Economics

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 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.

11 thoughts on “We Have Yet to Begin Feeling the Pain

  • STJOHNOFGRAFTON says:

    I liked this Socratic question from People’s Cube regarding Capitalism: “Why weren’t there demonstrations with anti-feudal slogans under feudal rule? And under Stalin, no anti-communist demonstrations? And under Hitler, no anti-fascist demonstrations? In a free capitalist society, anti-capitalist demonstrations are commonplace. Is capitalism really the worst system?” https://thepeoplescube.com/peoples-blog/soviets-list-barely-socratic-questions-american-progressives-t6617.html

  • pgang says:

    Capitalism’s achievements within the British empire would be unbelievable if they hadn’t actually happened. Hundreds of millions of people were willingly brought under the rule of a handful of Britons to access their prosperity and stability.
    In the 1820’s it took weeks/months to traverse the oceans in sailing ships.
    By the 1840’s steam was taking over and cutting those times to days and weeks, with fewer goods lost.
    By the 1860’s undersea telegraph cables were being laid, reducing international communication times to hours.
    Forty years later the aeroplane was invented; electric appliances came soon after thanks to power grids; the telephone system was rolled out and now the world wide web; penicillin; anaesthetics….

  • BalancedObservation says:

    “It needs a governor, or “decider” as Miller describes it. The governor in capitalism is the price system.”

    The price system is simply a mechanism ( the best we have in most instances with only a very few exceptions) to assist in implementing the wishes of consumers and suppliers in the market. It is not the “decider” in itself.

    While the price system is in nearly all cases the best means consumers and suppliers can use in helping to allocate resources it’s not infallible. It’s actually an imperfect system. It just happens to be usually the best we have. A bit like democracy. In fact it works best in democracies.

    • BalancedObservation says:

      Sorry forgot the puncturing here again. Here’s a more readable version of what I said above..

      “It needs a governor, or “decider” as Miller describes it. The governor in capitalism is the price system.”
      .
      The price system is simply a mechanism ( the best we have in most instances with only a very few exceptions) to assist in implementing the wishes of consumers and suppliers in the market. It is not the “decider” in itself.
      .
      While the price system is in nearly all cases the best mechanism to help in allocating resources it’s not infallible. It’s actually an imperfect system. It just happens to be usually the best we have. A bit like democracy. In fact it works best in democracies. But the price mechanism also works in socialist and non democratic countries – but not nearly as well. It’s a very pervasive mechanism.
      .
      It helps economic managers in government to be aware of the imperfections there can be with the price system.

  • BalancedObservation says:

    Actually you could argue that our versions of capitalism in Australia haven’t been a totally unbounded succcess. Given our natural resources and our small population we should be probably the richest nation in the world.
    .
    During the gold rush we were probably the richest nation in the world. We aren’t now with mineral prices booming.
    .
    Of course there are other countries rich in mineral resources which are poor. And that’s often due to socialist or non democratic governments – the leaders of which plunder their resources. And use them very inefficiently.
    .
    One of the richest countries in the world – now better off that us – is Singapore. Their governments have arguably been more socialist than ours. And they certainly don’t have our natural resources. They aren’t predominantly Christian either.

  • Paul.Harrison says:

    Feeling the pain: The Russian revolution:

    The workers revolted, slaughtered all the rulers and the intelligensea, and in the name of the revolution, made everybody equal. So they sat around singing revolution songs and dressing in funny hats, until hunger and cold came along. They were all so equal that they expected others to grow the potatoes so they could make the vodka, so they could sing and dance again, and so on. A few bright sparks suggested a planning committee, and there were seven people around the table. These became the Party and they started dealing out bribes and favours and family deals, etc. As part of the deal, Boris, who had been a leader during the revolution, was named the Minister for Potatoes. Anthonyious was his name, and he was a mere dullard, with no education, and the only thing he knew anything about was emptying cesspits, but hey, he’s a loyal party member and he stands 6 feet 5 inches, so no one wanted him angry.

    So, knowing nothing of potatoe growing, Anthonyious threw a dart at the board and declared Siberia to be the nations potatoe growing place. He arranged all the workers, (Most did not want to go, but they shot a few, and the others got the message) and put them all in cattle cars with a scrap of rag as a blanket, and some potatoe soup, one bowl per week, and they set about growing potatoes in the Snows of Siberia.

    It was of course a failure and millions starved, but hey, in a way it worked, as without potatoes they couldn’t make vodka. But the Paper of the Party, Pravda, said nothing but praise, for only the Party knew what was going on, and the Party was always right, so Anthonious was give a medal and promoted to be in charge of allocating living space, as every house in the nation was now a Party asset.

    More to come concerning the Adventures of Anthonious as he battles to stuff people into houses.,

  • KemperWA says:

    My German uncle, 60, is saddled with a 300 EURO power bill each month. That is a $5,772 per annum power bill. Lives alone, never had children. The house is only two bedroom, one bathroom, he is at work in the Miele factory (plans for closure, no points for guessing why) by day, no heating on in the rooms leaving them frigidly cold. This pain will come to Australia care of Labor, Green, Teal politicians who are clearly set on the de-industrialisation of Australia.

  • Elizabeth Beare says:

    Selfishly glad we live in Sydney with its temperate climate and very short winter where if necessary an extra blanket or jumper can save the day. In summer, coastal breezes usually suffice for keeping cool.
    But how ridiculous is it to even be thinking such things in the richest country evah if only we weren’t so keen on destroying it.? Thanks for your clear-sighted run through of open and closed systems, Peter, and the price mechanism that keeps the wheels turning. We need more articles for schoolkids on such basics, showing how socialism ruins everything. They need to know.

  • Bron says:

    KemperWA
    Hard to compare Westphalia, Germany with Perth, WA. 13/22 degrees over there at the moment. Hardly jumper weather. But it rains all the time and does get cold in winter. Your uncle would have no mortgage and rents are tightly controlled in Germany as are conditions of rentals. Health care is cheap for citizens and excellent in quality.
    By contrast, rents are astronomical in Perth and very scarce. Buying houses is nearly impossible, prices are ridiculously high. Private health insurance is required unless you want to wait forever. But it doesn’t rain all the time.

  • KemperWA says:

    Valid points. Two months spent there consisted of only 4 days sunshine. Health care is adequate but his state pension is 30 percent less than his parents with no superannuation. The bureaucracy of climate policy is nasty. At the stroke of a pen banned the connection of gas boilers, and severely restricted the repair of current ones. The house is connected to the 130-year-old farmhouse. He can’t rent it until fully and forcibly converted to solar, and heat-pumps plus even more wall insulation. This is upwards of 100,000 EUR (even with subsidies). Money he doesn’t have. Only option to sell entire farmhouse plus his extension, but without this climate/energy policy enforced upgrades, he will lose hundreds of thousand in sale price. This is so the non-working-all-woking-student-til-30 generation, yet to pay tax, can feel better about themselves. He says ‘the government have ruined my retirement; ‘I regret ever voting for the greens’. He shut off my grandmother’s deep freeze to save her 30 EUR per month until my father ordered him to turn it back on for her final years. She now sits by the wood fire oven and an English electric foot heater. Unbelievable the mess Germany has made. Bankrupting its own industries.
    Why should the retiring boomers empty their bank accounts to pay for these untenable targets? To turn their homes into mini energy plants? Many have worked to the bone from age 15. Again, very nasty what socialist/green government is doing to its longest-serving taxpayers/workers. At the stroke of a pen, pain and uncertainty abound there. This mad dismantling of reliable energy will curse all nations.

  • Bron says:

    KemperWA
    Thank you for this sad story. I hope your uncle and grandmother are helped by the German government in their difficult circumstances.

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