My computer, like all computers, has limited resources. Each tab requires some resources, so if I open up too many tabs, then I'll tie up too many resources and my computer will become sluggish and unresponsive. This will of course limit my productivity. So if I want to increase my productivity, I'll have to close some tabs. Doing so will free up resources for more valuable uses.
This is the basic concept of creative destruction...
1. we have limited resources
2. some uses of resources are more valuable than other uses
3. destroying less valuable uses frees up resources for more valuable uses
4. total value is increased
The question is...which uses should be destroyed? How do we determine which uses are less valuable? There are really only two ways to answer this question. Either you decide for yourself (capitalism) or somebody else decides for you (socialism).
Capitalism (private sector) is where you decide for yourself which of your tabs you'll close...while socialism (public sector) is where somebody else decides for you. Therefore, with capitalism, the allocation of your computer's resources will reflect your preferences...but with socialism, given that you're not free to choose, obviously there will be a disparity between the two. This is why capitalism results in the efficient allocation of resources while socialism does not. An allocation of resources is "efficient" if it accurately reflects the true preferences of consumers.
Last month a Crooked Timber Liberal blogger, Corey Robin, wrote an article for the Nation in which he drew a connection between Friedrich Nietzsche and the Austrian Economists..."Nietzsche's Marginal Children: On Friedrich Hayek". I'm not going to link you to it because the website has a popup...but I will link you to his recent post at Crooked Timber...Nietzsche, Hayek, and the Austrians: A Reply to My Critics. I'll also link you to John Holbo's (my favorite Crooked Timber Liberal) post on the topic...O upright judge! Is Hayek Like Nietzsche or not?
As you might have guessed from the intro of this post, one concept that both Nietzsche and the Austrians have in common is "creative destruction". Unlike Corey Robin, at least John Holbo uses the term "creative destruction"...but that's all he does is use the term.
A while back I added a couple passages to the Wikipedia article on creative destruction. The first was a passage by Nietzsche...
But have you ever asked yourselves sufficiently how much the erection of every ideal on earth has cost? How much reality has had to be misunderstood and slandered, how many lies have had to be sanctified, how many consciences disturbed, how much "God" sacrificed every time? If a temple is to be erected a temple must be destroyed: that is the law - let anyone who can show me a case in which it is not fulfilled! - Friedrich Nietzsche, On the Genealogy of Morality
...and the second was a passage by an Austrian Economist...
These economic facts have certain social consequences. As the critics of the market economy nowadays prefer to take their stand on "social" grounds, it may be not inappropriate here to elucidate the true social results of the market process. We have already spoken of it as a leveling process. More aptly, we may now describe these results as an instance of what Pareto called "the circulation of elites." Wealth is unlikely to stay for long in the same hands. It passes from hand to hand as unforeseen change confers value, now on this, now on that specific resource, engendering capital gains and losses. The owners of wealth, we might say with Schumpeter, are like the guests at a hotel or the passengers in a train: They are always there but are never for long the same people. Ludwig Lachmann, The Market Economy and the Distribution of Wealth
Life is dynamic...circumstances are constantly changing. As such, people's preferences are not fixed. One minute you're thirsty, so you spend a $1 on some lemonade...and the next minute your thirst has been quenched.
The capitalist society is a democracy in which every penny represents a ballot paper. It is a democracy with an imperative and immediately revocable mandate to its deputies. It is a consumers' democracy. By themselves the producers, as such, are quite unable to order the direction of production. This is as true of the entrepreneur as of the worker; both must bow ultimately to the consumers' wishes. And it could not well be otherwise. People produce, not for the sake of production, but for the goods that may be consumed. As producer in an economy based on the division of labour, a man is merely the agent of the community and as such has to obey. Only as a consumer can he command. - Ludwig von Mises, Economic Democracy
Each penny that you are free to spend is a vote for the continued creation of a product/service that matches your preferences. But each penny that you spend on lemonade is a penny that cannot be spent on soda, carrot juice, a new computer or any of the other millions and millions of other products/services.
Likewise, each second you spend reading this post is a second that cannot be spent reading other posts. Each second you spend replying to this post is a second that cannot be spent replying to other posts. In other words, there's always an opportunity cost. Spending is always creating/destroying...
By preferring my work, simply by giving it my time, my attention, by preferring my activity as a citizen or as a professional philosopher, writing and speaking here in a public language, French in my case, I am perhaps fulfilling my duty. But I am sacrificing and betraying at every moment all my other obligations: my obligation to the other others whom I know or don’t know, the billions of my fellows (without mentioning the animals that are even more other others than my fellows), my fellows who are dying of starvation or sickness. I betray my fidelity or my obligations to other citizens, to those who don't speak my language and to whom I neither speak or respond, to each of those who listen or read, and to whom I neither respond nor address myself in the proper manner, that is, in a singular manner (this is for the so-called public space to which I sacrifice my so-called private space), thus also to those I love in private, my own, my family, my son, each of whom is the only son I sacrifice to the other, every one being sacrificed to every one else in this land of Moriah that is our habitat every second of every day. - Jacques Derrida, The Gift of Death
Markets give you the freedom to decide for yourself what you're willing to pay/give up/sacrifice/exchange/trade for the things you want. As a result, the allocation of resources reflects the true preferences of consumers. The allocation of resources is efficient.
One critique that Holbo brought up is that the idea that markets make it so that some people have more economic freedom than other people. But isn't it intuitive that some people belong in jail? Do we really want Jeffrey Dahmer to have as much freedom as Michael Moore?
Why does Michael Moore have more economic freedom than most of us? Here's his answer...
I'm a millionaire, I'm a multi-millionaire. I'm filthy rich. You know why I'm a multi-millionaire? 'Cause multi-millions like what I do. That's pretty good, isn't it? - Michael Moore
Should Moore have more economic freedom than the rest of us? Personally, I don't think so, which is why I don't give him my money. I don't give him my money because I don't value how he is using society's limited resources.
Money is positive feedback. If you derive value from how somebody is using their limited resources, then you give them your positive feedback. If you take away consumer's freedom to give producers their positive feedback, then it's inevitable that we will greatly reduce how much value we derive from how society's limited resources are used.
So when you open and close tabs...don't take your freedom for granted. Understand that your preferences are determining how society's limited resources are allocated. In other words, it's demand that's determining supply. It's demand which is determining what is destroyed and what is created. It's demand which is determining which uses of society's limited resources are more valuable than other uses.
Given that the government cannot know your true preferences for public goods, it's a given that the government will supply the wrong quantities of public goods. This is what's wrong with the public sector. It's absurd to believe that 300 congresspeople can know the true preferences of 300,000,000 people better than those 300 million people can. It's the epitome of conceit. Hayek, Mises and Bastiat understood the value of individual foresight...which is what made them Austrians...
If the socialists mean that under extraordinary circumstances, for urgent cases, the state should set aside some resources to assist certain unfortunate people, to help them adjust to changing conditions, we will, of course, agree. This is done now; we desire that it be done better. There is, however, a point on this road that must not be passed; it is the point where governmental foresight would step in to replace individual foresight and thus destroy it. - Frédéric Bastiat
But was Nietzsche an Austrian?
Every animal, including the bête philosophe, instinctively strives for an optimum of favorable conditions under which it can expend all its strength and achieve its maximal feeling of power; every animal abhors, just as instinctively and with a subtlety of discernment that is "higher than all reason," every kind of intrusion or hindrance that obstructs or could obstruct his path to the optimum (– it is not his path to ‘happiness’ I am talking about, but the path to power, action, the mightiest deeds, and in most cases, actually, his path to misery). Thus the philosopher abhors marriage, together with all that might persuade him to it, – marriage as hindrance and catastrophe on his path to the optimum. Which great philosopher, so far, has been married? Heraclitus, Plato, Descartes, Spinoza, Leibniz, Kant, Schopenhauer – were not; indeed it is impossible to even think about them as married. A married philosopher belongs to comedy, that is my proposition: and that exception, Socrates, the mischievous Socrates, appears to have married ironice, simply in order to demonstrate this proposition. Every philosopher would say what Buddha said when he was told of the birth of a son: ‘Râhula is born to me, a fetter is forged for me’ (Râhula means here ‘a little demon’); every ‘free spirit' ought to have a thoughtful moment, assuming he has previously had a thoughtless one, like the moment experienced by that same Buddha – he thought to himself, ‘living in a house, that unclean place, is cramped; freedom is in leaving the house’: so saying, he left the house. The ascetic ideal points the way to so many bridges to independence that no philosopher can refrain from inwardly rejoicing and clapping hands on hearing the story of all those who, one fine day, decided to say ‘no’ to any curtailment of their liberty, and go off into the desert: even granted they were just strong asses and the complete opposite of a strong spirit. Consequently, what does the ascetic ideal mean for a philosopher? My answer is – you will have guessed ages ago: on seeing an ascetic ideal, the philosopher smiles because he sees an optimum condition of the highest and boldest intellectuality [Geistigkeit], – he does not deny ‘existence’ by doing so, but rather affirms his existence and only his existence, and possibly does this to the point where he is not far from making the outrageous wish: pereat mundus, fiat philosophia, fiat philosophus, fiam!… - Friedrich Nietzsche, On the Genealogy of Morality
