Saturday, April 09, 2011

A Tale of Two Prophets

Michael Parenti writes (8 April) on Profit Pathology And The Disposable Planet on Seismologik Blog (HERE):

“Free Market Uber Alles”

“It was a familiar argument: the company had no choice. It was compelled to act that way in a competitive market. The mill was not in the business of protecting the environment; it was in the business of making a profit, the highest possible profit at the highest possible rate of return. Profit is the name of the game, as business leaders make clear when pressed on the point. The overriding purpose of business is capital accumulation.

To justify its single-minded profiteering, corporate America promotes the classic laissez-faire theory, which claims that the free market - a congestion of unregulated and unbridled enterprises all selfishly pursuing their own ends - is governed by a benign "invisible hand" that miraculously produces optimal outputs for everybody.

The free marketeers have a deep, all-abiding faith in laissez-faire, for it is a faith that serves them well. It means no government oversight, no being held accountable for the environmental disasters they perpetrate. Like greedy, spoiled brats, they repeatedly get bailed out by the government (some free market!) so that they can continue to take irresponsible risks, plunder the land, poison the seas, sicken whole communities, lay waste to entire regions and pocket obscene profits
.”

Comment
Michael Parenti is a man with a mission, of which I have no comment as it is largely a political message and I exercise a self-denying ordinance not to discus politics outside of the country in which I vote (Scotland) – individuals have so little influence where they live that outside where they vote their influence is of epsilon value.

However, I am interested in economics and I was struck by his highly polemical presentation of how economies operate and he shows how doubtful ideas about economics can be hauled out into the service of good causes (the future of the planet) when they are almost absolutely wrong. The road to hell is paved with good intentions …

Parenti paraphrases an argument associated with Milton Friedman (the sole purpose of a corporation is to make money for its shareholders, etc.). That Milton Friedman said something does not make it right or wrong – it all depends.

Profit is the name of the game, as business leaders make clear when pressed on the point. The overriding purpose of business is capital accumulation.”

Parenti makes this sound dirty. In fact, if Parenti thought about it and what the consequences would be of legislating to prevent it, he might think again.

Let us start with ‘profit’. This can be defined as the surplus above all the individual’s costs of making something and selling it to customers in a period of time. If there is no profit, no surplus above costs – indeed, if there is a loss – then the individual or firm is ‘worse off’ than it was before engaging in its activity. Why then would the individual or firm continue to engage in whatever activity to make something that makes it worse off?

Now, I am not making asking this question as a debating trick. Did not the prophet from Galilee ask exactly the same question:
“What does a man gain if he gains the whole world but loses his soul?

Without the prospect of a gain, no activity in search of gain would be undertaken. Hence Parenti should think about that before enunciating that the search for gain is a moral failing.

I suggest that Parenti’s complaint is really about the individual or firm deliberately ignoring some of the costs of activity in pursuit of gain that have detrimental costs on society (pollution, poison, degradation, ill-health, and so on). That is quite different from attacking all profit in pursuit of gain, as it would be for Parenti to attack a hunter in a simpler society who expends more energy in catching something to feed the family that depend on his/her hunting skills and comes back with insufficient sources of calorie intake to sustain either him/her to continue hunting for the family to survive the season.

Parenti takes the inevitable necessities of activity to sustain economic circulation and twists them into heinous crimes to suit his deeply felt political agenda. Parenti’s publicity describes him as ‘charismatic’, and I can well imagine he is, but I recall another charismatic leader who was given to adding ‘Uber Alles’ to his depraved ravings about an innocent minority he charged with heinous responsibility for the crisis in his country.

Parentis claims that “the classic laissez-faire theory, which claims that the free market - a congestion of unregulated and unbridled enterprises all selfishly pursuing their own ends - is governed by a benign "invisible hand" that miraculously produces optimal outputs for everybody”.

This charge, of course, is nonsense in spades: ‘laissez-faire’ was not a theory; it was part of a phrase spoken in 1680 by a ‘plain spoken merchant’ (a M. Legrande) to the French Finance Minister, Colbert, when asked what he wanted the government to do to for ‘the benefit of trade’, to which Legrande replied ‘laissez nous faire’ (‘leave us alone’).

Noticeably ‘the sensible’ M. Legrande did not mention anything about leaving his customers alone to enjoy a competitive market, because Legrande’s cry was not for the benefit of his customers. Later this phrase became transcribed into the rallying cry of the 19th-century mill and mine owners (and their bought-for party men) facing legislation to limit hours of work and the employment of women and infant children (though no such cried for laissez-faire from the farming interests than benefitted from the protectionist Corn Laws that kept cheaper continental food out of the British market. Those industrial interests that opposed the Corn Laws and agitated to repeal them, saw cheaper bread as a way to reduce factory wages (I am not being deliberately too cynical here).

My point is that life is more complicated than Parenti appears to appreciate. Neither the rich, nor the poor, are monolithic entities, their motives are mixed; their needs are contradictory.

The reference to “the ‘free market’ that is governed by an ‘invisible hand’ that miraculously produces optimal outputs for everybody’ is an idea invented in the 1940s (Oscar Lange, 1947; Paul Samuelson, 1948) and boosted by General Equilibrium and Welfare theories from the 1960s. It has become of ideological significance among many modern economists against which much time and effort is devoted on Lost Legacy. Intellectually, the invisible-hand’ as a theory is a busted flush, but is useful to Parenti’s rhetoric to whip up enthusiasm among his readers (author of several books) and listeners (regular radio speaker) to generate an income of sorts.

If Parenti relies on such income for his sustenance, he will know that if the expense of producing his book and broadcasts, cost more than he receives in return (in short, he makes losses) he either has to cut costs or raise revenue (and eventually in even shorter fashion) give up his evangelising.

I understand that, and I am sure that he does too. Welcome to capitalism, Michael.

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