Heresy at the Herald: capitalism may not be perfect

It was almost unheard of. Last month, a Fairfax business writer hinted that capitalism - at least, the Australian capitalism that we all know and love - might be not quite perfect. Something, Stuart Washington wrote on February 7, is “broken” in Australia’s “pricing system”, and “I believe failures in pricing are posing grave dangers to what we know as capitalism”.

Washington’s article, which attracted considerable on-line comment on the Sydney Morning Herald and Melbourne Age home pages, was occasioned, he wrote, by an electric fan from China that was on sale at Bunnings for only $8. Given the costs of raw materials, labour, packaging, shipping, wholesaling, retailing, advertising, taxes and so on, Washington wrote that it was difficult to see how anyone could make a profit from that fan. And even if the fan was a “loss leader” for Bunnings - intended, not to make a profit, but to get customers in - “there are enough [other] examples of absurdly low prices around the place” to justify his fears.

‘Wrong’ prices

If profits are possible on the fan, Washington argued, it must be because “certain inputs are not being accurately priced”. Explicitly leaving aside the cost of labour, i.e. exploitation, “for another day” (don’t hold your breath) and after blaming the global financial crisis on mistaken “pricing” of money (the interest rate) Washington tipped his hat to environmental concerns: “our current economics fail us” on resource depletion and environmental impacts. The overall impression left is that climate change and most economic problems can be solved by a little judicious tinkering with “the pricing system”.

Wouldn’t it be nice if it were true? But how do you reform a “system” when it doesn’t really exist? The owners of things for sale - capitalists in terms of the economy - set prices as high as they think they can get away with. If they can’t get away with them, they lower them a little bit and try again. If bad management or changed circumstances mean that they can’t sell for more than they paid, they invest in something else or stop being capitalists.

On the rare occasions that unusual conditions force capitalist governments to try to modify this ingrained behaviour for even a short time, the capitalists and their defenders scream that doing so is contrary to the very nature of capitalism - and they are correct. The right to charge “what the traffic will bear” is sacred to capital. There is a capitalist system, but there is no separate “pricing system” that can be changed while leaving capitalism as it is.

Social interests

From the standpoint of the individual capitalist, things can be priced accurately -  or inaccurately - that is, they can cover costs and leave a profit, or fail to do so. But from the standpoint of society,  pricing is meaningless, because society has many interests that have nothing to do with money. Although capitalists and their ideologists sometimes try to do it, it is absurd to put a price on most things that are affected by capitalist production: human health, the environment, peace and war, relations between people. If carbon dioxide from a new coal-fired generator causes a coastal city in Asia to be flooded, what would be an “accurate” social price for electricity from that generator?

Capitalism tries to put a price on everything. It has no way of judging anything except by money. It defines “efficiency” as whatever produces a higher rate of profit, even if it results in the destruction of millions of lives.

That is why capitalism has brought the human race to the brink of disaster, and why there is a growing public sense that “something is wrong”. Stuart Washington’s article was a response to this growing concern. But it was an inadequate response. There is no “accurate” price that can undo or make up for the misery that capitalism inflicts on the human race.

Instead of trying to make capitalism price things more rationally, we should be doing away with capitalism so that a rational organisation of human affairs - one not based on money - can become possible.