The fundamental intellectual failure of this article is that it does not distinguish between capitalism on the one hand, and on the other hand systems of extensive and intensive government interventions intended to forcibly override capitalism and replace it with a better and fairer system, for socialist reasons.

If, for socialist reasons, you make it illegal to employ people at the market rate, it is hardly fair to blame the resulting unemployment on "capitalism".

Australia's three levels of government now expropriate over 50 percent of everything that Australians produce every day, and almost all of it is spent on interventions intended to fix prices of goods and services other than they would be on an unhampered market. Yet John Passant presumes to refer to this state of affairs as "capitalism". No wonder you are able to find fault with it!

This confused jumble of ideas is unable to produce any critique that has explaining power.

To persist with the labour theory of value is laughable. Reality does not reward toil and trouble. If the labour theory of value was correct, General Motors would not have just lost $10 billion. Advocates of the labour theory of value are obstinately and wilfully in the wrong.

As for the garbled theory of class struggle, the reason Marx, after 35 years, never finished the chapter in Capital in which he had intended to explain the entire basis of his theory, is because it cannot withstand critical scrutiny. For example, the main capitalists today are superannuation funds, the main shareholders of which are the masses of workers. Are they 'workers' or 'capitalists'? Marx's theory is rubbish, and persistence in it is religious superstition.

The only theory of class struggle that holds water today is the struggle between the class of taxpayers on the one hand, and tax-eaters on the other.

The article reads like a text from the 1960s or is it the 1930s. We've tried socialism, it was even worse than capitalism.Yes, the system is unwell, the current crisis is due to incompetent regulation by government agencies, not the failure of the market system itself. Neo-liberals, with their fantasies of the genius of the unregulated market fell into the same trap as the Communists, too much ideology,too little understanding.

Up until the last few paragraphs one might have thought reality had been sighted from deep within the SA bunker, but those last few paragraphs quite effectively disperse such sillyness from your reader's minds.

Both the Roaring Twenties and the latest stuffed up capitalist phase since the mid 1970s have shown that capitalism needs government guardianship more now since any time since its birth under Adam Smith.

While Adam Smith did admit that his Laizess-faire free-market could look after itself with its own early warning signals,
he still believed that governments had a very important role.

In fact Smith is said to have believed that money-lending should be under government supervision

Also there is the way our English language has used what is called the double-ee's as not only proven in freedom and the free-market but much more so in such words as need and greed.

The point is though it is easy enough to define need, how can we ever make a law to define greed, when as Smith went on, it is greed that is needed to prime competition?

Certainly the problem with the world today is deregulation either giving greed too much freedom or too much of a free go with liberal lending.

Let me make a few comments.

Diocletian, the state and market have been intertwined for centuries. One does not negate the other but they complement each other. Indeed the USSR was the classic example of the state becoming the supreme capitalist.

Mac and Bushbred, how will more regulation address the business cycle or even moves into depression (if that were to occur)?

Dear Jai, what bunker? Nice image, but no reality to it. And these are my views. The last few paras are aspirations

The state and the market are intertwined in the way that a parasite is intertwined with its host. Everything the state gets, it takes by force or fraud from someone who has first produced it. The state exists only where there is a surplus to expropriate. That's why the Aborigines didn't have one. T

he state exists as a more or less stable equilibrium of peaceful producer and forceful exploiter. It's why, now there is an economic downturn, there is talk of the state reducing its expropriations from business. The market exists to the extent that people can benefit from peaceful production and exchange. The state exists to the extent its beneficiaries can get away with forcibly taking what other people have produced.

The state does negate the market, as virtually all state activities are directed at using force (tax and regulation) or fraud (manipulation of the money supply) to rig prices at levels other than what they would be on an unhampered market.

While the state requires the market in order to exist, the market does not require the state to exist. The market does not intrinsically require a forcible monopoly of protection services, nor of adjudication services, in order to exist, since these same services can be and are provided in competitive markets. The reason states exist is not because the market requires them, but because they are monopolistic operations who use violence and threats to plunder the class of peaceful producers and traders, hand out privileges to shore up their own support base, and bribe the class of intellectuals to be their high priests and cheerleaders.

During the reign of the Russian communists, the state killed tens of millions of people by starvation. To talk of this as a "complement" to peaceful productive activity is macabre and deluded. It shows a failure to understand the issues.

To talk of the need to curb greed ignores the role of the state in causing the economic crises by its monopoly control, and abuse, of the money supply. Those who do not understand this are merely displaying their ignorance.

Thanks Diocletian

A couple of points. This quote from Thomas Friedman (a columnist with the New York Times) in his book The Lexus and the Olive Tree seems to encapsulate the argument:

"The hidden hand of the market will never work without a hidden fist.... McDonald's cannot flourish without McDonnell Douglas, the designer of the U.S. Air Force F-15. And the hidden fist that keeps the world safe for Silicon Valley's technologies to flourish is called the U.S. Army, Air Force, Navy and Marine Corps."

What is Iraq about then if not an attempt by the US state to enable US capitalism to continue its dominant global economic role, dominate the Middle East and control oil flows to possible global competitors like China? And show China the US state is prepared to use its overwhelming military power to enable its free marketeers to stay top dogs economically?

Marx called the capitlaist state the executive committee of the bourgeoisie. Crude but it does contain a useful truth.

As to Russia and the idea of complementing peaceful markets, since when has the establishment of capitalism been peaceful? It has always been first a war on its own people and then in expansionist mode a war on other peoples. The capitalist state carries this out.

Have a read if you're interested of Marx in Capital when he talks about the history of capitalism being written in blood. The descriptions there are eerily similar to the butchery of Stalin in setting up State captialism in Russia.

Marx also saw the state as a reflection of class differences. He argued it would wither away when class divisions disappeared.

The working class can build on capitalism and create a new world where the economic crisis is consigned to a museum and war and want becomes a memory.

They could John, but they never have,in any of their revolutions where they promised to do just that for the people. The trouble is as soon as they gain access to the key to the room where all the treasure is kept they become just like the capitalists they deposed and start stuffing their own pockets with as much as they can and the people are left wondering why they are no better off after the revolution.

Human nature will never allow freedom from war and want but it's a lovely idea. At this point in human evolution it is light years away

So John, your aspiration then is for a bloody revolution where the "working class" attacks it's own democratically elected goverment to impose an undemocratic socialist single party state?

Thats an aweful thing to aspire to. Im guessing that the idea of a socalist party being elected democratically by a majority of the "working class" has been examined and discarded as even more unlikely.

Socialism is a perfect form of goverment for a perfect society of perfect people. It is an ideology of idealism that is understandably attractive to children and students. Grown adults such as yourself should have long since seen through what is a perfect plan for an imperfect world.

Why does capitalism work but socialism not in reality? Because in reality the proportion of people who will be fully productive without some recognition of their extra contribution is close enough to zero that the rest are part of the rounding error. Thus in a socialist system productivity is restricted to that of the lowest common denominator. From everyone what they can, to everyone what they need becomes from everyone the least required, to everyone what is available - the basis of the economic chasm between capitalist and socialist economies.

An otherwise intelligent, mature and experienced adult should be able to see this, but you are still a self described member of the "revolutionary left". I wonder if you believe in socalism because you honestly think it is a viable alternative, or if you adhere simply because it is how you define yourself and your life. I suspect the latter.

“How sick? Here in Australia unemployment is 4.5 per cent. It will increase, but by how much? A lot, I would suggest. It is a slow train coming, but it is coming.”

Mixed metaphor… interesting… will the “sick” be unable to crawl away from the path of the “slow train”?…

it depends which is the slower of the two I guess.

“As Lenin said, capitalism can survive any crisis if workers are prepared to bear whatever burden the bosses impose on them.”

Ah I love quoting Lenin, almost as much as dearest Margaret T.

Another Lenin quote which needs to be considered is

“While the State exists, there can be no freedom. When there is freedom there will be no State.”

And another

“A lie told often enough becomes the truth”

But to Margaret

“There is no such thing as Society. There are individual men and women, and there are families.”

“Now I have little knowledge of the US but suspect….”

Maybe some research would help, it generates more “credibility” than the idealistic whimsy of the left.

I lived in USA… I have some knowledge first hand and can check plenty out due to the capitalist innovation called the internet and all those free-enterprise chatrooms,

Passy, you need to understand the difference of relationship between US Union and capitalism accord versus the European/Australian Union / capitalism confrontation. Basically the US Unions have never seen themselves at war with the owners of production facilities.

Now more propositions
“There is another factor in all of this - the weakness of the radical left. “

And

“a mass revolutionary movement”

It seems to me, you like talking to yourself.

The reason a mass revolutionary movement does not exist is because of the weakness of the radical left.

And the reason for the weakness of the radical left is many people can now read and understand the errors of the past sufficiently to have abandoned the lies and terror of Lenin and the left.

Back to the slow train of capitalism… compares to the stationary (stagnant) train of socialism.

Passy,

Presumably you are claiming that boom and bust are essential characteristics of a capitalist economy,or, that a depression is inevitable.I don't agree, if I remember anything about Keynesian economics, government intervention can serve to smooth out the cycle. Competent regulation would certainly have prevented this stuff-up in the first place. I agree with your remarks as to the relationship between state and market, unfortunately in a crisis it's socialised losses and private profits.

The big change in the relationship between the state and the markets is that the state is no longer primarily a mitigating force between the excesses of exploitation and those being exploited. Instead, it has become the handmaid of industry, providing - or attempting to provide - the credibility and validation that industry will never have among citizens. It validates exploitation through spin, subsidies and regulatory legerdemain. Any time you hear government proclaim 'rigorous controls'you know you (and your planet) are in trouble. The response to the financial crisis (and the lack of response to climate change) highlight the true role of the state: To serve business and keep the citizens convinced that by voting once every 3 years there is actually a democratic system at work. Capitalism is not yet dead, but it and democracy both are rapidly apporaching bankruptcy...In an economic system that continues to believe that endless growth in a finite system is possible, bankruptcy will inevitably come. Unfortunately, the state will do everything possible to make sure that business is insulated first and that citizens pay.

Whether McDonalds could exist without McDonnell-Douglas is precisely the issue.

But the issue is not resolved by merely restating the fact that the state exists, because taxation is a compulsory impost. You can choose whether or not to buy a hamburger from McDonalds, but you can’t choose whether or not to pay tax for the state to buy weapons, even if you don’t agree with it.

So that is not an argument against free trade in hamburgers, it’s an argument against forcibly taxing the population to fund imperial military adventures.

While ever people are confused over the definitions of words, the following discussion will be confused. Capitalism means the private ownership of the means of production. State monopolies of vast killing machines, state monopoly control of the money supply, state regulation of any and every aspect of productive activity, do not come within this definition. People confusedly criticise capitalism for what they don’t like about anti-capitalist systems.

Yet no advocate of capitalism ever claimed that you can have large-scale compulsory governmental priviligentsias plundering the entire population to put price controls on anything and everything, and not have undesirable socio-economic consequences. These are precisely the reasons against unlimited arbitrary powers being vested in government for purposes of economic planning – because such will inevitably follow.

Or let us take the definition of ‘capitalism’ in dictionary.com: “an economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals or corporations, esp. as contrasted to cooperatively or state-owned means of wealth.”

When people describe the military-industrial complex of the modern American empire as “capitalist” they are merely confused over the definitions of terms. We are not getting to square one in terms of critique of political economy.

If you are going to use the term “capitalism” to describe these behemoths of state leviathans systematically violating private property and individual freedom at every turn, it only means we need a new term to describe a system of social co-operation based on private property, individual freedom, sound money, free trade,

As any genuine historian knows, deregulation can also mean that the state can break lawful rules, as John Howard did when he banished the Arbitration Court to fashion his work choices.

It is pretty well what Adam Smith meant when though he invented the free market, he still feared that economic greed would break democratic laws backed by the rising Enlightenment.

Cheers, BB, WA.

Diocletion, you make a false distinction between the state and the forces of capital. Take a look at Iraq. 1/4 of the 'defense'personnel in Iraq are private. This is far beyond previous mercenary levels. For the first time, the impact of war has been to see a boom in the economy - not a slowing. War funded by and paid for by the public for the benefit of the forces of capital is the new reality. The largest growth industry in the US is the security and defense industries. The State serves the forces of capital. That isn't entirely new, of course, but we are clearly at a stage where the state is no longer easily capable of controlling the private beast it has created. The notion that the State is 'controlling' capital through taxation bears no resemblance to reality.

Next, you are the first one to clearly distinguish the issues and get past the semantic confusion.

The real substantive issue is whether the phenomenon of the Iraq war is one in which the state is the driving force, or private capital interests are.

It is easy to see how the state is - it is the state that made the decision to go to war, the state that expropriated the treasure from the American population, the state that is paying both the public and private soldiery, and the state that is the patron of the plunder and privileges that it hands out to the clientele of its corrupt largesse.

But in order to see how private capital can be the driving force, the answer can only ever be through the agency of the state. The fact that we think it wrong for private interests to benefit from government forcibly taking property from one group and giving it to another (a la Iraq), is not an argument against a system based on private property, it’s an argument against governmental robbery.

But socialists aren’t opposed to government taking property from one group and giving it to another – they are in favour of it.

To answer John’s question, what Iraq is about is an attempt by the US state to enable the US state to expand its global dominance, to continue its internal and external plunder, and hand out privileges and bribes to its supporters. The fact that private interests benefit is not a disproof. Ultimately all interests are private. It’s only a question of how they are to be served: through peaceful production and exchange, or through state violence and plunder. These are the real issues: the rest is semantics, slogans and confusion.

The objections you, and I, have to the Iraq war do not make an argument against abolishing such state actions – they make an argument in favour of it.

No dio, next is essentially correct to identify the "false distinction" between state and private capital. Rather, you seem preoccupied with such a (false) distinction, probably because you have at least as much euphoric faith in Adam Smith and Hayek as Passy has in Marx and Lenin.

But it is clear that the US state has been subverted and subordinated to the free-traders' global con (and I don't just mean a "neo-con"). The agency of state is only relevant in Iraq as a vehicle for such scams of the corporatist project. From Halliburton, Blackwater, oil-men plunder, and all surrounded by the credit bubble yawning from the derivatives canyon.

Three cheers, next. The war, like its domestic "peace" (see Hurricane Katrina!), has next to zilch to do with taxation, but all to do with investment.

If such state action were abolished, people would still be able to buy and sell oil or whatever, or not, as they choose.

But if private capital interests are abolished, it will increase, not reduce the state’s unrestrained arbitrary power to engage in these kinds of crimes and abuses.

These assumed powers of re-distribution and undeclared war are not in the US Constitution. They are not part of the classical liberal belief system - they are anti-capitalist. They have arisen from a century of socialist beliefs in the USA in all three branches of government, which have granted to government general powers of economic control and redistribution, such as its manipulation of the money supply, which are the source of the crimes of redistribution and war. Then socialists are surprised at the result of unrestrained government power for economic planning purposes, surprised that governments end up privileging political favourites, just as socialists disown the results in Russia, China, Cambodia, Ethiiopia, Iraq, and every other country that ever tried socialising private capital. Socialists want to abolish these crimes and abuses by increasing the power of government to commit them and removing the only effective institution that can limit it: private property.

(BTW John, did you used to teach taxation law at ANU?)

Colleagues

The debate about the state and its role has blossomed.I would have liked it on my blog, where the article first appeared. (enpassant.com.au).

Tthere are a range of other articles on that site - Overpopulation, Israel, From Howard to Rudd, Is Obama just a competent George W?) also worthy of picking apart.

I have an old fashioned view - the labour theory of value. Here are these workers creating value in society and then all these parasites fight over it - rentiers, financiers, shareholders, the state, and of course capitalists. In addition, the creators of the wealth, workers, also fight for a share of their own creation. So all these groups battle it out for a bigger share for themselves.

But the surplus itself comes from the exploitative relationship between those who own the means of production and those who sell their labour power. So the state, rentiers, financiers etc do not contribute to that process of value creation (and either do capitalists in a more general sense since it is human labour which creates value) but rather are dependent on it. The way this is often presented in mainstream discussions is to talk about the real or productive economy.

So the state for example, like financiers and rentiers, must ensure that the productive but exploitative relationship between labour and capital and the creation of surplus value continues and flourishes. That does not make the state anti-capitalist. Indeed I would argue it is an integral part of capitalism.

Anyway, I'll try to clarify my thoughts and put something on my blog that is simple and lucid but necessarily simplistic since there are books and books on this issue and 1000 words is hardly enough to scratch somewhere near the surface, let alone make real contact. (Did I mention my blog Is En Passant with John Passant at enpassant.com.au)?

Passey: I think that the value of labour theory needs modification in the light of technology.
Imagine a spectrum:0=hunter gatherer 10=Androids/Robotics doing all meaningful work.
I reckon we are at about 8 right now.
When we get to 10 then there is *no* value to labour at all.
In short: When we get *really* good at production, the only problem left is distribution. How to distribute the goodies? Only folks with capital and land will own the means to wealth. Workers will be increasingly disempowered.
Plumping up hugely profitable "industries" such as banking and insurance is one way to spread out the wealth generated by mines, farms and factories, but this is surely not sustainable!
I really hate the "two ways" argument! Name calling is a silly distraction from the real issues.

Ozandy

There still has to be human intervention to turn the factory on, the androids on, repair them etc. Somewhere there ill be human involvement. That human action creates the value.

You also said: "I really hate the "two ways" argument! Name calling is a silly distraction from the real issues."

What do you mean?

The labour theory of value has been refuted so many times, I wouldn’t be prepared to discuss it unless you first (a) show that you understand the arguments and (b) refute them, which you haven’t done yet. Also, how do you refute the impossibility of economic calculation under socialism?

To all the ‘blame capitalism’ school: try answering specifically:
• did the state decide to go to war? Yes.
• did the state forcibly expropriate the funds from the American population? Yes.
• did the state also use its control of the money supply to inflation-tax the population to pay for it? Yes
• does the state pay the public and private soldiery? Yes
• is it the state that is the source of all the funds going to private interests such as Haliburton? Yes
• could those interests get those funds without the state’s activities? No.
• would the war have existed without the state? No.

• If those private companies decided by themselves, without the backing of the state, to go to Iraq and make lots of money providing those services, would it have worked on the basis of profit and loss? No. It would have resulted in loss and bankruptcy.

The entire profit and viability of these ventures comes from the initiative, authority and force of the state.

The idea that we are seeing the state serving capitalists has the facts precisely back-the-front.

War does not create wealth: it destroys it. The wealth that the Haliburtons of this world obtain, which we see, is the wealth of capital being consumed, which we don’t see.

That capital is confiscated through taxation and inflation by the US government from its owners – workers and capitalists - back in the USA, and funneled through the state into the hands of the politicians, bureaucrats, soldiers and companies who profit from the war.

What we are witnessing is a forcible redistribution of wealth to political favourites - exactly what the socialists want the state to have the power to do more of, without restraint.

The libertarian argument has enormous explaining power.

But the Marxian arguments a revolt against reason and evidence:
• Confusion over semantics – using terms to mean their opposites – calling every kind of forcible statist folly and abuse of individual freedom and private property by the name “capitalism”
• Circularity – “It is, because it is, because it is.”
• Ignoring the glaringly obvious facts
• Assuming a conspiracy theory without evidence
• Relying on theories refuted over 120 years ago.

Mil_observer's argument
• merely asserts there is a ‘false distinction’ between private capital and state force, but doesn’t say why
• immediately contradicts himself by asserting the distinction he says is false
• asserts that the arguments appeal to faith and ideology.

If anyone thinks the distinction between private capital and state force is false, let him try not paying his taxes and see what happens.

Why cannot we all agree that such state actions should be abolished? Why does that not answer your objections to the war in Iraq? Answer please.

By the way guys, since you’re wrongly using the word capitalism to mean fascism of various species, what word do you use to describe a system of social co-operation based on private property, individual freedom and responsibility, sound money, and little or no taxation or government?

First, I don't have dogmatic faith in Marx or Lenin. I have optimism about the future and the ability of workers to create a new world.

Second, the labour theory of value has been challenged, but not undermined. This is neither the time nor the place for a discussion of matters such as marginal utility theory or the transformation problem.

Third, Diolectician draws a false distinction between the state and capital. He also ignores the idea of imperialism. Iraq to my mind can only be understood in that context. (And yes, Lenin's theory of imperialism is wrong, but he added to our knowledge and we can build on that to understand imperialism today and fight against it.) But Diolectician is right to say that I have merely asserted some "truths" rather than argued for them. I'll try to draw my ideas together about the State and put something on my website (enpassant.com.au).

Fourth I am a pamphleteer, as one of my friends calls me. My arguments are aimed at a wide audience, (maybe I'll get there one day!) so the ideas have to be expressed in terms many can understand. OLO and my site are not just or even a forum for intellectuals.

Fifth, we seem to have become mired in questions of the state rather than the economic crisis per se. Perhaps we could return to the wider question, which as far as I can tell seems to have two camps - no regulation (with Diolectician at one end of that arguing for no state) and the regulation group who seem to argue that the crisis would not have occurred if there had been better financial regulation.

I think there is something more fundamental going on, something to do with low profit rates. I'm chasing up some figures on that but can't remember where I read them Oh well...

And yes Diolectician, I did teach tax law at the ANU between 89 and 96.

Nice to see you try correcting me again dio. Last time it was for supposedly being "socialist", "Marxian/ist" and implicitly "anti-capitalist", all because I oppose Adam Smith and his British East India Co. bosses' "free-trade" monster.

dio, the context of the discussion around your "false distinction" was the Iraq War. You still seem to have two sorting in-trays for your time in the OLO discussion room: "capitalist" / "socialist"; "state" / private", and so on. It's robotic, boring, and I think you'll agree if you reflect on it - quite pointless.

No taxes? That's probably where references to mercenary armies (from next and myself) come in and blow away your pretty colored chalk-dust picture of Adam Smith's free-trade and African slave enterprise. I think you've been severely conned by the British East India Company.

Passy “ability of workers to create a new world.”

Only if they can find a board of management -

But those skills don’t come cheap, as soon as we recognize division of labour, we are ready for division of reward.

“Second, the labour theory of value has been challenged, but not undermined.”

Nor has it been proven. It remains a theory clung to by those incapable or unwilling to accept the realities of life –

that deployment of deferred consumption (savings) into speculative opportunity (business venture) to acquire the necessary pre-requisites of production, only partly produced through deployment of labour (buildings, plant, equipment, stocks etc), are worthy of a prior charge to the rewards of the business, before those of wages for labour.

“something to do with low profit rates.” I check the PE ratios on shares, that will tell you how the “low profit rates” are doing. If the P/E goes below 12, the stock price tends to go up, if it increases above say 20 the stock price is overvalued and it will come down (check out what happened immediately prior to the 2000 dotcom bubble burst).

The nature of capitalist system is profit and asset backing are reflected in the market value of the share, shares tend to reflect a base assets value enhanced by good yields and ‘tuned’ by adjusting the dividend policy (dividend yield).

It works so much better than when Michael Milken was deciding on the value of his junk bonds, which is no different to when “government” autonomously determines the value of anything beyond the reach of a free market.

Passy, history has proven that certain capitalists can only be honest while they are winning, but it is when they begin to lose that they can become more sneaky.

Modern banks have made it worse by backing up the sneaky ones.

Also Passy, the problem with the term de-regulation is that it encourages not only too much recklessness in the the monetary system, but also much too much deliberate crookedness.

That is why Adam Smith suggested that while a state might let capitalism run freely, it did not mean that the state must not always have its mind on its role or purpose.