, the destructive effect still manifests itself, and what is more, in the most unexpected places. This causes the joyful howl of “capitalism’s” critics and the desperate itch to turn another bolt and produce another portion of chaos.
Interestingly, even the activity that the state selflessly calls “liberalization” is most often nothing other than a variety of state regulation. Such are, for example, financial “liberal reforms” that led to the appearance of derivatives worth quadrillions of dollars and, in the words of Hernando de Soto, undermined the very essence of capitalism — a society in which the greatest certainty regarding property rights exists. Also such are state requirements to evaluate the value of enterprises at “market” rather than historical cost of their assets, and much else.
The question arises — how did it happen that the same England found itself in such a positive situation in the 19th century, and why did everything change so dramatically afterward? Apart from various “objective” reasons, one must give due credit to subjective reasons, namely ideas. After all, “capitalism” in England did not appear on its own; it replaced mercantilism — a regime of strict state regulation and intervention, reminiscent of modern Ukraine. The struggle against mercantilism was a struggle of ideas, for at the basis of mercantilism lies the idea of a zero-sum game — if someone has gained, it is only because someone else has lost. In the course of this struggle, economics emerged as a science about exchange relations between people. The arguments of this science tilted public opinion in its favor, and England managed to peacefully rid itself of mercantilism. In other countries, the situation was not so favorable, and revolutions were required. The subsequent course of events was also determined by ideas. Rapid development and growth by the end of the 19th century created the opinion that “now at last” the state could finally cure all social ailments, and it set about doing this with all possible skill. Economics also changed. With the exception of some schools, it turned into a set of prescriptions for state intervention.
Our current situation is characterized not by a crisis of long-dead capitalism, but by a deep crisis of ideas in mainstream economics — economics that postulates the necessity of state regulation. And, first of all, this is a methodological crisis. A wonderful illustration of this methodology I saw in information about a young talent from Makeevka’s “Youth Union of Regions of Ukraine.” This talent develops mathematical models describing the political process. Thus, as the website of “young regions” informs us, “using the Banzhaf index, Anastasia calculated that the most influential in parliament is the Party of Regions.” Moreover, “mathematics also proved that the work of parliament with the ‘orange’ coalition was far from effective, often accompanied by conflicts and blocking of the rostrum.” If you think that macroeconomics, claiming to possess the correct levers of management and understanding of economic mechanisms, differs in any way from this, then you are deeply mistaken.