Thoughts on Capitalism.

Most teachers of economics only concern themselves with capitalism as the economic model of interest. They support with enthusiasm the form generally known as neo-liberal economics. The features include the worship of what they call the free market. It includes the idea that in the name of freedom there should be minimalist government and deregulation. The privatisation of government assets is the most important way of making progress because the belief that free markets always result in more efficiency in business than state run activities.

Economists consider themselves as scientists, but that is false. They do not use data that they ought to establish, but depend on assumptions and assertions. The idea of markets that reach an equilibrium where supply and demand naturally meet, is claimed to give economic stability, yet the experience of booms and bust belie that prediction. This economic hypothesis is falsified convincingly by recent experience. The orthodox economists did not foresee the global financial crisis of 2008.

The ideology that desires minimum government demands tax cuts so the state is forced to reduce social support. The propaganda that the retention of money by capitalists will mean that they will create jobs so that wealth will trickle down to the working non-capitalists. This has not happened, falsifying that hypothesis. The ability of capital to borrow more capital is a positive feedback mechanism that causes inequality to grow in favour of those who have capital. Mathematically, the most efficient distribution of wealth and income is an egalitarian one.

That de-regulation is the harbinger of freedom is a noxious idea. Time and again de-regulation has resulted in deaths and injury to workers and the decrease in financial ethics. This is another falsification for those who think scientifically.

The idea that privatisation will bring efficiency to industrial and social activities is another hypothesis that is falsified. Many times the state must intervene in some way from failures of this hypothesis.

There is a significant faith in the idea that by businesses acting selfishly all will benefit (the trickle down idiocy again). Time and again the selfish actions harm others. The adulteration of food and the production shortcuts have not benefitted the consumer with safety and product reliability. Where public assets are used for profit, then the assets are over-exploited and everyone loses (the Tragedy of the Commons).

Humans are naturally social beings. By working together for a common outcome, advantages for everyone accrue. Competition as seen as good ignoring that it tends to produce more losers than beneficiaries. The goal of competition is to win by taking over the losers to create a monopoly and have a free rain to exploit that position. Co-operation bypasses the need to create losers. True co-operation benefits all.

Many activities of the state have a social purpose. The direction of these activities on a commercial basis has proven many failures. Rather than put business graduates in charge of these operations, we need people whose careers have been in progressing the social intentions to advance into leadership. It is nonsense to put some fancy economist in charge of education for instance.

Production possibility.

Most economic textbooks take on a similar form. They start with an introduction that proposes a “production possibility” advantage to an economy. They make the assumption with two alternatives of production graphed with a convex curve and assume a better result than just specialising in either one. They justify this with an assertion that there are diminishing returns to labour and therefore avoiding specialising stops this.

Image result for production possibility curve

They overlook the efficiency gains of large capital investments when specialising. Capital costs of manufacturing plant usually follow a power law which means the capital costs do not expand at the same rate as the plant capacity expands. In chemical plant the index of the power law varies. For aluminium production plant the power index is 0.80 meaning that to double the production capacity, the plant will cost 75% more. A caustic soda manufacturing plant will cost only 30% more for a plant of twice the capacity. Other chemical plants are in between these extremes. Doubling the plant size does not always mean doubling the labour force.
Do economists exaggerate the diminishing returns to labour? They depend on assumptions rather than collecting data. They never seem to know that in some cases larger material costs can receive a discounted cost. My thought is that they do not have experimental backing for their assertions. And this is only an introductory assertion. If economists are going to pretend to be scientific they had better do more measurements, stop assuming, and test their theories with real data.
When it comes to trade they produce the idea of “comparative advantage” which supports specialisation rather than the production possibility theory contradicting this phoney theory.