Saturday, January 12, 2008

Distorted words

In physics, certain words that have everyday meanings also have specialised ones in that discipline. So it is that occasionally terms like "work", "energy" and "force" can be misused, invariably by non-specialists like the people who write school text books, and there is at least the excuse of dual meaning when that happens.

But in economics, words with quite specific single meanings are routinely distorted and conflated with one another for polemical ends, and such is the pervasive nature of the distortion that it seems that even trained economists do not impose on themselves the discipline of maintaining rigour of definition. This is inexcusable. The meanings of words like "capitalism" and "free market" are very clear and specific.

This is not a partisan point, and to demonstrate this I'm going to start what will be a regular series of posts highlighting examples of this pernicious tendency with two examples from writers with whom I would ordinarily agree.

Take this, from Peter Saunders (emphasis added):

Capitalism lacks romantic appeal. It does not set the pulse racing in the way that opposing ideologies like socialism, fascism, or environmentalism can. It does not stir the blood, for it identifies no dragons to slay. It offers no grand vision for the future, for in an open market system the future is shaped not by the imposition of utopian blueprints, but by billions of individuals pursuing their own preferences. Capitalism can justifiably boast that it is excellent at delivering the goods, but this fails to impress in countries like Australia that have come to take affluence for granted.
It's quite clear that the writer is conflating the terms "capitalism" and "open market system". In fact, capitalism can exist in a country without an open market (I think by this the writer meant free market), with significant trade restrictions and a high degree of central planning. Conversely, economies with a higher (though still woefully inadequate) degree of economic freedom, like our own, can see the operation of successful enterprises that are not capitalist.

Secondly, from the normally more fastidious P. J. O'Rourke, in his commentary on Adam Smith's Wealth of Nations (p. 109, hardback edition):
Economic success depends on freedom. "No regulation of commerce," Smith wrote, "can increase the quantity of industry in any society... It can only divert a part of it into a direction into which it might not otherwise have gone." Trust to capitalism that industry would have gone in that direction already, if more economic success was to be found there.
O'Rourke here is also conflating economic freedom with capitalism. In a free economy, a successful cooperative is as capable as a public company of moving in directions in which economic success can be found. Were that not so, there would be no successful cooperatives, something that is plainly not the case.

This is a particularly gross error in a book about Adam Smith, who was a critic of capitalism. He did not want it to end, but he did explain how special interest groups include capitalists, and how they seek to undermine economic freedom. Two centuries later, Friedman made the same point repeatedly. It still hasn't sunk in.

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