Why Capitalism Will Win
In the first week of January, 1950, Harvard economist Joseph Schumpeter was completing the final edits of a manuscript which he had delivered as a speech on December 30, 1949. The title was: "The March into Socialism." He died before he finished the editing.
The article became a classic. It was reprinted in the third edition of his 1942 book: Capitalism, Socialism, and Democracy (1950). The book has never been out of print.
In his article, he argued that the success of the business class is in fact its own destruction. It had created a massive, centralized industrial structure, and the government was now going to come in and regulate it. He had seen this during World War II. Capitalist civilization was undermining the traditional Western family. It was going to be regulated by socialists. World War I killed laissez-faire, he said. Now World War II had completed the transition. Perennial inflation was weakening the social fabric of society. Price controls were universal. "In other words, price control may result in a surrender of private enterprise to public authority, that is, in a big stride toward the perfectly planned economy." At that point, he died.
Others who had heard him deliver his 1949 speech worked on putting together this final entry, which they thought they had heard him say:
Marx was wrong in his diagnosis of the manner in which capitalist society would break down; he was not wrong in the prediction that it would break down eventually. The stagnationists are wrong in their diagnosis of the reasons why capitalist process should stagnate; they make still turn out to be right in their prognosis that it will stagnate--with sufficient help from the public sector (pp. 424-25).
Schumpeter was startlingly wrong. Economic growth has not declined. Economic growth was about to enjoy an extraordinary increase. What happened in Japan, Hong Kong, and South Korea after 1950, and in China after 1979, has completely and utterly refuted Schumpeter.
Socialism as an ideology is finished today. There is almost nobody who calls himself a socialist, although Bernie Sanders is one.
Marxism is finished. Outside of North Korea, nobody calls himself a Marxist, except for the political elite in Communist China. But the economy over which they reign is not Communist, but basically Keynesian.
Maybe Fidel Castro and his brother still call themselves Communists, but the handwriting is on the wall in Havana. They have been weighed in the balance and found wanting.
The triumph of the Keynesian version of capitalism is so comprehensive that Schumpeter's prediction looks silly in retrospect. How could he have been so blind?
Almost 30 years later, a friend of mine, economist Ben Rogge [ROWEguee], wrote a book: Can Capitalism Survive? Following the lead in Schumpeter's essay, he concluded the same thing: probably not. He focused on the capitalists themselves. Schumpeter had done the same. They send their children to prestigious universities, where the children are taught by socialists who despise capitalism as a culture and as a means of organizing production. In other words, capitalists are suicidal. They are cutting off the future of the world they have built.
He was right about what capitalists do. They send their children to the best universities, if their kids score high enough on the SAT to get in. But, lo and behold, the suicide of the Soviet Union in December 1991 was so startling and unexpected that, on campus, non-Marxist professors began snickering at their Marxist colleagues. This so humiliated their colleagues, that most of them decided to become democratic socialists, rather than remain out-of-date fuddy-duddies, calling vainly for the Revolution. As soon as it became unfashionable to be a Marxist on campus, Marxists became something else. The commitment in the faculty lounges to armed revolution was always more a matter of theory than practice. Academic tenure has this effect in most cases.
They still rant, but they are growing old. New causes have replaced socialism: feminism, multiculturalism, transgenderism, and global warming. None of these is causes is socialistic in the sense of the state's ownership of the means of production.
BETTINA APTHEKER
I think the best example of this on-campus replacement process is Bettina Aptheker, daughter of the Stalinist professor, Herbert Aptheker. She was one of the organizers of the Berkeley student revolt in the fall of 1964, and she now teaches feminist studies at the preposterously leftist University of California campus at Santa Cruz. There is not a trace of Marxism left in her.
The Wikipedia entry on her is worth reprinting.
After completing her master's degree, Aptheker taught African-American and Women's Studies at San José State University. In the early 1980s, she completed a doctorate in the History of Consciousness program at the University of California, Santa Cruz. Since 1980, she has taught in the Feminist Studies department there.In 1965 Aptheker married her fellow student Jack Kurzweil, who was also a Communist activist. They divorced in 1978 after having two children together. Since October 1979, Aptheker has been with Kate Miller, her life partner. They have three children between them (each woman had children in her first marriage).
In her memoir, Intimate Politics, (2006), she wrote about growing up in a leftist household, as what was called a "Red Diaper Baby." She was strongly influenced in her activism by that of her parents. She also commented on her father's scholarship. In addition to his commitment to the cause of justice for African Americans, she believed her father celebrated black resistance under slavery as an attempt "to compensate for his deep shame about the way, he believed, the Jews had acted during the Holocaust."
Her memoir reported that her father had sexually molested her from when she was 3 to age 13. In an opinion column written after her book was reviewed, Aptheker said she had earlier kept silent to shield her family. Memories began to arise in 1999, after her mother's death and when she began writing the memoir. When her father asked, "Did I ever hurt you as a child?," she responded "yes" and explained the emotional effects of his treatment. He expressed anguish and sorrow, and they eventually reconciled. With counseling, she found she had suffered dissociation when young, as at the time her family was under great stress during the McCarthy years. Bettina Aptheker stressed her compassion for her father.
Her assertion generated considerable controversy in the academic community because of her father's stature as a scholar and Communist. Numerous letters were published in the Chronicle of Higher Education, which had reviewed her book, and on the History News Network of George Mason University. Some historians wondered how this news affected people's perceptions of Herbert Aptheker's work. Others questioned Bettina Aptheker's credibility, classing her account in stories of "recovered memory." The historian Mark Rosenzweig wrote, "the truth about Herbert and Bettina is inaccessible to us." The historian Jesse Lemisch wrote in his second essay about the controversy, "Shhh! Don't Talk about Herbert Aptheker":
"...a general public silence by Old Leftists in response to the report of Herbert Aptheker's sexual molestation of his daughter Bettina may be writing another chapter in the strange history of American Communism. Fellow Red Diaper Babies and many former Communists seem to want to sweep this under the rug -- or, may I say, airbrush it -- as if there had never been a Women's Liberation Movement, and it had never occurred to anybody that there might be a connection between the personal and the political..."The controversy continued for months. In November 2007, the historian Christopher Phelps published an overview. He included the results of an interview with Kate Miller, who had been present during Aptheker's 1999 conversation with her father about the abuse, and confirmed her account.
I wrote a response to her in 2006, although I didn't know of the publication of her book at the time. You can read my article here.
I was a graduate student at the Riverside campus of the University of California in the years that she and her colleagues were tearing up the Berkeley campus. They got all the publicity. But now, looking back, it is clear that the rest of us in the gigantic University of California system, most of whom were simply trying to get our degrees and get into the workforce, were the wave of the future. Bettina Aptheker was not.
MOORE'S LAW
About a year after she and her colleagues inadvertently launched the worldwide campus revolution, Intel's Gordon Moore announced his observation regarding the number of transistors on a silicon computer chip. This was his announcement of Moore's law. The number of transistors would double about every 18 months. That process, which continues today, has utterly destroyed Marx's prediction, Schumpeter's prediction, and Rogge's prediction. Year after year, Moore's law has truly revolutionized the world by reducing the cost of information.
Moore's law is an extension of a process which we can trace at least to the census of 1890 in the United States. The cost of information declines by half in a predictable way, and it does so these days in about a year. The issue is not the number of transistors on a silicon chip. The issue is the cost of information. It continues to decline. With this comes increased productivity. With this also comes the decentralization of the transmission of information. This is the fundamental process of the modern world, and it has overwhelmed socialist economies. In doing so, it has destroyed socialist economic theory.
Ludwig von Mises in 1920 wrote his classic article, "Economic Calculation in the Socialist Commonwealth." There, he argued that without market pricing, there can only be economic chaos. He knew that the socialist ideal was an illusion, and that it would be destroyed by the extension of market processes. He was correct.
There is a fundamental law of economics: when the price declines, more is demanded. The price of information is declining. It has declined on an accelerating basis. Information has always been decentralized, and now the cost of communication has declined to such an extent that more interaction, more exchange of information, and more cooperation than was ever before possible is now becoming universal. With this decentralization comes the inevitability of the triumph of capitalism. Mises was correct in 1920. Hayek was correct in 1945: "The Use of Knowledge in Society." There is only one institutional arrangement that takes productive advantage of decentralized information: the free market economy. Only with free market pricing can we coordinate our activities in the world around us.
In science fiction movies of the 1950's, computers looked like the wave of the future for central planners and tyrants. But that was because computers were large and expensive, and the microcomputer not been invented. Ever since the invention of the Altair microcomputer in 1975, the informational equivalent of the Saturday night special has been made available via the Internet to over a billion people, and it is likely to be two billion people in the year 2020.
Supercomputers of the National Security Agency may be impressive to its employees, but the cell phone is going to overwhelm the NSA. It is already doing so. As the price of cell phones declines, more will be demanded. As the number of cell phones increases, the ability of the NSA to monitor what is going on will decline.
When cheap cell phones reach the villages of China and India, young men and women who are unquestionably geniuses will find that they can participate in the international economy outside of their villages. Two decades ago, most of them would have remained in their villages and died there. Their talents would have been limited by the institutional limits in the village. Now their talents will be limited only by the institutional limits of Facebook, Google, and the profit system.
The talents and productivity of these creative people will be made available to profit-seeking investors and entrepreneurs around the world. Government planning agencies are not going to be able to hire most of them, and the managers of these agencies would not know what to do with them, anyway. The mediocrity that is inherent in all tax-funded bureaucracies cannot possibly compete with the creativity that is inherent in the profit management system. The competition of the profit management system does not let anything sit on its haunches or rest on its laurels.
THE WAVE OF THE FUTURE
Capitalism today is clearly the wave of the future. If people had understood what Gordon Moore said in 1965, they would have paid no attention to what Bettina Aptheker and her peers said in 1965.
As far as I can see, there is no equivalent of Bettina Aptheker around today, but if there is, nobody in the news media is rushing to interview her.
We know Aesop's story of the tortoise and the hare. Lenin in 1923 looked like the hare of the 20th century. But the effects of what has come to be called Moore's law should have been visible at the time. From 1890 until 1950, the cost of information was cut in half every three years. From 1950 to 1965, this was reduced to every two years. From 1965 until today, it has been reduced to somewhere between 18 months and one year. This process is accelerating. The tortoise ceased to be a tortoise. He became a hare. Then he became a cheeta.
We should have seen this coming. In the days of Jesus, the speed of the transfer of information was approximately one mile an hour. By 1800, this had increased to approximately a mile and a quarter per hour. Then, in 1844, Samuel F. B. Morse increased the speed to 186,000 miles a second, reduced only by the speed of two telegraphers, including their note-taking, plus the speed of a runner to get a scribbled note to a paying customer. That was a tipoff as to what was about to take place.
Anyone who thinks that a dozen members of the Federal Open Market Committee of the Federal Reserve System can oversee the growth of the American economy has not taken seriously either Mises or Hayek. More to the point, he has not taken seriously the implications of Moore's law.
Moore's law is part of a long-term technological process that goes way beyond silicon chips. It has to do with the cost of information. The idea that a dozen tenured bureaucrats in a government-created monopoly can oversee the operations of the digitized American economy is so ludicrous that only a Keynesian could believe it.
CONCLUSION
Keynesianism is not the wave of the future. When you think "Paul Krugman," think "Bettina Aptheker."