[SpiderMonkey]

The only relevant test of the validity of a hypothesis is comparison of prediction with experience.

Friedmans hypothesis was that free markets would create prosperity and political freedom. When his ideas were put into practice in Chile, thousands died, real wages plumented and a third of the population ended up unemployed. Surely this experience contradicts prediction?

If you believe, as I'm sure most of you do, that the Bolsheviks disproved Marxism, surely then the Chicago Boys disproved libertarianism?

[The American Lion]

Not alot of his policies happen in Chile. The Chicago Boys were there to fix the economy that the Socialists trashed and Pinochet was there to restore the Chileian government.

[Comrade Ogilvy]

Friedman isn't a libertarian anyhow.

Besides Pinochet was a fascist. As a fellow fascist, you'd approve of the torture chambers and restriction of civil liberties then?

[Tim]

only for communists

[The American Lion]

Friedman isn't a libertarian anyhow.

He supports libertarian views like free-markets and open use of drugs and prostitution. Also his son, David Friedman, is a libertarian.

[Noumenon]

Friedman's statement is wrong. Economics is different from the natural sciences; the scientific method doesn't work. You can't create a hypothesis and test it, because there are simply too many variables in a modern economy, and it is impossible to isolate them. If an economic theory makes sense logically, it must be true. Studies and such may be done to support these theories, but they can't necessarily disprove them (though if the results differ wildly from what the theory predicts, then I suppose it is possible). If things didn't work out great in Chile, then something must have been wrong with Friedman's theories, they weren't implemented properly, or both. And it is entirely possible that there are things wrong with Friedman's theories, from what I understand they aren't as solid and well-constructed as Austrian theory.

[Comrade Ogilvy]

http://www.mises.org/journals/jls/16_4/16_4_3.pdf

Friedman was not a libertarian, nor was he really a free market economist (though everyone should read Capitalism and Freedom). I'll respond again later (short on time).

[The American Lion]

though everyone should read Capitalism and Freedom

I am, but the wrong time of day. Reading economics at 5 PM between customers at work is not very good after a long day.

[Devlar]

Milton Freedman Wrote:

The only relevant test of the validity of a hypothesis is comparison of prediction with experience.

As far as I am aware, this quote was made in the context of Capitalism and Freedom which was an attack on Reform Liberal policies, a comparason of intent and result. I somehow doubt it was meant to be taken in terms of Chilie

Daovonnaex wrote:

http://www.mises.org/journals/jls/16_4/16_4_3.pdf

Isn't this a result of the rivalry between the Chicago and Austrian schools? Not to mention the fact that the Austrian school presented moralistic rather than pragmatic responses to collectivism?

[Noumenon]

Not to mention the fact that the Austrian school presented moralistic rather than pragmatic responses to collectivism?

Where did you get that idea? Its the opposite. While the Austrian school tends to embrace libertarian morals, its approach is to use economic logic to counter collectivism and socialism, not morality. See the economic calculation debate.

[Devlar]

Noumenon wrote:

Where did you get that idea? Its the opposite. While the Austrian school tends to embrace libertarian morals, its approach is to use economic logic to counter collectivism and socialism, not morality. See the economic calculation debate.

Isn't that what I said?

[Noumenon]

Isn't that what I said?

No, you said they use a moralistic approach. They actually use a pragmatic approach: that socialism simply doesn't work as intended, according to economic laws.

[Comrade Ogilvy]

The Chilean experience does not disprove free market policies, for several reasons. Firstoff, Allende's regime witnessed severe inflation, which caused dramatic misallocations of capital and bizarre warpings of the price system. Additionally, a large amount of employees under Allende's regime were government employees, and much employment growth was in the public sector. Misallocations of capital and distortions in the price structure require a recession to correct. The length and severity of the recession depends upon how severe the imbalances are and the level of intervention during the recession. Severe intervention can turn a recession into a depression, most infamously illustated in the Great Depression. Pinochet's economic program resulted immediately in recession, as should've happened. Inflation was stopped cold, and much of the public sector was liquidated. The result was large-scale unemployment and a brutal shakeout of ineffectively allocated capital. Worried that the recession was too severe, MZM increases (Money of Zero Maturity) doubled after the first two years in an attempt to alleviate ill effects of the recession via some increased liquidity. Fiscal austerity prevented this from sparking inflation, but by restructuring existing debt with artificially cheap credit, it extended the length of economic malaise. Combined with the high unemployment which was created by the rapid gutting of the public sector, this resulted in real wage growth slowing for some time (though real wages were inaccurately calculated under Allende, due the impossibility of calculating real wages under a condition of hyperinflation. Allende's government likely overstated real wage growth by a factor of two or more). Furthermore, the military received increased levels of funding under Pinochet, which sucked investment capital out of the private sector. Also, Pinochet's policy of constantly killing his enemies probably made investors very risk-averse. Eventually, however, Pinochet's policies worked, and by the mid-1980s, Chile's economy was booming, something that continues to this day. Today Chile is a great success, and fast on its way to becoming a first world nation. I don't think Pinochet's economic program should be considered a model, but it eventually worked.

Isn't this a result of the rivalry between the Chicago and Austrian schools? Not to mention the fact that the Austrian school presented moralistic rather than pragmatic responses to collectivism?

The reason for this article would be the rivalry, at least in part. Rothbard was also an exemplar of intellectual honesty, and attacked any intellectual positions he believed fallible, regardless of who stated them. In this fashion, Rothbard has disagreed with von Hayek and von Mises, for instance. He has also supported persons such as Noam Chomsky, Joseph Stiglitz, and Kenneth Galbraith, persons one would not expect Rothbard to ever support (with the possible exception of Chomsky).

I wouldn't say that the Austrian school opposes pragmatic responses, rather, it exposes certain response deemed pragmatic as fallacious. For instance, school vouchers might seem like a pragmatic response, but in reality, will likely degrade the quality of private education while keeping the public system largely intact. Many Austrians are guilty of losing sight of immediate progress, but generally, Austrians simply use logic and deductivism to reach positions. The moralism that goes into these equations varies depending on the economists. There is no consensus on whether morality should be part of the equation. The older generations of Austrians, such as von Mises and von Hayek, preached economic as a value-free science (or, in their tongue, wertfrei). They saw no contradiction between their libertarian (as it would be called today) leanings and their claims on being social scientists. Wage and price controls, for instance, have certain consequences. Taxes have certain consequences. This doesn't require a moral position. Rothbard, on the other hand, broke sharply with the old Austrians, by stating that economics are inseperable from ethics and morality, and that economics need to be increasingly integrated with philosophy and morality.

[Devlar]

Noumenon wrote:

No, you said they use a moralistic approach. They actually use a pragmatic approach: that socialism simply doesn't work as intended, according to economic laws.

Oh, I must have mistyped or you must have misread

Daovonnaex wrote:

Rothbard was also an exemplar of intellectual honesty, and attacked any intellectual positions he believed fallible, regardless of who stated them.

But wasn't Rothbard far from the intellectual center of even the libertarian movement? As far as I'm aware the man was an anarcho-capitalist. Did the Austrian school follow his direction?

[Comrade Ogilvy]

Rothbard was far from the center of the libertarian movement in his philosophy (he was indeed an anarcho-capitalist), but not so much in his economics. His positions on money and banking, for instance, are now the orthodoxy for libertarianism (though a debate continues on fractional reserve banking). The Austrian School largely followed his direction on economic science, but the debate continues over whether or not morality is to be included in economics. There no longer is a "dean" of the Austrian School, so it's especially fractious right now.

[SpiderMonkey]

The Chilean experience does not disprove free market policies, for several reasons. Firstoff, Allende's regime witnessed severe inflation, which caused dramatic misallocations of capital and bizarre warpings of the price system. Additionally, a large amount of employees under Allende's regime were government employees, and much employment growth was in the public sector. Misallocations of capital and distortions in the price structure require a recession to correct. The length and severity of the recession depends upon how severe the imbalances are and the level of intervention during the recession. Severe intervention can turn a recession into a depression, most infamously illustated in the Great Depression. Pinochet's economic program resulted immediately in recession, as should've happened. Inflation was stopped cold, and much of the public sector was liquidated. The result was large-scale unemployment and a brutal shakeout of ineffectively allocated capital. Worried that the recession was too severe, MZM increases (Money of Zero Maturity) doubled after the first two years in an attempt to alleviate ill effects of the recession via some increased liquidity. Fiscal austerity prevented this from sparking inflation, but by restructuring existing debt with artificially cheap credit, it extended the length of economic malaise. Combined with the high unemployment which was created by the rapid gutting of the public sector, this resulted in real wage growth slowing for some time (though real wages were inaccurately calculated under Allende, due the impossibility of calculating real wages under a condition of hyperinflation. Allende's government likely overstated real wage growth by a factor of two or more). Furthermore, the military received increased levels of funding under Pinochet, which sucked investment capital out of the private sector. Also, Pinochet's policy of constantly killing his enemies probably made investors very risk-averse. Eventually, however, Pinochet's policies worked, and by the mid-1980s, Chile's economy was booming, something that continues to this day. Today Chile is a great success, and fast on its way to becoming a first world nation. I don't think Pinochet's economic program should be considered a model, but it eventually worked.

Thanks for the detailed response. Not sure I understand all of it, but I think I get the jist.

You admit that the Friedman inspired economic policies of Pinochets regime caused the poor conditions for Chilean workers, yet justify this by saying that it was required for later economic recovery. This is a dangerous logical precedent, as the means being justified by the ends is the excuse for pretty much every form of tyranny experienced by mankind.

You also seem to be insinutating (correct me if I'm wrong) that you can't have a stable economy with a large public sector, which is why the Chicago boys gutted it. A look around Europe should disprove this - whilst you may consider our economies inferior to the US, I think you'ld agree they are stronger than Chiles.

You claim that the economy was booming in the mid 80s despite that fact that unemployment peaked at roughly this time. Do you believe that economic health is unrelated to employment? Can a 'good' economy have a large part of its workforce surplus like this?

[Comrade Ogilvy]

You admit that the Friedman inspired economic policies of Pinochets regime caused the poor conditions for Chilean workers, yet justify this by saying that it was required for later economic recovery. This is a dangerous logical precedent, as the means being justified by the ends is the excuse for pretty much every form of tyranny experienced by mankind.

I do not agree, SpiderMonkey, with the Machiavellan logic that the ends justify the means. I am saying that economic imbalances and capital misallocations in a capitalist economy can only be remedied by a recession. The more severe the imbalances, the more severe the resultant depression will be. This process of liquidation of malinvestments is painful, and the hyperinflation and forced capital transfers that plagued Allende's regime resulted in tremendous malinvestment.

You also seem to be insinutating (correct me if I'm wrong) that you can't have a stable economy with a large public sector, which is why the Chicago boys gutted it. A look around Europe should disprove this - whilst you may consider our economies inferior to the US, I think you'ld agree they are stronger than Chiles.

I'd say that Chile's current economic policies are superior to the United States and any European country, save Ireland, Luxembourg, and Estonia. In any case, if I insinuated that stability is incompatible with a large public sector, I apologize. This was not my intent. The Soviet Union, which for a long time had no private sector, was completely stable. Rather, the public sector, over the long term and ceteris paribus, is by definition less effective that the private sector at generating capital and increasing productivity. I think the evisceration of the public sector in Chile was too rashly implemented, and it resulted in massive unemployment and a collapse of domestic consumption, which further extended Chile's economic malaise.

You claim that the economy was booming in the mid 80s despite that fact that unemployment peaked at roughly this time. Do you believe that economic health is unrelated to employment? Can a 'good' economy have a large part of its workforce surplus like this?

Chile's economic takeoff began in the mid-1980s. Economic health is not related to employment per se, though it is often a meaningful indicator. For instance, in China, unemployment is a severe problem, but China has a vibrant and powerful economy. The reason for the disconnect? China had to discharge so many workers from failing SOEs and farms throughout the past two decades that high unemployment was the automatic result. However, productivity growth in China is enormous (over 17% per year in the private sector!), and unemployment is trending down rapidly. I would define a healthy economy as one which experiences steadily increasing productivity. This will automatically result in increasing income per head and decreasing unemployment. By the mid-1980s, Chile was in this state, but had a high base level of unemployment.

[SpiderMonkey]

I do not agree, SpiderMonkey, with the Machiavellan logic that the ends justify the means. I am saying that economic imbalances and capital misallocations in a capitalist economy can only be remedied by a recession. The more severe the imbalances, the more severe the resultant depression will be. This process of liquidation of malinvestments is painful, and the hyperinflation and forced capital transfers that plagued Allende's regime resulted in tremendous malinvestment.

Surely if the transition to capitalism requires something which you concede causes human suffering, then the transition was morally wrong by most standards (even disregarding the murders commited by the regime)?

I'd say that Chile's current economic policies are superior to the United States and any European country, save Ireland, Luxembourg, and Estonia. In any case, if I insinuated that stability is incompatible with a large public sector, I apologize. This was not my intent. The Soviet Union, which for a long time had no private sector, was completely stable. Rather, the public sector, over the long term and ceteris paribus, is by definition less effective that the private sector at generating capital and increasing productivity. I think the evisceration of the public sector in Chile was too rashly implemented, and it resulted in massive unemployment and a collapse of domestic consumption, which further extended Chile's economic malaise.

The current unemployment rate in Norway, is 4.9%, next to the current unemployment rate in Chile of 8.5% (although I am aware there are european countries with higher unemployment rate, those tend to be the ones with less state intervention, not more).

You say that the economy of Chile is 'better' than the econony of European nations in general, yet the unemployment rate represents a greater amount of human suffering in Chile. To me, this amounts to placing the advancement of some abstract concept ('the economy') above the welfare of individual people - and doing so without their consent.

Yes, the unemployed can vote, but history shows that voting for the left in Chile is pointless, as the US will simply reverse any election it doesn't like by force.

Chile's economic takeoff began in the mid-1980s. Economic health is not related to employment per se, though it is often a meaningful indicator. For instance, in China, unemployment is a severe problem, but China has a vibrant and powerful economy. The reason for the disconnect? China had to discharge so many workers from failing SOEs and farms throughout the past two decades that high unemployment was the automatic result. However, productivity growth in China is enormous (over 17% per year in the private sector!), and unemployment is trending down rapidly. I would define a healthy economy as one which experiences steadily increasing productivity. This will automatically result in increasing income per head and decreasing unemployment. By the mid-1980s, Chile was in this state, but had a high base level of unemployment.

High wages decrease profits for the capitalists, and thus decrease the productivity as you would measure it, correct?

Furthermore, surplus labour increases competition for jobs, and thus allows employers to cut wages and other expenditures on their employees (i.e. decent working conditions).

So it would seem to me, that your measure of economic health is not independent of unemployment, but that it requires it. As I have pointed out above - Chile has a higher unemployment rate than an economy you would consider inferior. The other example you cite is China, and there I would bet that state intervention has more to do with reducing unemployment than capitalism. I'm not an advocate of patching capitalism with a pseudo-socialist government myself though.

[Comrade Ogilvy]

Surely if the transition to capitalism requires something which you concede causes human suffering, then the transition was morally wrong by most standards (even disregarding the murders commited by the regime)?

To begin with, Allende's Chile was still a capitalist economy, though it was on its way to something of a "Eurocommunist" system. Secondly, I think you've failed to understand my essential point. Correcting malinvestment always requires recession--there's no way around it. The recession can be shortened via non-intervention, or it can be replaced by long-term malaise and stagnation via reflation and fiscal stimulus. Either way, there is no painless way to liquidate malinvestments. Transition to a laissez-faire system will require some sacrifices, but it can be accomplished in a less painful fashion. The Baltic states have all done a tremendous job in transitioning from socialist to capitalist economies, and are now becoming relatively laissez-faire (especially Estonia).

To answer your fundamental point, I think that many of the actions undetaken by Pinochet's regime in its economic program were morally irresponsible, and I condemn them. On the balance, the program was ultimately a positive one, but the pain could have been lessened (and growth accelerated earlier, but that's another topic).

The current unemployment rate in Norway, is 4.9%, next to the current unemployment rate in Chile of 8.5% (although I am aware there are european countries with higher unemployment rate, those tend to be the ones with less state intervention, not more).

Norway is an extremely poor example, as Norway has tremendous oil wealth. Oil accounts for over one-third of Norway's GDP on a value-added basis. The two countries in western Europe with the highest levels of unemployment are France and Germany, which are also Western Europe's most interventionist economies.

You say that the economy of Chile is 'better' than the econony of European nations in general, yet the unemployment rate represents a greater amount of human suffering in Chile.

You misread me. I explicitly said that Chile's current economic policies are superior to those of most European nations and the United States. Every nation in western Europe has a better economy than Chile (as does the US, of course). These nations all industrialized over a century ago, and are well-capitalized and have high standards of living. Over time, Chile will become a first world nation, and it won't be long before it features unemployment rates comparable to the United States and Great Britain. It should also be noted that since 2001, Argentina cut off natural gas exports to Chile (due to Argentina's chronic energy shortages that have been caused by subsidized energy), which has caused a good deal of hardship in Chile (which is now being mitigated by supplies from Bolivia).

To me, this amounts to placing the advancement of some abstract concept ('the economy') above the welfare of individual people - and doing so without their consent.

Yes, the unemployed can vote, but history shows that voting for the left in Chile is pointless, as the US will simply reverse any election it doesn't like by force.

The US has intervented in Chile once, and that was to depose Allende. Since that, it has not interfered in Chile. This isn't to say that it will not do so again, but Chile has been a democratic country for a good twenty years now. In any case, the economy, SpiderMonkey, is not an abstract concept. The economy is the sum of all material transactions, and it affects us greatly. Your argument that undemocratic governance is governance without consent of the governed is not accurate, as democracy is simply a government by numerical majority. 51=100. It is impossible to truly govern with the consent of the governed, and making it a goal to simply satisfy numerical majorities is a fetishism which ultimately leads to tyranny.

High wages decrease profits for the capitalists, and thus decrease the productivity as you would measure it, correct?

Productivity, SpiderMonkey, is defined as output per worker per hour. Wages in the industrialized world are higher than, say, Chile, because western nations are far, far more productive. A long history of steadily increasing quotient capital per head is the reason for this productivity growth, and it is the reason for productivity growth in any economy, capitalist or socialist.

High wages, ceteris paribus, naturally decrease profits. This is why big business often seeks to have the government intervene to prevent wage competition, as it boosts their short-term profits. Long term, artificially low wages decrease productivity growth, since artificially cheap labor creates a disincentive for capital investment, so real wage growth slows. If wages are raised artificially high (perhaps by government wage floors, or perhaps by government sanction of union violence), the result is for profits to decline. In the short-term, artificially high wages actually increase productivity, as businesses invest in capital equipment to replace the workers they have been forced to fire. In the long term, artificially high wages depress productivity growth, because lower profits result in fewer retained earnings, which subsequently reduces capital investment (so the rate of growth in quotient capital per head is slowed). This results in slower real wage growth. Long term, wage interventions on the side of capitalists or on the side of labor (I dislike this distinction, but it's useful for this comparison) have the same effect, save for the fact that wage floors (rather than ceilings) also result in higher unemployment.

Furthermore, surplus labour increases competition for jobs, and thus allows employers to cut wages and other expenditures on their employees (i.e. decent working conditions).

Yes, and this is why in recessions real wages tend to fall, and longer hours are worked. In expansions, of course, real wages tend to rise, and working conditions improved. Over the long run, the effect of this is quite clear. In the United States, for instance, the average man worked a 60 hour week in 1900. By 1929, the average week was 48 hours, and real wages had trebled.

So it would seem to me, that your measure of economic health is not independent of unemployment, but that it requires it. As I have pointed out above - Chile has a higher unemployment rate than an economy you would consider inferior.

I've already been over our misunderstanding about my conception of Chile, but I'll address this. Unemployment is, of course, natural. Keynesian economists have throughout the 20th century tried to define a natural rate of unemployment, without success. Some people are simply not employable, others are temporarily unemployed due to a failure in an individual firm, others are unemployed because their industry has become obsolete, and others are simply "in between jobs". So yes, unemplyment is necessary, but by no means would a I define an economy with persistently high unemployment as healthy. Over the long term, a healthy capitalist economy will exhibit very low levels of unemployment. The US and Britain both had unemployment levels trending around three percent for most of the latter half of the 19th century, which I consider positive. High unemployment is indicative of a larger amount of human suffering, and is an overwhelming negative factor. I accept Chile's relatively high unemployment rate because it has been trending down over the past twenty years, and it is was recently on a cyclical upswing. I apologize for conveying the impression that I think high unemployment is a good thing--that was not my intent. Anyone who holds such an attitude is reprehensible and economically illiterate.

The other example you cite is China, and there I would bet that state intervention has more to do with reducing unemployment than capitalism. I'm not an advocate of patching capitalism with a pseudo-socialist government myself though.

You would be betting wrong. China's state-owned enterprises (SOEs) are enormously inefficient, and the vast majority of them are severe money losers. China maintains their existence by constantly injecting "loans" from the state-owned banks. The "loans" are, of course, never repaid. The SOEs have been steadily shrugging off workers, and the explosive private sector continues to hire them. China's problem is that it has so much surplus labor resulting from previously rapid population growth (its population will start declining in the near future), the declining farm sector, and the dying SOEs. If current trends continue, China's unemployment problem will disappear in the not-too-distant future.

I'm not an advocate of patching capitalism with a pseudo-socialist government myself though.

That's the correct attitude. Every intervention into the working of the market creates a problem which is answered by another intervention. Ultimately, interventionism destroys the market economy. I'm of the opinion that replacing capitalism with outright socialism is actually preferrable to slowly killing the market economy with increasing regulation and taxation.

[SpiderMonkey]

To begin with, Allende's Chile was still a capitalist economy, though it was on its way to something of a "Eurocommunist" system. Secondly, I think you've failed to understand my essential point. Correcting malinvestment always requires recession--there's no way around it. The recession can be shortened via non-intervention, or it can be replaced by long-term malaise and stagnation via reflation and fiscal stimulus. Either way, there is no painless way to liquidate malinvestments. Transition to a laissez-faire system will require some sacrifices, but it can be accomplished in a less painful fashion. The Baltic states have all done a tremendous job in transitioning from socialist to capitalist economies, and are now becoming relatively laissez-faire (especially Estonia).

I would suggest that a recession couldve been avoided through non-capitalistic methods (but not nessecarily through allendes policies, as you say the country was still basically capitalist at the time).

As for malinvestments - where was their money that there should've been, and why was it so important to liquidate it?

To answer your fundamental point, I think that many of the actions undetaken by Pinochet's regime in its economic program were morally irresponsible, and I condemn them. On the balance, the program was ultimately a positive one, but the pain could have been lessened (and growth accelerated earlier, but that's another topic).

Positive for whom? Any large scale economic measure you care to prove this with makes no difference to the people who are unemployed or underpaid.

Norway is an extremely poor example, as Norway has tremendous oil wealth. Oil accounts for over one-third of Norway's GDP on a value-added basis. The two countries in western Europe with the highest levels of unemployment are France and Germany, which are also Western Europe's most interventionist economies.

Is Norways oil that much more valuble than Chiles copper?

However, I can bring another example out - Belarus. While hardly a bastion of freedom and prosperity, it does have a lower unemployment rate than Chile whilst having near-soviet levels of intervention. It is also a lot closer to Chile in wealth than Germany or France are.

You misread me. I explicitly said that Chile's current economic policies are superior to those of most European nations and the United States. Every nation in western Europe has a better economy than Chile (as does the US, of course). These nations all industrialized over a century ago, and are well-capitalized and have high standards of living. Over time, Chile will become a first world nation, and it won't be long before it features unemployment rates comparable to the United States and Great Britain. It should also be noted that since 2001, Argentina cut off natural gas exports to Chile (due to Argentina's chronic energy shortages that have been caused by subsidized energy), which has caused a good deal of hardship in Chile (which is now being mitigated by supplies from Bolivia).

I understand. However, Cuba also has a lower unemployment rate and was not industrialised until recently. I would suspect free-marketeers would unanimously say that the policies of Chile are superior to the policies of Cuba, and consider the extra 6% unemployment a price worth paying because of the overall 'benefit' they see.

The US has intervented in Chile once, and that was to depose Allende. Since that, it has not interfered in Chile. This isn't to say that it will not do so again, but Chile has been a democratic country for a good twenty years now. In any case, the economy, SpiderMonkey, is not an abstract concept. The economy is the sum of all material transactions, and it affects us greatly. Your argument that undemocratic governance is governance without consent of the governed is not accurate, as democracy is simply a government by numerical majority. 51=100. It is impossible to truly govern with the consent of the governed, and making it a goal to simply satisfy numerical majorities is a fetishism which ultimately leads to tyranny.

The US has not intervened since, because since then governments in Chile have favoured US corporations. As for democracy - elections are a red herring as far as I am concerned. We are conditioned to believe that if a society elects representatives, then it is fair and thats that. Most of the choices that affect our lives (Will we be fired? Can we own a house?) are made without our consent by those richer than us.

You say that the economy is the sum of transactions and it affects us greatly, but if you get a $10,000 raise and I don't - the sum of our pay rises and I am not effected one iota (save being pissed off that the system screwed me AGAIN ). Worse, if you get a $10,000 raise and I get a $5,000 cut, the overall sum of our wages is greater, so someone might think our overall situation was better - however I am far worse off. Given that Betrand Russell couldn't prove 1+1=2 you will be hard pressed to convince me that any mathematical manipulation of monetary transactions is not abstract. And you will never convince me that the number at the end of your equations justifies human suffering.

Productivity, SpiderMonkey, is defined as output per worker per hour. Wages in the industrialized world are higher than, say, Chile, because western nations are far, far more productive. A long history of steadily increasing quotient capital per head is the reason for this productivity growth, and it is the reason for productivity growth in any economy, capitalist or socialist.

High wages, ceteris paribus, naturally decrease profits. This is why big business often seeks to have the government intervene to prevent wage competition, as it boosts their short-term profits. Long term, artificially low wages decrease productivity growth, since artificially cheap labour creates a disincentive for capital investment, so real wage growth slows. If wages are raised artificially high (perhaps by government wage floors, or perhaps by government sanction of union violence), the result is for profits to decline. In the short-term, artificially high wages actually increase productivity, as businesses invest in capital equipment to replace the workers they have been forced to fire. In the long term, artificially high wages depress productivity growth, because lower profits result in fewer retained earnings, which subsequently reduces capital investment (so the rate of growth in quotient capital per head is slowed). This results in slower real wage growth. Long term, wage interventions on the side of capitalists or on the side of labour (I dislike this distinction, but it's useful for this comparison) have the same effect, save for the fact that wage floors (rather than ceilings) also result in higher unemployment.

OK, so I might concede a link between unemployment and productivity - however there is still a link between unemployment and profit. The bosses want to keep us fighting over the scraps.

Yes, and this is why in recessions real wages tend to fall, and longer hours are worked. In expansions, of course, real wages tend to rise, and working conditions improved. Over the long run, the effect of this is quite clear. In the United States, for instance, the average man worked a 60 hour week in 1900. By 1929, the average week was 48 hours, and real wages had trebled.

How much of this is due to technological advancement though? Capitalism seems quick to take the credit for better machinery (and the period you quote did feature some rapid advancement in that area).

I've already been over our misunderstanding about my conception of Chile, but I'll address this. Unemployment is, of course, natural. Keynesian economists have throughout the 20th century tried to define a natural rate of unemployment, without success. Some people are simply not employable, others are temporarily unemployed due to a failure in an individual firm, others are unemployed because their industry has become obsolete, and others are simply "in between jobs". So yes, unemplyment is necessary, but by no means would a I define an economy with persistently high unemployment as healthy. Over the long term, a healthy capitalist economy will exhibit very low levels of unemployment. The US and Britain both had unemployment levels trending around three percent for most of the latter half of the 19th century, which I consider positive. High unemployment is indicative of a larger amount of human suffering, and is an overwhelming negative factor. I accept Chile's relatively high unemployment rate because it has been trending down over the past twenty years, and it is was recently on a cyclical upswing. I apologize for conveying the impression that I think high unemployment is a good thing--that was not my intent. Anyone who holds such an attitude is reprehensible and economically illiterate.

I'm not suggesting that you support unemployment (and the associated suffering). What it seems to me you are saying is that it is an unpleasant but bearable side-effect of a system that ultimately proves positive - even to the currently unemployed man. I would dispute that there is an overall positive effect here. The poor had to suffer decades of low wages and scarce jobs in order to reach the present position whilst the rich were having a party during the same period. The poor were forced to make this sacrifice in order to 'fix' the economy.

The point of all this, is that Chile was a genuine attempt at an economically laisez-fair system, and the problems it experienced under Pinochet are relevant to any discussion of systems that advocate market freedoms. I believe that any such system will sacrifice the welfare of the poor for the 'greater good' of the economy, as happened in Pinochets Chile.

That's the correct attitude. Every intervention into the working of the market creates a problem which is answered by another intervention. Ultimately, interventionism destroys the market economy. I'm of the opinion that replacing capitalism with outright socialism is actually preferrable to slowly killing the market economy with increasing regulation and taxation.

The greatest problem with intervention in capitalism instead of outright socialism is that the ones intervening are normally quite rich and always megalomaniacs. Their motivation to alter the nature of the economy has more to do with greed and power than it has to do with genuine egalitarianism. Giving the economic reigns to people who at least admit they are motivated by greed doesn't improve matters. This is why I tend towards anarchism rather than libertarianism.