Socialism implies a lot more centralization than capitalism. The answer is, like always, included in the question. While socialism is to be ‘implemented’ – by a ‘central figure’, capitalism is an environment. A place where the deciding agents – the entrepreneurs, ‘make it happen’.
Hence socialism – which is a ‘thing’, to be implemented, not an environment for entrepreneurs to roam ‘free’ – will eventually fail. No matter how well intended the implementor, nor how hard it tries to make it happen.
In capitalism, only the entrepreneurs might fail. When the market is no longer free – oligo or mono poly, the situation closely resembles a socialist one. Things go south. Because the decision making agents are too few and far apart – no longer able to cover all corners, just as their socialist counterparts.
Comparing socialism with capitalism is like pitting an apple against agriculture.
An apple, all apples, will eventually become rotten. No matter how hard one might try to preserve it. Agriculture, on the other hand, will yield according to the available resources and the effort put in by those involved in it.
Equality has become ‘the’ thing. But things are not that simple. Not simple enough to be explained/solved in such a trivial manner. Equality is a theoretical concept. It doesn’t exist, as such, in nature. Nor in practice. Two ‘objects’/issues/items are declared, by us, to be equal if the differences between them are smaller than a threshold. Instated, again, by us. Mathematics – a theoretical field by excellence, being the only domain where the difference between two equal ‘objects’ is exactly zero. On the other hand, societies where people consider themselves to be equal fare better than those where the differences between people are ‘manifest’. Hence ‘equality’ must be important, right? ‘Societies where people consider themselves to be equal’… The key word here is “consider”, not “equal “. In this situation, equality is not only a concept but also a value.
The fact that a functional majority of the people living in those societies consider themselves to be equal creates a certain ‘environment’. A situation where those people actually complement each-other. A society which works as an organism. Not as a shoal of fish nor as a simple herd. A society which works a community.
A single parent can raise children. But two parents do it a lot easier. And, in most cases, better. A single parent can adopt children. But no single parent, man or woman, is able to give birth to a child without being helped by a member of the ‘opposite sex’. Societies where people consider men and women to be equal fare a lot better than those entertaining other beliefs. Which doesn’t negate the fact that men and women complement each-other. In a lot more situations than those in which they merely reproduce themselves. Economies where the market is free fare a lot better than those where the economic decisions are made in a centralized manner. The communist camp – where the economies were run by the party, had crumbled under their own weight. Which strongly suggests that no matter how skilled it may be, a central planner will never be able to balance such a complicated process as a whole society/economy. Monopolistic situations, where decision making became too concentrated, invariably ended up in a pile of mess. Another proof that no decision maker, no matter how skilled/well intended, was ever capable of managing, by itself, a really complicated situation. What is the real difference between a free market and one where decision making is concentrated in an unsustainably small number of hands? Or heads? Economic agents are equal? Suppliers are equal among themselves, buyers are equal among themselves and suppliers are equal with buyers? Or suppliers complement each-other in adequately supplying the market while buyers and suppliers complement each-other in maintaining the market afloat? Which brings us back to where we have started. Where people who complement each-other have reached the conclusion they’d better consider their complements as equals. And treat each-other as such.
The common sense definition for an inflationary situation is ‘when too much money chase an inherently limited amount of goods and services’.
The ‘limited amount of goods and services’ part is easy. We live on a finite planet, we have a limited capacity to transform whatever resources we are able to identify into usable goods and services … so… OK, we can always identify new resources and build new capacity but we cannot do any of this ‘on the spot’. We need time. And, even more importantly, we need to put ourselves to it!
Then ‘who does the chasing’? After all, money is ‘inert’. It doesn’t do anything if let alone in a drawer. On under the mattress… In reality, we – buyers and investors, are the true ‘inflationary agents’. ‘But it would be completely stupid to sit on a pile of money when inflation rages! You have to buy something otherwise you’ll loose a lot of value! At least, you need to invest that money…’ This is one of the best examples of a self-fulfilling prophecy! Indeed. Buying or investing during an inflationary bout is the reasonable thing to do! Yet we need to understand that our actions will, temporarily, exacerbate the very inflation we are trying to ‘tame’.
After a while, economy had become ‘complicated’ enough to demand ‘paper money’. The amount of goods and services produced had become so large – and insufficient bullion was added to the money pool, that prices would have had to shrink if the balance was to be maintained. Unsustainable! Nobody would have bought anything and everybody would have jealously guarded their precious money while waiting for the prices to fall further. This process is known as ‘deflation’ and is considered even more malign than a decent amount of inflation. We have to note at this point that ‘paper money’ had been made possible by the advent of the ‘nation’. This is a rather complicated discussion, for the present purpose it’s enough for me to mention that ‘paper money’ being accepted as ‘tender’ means that the general population has enough trust in the issuer of the bills. That the individual user of the paper money trusts/believes he is part of ‘something bigger’. In those times, it was the issuer of paper money who practically controlled the amount of money which existed on the market.
Wrong! For banks to be able to ‘create’ new money, they have to extent credit! For new money to be created in this way, somebody must walk into a bank with a business proposition. That somebody might want to buy a house, a car or whatever else. Or that somebody might want to start a business. If that somebody convinces the bank that they is solvent or that their idea is worthy enough, then and only then new money is created! Money doesn’t appear out of the blue! It is born out of trust. That somebody not only trusts themselves but they are convincing enough to determine the banker to extend that much needed credit!
But wait! We’ve developed yet another mechanism which churns out money. The stock market. After developing the business started with the loaned money, the somebody we’ve been talking about above decides to make an IPO. To sell part of his business to investors. To monetize his initial investment. Depending on the moment chosen for the IPO – and the economic data in the prospect, the IPO can be a huge success. For ‘somebody’ and for the early buyers. You see, each time the price of the stock goes higher, new money is created. Based more on the ‘market’s expectations’ than anything else…
‘But people who put their money on the financial markets are rational agents! They are experts in their field…’
Yeah, right… You’re talking about the experts who had put together the collateralized debt obligations debacle… And many others. Too many others… Also, you’re talking about the experts who had bought those papers! Who had trusted the expertise of the first batch of ‘specialists’!
Thinkers, from Freud to Kahneman and Ariely, have proven than humans are very good at rationalizing and less so at being truly rational. That for a market to behave in a reasonable manner, it must preserve its freedom. That it must be free from ‘bullies’ – individual agents who muster a lot of ‘clout’, and free from any mania.
The 1637 Dutch Tulip Mania is a very good example of what might happen when a market gets obsessed with something. When too many people – not even a majority, forget about the fact that economy (oikonomia) is about making ends meet and that getting rich may be a nice consequence but is a terrible goal.
‘OK, nice try. But what about inflation?’
We have an inherently limited amount of goods and services. A relentless mechanism which churns out money. Meanwhile, some of us obsess about their need to conserve the money denominated portion of their stashed away fortunes.
Inflation is nothing but another mechanism. Which re-balances the market. Piece-meal – adjusting for daily changes, in normal times. When things evolve ‘freely’. Suddenly when the market – the people who ‘man’ the market, find out about ‘the dark side of the moon’.
Until recently – historically speaking, people had two ideologies to choose from.
Conservative and liberal.
The conservatives used to posit ‘law’ as a ‘cage’ which didn’t allow any transgression while the liberals understood ‘law’ as an agreed upon environment which allowed people an individual but orderly pursuit of happiness.
The advent of Marx’s communism changed everything. His promotion of ‘class warfare’ as a legitimate political instrument had effectively muddled that which had previously been considered a clear choice.
After communism proved itself to be an abject failure, the naifs have forgotten about Marx. Flying under the ideological radar, ‘class warfare’ has metastasized.
Nowadays, Regular Joe is confronted with three ideologies. And to make things worse, their names – attributed and/or assumed, are misleading.
We have a line of thought which uses (natural) ‘law’ as a line of defense against any kind of change. And as a means of bringing back the ‘better yesterday’.
Another line of thought which sees (man made) ‘law’ as an instrument to implement – forcefully, if needed, whatever the ‘implementer’ wants to achieve. One of the most often professed goals being ‘equality’. Close on its heels comes ‘diversity’.
And the ‘classical’ liberals who are squeezed between the previous two.
The state/government – whose job is to keep ‘the playing field’ level and functional, is paralyzed by the first two factions fighting to control it. The ‘conservatives’ want to use the state/government as a ‘preserving agent’ for what they consider to be their (natural) ‘rights’. The ‘progressives’ want to use the state/government as an instrument of (forceful, if needed) change towards what they consider to be ‘the common good’.
Meanwhile, the classical liberals – berated by both of the above, have a hard time explaining to a shrinking audience that the state/government is an extremely dangerous instrument if allowed to fall into the hands of ‘single-minded’ operators. That as soon as the freedom of the markets (the economic and, way more importantly, the ideatic ones) is curtailed, everything starts to go south. Fast!
Democracy and the free market have brought us so far. The freedom of thought/expression and the freedom to act as an honest entrepreneur have been instrumental in us reaching the present state. With the goods and the bads in it.
Each instance in which the state/government had fallen prisoner in the hands of ‘men of state’ with ‘focused vision’, history started to run backwards. No matter whether that ‘limited vision’ had been focused in the past or on “a certain” future.
Each time this subject comes about I remember about Francis Fukuyama’s The End of History. About how concentrated he was on the future he considered to be forthcoming. About how his ‘hard focus’ had prevented him from noticing the sunken part of the iceberg.
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As much as I love writing, I do have to eat. And to provide for my family. Earning money takes time. If you’d like me to write more, and on a more regular basis, hit the button. Your contribution will be appreciated!
The market had become free. Free for more and more people to search for new ways to meet their needs. This freedom had allowed the market to become efficient enough for more and more people to be able to satisfy some of their wishes, on top of most of their needs.
Agora had become free. So free that politicians had to solve more and more of the real problems encountered by the society at large. Life had become so free that states had become prosperous.
And more and more of the people were happy!
Now, the market is so free that more and more people have started to search for ‘really’ new ways to meet their wishes. Eventually, they came to be known as ‘financial engineers’. The market is no longer the place where people meet to satisfy their needs but the place where some of them accrue huge sums of money while more and more of the rest find it harder and harder to survive.
The Agora is also at its freest. ‘Political marketeers’ have taken over from the ‘the old school’ – and ‘real’ politics have been replaced with ‘give the people what they want’. Political life is no longer about solving problems. It has become a relentless quest for power. Keeping things ‘afloat’ is no longer THE goal, only a cost.
Is this sustainable?
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As much as I love writing, I do have to eat. And to provide for my family. Earning money takes time. If you’d like me to write more, and on a more regular basis, hit the button. Your contribution will be appreciated! Another very efficient way to help would be to share my posts.
As much as I love writing, I do have to eat. And to provide for my family. Earning money takes time. If you’d like me to write more, and on a more regular basis, hit the button. Your contribution will be appreciated!
As much as I love writing, I do have to eat. And to provide for my family. Earning money takes time. If you’d like me to write more, and on a more regular basis, hit the button. Your contribution will be appreciated!
Between 1776 and 1970 the world had leaped forward. Technologically, economically and socially. Not only that we’ve managed to learn so much about the world and to produce immense wealth but we’ve somehow managed to ‘spread around’ the results. The proportion of people who had improved their fortunes had grown constantly during the entire period.
Isaac Newton hadn’t invented gravitation. He only ‘noticed’ it. Put it in words. Adam Smith hadn’t invented the free market. He had noticed how it used to work and opened our eyes about it. For what ever reasons, enough of us had chosen to close those eyes back. And have reached the conclusion that ‘greed is good’.
Milton Friedman was both horribly wrong and exactly right.
He was horribly wrong in the sense that he had perpetuated Marx’s error. Karl’s, not Groucho’s.
Money isn’t everything. Life beats it to the post. Profit is, indeed, essential. Only it is nothing but an indicator. About how efficient a corporation is. Meanwhile the role of a corporation is to accomplish – as Friedman himself had dully noted, the will of the shareholders.
The problem arises from the fact that ‘near mindedness’ blinds. If/when both shareholders and management have nothing but ‘money’ in their scopes the market actually looses its freedom.
Economic agents no longer converge towards the market to solve each-others problems – like Smith had noticed, but to ‘make money’.
One way to interpret Maslow’s pyramid of needs is to consider that an individual might become a full fledged human only after having climbed to the ‘fifth floor’.
The key word here being “might”!
Because nothing mandates that all those who have overcome the material constraints of this world and have successfully integrated themselves in the social milieu will ever become a ‘better version of themselves’.
Need examples? Have you ever heard about people like Bernie Madoff, Martin Shkreli or Myron Scholes?
‘But the last guy, Myron Scholes, was recognized by the Nobel committee as a world class economist!’ Exactly! What more could a person want? Money, fame, worldwide recognition… he was on the fast track to becoming whoever he wanted… Yet he had chosen to associate himself with one of the deepest financial black-hole ever… Knowingly, unknowingly… doesn’t matter!
‘But what does it mean to become a full fledged human?’
To be free. To consider them-self a free person and to be recognized as such by their peers.
‘Scholes wasn’t a free person?!? Shkreli?!? Madoff?!?’
Nope. Neither was free from greed! Greed for money, power, public recognition… or any combination thereof.
‘But “greed is good”!!! Isn’t this the current mantra? Aren’t we all driven by this sentiment?!?’
First of all, greed is not good. Read Adam Smith’s Theory of Moral Sentiment. But yes, we are bombarded from all sides with this notion. That ‘greed is good. That greed is the engine of capitalism, which capitalism has brought us here. Where it is good.’
Yes, here it is indeed good. Only for fewer and fewer of us. It used to be better but since ‘greed has become good’ every ‘bump’ we encounter along the ‘free market’ road has proven to be quite a challenge. An insurmountable challenge for more and more of us. An unsustainable arrangement. For us, as a community. And yes, capitalism is the best economic paradigm to date. Only, as all paradigms, it has to be put in practice. By us, the people. In the right way. In the free market way. Only we are no longer free! Those who cannot escape their sentiment may not consider themselves free. And too many of us have been enslaved by their greed!
‘But greed is written in our DNA!’
Indeed! So is the urge to have sex! Only we’ve managed to teach ourselves, community wise, that while sex is good, rape is bad! Not so long ago, rape was more or less condoned. ‘She must have enticed him’. ‘What was she doing there at that hour?’ And so on… Nowadays, rape is shunned. By most of us.
Only we still live surrounded by rape culture. Seeped in greed.
Will we ever learn? Will we, as a community, ‘actualize’ ourselves?
US Initial Jobless Claims, provided by the US Department of Labor, provides underlying data on how many new people have filed for unemployment benefits in the previous week. We can gauge economic conditions with respect to employment. As more new individuals file for unemployment benefits, fewer individuals in the economy have jobs. For example, initial […]
We’ve ‘invented’ mutual respect. Based on it, we created the two institutions which allowed us to get where we are now. Democracy and free market capitalism.
I’ll make a short detour for those who are not ‘convinced’.
Democracy, the functional kind, starts from the premise that it is impossible for an individual to know everything. And that together we know much more than each of us. This being the reason for any democratic process starting with an intense discussion. Whoever has something to say, takes the stand and whoever is interested in the well being of the community pays attention. To learn where to cast their votes.
Free market capitalism starts, too, from the premise that it is impossible for an individual to know everything. That nobody, be it an individual or a group of people, might be smart enough to call all the economic shots needed for entire society to ‘feed itself’ on the long run.
These two fundamental institutions operate on the basis of mutual respect between those who live within them. The people exchange ideas and goods on the principle that the transactions are done voluntarily and in good faith. That deception is just an exception.
These two institutions made it possible for us to cooperate into building the present reality. We have developed enough technology that we are able to produce enough food for everybody. We went to the moon We have enough weapons to destroy the entire planet. Each of us can communicate, almost instantly, with almost anyone on the planet.
And? What do we do in these conditions? Although there still are many of us who are starving, we throw away food. For various reasons. Most satellites are used (and) for military purposes. Although we could not have ‘arrived’ if we hadn’t ‘invented’ mutual respect, we currently use information technology mainly to spread fake news and ‘consume’ pornography.
Is this really okay? How much longer is this going to last?
I’m sure you’ve already learned everything worth knowing about how to flatten the curve…
My post is about something else. About the need to think with our own heads. Individually. Each on their own.
More damages are caused by the manner in which we have chosen to react than by the pathogen itself.
‘Then what should we do?’
I don’t know. And I just told you to stop taking cues, blindly.
There is something I do know. Nobody can get out of something like this on its own. Alone. And another thing. If we get out of it as a herd, we’ll very soon end up in another trap.
‘Damned if you do, damned if you don’t… I really can’t figure out what you want to say….’
OK. We, humans, are social animals. We not only raise our young – all mammals do that, we raise them in a social context. We live in groups and we raise our children to belong there.
Living in a social context has consequences. From being prone to infestation to having adopted specific behaviors. Humberto Maturana is actually convinced that our very conscience – ‘our ability to observe ourselves while observing‘, a paraphrase, is a product of us leading our lives in close community.
One of these specific behaviors is the herd instinct. Whenever in a dire strait, the members of a group pay a lot more attention to the rest of the group than in the ‘peaceful moments’. This has two bright sides and one huge drawback.
All members of a group paying close attention to the others makes it easier for those who need it to get attention. And help. All members of a group paying close attention to the others makes it easier for the group to follow when one of them finds a way out. All members of a group paying too close attention to the others makes it very likely that the entire group will dash out at the first opportunity. Without checking first where they’re going to land. Nor whether there are any other opportunities.
Another specific behavior is ‘opportunism’. Some of us have figured out that by keeping their chill in a crises they are more likely to identify whatever opportunities might exist in that moment. And the deeper the crises, the bigger the opportunities.
Theoretically, these two should work like a charm. The opportunists keep their chill, look around, identify the best way out and the rest of the herd follows them to safety. A win-win situation.
Yeah… but!
Wouldn’t it be a way lot better whether all (or, at least, ‘more’) of us would keep their chill? Wouldn’t we be able to identify even more ways out? It would take a lot more time? We’d need to discuss things over, to negotiate… we’d have to exert a lot of discretion… True enough. Hence we’d need to evaluate two things. First, how urgent the dangerous situation is and, then, whether a better alternative would be worth searching.
And something else. In a ‘follow me blindly’ situation there’s no going back. The consequences for a hasty choice might be tremendous.
We might end up with more people being hurt by our blunder-some reaction than by the cause which had spooked us.
Yet another specific behavior is responsibility. Living in a social context means that, sooner rather than later, individuals are censored for their actions. By the rest of the community or, sometimes, by the stark reality. Unfortunately, sometimes entire communities are censored, by the stark reality, for not behaving responsibly. For not imposing responsibility upon their members.
For not taking enough time before choosing between flight and fight.
Let me put things into perspective. How many of you have chosen to continue smoking despite having been warned? How many of you have emptied the shelves despite being told there’s enough for everybody? Or that there will be soon enough? How many of you do not smoke in the presence of your children? Because you know it will hurt them? How many of you have taken active measures to protect the elderly? For the very same reason…
As for the economy being the main casualty of the present scourge… I’m afraid ‘the economy’, as we know it, has been dying for quite a while now. That’s why it is so susceptible to SARS CoV-2.
The Ancient Greeks had come up with the concept of ‘oeconomia’ as the art of making the ends meet. Adam Smith had described the free market as the place/environment where competing agents made it so that people – solvent demand, could satisfy their needs. Nowadays, too many of us understand/accept ‘economy’ as the art of getting rich. ‘Free’ in ‘free market’ is understood as ‘free’ to do anything you want. Because very few are asked to answer for the long term consequences of their actions.
The economy, as the manner in which we cooperate towards fulfilling our needs, has fallen prey to our gluttony. And to our nearsightedness. Greed is not good. And SARS CoV-2 is only an eye opener, not the cause for the current implosion.
nicichiarasa 