January 13, 2005
Das Kompounding Kapital
Consider this gendanken. There is a track race. With a subtle difference. The track is magical. The track "expands" such that distance between the runners increases exponentially with time. Would one count such a race as "fair"? Heck no.
But this is exactly what capitalism is.
A race for capital. And the more capital one has, the more capital one can accrue with lesser effort. This ascribes an essentially "unjust" compounding nature to capital.
The thing is this injustice is instinctually rebelled against, and is I think, one of the major factors in the preponderance of socialist thought.
Note that there are two desiderata here:
One is fairness, and another is total distance travelled by the runners.
We would like to maximize both at the same time.
Unfortunately, this is easier said than done.
Let's take Socialism first. It stipulates that all runners should run at the same level. It thinks it's focussing on fairness, and even though it greatly reduces the total distance travelled, it considers that a good bargain. But wait - my principal gripe with socialism is that it's exceedingly unfair! A Carl Lewis - an inherently faster runner - is made to run on the same level as a Pradeep Ravikumar. So socialism is bad on both objectives!
What would be the most "fair" thing to do? Well - to apply a "contracting" force to the track to just about cancel off the track's inherent expansionary force. Proportionate taxation is one method - basically, the rich paying higher taxes. The problem with such contracting forces being legislated is that they have side-effects. Side-effects such as reducing incentives which end up reducing the overall distance travelled by all the runners.
Thus Laissez-faire capitalism sets aside "fairness" and focusses completely on total distance travelled. Its rationale is that "being fair" is not completely understood and there are uncontrollable side-effects.
Personally, as in previous posts on ethics and goals of humanity et al, I consider the total distance travelled to be the solitary goal! But while not a goal, I do think fairness is an important means. I believe it's an important tool for morale, and for future contributions. It's an investment that would increase the total distance in the future.
So, instead of completely laissez faire capitalism, I'd advocate at least some measures - those whose side-effects we can control and know - that would exert a "fair" contracting force on the track.
But this is exactly what capitalism is.
A race for capital. And the more capital one has, the more capital one can accrue with lesser effort. This ascribes an essentially "unjust" compounding nature to capital.
The thing is this injustice is instinctually rebelled against, and is I think, one of the major factors in the preponderance of socialist thought.
Note that there are two desiderata here:
One is fairness, and another is total distance travelled by the runners.
We would like to maximize both at the same time.
Unfortunately, this is easier said than done.
Let's take Socialism first. It stipulates that all runners should run at the same level. It thinks it's focussing on fairness, and even though it greatly reduces the total distance travelled, it considers that a good bargain. But wait - my principal gripe with socialism is that it's exceedingly unfair! A Carl Lewis - an inherently faster runner - is made to run on the same level as a Pradeep Ravikumar. So socialism is bad on both objectives!
What would be the most "fair" thing to do? Well - to apply a "contracting" force to the track to just about cancel off the track's inherent expansionary force. Proportionate taxation is one method - basically, the rich paying higher taxes. The problem with such contracting forces being legislated is that they have side-effects. Side-effects such as reducing incentives which end up reducing the overall distance travelled by all the runners.
Thus Laissez-faire capitalism sets aside "fairness" and focusses completely on total distance travelled. Its rationale is that "being fair" is not completely understood and there are uncontrollable side-effects.
Personally, as in previous posts on ethics and goals of humanity et al, I consider the total distance travelled to be the solitary goal! But while not a goal, I do think fairness is an important means. I believe it's an important tool for morale, and for future contributions. It's an investment that would increase the total distance in the future.
So, instead of completely laissez faire capitalism, I'd advocate at least some measures - those whose side-effects we can control and know - that would exert a "fair" contracting force on the track.
COMMENTS:
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Don't you think your model is just slightly, ever so very slightly, over-simplifying capitalism & socialism?
I mean, if I change your model so that we consider the use of resources, and that in this case, the resource used (say, wear and tear of capitalism) is directly proportional to the distance run, and that there must be some payment to compensate (say, to maintain the track), isn't it only fair that Carl Lewis pays more? Further, even ignore fairness, if the amount they can pay (i.e. capital they have) is directly proportional to distance they run (this is your model), don't you think that Carl Lewis would be willing to pay more to keep the track working? (That is, assuming an ordinary runner does not have enough money to pay for half the track repairs -- which you could argue is true of the "real world" -- at least, as true as your model is). A Carl Lewis might be willing to pay more to keep the track working just so he can make more money, and there you have the heavier taxes on the rich being incentive-compatible.
Anyway, my point is, it is possible to transplant socialism & capitalism (and intermediate economic models) into simpler models so that one seems fairer than the other. And that this is no "true" argument for why either is better. As far as I can tell, that is all you seem to be doing.
I mean, if I change your model so that we consider the use of resources, and that in this case, the resource used (say, wear and tear of capitalism) is directly proportional to the distance run, and that there must be some payment to compensate (say, to maintain the track), isn't it only fair that Carl Lewis pays more? Further, even ignore fairness, if the amount they can pay (i.e. capital they have) is directly proportional to distance they run (this is your model), don't you think that Carl Lewis would be willing to pay more to keep the track working? (That is, assuming an ordinary runner does not have enough money to pay for half the track repairs -- which you could argue is true of the "real world" -- at least, as true as your model is). A Carl Lewis might be willing to pay more to keep the track working just so he can make more money, and there you have the heavier taxes on the rich being incentive-compatible.
Anyway, my point is, it is possible to transplant socialism & capitalism (and intermediate economic models) into simpler models so that one seems fairer than the other. And that this is no "true" argument for why either is better. As far as I can tell, that is all you seem to be doing.
Of course this is a simplification, albeit one in which the main issue under hand - the compounding/expanding property - holds. It's solely intended as a metaphor that'd provide insights, not as a full-fledged model... :)
Your usage of track-resources stretches the metaphor too thin - so asking about/making inferences from the stretched metaphor is moot!
Reg. your incentive compatibility argument - the question is not if Carl Lewis is able to survive by experiencing a contracting force greater than the expansionary force. Carl Lewis might still remain ahead - but he has a lesser incentive in making any additional effort, for he is not getting his effort due. That you missed this elementary game theoretic fact shows how steeped in socialism you are!
:)
Your usage of track-resources stretches the metaphor too thin - so asking about/making inferences from the stretched metaphor is moot!
Reg. your incentive compatibility argument - the question is not if Carl Lewis is able to survive by experiencing a contracting force greater than the expansionary force. Carl Lewis might still remain ahead - but he has a lesser incentive in making any additional effort, for he is not getting his effort due. That you missed this elementary game theoretic fact shows how steeped in socialism you are!
:)
Of course this is a simplification, albeit one in which the main issue under hand - the compounding/expanding property - holds. It's solely intended as a metaphor that'd provide insights, not as a full-fledged model... :)
Your usage of track-resources stretches the metaphor too thin - so asking about/making inferences from the stretched metaphor is moot!There's a lot of words here, but all it's telling me is that your model is somehow better than mine -- but you seem to say, your model is better than mine, *because* it supports the conclusions you want. If it's somehow saying anything more, you might want to be a bit clearer. I don't see why my example is any better/worse than yours, besides letting you argue what you want -- and it's too much of a toy model to be a proof of capitalism being better than socialism. If you like, I can sketch it out in more detail, I assumed you could figure it out from the outline I wrote. :)
Regarding the second point you make, I wasn't clear enough in model description, I apologize. The track needs to be *maintained* in order for both of them to be able to run. Carl Lewis runs fast, makes more money; X runs slowly, makes less money. Suppose Carl Lewis & X had to contribute equal amounts to maintain the track, but neither could run any further unless the track was maintained. Then, I propose Carl Lewis would rather spend a little of his own money instead of bringing life to a standstill, just because X can't afford to pay the amount required. By spending that money, the track would be up and running again, and (under the appropriate conditions re: maintenance cost & profit) he'd make a greater profit than letting the track die out. Thus, Carl Lewis would prefer to spend that money, assuming he is rational.
It might be interesting to argue that the former situation (bringing the track to a standstill) is an appropriate metaphor for what happened in the Great Depression... but I don't know enough history/economics to argue it.
Your usage of track-resources stretches the metaphor too thin - so asking about/making inferences from the stretched metaphor is moot!There's a lot of words here, but all it's telling me is that your model is somehow better than mine -- but you seem to say, your model is better than mine, *because* it supports the conclusions you want. If it's somehow saying anything more, you might want to be a bit clearer. I don't see why my example is any better/worse than yours, besides letting you argue what you want -- and it's too much of a toy model to be a proof of capitalism being better than socialism. If you like, I can sketch it out in more detail, I assumed you could figure it out from the outline I wrote. :)
Regarding the second point you make, I wasn't clear enough in model description, I apologize. The track needs to be *maintained* in order for both of them to be able to run. Carl Lewis runs fast, makes more money; X runs slowly, makes less money. Suppose Carl Lewis & X had to contribute equal amounts to maintain the track, but neither could run any further unless the track was maintained. Then, I propose Carl Lewis would rather spend a little of his own money instead of bringing life to a standstill, just because X can't afford to pay the amount required. By spending that money, the track would be up and running again, and (under the appropriate conditions re: maintenance cost & profit) he'd make a greater profit than letting the track die out. Thus, Carl Lewis would prefer to spend that money, assuming he is rational.
It might be interesting to argue that the former situation (bringing the track to a standstill) is an appropriate metaphor for what happened in the Great Depression... but I don't know enough history/economics to argue it.
No no - I'm not saying my model is better than yours. The track is just a metaphor - not a model.
In that aspect, you're correct that the conclusions/inferences one might draw from the metaphor could be wrong since we're looking at a simplified situation.
The function of a metaphor is not to provide inferences - I agree the post seemed to be positioned in that way - its intent was to elucidate the basic insight of what is unfair in capitalism.
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In that aspect, you're correct that the conclusions/inferences one might draw from the metaphor could be wrong since we're looking at a simplified situation.
The function of a metaphor is not to provide inferences - I agree the post seemed to be positioned in that way - its intent was to elucidate the basic insight of what is unfair in capitalism.
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