Perhaps @RichardJMurphy should have paid attention in economics class?

You can spend forever debating what capitalism is but most definitions would come down to something like “an economic system or model that emphasises the private ownership of the means of production motivated by the aim of making profit for the owners of that capital”.

I was knocking this about yesterday afternoon with a few enlightened people and we all had to laugh: if that’s the definition then let’s be candid about the fact that capitalism has already failed. As bankers and the top management of the world’s major corporations and the fund managers of the world’s major pension funds have already proved, the idea that making money for owners now has any significant link with the prevailing business model that we observe on a daily basis and which is reported in our media is a myth: the aim of management is to enrich management, not shareholders. And the role of pension funds is now very clearly to enrich fund managers or the returns they pay would not be as bad as they are.

The implicit split in the ownership of control of capital, with directors and others acting in a stewardship role as if they are trustees on behalf of those who entrusted their assets to their care is dead: it’s been killed by greed.

In that case the debate is about what comes next,

Perhaps just a little attention should have been paid to those economics classes at Southampton University all those years ago. The concept is after all to be found in Adam Smith. It\’s now known as the principal-agent problem.

As to what we do about it, well, some stuff is hard:

In political science and economics, the principal–agent problem or agency dilemma concerns the difficulties in motivating one party (the \”agent\”), to act on behalf of another (the \”principal\”). Common examples of this relationship include corporate management (agent) and shareholders (principal), or politicians (agent) and voters (principal)[1]. The two parties have different interests and asymmetric information (the agent having more information), such that the principal cannot directly ensure that the agents are always acting in its (the principals\’) best interests,[2] particularly when activities that are useful to the principal are costly to the agent, and where elements of what the agent does are costly for the principal to observe. Moral hazard and conflict of interest may arise. The deviation from the principal\’s interest by the agent is called \’agency costs.\'[2]

So that\’s the Courageous State screwed as an answer then, eh?

17 thoughts on “Perhaps @RichardJMurphy should have paid attention in economics class?”

  1. Before Smith even, just completed a dissertation on the early/mid seventeenth East India Company, even they knew about – and took steps to combat – the principal agent problem.

  2. In my lifetime The Left has contributed nothing, nil, nowt, to any intelligent criticism of capitalism, or company law, or the like. It’s quite remarkable because such criticism is much needed, but The Left is far too conservative to come up with it. And too dim and ignorant, of course. Pathetic, really.

  3. – I was knocking this about yesterday afternoon with a few enlightened people and we all had to laugh –

    Love to see the list.

    Also smart insult to the rest of us. ‘enlightened’!

  4. You have mentioned several times that Ritchie positively cherishes his ignorance of matters economic. It is therefore unsurprising that he continues to entertain us with his total lack of understanding. Von Mises notes that Lenin’s economic advisers were book-keepers, hence the 80 year economic car-crash of the Soviet Empire. So it is understandable that Lenin’s political grand-children running the PS Unions would follow Lenin’s example.

  5. The theme running through that entire piece of ‘analysis’ is the concept that all money/capital belongs to the State. Because why else should the State worry if the agents are stealing the principal’s money/capital? Only because it considers it to not to belong to the nominal owners (shareholders etc) but to itself, and therefore wants ‘its’ money well stewarded. Why else would you worry? I don’t care if Sainsbury’s management is screwing the shareholders, I just shop there, not my problem. It only matters when you think you actually own the underlying assets.

  6. Ritchie is a) an idiot, b) economically illiterate and c) if not literally a communist then certainly a supporter of centrally-planned command economies and the state appropriation of the means of production.

    The only terrifying thing is that anyone thinks he has any credibility. Even the Left must get embarassed when he opens his stupid economically-illiterate mouth.

  7. Yeah he can Philip. What’s shocking is that AS Intl Ltd is 70% funded by the UK Gov. You couldn’t make it up.

    AS Intl Ltd is part of ASI, so it isn’t a leap of faith that Worstall is a hypocritical twat of the highest order.

    And a dick. For good measure.

    Tim adds: Arnald: you’ve missed the point that is being made.

    ASI Int. Ltd is not part of the ASI. They’re entirely different organisations.

    I may well be a hypocritical twat but not for this reason.

  8. Too fast out of the blocks there Arnald.

    Mr. Murphy has climbed down (but not apologised, obviously that is beneath him)

  9. Isn’t it a bit like you constantly sneering about Murphy’s previous entities though?

    ASI was listed as a charity too. It just gets worse.

    Fucking demented extremists who can’t take a bit of stick.

  10. Isn’t it a bit like you constantly sneering about Murphy’s previous entities though?

    No, it would be like us sneering at Murphy because somebody who used to work with him has set up a new entity and is being a prat.

  11. wow – so the rich who own equities, land etc. are no longer extracting surplus from the system because their agents have captured it all?

    he’s got a point – not an original one – about the banks though, who have done bugger all, over the long-run, for their shareholders.

  12. So what does he propose?
    The only guaranteed solution is not to appoint anyone to act on your behalf- which I think means not letting politicians , elected or not, or civil servants, act on your behalf. At least no more than you absolutely have to.
    Which rules out any brand of socialism I’ve heard of.

  13. Luis

    he also has a point about pension funds, which have given appalling returns over quite a long time now.

  14. Ignoring the obvious cretin on this thread, Sam (#6) is spot on – there appears no difference between @RichardJMurphy and the fellow travellers of the 1950s to 1980s who were sympathetic to, if not actively working on behalf of the USSR, which is what the ‘Courageous State’ will look like.

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