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The historical effect of capitalism

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musenji

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In my readings of Objectivist literature, I remember a few points made about capitalism's effectiveness on a grand scale.

For instance, Rand said that, during the industrial revolution, the freest countries were the ones that progressed the most. I never saw any kind of statistic for this, but it seems intuitively true that Britain and the US did progress the most during this period. Rand pointed out that in Britain (or maybe industrial Europe), the population rose by 300 percent in some period of time, and that this demonstrated how effective it was.

I have heard, on the other hand, liberals say that it wasn't about the freedom, it was more about resource availability. The US was a very "untouched" land in terms of resource exploitation, and that is why the US advanced the most during this period.

I imagine a counterargument to that might be that resources do not equal progress if you are not allowed to use them freely.

To me, a person not versed in the actual history, this is a bit abstract, and "floating".

I would be interested in seeing some source that looks in-depth (using statistics--measurements of quantity) at the relationship between resource availability, capitalism, and the progress of a country. Does Economics in One Lesson do this? Or Human Action by Mises? (I have looked briefly at those, but not in depth.) Maybe there are books on the progress of China while it integrated capitalism?

Any leads anyone can offer would be appreciated.

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I am a college student at the University fo Chicago who wrote an extensive (30,000 word) paper on just this topic. I compared the economies of Britain, Germany, Itlay, France, and to a lesser degree, the US and Japan according to my qualitative evaluation of their level of economic freedom during the late industrial revolution (1870-1913). I found that there is doubtlessly a correlation between economic freedom and relative economic success during the time period as can be seen by GDP, population, and production growth figures.

I can email you a copy of my paper if you'd like.

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Sent from [email protected]. It might be a tad unpolished since it is a very late stage rough draft (only one on this computer). The first half after the introduction deals with a few myths of capitalism and the second half is the country-by-country analysis.

I am a second year and I wrote this last year. I find no problem writing a lot as long as I am interested in the topic.

EDIT: Also going to send a slightly more polished copy in Open Office Format since there were a few formatting mishaps in the copy I sent to you.

Edited by Dormin111
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Cool! I'm on page 28, and I'm enjoying this read. I've noted a couple of things:

Your definitions for "recession" and "depression" are quite...harsh? That's not the right word, because it's not a bad thing. What I mean is, in Wikipedia it says that one year with a GDP of -10% is defined as a depression, whereas you define anything below -1% as a depression. And the percentage space occupied by "recession" is remarkably slim. I take it that this is because the growth overall during that period was so high, that your definitions had to be "stricter"? Though the current rule of thumb is that two down quarters in a row constitutes a recession, I suppose. Did they even keep track of quarters back then?

While the numbers themselves don't pop a meaning out at me, your analysis is fascinating (US recovered faster than any other nation, controlled economies demonstrated a lag in rebound, and overall the way that they were outperformed by the more capitalist countries).

You state that no country, with the exception of Italy or Japan, had a single bust that came close to the "government-created Great Depression". I anxiously hope that you provide an argument to support the assumption that the Great Depression was in fact government created! Though it would fall outside your timeframe, that's a pretty controversial assumption to throw in without justifying it. :-) Not that --I-- disagree per se.

Reading on...

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Cool! I'm on page 28, and I'm enjoying this read. I've noted a couple of things:

Your definitions for "recession" and "depression" are quite...harsh? That's not the right word, because it's not a bad thing. What I mean is, in Wikipedia it says that one year with a GDP of -10% is defined as a depression, whereas you define anything below -1% as a depression. And the percentage space occupied by "recession" is remarkably slim. I take it that this is because the growth overall during that period was so high, that your definitions had to be "stricter"? Though the current rule of thumb is that two down quarters in a row constitutes a recession, I suppose. Did they even keep track of quarters back then?

While the numbers themselves don't pop a meaning out at me, your analysis is fascinating (US recovered faster than any other nation, controlled economies demonstrated a lag in rebound, and overall the way that they were outperformed by the more capitalist countries).

You state that no country, with the exception of Italy or Japan, had a single bust that came close to the "government-created Great Depression". I anxiously hope that you provide an argument to support the assumption that the Great Depression was in fact government created! Though it would fall outside your timeframe, that's a pretty controversial assumption to throw in without justifying it. :-) Not that --I-- disagree per se.

Reading on...

For the definitions I basically made them up to fit the time period. I have always heard that a recession is a stagnant economy and a depression is a contracting economy, but I felt that was too simplistic. You are right about the modification being due to high growth rates, especially when relating to a country like the US which was averaging in the 9-10% GDP per year range. For that, 1% growth is pretty weak.

They did not keep track of quarters or really GDP at all back then. All of this data was assembled in the 1990's, mostly by economist Angus Maddison who had an absurd amount of time on his hands and litterally recorded estimates of GDP for every year from 1870 to 1990 for every country I mentioned. The reason I didn't dive as much into Austria or Russia in the paper (besides time constraints) was because he had no numbers on them. From what I understand, he based the data off of markers from local businesses and publications which recorded industrial output, trade levels, etc. Generally, the exact numbers should be taken with a grain of salt, but I believe the general thrust of each stat is reliable (ie. negative or positive growth at varying levels). That being said, the US, Germany, and Britain tended to have the best data so their numbers should be thought of as the most accurate.

In this paper I do not dive into the Great Depression since it falls outside of the time line, but I do have the GDP statstics for them. If you want a free-market analysis of the GD, I recommend Murray Rothbard's book titled Great Depression.

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Just got to page 46. Loving the paper! Would like to check out that book. I might have to buy it, just to read it, though I can try interlibrary loan.

When you refer to "Darwinists hoping to prove their pseudo-science", I assume you mean the idea that some races are better than others? I wonder if there is an extra adjective to separate this kind of Darwinist from the plain old person who acknowledges the truth of evolution by natural selection. (Humans in civilization are not actually subject to Darwinian natural selection.)

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I have heard, on the other hand, liberals say that it wasn't about the freedom, it was more about resource availability. The US was a very "untouched" land in terms of resource exploitation, and that is why the US advanced the most during this period.

I imagine a counterargument to that might be that resources do not equal progress if you are not allowed to use them freely.

It is a very good counter-argument in fact.

Tsarist Russia was in the same situation as the US, moving into a vast, resource rich area with relatively little opposition from the previous inhabitants. The history of Russia in Siberia is as hair-raising a tail of genocide and exploitation (hell, outright slavery) as anyone might try to paint for the US.

Yet they didn't progress as much as the west, and they weren't free.

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  • 2 weeks later...

Well, I managed to get to the point where you analyze each specific country, but at that point it got a little too detail-oriented for me. Is there a summary/conclusion planned for the end of the paper?

No conclusion at the moment. I was hoping to continue it eventually by going into Austria, Russia, the Ottoman Empire, and Japan but have not gotten around to it yet.

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