The chapter headed “What is Capitalism?” is an interesting read on several levels. It sets the whole basis for the remainder of the discussion (as one might expect) and for that reason alone the fact that Rand spends a good part of the chapter in a critique of a mid-1960’s Encyclopedia Brittanica entry on “Capitalism” is quite unique.
It is not until the 8th page of the chapter that Rand gets to her own “definition” of Capitalism in any formal sense.
Capitalism is a social system based upon the recognition of individual rights, including property rights, in which all property is privately owned.
Like the “I support law and order” referendum this definition is near impossible to refute. One does get into the semantic definition of “rights” and “property”. Having been through this mill several times with different people, one has to accept arguing the definitions of these two basics creates far less light than smoke especially with the supporters of Rand and to a lesser extent the fundamentalist capitalists.
So if you want to debate the definition of “rights” as an issue go seek out the likes of TF Stern who makes a very good fist of “God-given” right, or the Libertarians (see Al of The Old Whig for contacts). I am happy to accept that Rand has in mind the widest meaning of the term. I have some reservations about the consequences of applying that level of “rights” in the general society. Those reservations have some impact upon how I feel about Rand’s writing and I can only request that the reader respect that to be the case. Is that valid? Given that Rand adopts a similar approach – in that I have read thus far - I can say with some certainty that the “unsupported” statement of opinion is the norm rather than the exception.
I can make the same statement about the definition of “property”. Rand has given her definition of Capitalism framed in the widest possible application of the term “property”. It is an approach which seems to give her one or two difficulties later in the book. I am still in the process of reading, digesting and re-reading those later chapters so judgement is at this time still reserved.
The third pillar that Rand puts beneath her definition is that of “objectivity”. No, don’t go look up the definition in the dictionary because Rand means something very specifically different. Try Wikipedia for initial leads if the desire to know more really grabs ya.
Capitalism is the only system based upon an objective theory of values.
Rand makes the distinction between three “systems” of valuation – objective, intrinsic and subjectivist. To give an instance of her language, this is the sentence following the definition immediately above –
The intrinsic theory and the subjectivist theory (or a mixture of both) are the necessary base of every dictatorship, tyranny, or variant of the absolute state.
Now I had to read extremely carefully through these ideas as Rand uses terms such as “right”, “value” and “action” in an almost seamless series of interchangeabilities. The connection between the useages comes with the word “good” (used as a noun) which when I learned economics had a very specific meaning. With Rand we find the term being used in statements such as the following –
If a man believes that the good [note that the use here appears to be as a noun] is intrinsic [which Rand has just defined as a system of values] in certain actions, he will not hesitate to force others to perform them. If he believes that the human benefit or injury caused by such actions is of no significance, he will regard a sea of blood as of no significance...
What has to be clear in one’s mind is that Rand is speaking of “the common good”, or “the public interest”. Given that she equates these two ideas with the extremes of collectivism and the fundamental of Socialist states such as Russia it becomes clear that the “economic” meaning I learned is not what she intended. But that does not stop the interchanging of the “good” as an “object” starting at the level of intellectual property and the idea of ”individual surplus” -
...the work, the energy, the creative over-abundance of those men whose ability produces more than their personal consumption requires, those who are intellectually and financially able to seek the new, to improve on the known, to move forward.
So, where does that leave me?
Like so many others, Rand trumpets the rail system of the US as a key example of the private sector operating in the “common good”. It is a good example. It has a very unique history; one which deserves detailed reading particularly for the 50 years from 1890 to 1940. There were a number of private railways in NZ over the years; some more extensive than others. In Auckland we had as an example the West Coast Tramway, a light rail that ran around the coast via a number of tunnels and small timber trestles. It lasted for as long as the kauri timber was economic to extract. There was the Westfield Meat Company line, used to connect their abbatoir with the meat packing plant and public railhead. Further south, Carter Timber had an extensive narrow guage system in the Mamaku Ranges using US Shay and Climax locomotives. Fascinating to watch; which I can say I was fortunate enough to do on two occasions. That is long since gone after the timber ran out. The point is that none of these (or the other examples that I could dredge out) were for public use, nor lasted past their private use.
It interests me that I have never read of the capitalist system devoting resources voluntarily to the disposal of production waste, or the provision of sewage disposal systems for their workers. There is nothing in the definitions that I have seen, nor in the very many debates upon capitalism vs anything and everything else that even acknowledges the “cost” (and it is a direct monetary cost in the long term) of environmental impact and disposal of waste.
In England, the ability to move from one place to another has always been by means of “The King’s High Way”. There is much learned legal debate on the definition of both the status of the land required and the individual right of passage. The economic consequence of that legal status is, however, that the need for private roading systems is very limited. In NZ, private roading has generally been developed by a land owner to facilitate the extraction of product or material from source to public transportation system. What there has never been, and the reasons for this might be an interesting debate, is the duplication of public roading for competitive advantage. Quite the reverse in fact. The capitalist system has always looked to higher authorities to provide public transportation systems. To be clear here, I am not referring to buses or metro. By “public transportation systems” I mean the roads, the canals, and in most countries rail as well, one could include airports and seaports; all of the infrastructure required.
Yet even in the US we very rarely see competitive duplication of these reources. The principle reason is that duplication is wasteful of other resources (such as land). Yes, there are “privately owned” toll roads in the US, in Britain, and even mooted in NZ. In the instances of which I am aware none of those roads compete with “equivalent product” but rely upon government capital contribution and the “substitution product” for the users’ time.
One can follow a similar line of reasoning with an airport – with each airline wanting access to New York having to fund and provide its own airport facility. Would not happen? It was the norm with shipping until recently. Remember the hooha when the last of the US owned “ports” in New York was sold to foreign capital? That was just within the past twelve months. How long did duplicated track systems formed by competing railroad companies exist within the US? That is one of the reasons why I earlier specified the 50 year period to 1940 as being of specific interest.
As much as Rand might not like the fact, it remains that “public good” is an essential part of a capitalist economic system. It is so to prevent the unnecessary wasteage of resources. Those resources may be land, or perhaps copper wire for a telephone local loop, or even water as the Aussies are finding out with the five year drought in the Murray Basin. That latter is an interesting example that I shall return to in a later post. Related to the Murray Basin example might be the Newfoundland cod fishery. How many in the US and Canada have tasted cod and chips in the past twenty years?
How is about energy generation and distribution? Ask a New Yorker about power cuts. Ask a Californian about the cost of "imported" power. There are elements of this appearing in NZ where the public ownership (quite a different thing from "public good") has been replaced by private ownership based on the Californian model. Objective consideration of the problems faced both in the US and in NZ will show that there is no incentive built into the capitalist models for the security of supply. The supply is always to the highest bidder so a shortage of power whether short or long term is of little to no consequence because the return on investment is guaranteed. When pricing of supply exceeds the ability of the "poor end" of the market to pay the supply stops.
What is also interesting to note is that so many of the broad categories of “public good” have high “strategic” values – transportation systems (all of them), energy generation and distribution, and resource protection.
It is that strategic value that thinkers such as Rand often seem to lose sight of...