A friend of mine made an interesting argument for at least some level of market regulation. It went like this:
“market regulation is a top predator. Remove the predator, and the herd of capitalists will multiply to consume all available resources, thereby ensuring its own premature extinction”
I am not supporting this argument/analogy, but I must admit it is an interesting take which is new to me.It seems like there is something wrong with the analogy – what is it? How can one argue against this?
Strange argument. In the first place, businesses don’t primarily consume resources, but transform them to produce other goods. Consumption is largely what end-consumers do. Would he suggest that government should engage in predatory behavior to reduce consumers??
Furthermore, while businesses compete for the use of those resources, only those who put them to better use win out. Poorly-managed businesses tend to go out of business or be bought by better-run businesses without the need for extra “predation” to “thin the herd”.
Sounds like tedious nonsense that supposes that the market is some kind of zero-sum game. Actually, without regulation, markets will tend to have the optimal amount of firms, as few firms would be willing to undergo losses. So, whilst free markets drive down profits over time, there comes a point when further entry of firms becomes uneconomical. So I fail to see how this objection achieves anything.
All available resources are supposed to be consumed. The whole point of the market is to distribute scarce resources to the most efficient users - those who will pay the most.
Your friend’s argument plays around with the meaning of the word “consume”, making it sound as if resources sort of go poof and disappear forever. Consumption simply means taking resources out of the market. What Entrepaneaurs do is transform resources into useful forms - forms desired by consumers. Check out George Reisman’s lecture Environmental and Resource Economics.
His analogy is the food chain of an ecological system. Within a simple ecological system, you have plants, herbivores, and carnivores. The herbivores, lets say a deer, in a way live a parasitic existence. They consume plants for food, but they don’t add anything to the existing plant population, nor do they plan ahead for future consumption. They just follow their instincts, consume and multiply. Animals (non-human) are not capable of self-reflection, establishing norms, or private property. If there is no check, their population will grow beyond the carrying capacity of the ecological system and they will consume all the plants and then their population will crash from the resulting starvation. With the introduction of a predator, like a wolf, which has an instinctive self-limitation of population dependent on territory, an equilibrium is established between the population of the deer, wolves, and vegetation.
Now, for human beings, this is a complete disanalogy, for several reasons. First, humans, including capitalists, do not live parasitic existences. We transform natural resources to make them more productive. We accumulate capital which improves the total amount of consumption goods available for a given amount of natural resouces. We trade with one another which increases the stock of consumer goods. We establish private property rights allowing for the creation and existing modern industrial economy, and planning into the future.
If anything, it is violent criminals, as well as (maybe I should say including) government agents, which multiply and consume all the resources that private producers produce. It is criminals and government agents that need a predator!
One sort of simple argument that I’ve heard before, and I think it pertains to this topic, is the effect of an inheritance or death tax. Essentially its effects are to discourage saving and encourage consumption. So, for example, if an owner of a logging company is going to pass away, and he isn’t able to retain ownership through his surviving heirs, he’s far more likely to use up the forest, or, at a minimum, use it in a less efficient way than he would have if there were no tax or penalty.
I guess in general, the more taxation, i.e, the more regulation, the less property people retain, and accordingly, the less likely they are to treat it as their own, resulting in the reckless and wasteful use of resources (larger amounts of consumption, ceteris paribus). Where as in the free market, with well-defined property rights, there is all the incentive in the world to make the most efficient use of one’s resources since they shall always be his.
Your friend appears to be a student of the ecological equivalent of Keynesian economics (a Keynesian ecologist). It seems to me that, if the predators were removed for whatever reason, the herd would not die out but simply reduce in number until it reaches equilibrium with its resources.
On top of that the analogy is not only invalid but contrary to experience: regulators (having no incentive to conserve) have always been notorious for waste, while capitalists (wishing to maximize profit) would do well to use their resources wisely.
How is this interesting… Thats not an economic argument, its more of an enviormental one…Saying that if we didnt have carbon regulation, people would produce more carbon is obvious…However, it doesn’t justify maket regualtion to strengthen the economy… The ignore the fact that these rescources are not being used (possibly wasting away) while producers could use them to create new or more goods. The restriction of rescources also makes for more costly production, and thus a lower supply (higher price) for the consumer.
That is similar to the argument made by Aldo Leopold about the need for hunting deer. It was claimed that since wolves were wiped out in Wisconsin and elsewhere that man needed to replace the wolf as a predator in order to control the population of deer and prevent over population which would leave the deer herd vulnerable to elimination due to the diseases that would come naturally to an unregulated deer population.
It sounds good…especially if you are a hunter. But it just is not true. Deer can manage themselves just fine without the risk of being eaten or being shot. The data used to prove this was a graph made after a distemper outbreak that did reduce the deer population but it bounced back on its own and stayed steady even without wolves. And hunters tended to take big, healthy deer rather than the easier to kill weak deer, so if anything would weaken the herd it would be hunting by humans.
Now deer are not people and I am not opposed to hunting at all (I love venison). Deer browse and eat foliage and other vegetation. They don’t aquire vegetation and produce a more useful product for other deer to consume. A herd of capitalist free of wolves or hunters would aquire a natural “territory” in the market sense of the word and appropriate those resources for the consumption of others to their , and to the consumer’s benifit. Other capitalists could still encroach upon their “territory” but it would be impossible for encrouchment to eliminate the “herd” of capitalists as a whole, it would just favor one group over another. Though members of the “herd” will benifit from this natural order those that do not benifit by competing with the capitalist herd will still have the benift of being consumers of what the top herd members produce…Which is very unlike deer.
Assigning a “hunter” to thin the herd would allocate resources of the competing “herd” into avoiding the predations of the hunter and a different order would happen. One where worrying about what the consumers want will be replaced by worrying about what will attract the attention of the hunter and consumers would suffer due to the change in time allocation by the “herd”. Plus I have to assume that like a deer hunter, the capitalist hunter will go after the most fit rather than the weakest.
FYI, I am not supporting this analogy – just looking for opposing arguments to it (which you all have given).
DBratton was dead on when he said that my friends argument is a clever play on the word ‘consume.’ This tricked me and I was too hung up on it to formulate a good retort.
I will respond to him with many of the points you all have suggested. Thanks
You should read almost anything by Julian Simon but specifically his book “The Ultimate Resource 2” deals explicitly with this topic. As a matter of fact he had a widely public bet with Paul Elrich ,who holds to the same view as your friend, and Simon won it. It had to do with Resource depletion but Simon pointed out that technology in a capitalist system works greatly towards reducing over use and making it more efficient. For instance Oil barrels have only increased and this is not just due to new wells being found but because people shop for more fuel efficient technology. Your friend needs to stop and think about how come in the thousands of years humans have been around we have not run out of steel or other things since most of these resources are only used once and not recycled but when publicly owned (Soviet Union) massive amounts of resource waste comes about.
The entire problem with the Malthusian outlook is due to thinking that everything will stay the same and there will be no progress. Afterall we have progressed way beyond the idea that there is some fixed amount of population growth that is sustainable. Another thing is that as we make agriculture more and more efficient we need less land for use so if you look at the present state of things the United States and other capitalistic countries are giving more land back to trees since we need less land for food since we dont need to feed horses for transportation, and a crop has less failure and higher success rates etc etc.