How Not to Make Globalization Work

[Stiglitz, Joseph E., Making Globalization Work.  Norton: 2006]

Joseph E. Stiglitz, 2001 Nobel Memorial laureate in economics, is already well known for his critique of the current economic policies which shape the development of globalization.  In 2002, Stiglitz published Globalization and its Discontents[1] and shifted much of the blame for the “wrong-doing” committed by globalization on such institutions as the International Monetary Fund (IMF), World Bank and World Trade Organization (WTO).  Four years after publishing this work, Stiglitz recompiled his opinions in a new volume, Making Globalization Work.  Here, he expounded his opinions on the limitations of capitalism, the political corruption present in international monetary institutions (such as the aforementioned three) and how the First World has consistently maneuvered the market to the disadvantage of developing countries.  His arguments contain much merit and should be considered.  Unfortunately, Stiglitz uses the book as a platform to attack pro-market economists without reconciling the fact that such classical economists such as Adam Smith had already shattered the myth that government policy represents capitalism.[2]

The first three chapters of Making Globalization Work are spent lambasting capitalism, liberalization and free trade for their handiwork in keeping the Third World from developing into the First World.  He actually does little in outlying his own solutions, and instead uses the first part of the book to shape the reader’s opinion on existing economic policies and then organizing these policies under the common title of “capitalism”.  From the very beginning, Joseph Stiglitz proves to be intellectually dishonest, or at least he himself misguided on what capitalism really is and what pro-market economists truly support.  He, of course, is correct when putting much of the blame of current world poverty on such institutions as the IMF and WTO, but these are not capitalist institutions.  Let us not forget that they came into existence through the legislation of international government, and they operate with the authority of the State.  There is nothing remotely capitalistic in any world trade organization or association, for the simple fact that without governmental support they probably would simply cease to exist.  In any case, it seems astonishing that Joseph Stiglitz is surprised that these institutions are ripe with corruption—any institution run by politicians and government bureaucrats is bound to be corrupted, as it is within the nature of bureaucracy.

To give a full critique of Making Globalization Work within the confines of a short article is unrealistic.  The errors made by Stiglitz deserve a book.[3] Many of the mistakes made are elementary and careless, which is astounding given that it was a Nobel laureate which authored the book.  This review will focus on two major inaccuracies.  The two erroneous arguments covered are Stiglitz’ views on wages in a “globalized economy” and his extremely erred opinions on liberalizations and the effects of.  To be fair to Stiglitz, one should also cover his arguments on patents, which at first seems like the most legitimate of all the cases he makes within the covers of Making Globalization Work.  Unfortunately, even after analyzing these three positions, this review falls extraordinarily short on offering a complete critique of the book; at least, in the sense that it does not begin to scratch the surface of all of the mistakes committed.

The Nobel laureate attempts to engage the issue of global warming and damage on the environment.  Even if the reasons for global warming are still in dispute,[4] it remains unclear whether government-led or regulatory policies will lead to more efficient production (because, only more efficient production can reduce the amount of pollutants emitted over the long-run) and Stiglitz does not make a good case otherwise.  Not all environmental problems are relevant to carbon dioxide, the ozone layer or global warming.  He also touches upon the problems of deforestation, arguing in support of regulatory political policies which in the past have already proved disastrous.  Despite not having the time to objectively analyze Stiglitz’ opinions on these matters, they are very relevant and important topics to consider.  The short response to pro-government positions is that only through privatization can deforestation be put to a halt.[5] Apart from the environment, Stiglitz also covers the role of the multinational corporation in promoting, and simultaneously harming, world development, as well as the causes and effects of international debt (in regards to international debt, the subject will be treated to an extent in the exposition provided against the notion of the benefits provided by a global currency).  These are all important issues which will have to be left for another day, as we have our plate full already.

Global Wages, Globalization and Outsourcing

One of the concerning phenomenon which follows globalization, especially within the United States, is the fact that several firms are opting to move overseas in the quest for cheaper labor.[6] Economic reasoning suggests that this is because the marginal revenue per worker is lower in the United States than it is elsewhere (such as China or Mexico).  In other words, firms which decide to move their production facilities elsewhere do so because the relationship between costs and production in a foreign country brings about a greater rate of profit than that same relationship in the country they are moving out of.  This, in turn, suggests that real wages in the United States are higher than the value of the aggregate production of the firms in question.  Next, one could deduce that because of globalization and the increasing size of the labor pool, nominal and real wages in the United States will necessarily have to be pushed down if the workers in question do not want to risk losing their jobs.  It is an application of supply and demand: when the supply of a good increases the price for the same amount of the given good decreases.

Stiglitz understands this, but he takes it too far.  He claims that, “with full global economic integration, the world will become like a single country, and the wages of unskilled workers will be the same everywhere in the world, no matter where they live.”[7] What will this new wage be?  “In theory, the actual wage will be somewhere between that received today by the Indian or Chinese unskilled worker and that received by his American or European counterpart…”[8] To be fair, if one worked with a simple supply and demand model Stiglitz would be undoubtedly correct.  What should be considered, though, is that the labor pool is not made of homogeneous units.  Instead, it should be realized that the pool of labor is heterogeneous, and no one worker is the same as the other.  In other words, the productive value of one worker should not be assumed to be equivalent to the productive value of another.  When on takes this into account then one comes to the understanding that these differences in productivity is what will mark the difference when it comes to setting wages in different countries for what is technically the same job.

What sets the difference in productivity when it comes to comparing the aggregate pool labor in the United States to that of India or China?  Why are wages higher in the United States than in India, while the same job can be theoretically completed in any of the two countries?  The answer is capital accumulation.  In an essay entitled “The Economic Role of Saving and Capital Goods”, economist Ludwig von Mises makes it quite clear that what has allowed a rise in wages in the West is not the idea that it is a natural characteristic that Western workers do more work by their own means, but that centuries of capital accumulation (or saving) has allowed for the investment into means of production.[9] He wrote, “There is no other method to make wage rates rise than by investing more capital per worker.  More investment of capital means to give to the laborer more efficient tools.”[10] Higher wage rates are made possible in the United States only because of the fact that capital accumulation has allowed factory owners to invest more in the way of machinery and other tools to increase the productive efficiency per capita.  This alone makes a worker living in the United States more valuable than one living in China.

It should be recognized that globalization has made the transfer of capital goods from one country to another, without a preceding period of capital accumulation, possible.  According to George Reisman, “the most backward economies of the world are able to skip over all the generations that have had to go by to accumulate the capital goods of the advanced countries.  They can start off with them, ready made, thanks to foreign investment.”[11] How does this correlate with the prior discussion of inequality in capital invested per worker between workers of different nations?  If foreign investment funds the transfer of capital goods from one nation to another, does this mean to suggest that overtime there will be a state of equality in regards to capital invested per capita?  If that is the case, then there would be no advantage between workers in any geographical location.  It is, indeed, fair to say that in a truly free global market the productivity per worker would rise throughout the world.  Would this give rise to a global wage standard of sorts?

Over the long-run it could be theoretically possible that this is correct.  However, the point is that it is erroneous to assume that if Western workers allowed their wage rate to fall in order to compete with Eastern workers then the new wage would be somewhere between the two existing wages.  Even assuming the transfer of capital to, say, China, there will still be a disparity between the productive values between the two.  This disparity will last until Chinese entrepreneurs reap the profits of this added productivity, save and reinvest, thereby continuing to increase the amount of capital invested per Chinese worker.[12] At some point, capital accumulation in China would make possible some sort of parity between Chinese unskilled labor and Western unskilled labor.  At that point, will wages be the same “across the board”, so to speak?  Probably not, but it is safe to assume that at least wages would be similar.  One also cannot bar the fact that some firms will be more productive than others, and these firms are more likely to pay their laborers higher wages.  We can safely conclude that equilibrium in wages for a particular industry is impossible, although admittedly it is likely that in a free global market the price of non-skilled labor in the East has the potential to reach the same levels as their colleagues in the West.

Now that we understand the nature of wages and the likely direction wages would take in a global economy, it should be understood that globalization has already begun to provide a downward force on the overpriced labor of the West.[13] But, what will be the effects of this downwards pressure in regards to wages within the United States?  That is, in fields affected by the increase in supply of labor.  Stiglitz suggests that “the single wage… will converge … closer to that of China and India than to that of the United States or Europe.”[14] So far, wages have been moving in the opposite direction.  Before the 2008 recession, Chinese wages were growing at considerable rates.[15] It is clear that when there is no minimum wage, which creates a surplus of labor, an economy can reach “full employment” (or, all those willing and able to work can be employed).  This, as shown in China, forces companies to begin competing for workers.  In the case of Chinese factories, management has suffered from decreased profit margins in exchange for elevating their workers’ wages.[16] One could go as far as to claim that the poor were benefiting at the expense of the rich; surely, that is not a stereotype of Capitalism.

More important than nominal wages, however, are real wages.  That is, the purchasing power of the wage.  Usually speaking, nominal wages only increase when there is an increase in the money supply, because it is not within the entrepreneur’s self-interest to bid workers’ wages up unless he absolutely haves to (due to competition).[17] Even in China, the increasing nominal wages of Chinese workers were forcing factories to relocate from coastal areas to inland areas, where labor was cheaper.[18] This certainly would have the effect of pushing labor prices on the coast down, once again, over the long-run.  It also forces companies to invest more in increasing productivity per capita, or invest in their workers.[19] It is increases in production which allow real wages to rise over the long-run.[20] Let us take, for example, the production of widgets.  Originally, you have X amount of money chasing 1,000 widgets.  The price of each widget is therefore X/1,000.  An increase in production leads to expansion of the supply of widgets to 2,000.  The new price per widget is X/2,000.  The price per widget has necessarily gone down.  This increase in real wages occurs due to two phenomena.  First, before the investment can take place there is a necessary capital accumulation (i.e. savings), which causes “aggregate demand” to decrease.  Supply unchanged and demand lowered, prices will slightly decrease.[21] Thereafter, the investment takes place and as the investment of capital-goods comes to an end and production increases there is an increase in the supply of the good, causing a further depreciation of the price.[22] Therefore, we come to the conclusion that greater productivity necessarily makes everybody wealthier than before.

Finally, before departing from the topic of wages, we should also correct the notion that outsourcing will contribute to greater unemployment in the country from which the firm left.  At first, it seems as if the movement of Factory A from Country X to Country Y would necessarily cause unemployment, as those once employed in Country X are no longer employed.  This, however, does not pan out to be true.  Let us say that the transfer of Factory A to Country Y (from Country X) resulted in a loss of 100 jobs in structural unemployment.  However, the movement to Country Y caused production to rise and so Product M is now half as cheap.  Let us further say that the average wage is $500 a month.  For the sake of simplicity, let us assume that one’s entire wage either went to savings or to the consumption of Product M or Product N.  Total consumption per worker for that month comes out to $300.  The decrease in the cost of Product M, thanks to the outsourcing which caused the displacement of 100 local workers, has now caused wage earners to become wealthier since they can afford more Product Ms.  What about the unemployed?  Since consumers can now spend less on Product M, since it has become cheaper, they can consume more of Product N.  We can call Product N “hamburgers”.  The increase in the demand of hamburgers persuades hamburger entrepreneurs to invest and increase supply, which subsequently leads to an increase in the factors of production, including employment.  It thus follows that those originally displaced by the outsourcing can now be assimilated into a different industry, only thanks to the fact that the outsourcing made the relevant product cheaper to buy.  George Reisman writes, “To describe the situation when the factory (or factories) have been completed and are up and running, the lower labor costs and resulting lower prices to American buyers simply mean that American buyers get a unit of a good for less money and have that much more money available to spend on other things.”[23]

Thus, we come to two important conclusions.  First, globalization will not lead to a decrease in real wages.  Second, globalization will not lead to greater unemployment in countries from which certain factories are moving out of.  Thus, we dispel two great myths which have proven to be great political hindrances to the evolution of globalization.

Liberalization:  Capitalism is Not Mercantilism

The most elementary of flaws made by Stiglitz in Making Globalization Work remains his views on the effects of “liberalization” in the Third World.  He makes his case quite clear early on in the book, “…the policies of liberalization failed to produce the promised results…”[24] However, throughout Making Globalization Work he fails to completely lay out which policies of “liberalization” were undertaken by the Third World.  He does specify a particularly harmful area of liberalization, and that is of “capital markets”; he claims that liberalization of “capital markets” brings about instability.[25] Unfortunately, the exact definition of “capital markets” remains elusive throughout the book.  In the chapter “The Burden of Debt” it seems that what he means by capital markets is the banking industry.  In other words, he is referring to the availability of capital (represented by money) to Third World entrepreneurs.  He is especially critical of “private capital markets” when it comes to supplying governments with the “capital” necessary to fund counter-cyclical federal spending programs (in the event of recession).[26] Shame on those banks for not lending to financially unstable institutions!  Instead of fueling poor spending by Third World governments, perhaps it would be wiser to suggest that governments stop borrowing to spend beyond their means.

Throughout the book, Stiglitz makes the mistake of failing to analyze beyond the surface of the ocean.  He takes for granted what is a political façade and presents it as truth, without truly providing an objective explanation of why the Third World remains poor.  For example, in regards to Russia he writes, “Shock therapy failed in Russia.  China’s Great Leap Forward in the 1960s was a catastrophe.  What matters, of course, is not just the pace of change but the sequencing of reforms.  Privatization was done in Russia before adequate systems of collecting taxes and regulating newly privatized enterprises were put in place.”[27] Beyond the fact that even suggesting that China undertook capitalistic reforms during the 1960s is beyond ridiculous,[28] Stiglitz takes at face value what is perceived to have happened in post-Soviet Russia and fails to account for several discrepancies in the so-called “liberalization”.  This privatization could hardly be constituted as a privatization, given that it went into the hands of those who supported the new regime (which could hardly be called democratic).[29] Even today, it takes an average of 1130 days, and ~5,951,300 rubles (~$206,500) to gather the sufficient paperwork to solidify your property rights to build a warehouse in Moscow.[30] In the United States, it takes 46 days and ~$6000.[31]

Stiglitz forgot that the most important aspect of any liberalization is the restriction of the State’s barriers on the acquisition of private property.  Peruvian economist Hernando de Soto went through great lengths to illustrate how the problem of the Third World was not a lack of capital or a lack of foreign aid.  For example, he calculates that total “dead capital” (capital not in use) in the Philippines is fourteen times greater than the aggregate amount of all foreign direct investment, seven times greater than the amount of capital stored in the country’s banks and nine times larger than all State owned capital.  Egypt’s dead capital is worth roughly fifty-five times greater than all foreign direct investment in the country.  In all examined countries, dead capital, which could not be invested because the State was making it too difficult for one to guarantee his or her property rights, exceeded the amount of foreign investment (both private and “public”) provided during the 20^th century.[32]

Stiglitz mentions private property rights three times, and these mentions are not even listed in the index of subjects.[33] Two of the three times he is almost mocking the concept of private property rights, blaming the West’s pressure on the Third World to privatize on the fact that much of the privatization had just ended up as monopolization.[34] The third time he says, “The capital market liberalization pushed by the IMF made matters worse because it made it easier for the oligarchs who had stripped assets from the corporations they controlled to take their money offshore, to places where secure property rights were already well established.  They enjoyed benefits of weak legal frameworks at home and strong property protections abroad.”[35] But, as we have already seen, the problem is not a lack of government regulation; it is too much government regulation.  Let us not blame capitalism for what was the result of mercantilism and corruption.

If the government fails to retreat from the area of private property rights then any liberalization is likely to be doomed.  The ability to own property is the central tenet of any healthy economy, and especially important to any capitalistic economy.[36] Ludwig von Mises explains why capital accumulation is only secondary to the ability to acquire property, “Under capitalism private property of the factors of production is a social function.  The entrepreneurs, capitalists, and land owners are mandataries, as it were, of the consumers, and their mandate is revocable.  In order to be rich, it is not sufficient to have once saved and accumulated capital.  It is necessary to invest it again and again in those lines in which it best fills the wants of the consumers.”[37] How can one invest his accumulated wages without the ability to acquire property?  How can an entrepreneur compete in the market if the State is restricting his ability to acquire channels of investment?  For example, in Russia approximately 280,000 farmers own their own land, out of an estimated ten million.[38] The problem is not a lack of legal framework.  It is an issue of an overbearing state, restricting through bureaucracy its own people’s ability to acquire means of production.

Nobel laureate Joseph Stiglitz later suggests that “a strong global economy requires that there be a strong demand for goods and services–strong enough so that it can meet the world’s capacity to produce.” He continues a few lines down, “While this spending made a “contribution” to global aggregate demand, loose fiscal policies gave rise to increasing government debts, which often precipitated costly crises…”[39] If we were, for the sake of argument, to accept the premise that a strong global economy relied on aggregate demand, Stiglitz’ point still does not stick when one considers that aggregate “dead capital” is worth many times the amount of money held by the government.[40] In other words, the private sector can outstrip many times over the total amount of spending potential any government has.  All that is necessary is the sufficient amount of liberty for one to be able to spend or invest that capital how one pleases.  So, one can therefore conclude that a trend of world poverty is not the result of a lack of “aggregate demand” per sé, but simply the product of an overbearing State.  Finally, it can also be said that governments who spend beyond their means are not working in the interest of the health of their economies.[41]

Patents

What comes as the only positive lesson of the book is Joseph Stiglitz’ dislike of the monopoly placed on medicine through the distribution of patents on intellectual property.  In fact, in the chapter covering the topic Joseph Stiglitz makes a very good case against the distribution and use of patents.  He rightfully questions the utility of patents, “…[With] the enclosure of intellectual commons, there is a loss of efficiency.”  “Monopolization may not only result in static inefficiency but reduced innovation.”  He correctly states that, “Monopolies insulated from competition are not subject to the intensive pressures that drive innovation.”[42] His arguments are not perfect.  “The protection of intellectual property is designed to ensure that investors, writers, and others who invest their money and time in creative activity receive a return on their investment.”[43] The incentive to invest that money and time is profit, and does not need to be “guaranteed” by any type of monopoly.[44] Nevertheless, Stiglitz correctly assesses the costs of intellectual patents, at least as far as monopolies, competition and prices go.  His powerful case study is the pharmaceutical industry, which through patents has made their products virtually inaccessible to most of the African population.  Their monopolies, established through patents, have disallowed “third-party” manufacturers from fabricating the same medication, only under a different brand name and for a cheaper price.[45]

Inexplicably, Stiglitz loses track of his original argument as the chapter progresses.  He, at first, suggests that pharmaceutical corporations be forced to allow Third World pharmaceutical manufacturers provide the medicine without paying the cost for the intellectual property.[46] Although this option is better than other alternatives he comes to offer, it does not make sense that this should be done only for those people who live in the Third World.  What about all of those who live in First World countries, but do not have access to basic medicine?  What about the massive healthcare costs which these intellectual monopolies cause?  He essentially is arguing in favor of mercantilism (a position he was so vehemently against when it came to trade and market liberalization).  But, his ideas worsen.  He suggests that nations should throw together a monetary fund, which would effectively subsidize the cost of the drug as to allow its distribution to those who otherwise could not afford it.[47] But, this solution only works in favor of the drug companies, who still score their massive profit at the expense of the taxpayer.  Finally, he proposes a way to prize innovators, so that it would offer an incentive for new drugs to come into the market which are different enough from older drugs as to avoid patent restrictions.[48] But, this makes little sense.  The incentive is profit, and if you cannot profit unless you receive money from the government (meaning, there is no demand for your product in the private sector) then it does not seem as if the drug would be all that useful.  The only solution is the repeal of intellectual property legislation which has effective cartelized several sectors of the economy, including the pharmaceutical industry.

Conclusion: Stiglitz & the Art of Bad Economics

Although ever since the infamous publication of Keynes’ General Theory bad economics has driven out good economics,[49] it is difficult to understand how a Nobel laureate managed to get so much wrong.  Wages, capital markets, property rights and patents are only four points he touches upon in this book.  There are more ridiculous suggestions listed in the nearly three hundred pages which make up his work.  At one point, he goes as far as to suggest that we adopt Keynes’ idea of a global reserve currency (known as the bancor) and global reserve bank in order to eliminate trade deficits.[50] Like most economists,[51] Stiglitz is under the impression that trade deficits automatically equate to debt and may compromise the supply of money in a country.[52] But, this makes little sense when you consider that trade is conducted by individuals, and no individual would agree to a trade if it came as a deficit to him.  Furthermore, the currency of a country can only be spent within that country, and so ultimately the currency does not truly leave the money supply.  The view that it does is pervasive amongst many mainstream economists.  For example, Nobel laureate and New York Times columnist Paul Krugman noted that the fact that the Chinese have held onto large reserves of U.S. Dollars.[53] This does not hold true.  The deficit in trade is made up by a surplus in capital, as the Chinese have used these dollars to buy U.S. securities.[54]

In any case, without getting too deep into the other fallacies presented in Making Globalization Work, it is quite clear that Stiglitz does not do a good job in objectively presenting the facts which make up the argument for or against globalization.  His solutions are not really solutions, as they fail to address the real factors which make up current global economic and environmental problems.  His arguments against those who support globalization show that he has actually committed little into truly understanding their positions.  Instead, he seems more interested in setting up straw men and ultimately debasing his own credibility.

That said, any serious scholar should not use this as justification not to read his work.  The only way to truly understand a situation is to take into account all perspectives.  This is something which Stiglitz has clearly not done.  This holds true not just on the topic of globalization, but in economics in general.  His Keynesian bias has clouded his rationality, and instead of practicing his field through logical deduction (as it should be done), he instead takes as truth the fallacies which have perverted the science.  One should not make the same mistake as he.  Instead, all positions must be understood, and the economist should then accept the one (or come up with the one) that is most logical.  Regardless, that does not mean that one should not treat his proposals and ideas with a great deal of scrutiny.

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[1] For a free-market review of this book, see: Colombatto, Enrico, Globalization and its Discontents, Journal of Libertarian Studies, Volume 18, Number 1; http://mises.org/journals/jls/18_1/18_1_3.pdf.

[2] Adam Smith’s Wealth of Nation can be considered one large attack against mercantilism, which is the act of the State manipulating the market in the favor of the few, and the detriment of the most.

[3] A good starting point would be: Bhagwati, Jagdish (2004). In Defense of Globalization.  Oxford, United Kingdom: Oxford University Press.

[4] Despite claims made by the mainstream, there is absolutely no consensus on what drives global warming or if the causes are anthropogenic.  For a list of 450 peer-reviewed journal articles which argue against the concept of anthropogenic global warming see: http://www.populartechnology.net/2009/10/peer-reviewed-papers-supporting.html.

[5] Private lumber farming has existed for centuries, and these are some of the most well-kept forests in the world.  Unfortunately, a mixture of distrust and corruption (that is, the fact that politicians can make large sums of money by monopolizing their control over “national forests” and slowly sell the rights to lumber firms) has made it so that the majority of the world’s forests are not private at-all.  For a short argument in support of free-market forestation, see: Finegold, Jonathan M. Catalán (2009).  Forestation through the free-market.  Economic Thought, 7 September 2009.  Web.  19 November 2009. http://www.economicthought.net/2009/09/forestation-through-the-free-market/

[6] “The Future of Outsourcing.” Businessweek, 30 January 2006.  Web.  19 November 2009. http://www.businessweek.com/magazine/content/06_05/b3969401.htm

[7] Stiglitz (2006), p. 271.

[8] Ibid.

[9] Mises (1990), p. 31.

[10] Ibid., p. 32.

[11] Reisman (2006).

[12] Ibid.

[13] Stiglitz (2006), p. 272.

[14] Stiglitz (2006), p. 271.

[15] “How Rising Wages are Changing the Game in China”, Businessweek, 27 March 2006.  Web.  19 November 2009.  http://www.businessweek.com/magazine/content/06_13/b3977049.htm

[16] Ibid.

[17] Reisman (1998), p. 617.

[18] “How Rising Wages are Changing the Game in China”, Businessweek, 27 March 2006.  Web.  19 November 2009.  http://www.businessweek.com/magazine/content/06_13/b3977049.htm

[19] Ibid.

[20] Reisman (1998), p. 619.

[21] Huerta de Soto (2008), p. 329.

[22] Ibid., p. 336.

[23] Reisman (2006).

[24] Stiglitz (2006), p. 16.

[25] Ibid.

[26] Ibid., p. 235.

[27] Ibid., p. 54.

[28] Given that it is difficult to believe that anybody would be so detached from reality, it is also intellectually dishonest.

[29] Effectively, the Yeltsin administration cartelized big businesses in Russia to consolidate wealth.  This is not Capitalism, and should not be confused as Capitalism.  Maltsev, Yuri N., “Russia’s Distorted Mirror”.  The Free Market.  August 1996. Web. 24 November 2009.  http://mises.org/freemarket_detail.aspx?control=171.

[30] Doing Business: Measuring Business Regulations.  Web.  http://www.doingbusiness.org/ExploreTopics/DealingLicenses/Details.aspx?economyid=159.

[31] Ibid.  http://www.doingbusiness.org/ExploreTopics/DealingLicenses/Details.aspx?economyid=197.

[32] De Soto (2000), p. 34.

[33] Stiglitz (2006), p. 353.

[34] Ibid., pp. 27 & 38.

[35] Ibid., p. 39.

[36] To be fair, one of the confusions of capitalism is that it is a devised or constructed economic system.  Capitalism is simply a name for social interaction between individual market agents.  It would be safe, for example, to call barter economy capitalism.  It is simply capitalism without the development of money.

[37] Mises (2009), pp. 17–18.

[38] De Soto (2000), p. 29.

[39] Stiglitz (2006), p. 251.

[40] De Soto (2000), p. 34.

[41] For those interested in the topic of government aid and the negative effects of this aid, a suggested reading would be Dambisa Moyo’s Dead Aid: Why Aid is Not Working and How There is a Better Way for Africa.

[42] Stiglitz (2006), p. 109.

[43] Ibid., p. 108.

[44] Krawisz (2009).

[45] Stiglitz (2006), pp. 120–124.

[46] Ibid., p. 121–122.

[47] Ibid., p. 124.

[48] Ibid.

[49] In economics, there is a law known as Gresham’s Law, which suggests that under a monopoly bad money will drive out good money.  Perhaps the idea that bad economics drives out good economics should be known as “Keynes’ Law”.

[50] Stiglitz (2006), pp. 260–265.  Ultimately, Stiglitz does not do a good job in explaining the full extent of Keynes’ proposal.  Keynes made this proposal during the Bretton Woods conferences that occurred in 1944 (which would eventually decide to peg currencies with each other at fixed exchange rates, setting the scene for incredible world-wide monetary and price inflation).  One can get a view of Keynes’ proposal by reading an article published in June 1943, in the journal The Economic Journal.  The title of the article is The Objective of International Price Stability.

[51] See, for example, George Monbiot’s article in The Guardian: “Keynes is Innocent: the toxic spawn of Bretton Woods was no plan of his.”  http://www.guardian.co.uk/commentisfree/2008/nov/18/lord-keynes-international-monetary-fund.

[52] Stiglitz (2006), pp. 263–264.

[53] Krugman, Paul, “World Out of Balance”.  15 November 2009.  Web.  24 November 2009.  http://www.nytimes.com/2009/11/16/opinion/16krugman.html?_r=1&scp=1&sq=%22world%20out%20of%20balance%22&st=cse.

[54] Boudraeux, Don, “Krugman on Deficit Spending and the Chinese”.  23 November 2009.  Web.  24 November 2009. http://cafehayek.com/2009/11/krugman-on-deficit-spending-and-the-chinese.html.

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Works Cited

De Soto, Hernando.  The Mystery of Capital:  Why Capitalism Triumps in the West and Fails Everywhere Else.  New York: Basic Books, 2000.

Huerta de Soto, Jesús.  Money, Bank Credit and Economic Cycles.  Auburn: Ludwig von Mises Institute, 2009.

Krawisz, Daniel.  “The Fallacy of Intellectual Property.” Mises Daily.  25 August 2009.  Ludwig von Mises Institute.  24 November 2009. http://mises.org/story/3631.

Mises, Ludwig von.  Economic Freedom and Interventionism.  Auburn:  Ludwig von Mises Institute, 1990.

Mises, Ludwig von.  Liberty & Property.  Auburn: Ludwig von Mises Institute, 2009.

Stiglitz, Joseph E.  Making Globalization Work.  New York: Norton, 2006.

Reisman, George.  Capitalism:  A complete and integrated understanding of the nature and value of human economic life.  Laguna Hills: TSJ, 1990.

Reisman, George.  “Globalization: The Long-Run Big Picture.” 17 November 2006.  Web.  24 November 2009.  http://www.capitalism.net/articles/Globalization.htm.