If we have chosen the position in life in which we can most of all work for mankind,
no burdens can bow us down, because they are sacrifices for the benefit of all; then we
shall experience no petty, limited, selfish joy, but our happiness will belong to millions,
our deeds will live on quietly but perpetually at work, and over our ashes will be shed the
hot tears of noble people.
Karl Marx and Frederick Engels were philosophers, political theorists and economists responsible
for writing the communist manifesto, which is today probably the most widely recognized
text outlining a system for a communal economy.
An economy where work is done to fulfill the needs of ones community rather than to satiate
personal desires. An economy where goods and services are distributed by needs rather than
by means.
An economy where people could not rest on the laurels of being land or capital owners
to get by without ever needing to contribute any personal effort.
This system lies in direct contrast to the other extreme of the economic spectrum which
is laissez-faire capitalism.
Laissez-faire literally translating from French to let it be or leave alone pretty much sums
up this economic system. It advocates for leaving capitalism alone entirely to do it’s
thing because no government can allocate resources as efficiently as the free market.
Both of these opposing theories are very extreme and for what its worth don’t exist in any
modern economies anywhere around the world today, despite what some nations might have
you believe.
None the less they are still important to understand because the best way to wrap your
head around any spectrum, be it political, economic, color... is to understand the extremities
of that spectrum and place the more widely accepted ideologies somewhere in between those
extremes.
So what are the economic arguments for and against a communist economic system?
What are the economic arguments for and against a completely free market?
And finally
Are there any examples of these extreme systems actually working throughout history?
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Amongst all of these conflicting ideologies, of communism vs unfettered capitalism, and
even more mild disagreements like Keynesian control measures vs limited government pundants
it must be remembered that we are still figuring this all out.
Capitalism as we know it today only really first emerged into the world in the 16 and
17th century, and even then this was only places like the Netherlands and England that
were comparatively well ahead of the rest of the world.
Other nations were up still operating under a system of rigid class structures based on
birthrights and land ownership.
This divide was only accelerated when the industrial revolution took off and all of
this made a few men start thinking that maybe this isn’t the best way to do things.
Maybe the world was overdue for a
Revolution of the commons.
The central economic problem is humans have unlimited desires but only limited resources
in which to fulfill those desires.
This is true on an individual, community, national, and even global level.
I want the new Porsche 911 Turbo but I don’t have the resources in which to fulfill those
desires.
On a national level most governments would love to give their citizens free healthcare
and university and world class infrastructure while also reducing taxes, but they don’t
have the resources to do so.
Of course these issues can be overcome by increasing resources, let’s say, everybody,
watching liking, and subscribing for that new Porsche, or a nation finding a treasure
trove of natural resources to fund all those nice things without needing taxes.
But eventually, humans get used to this new normal and they want even more. What this
means is that the central economic problem has no solution but instead it just gives
out more questions.
These questions are.
What should be produced?
How Should it be produced?
And who should it be produced for?
If these questions can be answered, the problem hasn’t been solved per se but a workable
solution has been found.
Now Karl Marx and Fredrick Engels sought to provide one such solution.
You see the world in the 1800’s was getting wealthier, steam power, railroads, telegrams
all enabled business to be done and wealth to be created on a scale that would have been
unimaginable some 100 years earlier.
But all the while, living conditions had not improved for average workers, and in the pollution
filled cities lined with soul-crushing factories, they had probably gone backwards.
This was because average workers did not control the means of production.
Land labor and capital is what is needed to make anything, up until the industrial revolution
farmland and labor had been the most important pieces of this puzzle.
Kinds and lords and nobility owned the land, and the serfs worked that land with their
labor.
The advent of modern manufacturing suddenly meant that capital, which is things like machinery
also became very import, and this too was primarily owned by the nobility.
Labor was made far more efficient by capital, but laborers were not the secret ingredient
so they didn’t really benefit from it in the same way that capital owners did.
In this sense, the aristocracy in conjunction with an early free-market had answered the
questions of the central economic problem.
What should be produced? Primarily more factories and machines to make factory owners even richer
after that eh maybe a few consumer goods.
How should it be produced? It should be produced in said factories with a combination of heavy
machinery and low paid laborers.
And for whom should it be produced? Well, the people that own the factories and or those
who can afford it of course.
These answers did not suit the authors of the communist manifesto at all, and they argued
that workers needed to leverage their position as one of the crucial factors of production.
The problem with this was individual bargaining power, even during the height of industrial
growth work was not easy to get, and if an individual worker demanded more pay or better
conditions they would be laughed out of work only to be replaced by a seemingly endless
line of eager workers.
If these workers acted as a single community though they would have much more bargaining
power because its a lot harder to replace all of the workers in a factory than it is
to replace just one.
This in many ways is similar to modern unionist movements, where workers will strike to demand
better pay or conditions.
But this wasn’t so simple in the 1800’s.
For starters, factory owners still had a lot more negotiating power than their entire pool
of factory workers.
Even if someone managed to organize an industry-wide strike factory owners could just sit back
on their estates, wind their operations down and wait for the workers to starve into submission.
Worker protections, welfare, and labor laws were definitely not on the side of the workers
in this time period.
So something on a grander scale was required. A revolution.
Marx didn’t necessarily advocate for a revolution in his writing but saw it more as an inevitability.
Workers would only accept so much before they forcefully made themselves the owners of land
and capital forcefully.
Seize the means of production is literally a prescription for a revolution to take land
and capital out of the hands of the few who own, it and split it equitably amongst the
labor that uses it.
So the answer to the questions of the central economic problem becomes.
What should be produced? Primarily more factories and machines to make factory owners even richer
after that eh maybe a few consumer goods.
The only difference was that this time, the factory owners were the people. None the less
most nations that adopted Marxist policies adopted a series of 5 year economic plans
that pushed
How should it be produced? From people according to their means.
In plain english the government will decide who does what based on their skills and ability.
This is actually not too dissimilar from a capitalist system it’s just that instead
of a company or a government agency running you through a job interview its a central
labor department.
And finally the big one, for whom should these goods be produced? They should be allocated
to everybody according to their needs.
If a single mother has 10 children and no way to work, she would get a bigger house
with more amenities than a single neurosurgeon because the doctor doesn’t need as much
space.
Now of course this is the big sticking point where
communism starts to unravel
But it’s not in the way you might think.
Worker motivation looks to be the big problem here right?
Why would someone put all the time and effort into studying to become a doctor if they would
be given better amenities by just having lots of children?
And in a sense this seems true, but the actual abundance of slack labor as it came to be
known was actually pretty minimal in places like the soviet union or early communist china.
The reason was that workers were motivated in different ways.
Ironically enough Ludwig Von Mises a famous austrian economist (a school of economics
that stands in complete opposition to communism and advocates heavily for the free market)
gives some insight on this.
Psychic profits are the benefits received by an individual for doing something that
can’t be quantified. Winning a game of football, donating to charity, or being recognized as
a leader in a respective field all give people a sense of pride and accomplishment in their
work.
If anything this could be thought of as warm fuzzies, and this has been shown to be a stronger
motivator than money alone.
Think about it like this, most of you watching are paid to go to work and do a job. Your
motivation at that job is to work as little as possible without getting fired and potentially
work hard enough to get recognized for a promotion.
A living salary is a fantastic motivator for doing the bare minimum like getting out of
bed and getting to work, but a terrible motivator for doing much beyond that.
If the fundamentals of economics are to be believed it actually incentivizes people to
work as little as possible. The maximum possible output ie getting paid for the minimal possible
input.
Now discretionary effort is what makes all the difference here and there are many ways
to get it, be that amazing management, personal recognition for achievements, or nationwide
devotion to a common cause, all of these will result in psychic profits for workers and
more effort than the bare minimum.
All of this is to say that worker motivation, wasn’t really the achilles heal of communism.
It was actually the decisions made around what to produce.
In a communist system, the laws of supply and demand don't set prices—the government
does. The government decides what is produced and whom it is produced for.
But without this supply and demand, these government planners lose the valuable feedback
that these prices provide about what the people want.
They can't get up-to-date information about consumers' need, and as a result, there is
often a surplus of one thing and shortages of others. This is before the added complications
of time preferences and subjective value.
To compensate, citizens create black markets to trade the things the government doesn’t
provide, which destroys the trust in the state.
People no longer feel the government can give "to each according to his needs."
There are famous examples of these systems going awfully wrong, resulting in botched
government policies like Mao’s backyard furnaces, and any number of the soviet unions
botched 5 year plans.
The reality is that human needs across an entire nation are so variable and diverse
that no single agency can properly account for it no matter how well staffed they are.
The free market is just to most efficient way for people to vote for what is produced
and for whom it is produced.
Almost every communist nation eventually realises this and that is why of 5 communist countries
left in the world today all of them have some system of free markets.
For what its worth Marx actually realised this and “communism” itself isn’t actually
an economic system but rather a process that a country goes through to transition from
a capitalist state, to a social nation that answers the central economic question with
these answers.
The problem was of course these answers were legendarily hard for any government to answer,
and the extreme political ideologies that came along with most of these economic policies
did not help the process at all.
So it’s simple then it looks like the more that the government interferes, the more that
things go wrong, maybe the solution is just to fully enable
Hands-off capitalism
Le ze fair capitalism is the most extreme brand of capitalism, and it advocates for
governments to stay out of the economy entirely.
Taxes, government spending should all be kept to a minimum. Government control of fiat currency
through monetary policy should be completely eliminated and don’t even dream of government-run
industry, that is the role of the private sector.
The argument is that in the long run private business and industry with a profit motive
will be the most efficient entities for producing the goods and services of an economy because
their existence depends on it.
What to produce? How to produce it? And who to produce it for?
You see the answers to the economic questions sound simple, but they require understanding
humans, and humans can be nothing if not unpredictable.
Subjective preference is a term used to describe the way that people value things, and gives
economists some insight into how people don’t always want what looks most logical.
Consider this. What has more value, a Vintage Lamborghini, or a Toyota corolla? Well, almost
all of you watching would probably say the Lamborghini right. Sorry HAI.
But why did you say that? Because one costs a lot more right? Even if you weren’t into
cars, you can sell a vintage Lambo for millions of dollars and buy all the Toyota corollas
you want.
All that being said the modern Toyota corolla is objectively a better car in almost every
nominal way. Its more practical, more fuel-efficient, more comfortable, more reliable, and depending
on the model, probably faster too. What’s more, is that more technical expertise go
into producing a modern corolla than go into producing a vintage Lamborghini.
None the less, the Lamborghini demands the higher price because people give it more subjective
value. Therefore it stands that an economist can never truely know how much something is
worth until people have demonstrated their preference for it.
These two cars are obviously an extreme example of this but subjective value is really important
for a robust economy because it helps to answer the economic questions.
What to produce? How to produce it? And who to produce it for? Well if a business can
produce something that costs less to make but attracts similar consumer demand they
should definitely produce that thing first before making something more difficult.
If a communist government gets this wrong so be it, we have produced an allocation of
beats and tractors, and corn and hydraulic presses, you get and work with what you are
given. Since there is no consumer feedback communist nations can only assume that something
that takes more industrial effort to produce is of greater value, which isn’t always
true.
If a business gets any of this wrong they are no longer in business and they loose their
customers to a business that can answer these questions better.
In a sense its kind of business survival of the fittest.
Now for regular and attentive viewers, you might be saying well this sounds very similar
to what the Austrian school of economics advocated for in the last video in this series, and
you would be absolutely correct.
The Austrian school falls broadly under the banner of le ze fair capitalism, but even
the most staunchly free-market figureheads in this school still note that there is a
place for government.
Things like national defense, and a regulated court system for settling disputes.
But at the very very edge of free-market capitalism is the granddaddy of them all,
anarcho-capitalism.
anarcho-capitalism is an economic philosophy that advocates for the complete removal of
any state in favor of completely free markets.
What this means is that governments just would not exist and instead everybody would become
completely independent agents.
Now of course the first logical though is that this would be complete anarchy, and even
Murray Rothbard, the Austrian economist that founded this economic ideology admits that
there is likely to be violence if this kind of system was introduced overnight.
But long term the self-interests of people to accumulate wealth and resources for themselves
would outweigh the motivation to go to war because that the destruction caused by theis
would almost inevitably be a loose loose.
Now most economists, myself included, argue that this defense is pretty weak.
But maybe that’s ok because people can incorporate private militaries into their way of living.
Taken to it’s logical extreme this whole theory almost comes full circle.
A land without government, means every man for themselves, but this causes issues in
the sense that mankind does really well be working collectively.
Remember Adam Smith and the problem of the pin, one man can wake up in the morning and
make a single pin, that would require mining metal, refining that metal, forging it and
sharpening it, all which would take a single man alot of time and alot of effort.
In a healthy and functioning economy though people can just divide this labor and trade
the profits of the final product to make everybody wealthier. But this might be a little bit
more difficult in an every man for himself scenario.
All of that been said we could assume that eventually people will form corporations or
guilds or communities or whatever you want to call them to work collectively.
There will be miners and farmers and factory workers, maybe all protected by a community
security force and oh yep suddenly you got yourself a government all over again.
The only difference is that there would still hypothetically be an element of choice and
that there would be no clear borders between different working communities.
For example, someone might be a member of the blue construction community, they work
in a blue factory and if they are every threatened they can call the blue emergency services,
for the privilege of doing so they pay a portion of their income to the blue central authority.
But one day our hypothetical worker wakes up and reads that the red construction community
has lower taxes, better working conditions, and a stronger security force so they decide
to take their business there instead.
In our modern state-run capitalist world this would mean moving to an entirely different
country, in its own geographic area. This causes issues of moving away from friends
and family even before you consider the difficulties of getting a working visa or citizenship in
another nation.
In a perfect anarcho capitilistic world our hypothetical worker could move from the blue
construction community to the red construction community without having to move at all, in
fact the whole process should be as simple as just changing jobs.
There is actually technically an example of this today. It’s obviously not a real community,
but this system is remarkably similar to the player run corporations of eve online. Go
watch our videos on that to learn more.
None the less the prevailing thought amongst economists is that this theory would never
work, eventually, these communities would just draw defined borders, expand their territory
and exert dominance over the less organized working communities.
In the words of rick Sanchez, you hated the stupid government so much you became a stupid
government.
None the less if nothing else, the logical extreme of capitalism makes for a very interesting
thought experiment that sheds some light onto the nature of humanity.
Final Thoughts
Communism and Laissez-Faire capitalism along with all of the sub ideologies they encompass
are at extreme opposite ends of the economic spectrum.
As with anything that is taken to an extreme then tend to fail and slowly move back towards
a more logical central position.
That doesn’t mean that there aren’t productive takeaways from both of these systems though.
The best economies in the world today realize that everything should be used in moderation,
the government controlling everything is a recipe for disaster, but letting the free
market take the wheel is equally as reckless.
Some things governments do really well, they provide public goods, provide national defense
and offer security to those that dont have utility in a pure system of unfettered capitalism.
But all the same, there are things that governments do terribly. Producing goods and services,
leave that up to the businesses whose existence literally depends on it.