We Have Yet to Begin Feeling the Pain

I have described capitalism as being akin to a living system. According to James Grier Miller (Living Systems, 1978) living systems are open systems which “maintain a steady state of negentropy.” In other words, they resist the second law of thermodynamics. They are able to counter entropy, to swim against the tide as it were, due to their ability to take in complex inputs. However, a living system does not take in or apply inputs haphazardly, otherwise it would not live long. It needs to be able to govern the type, amount, and application of its inputs. It needs a governor, or “decider” as Miller describes it. The governor in capitalism is the price system.

Best to be clear about what the price system is in this context. It is a system of prices which individually and feely move to bring the supply and demand (current and forward) for resources, goods and services into alignment. There is more. Prices call forth supply by allocating the appropriate resources, and they ration demand – as you would know plainly when your bid at an auction is topped. There is more still. The supplies and demands in question are those which arise non-coercively. Making people make stuff or buy stuff at the point of a gun (in whatever shape the gun comes) is seriously debilitating. Apropos, as I will come to, the imposition of so-called renewable energy.

Why doesn’t socialism work? It is a closed or semi-closed system. Production and prices are fixed. Inexorably, gaps form between the supply and demand for individual products. Resources are misapplied, guided by the whims of economic czars. In the absence of forward price signals, resources in use are at risk of running out. The system falls into disarray. People become poorer. This is not a matter of a conjecture. It is a matter of historical experience.

Closed systems die. Or, in the case of economies, they to regress to a ruder state. Deprivations, degradations and, inevitably, political despotism fill the void where prosperity and freedom once stood.

I find it amusing at my church when we are asked to pray for the preservation of our scarce resources, not to mention their equitable sharing.

I find it amusing at my church when we are asked to pray for the preservation of our scarce resources, not to mention their equitable sharing. I feel like putting up my hand and saying ‘Do you mean we should pray that capitalism prevails?’ But I am an Anglican and we don’t do that sort of thing. And, of course, very, very few in the congregation have the least idea why the community within which they live is so rich. Happenstance they think, perhaps. But I digress.

Capitalism draws in a complexity of inputs: raw materials; physical and financial capital; labor and skills; invention, innovation and entrepreneurship; and enough energy to drive machines, without which nothing happens. It produces outputs in the form of structures, goods and services. Market prices modulate the use and application of resources in order to repair and renew the system, and to produce outputs of more value than the value of the inputs which were used up in their production.

Why are we rich? On the whole over the past two hundred years or so, much more value has been produced than has ever been used up. Look across the business world. Ignore businesses that go broke, most make a profit. Surplus value, Marx called it. In fact, it is a measure of success and growing abundance. And so, through time, societies which embrace free-market capitalism become wealthier and wealthier.

It is no accident that Christianity, encapsulating truth and trust, spawned capitalism, which is so much dependent on honest dealing. God-given capitalism provides the wherewithal to progressively reduce poverty and ensures that resources will never run out. Price signals see to that – instigating economy, search and substitution. Rodney Stark (The Triumph of Christianity) says it well.

Capitalism originated in the depths of the Dark Ages. Beginning in about the ninth century with large monastic estates which developed into well-organised and stable firms involved in commercial activities that generated a sophisticated banking system with a developing free market, thereby achieving capitalism in all its glory.

Now consider, without guffawing, the push to make Australia a renewable energy superpower. Effectively, this quixotic quest, before it collapses, will entail the forced replacement by government of dense, reliable, affordable energy with diffuse, intermittent, expensive energy. Rather than create value this destroys value. It is impoverishing. But it’s worse than that. Energy is at the heart of all living systems. Walling the system off from effective energy will be disastrous.

Walling off living systems to prevent [free] exchanges across their boundaries results in death by confinement…entropy will always increase in walled-off living systems. (Miller)

And the carnage is only beginning. Coal, oil and gas accounted for 91 percent of Australia’s energy consumption in 2021-22. Bowen’s climate-crazy crew have so much more to do. Us poor sods out in the suburbs and regions haven’t begun to feel the pain.