Economic Systems

[Time the Crestfallen]

Since this was derailing the election thread, I've decided to make a new topic for economic systems. Starting with the characteristics of various systems seems like a good place to start:

[spoiler=Capitalism]

Characteristics:
-Lack of government intervention
-Means of production owned by private entities
-Goods and services distributed according to price mechanism, as opposed to government price controls

Pros:
-Economic freedom helps political freedom. If governments own the means of production and set prices, it invariably leads to a powerful state and creates a large bureaucracy which may extend into other areas of life.

-Efficiency. Firms in a capitalist based society face incentives to be efficient and produce goods which are in demand. These incentives create the pressures to cut costs and avoid waste. State owned firms often tend to be more inefficient (e.g. less willing to get rid of surplus workers and less incentives to try new innovative working practices.)

-Economic growth. With firms and individuals facing incentives to be innovative and work hard this creates a climate of innovation and economic expansion. This helps to increase real GDP and lead to improved living standards. This increased wealth, enables a higher standard of living; in theory, everyone can benefit from this increased wealth, and there is a ‘trickle down effect‘ from rich to poor.

-There are no better alternatives. As Winston Churchill, ‘“It has been said that democracy is the worst form of government except all the others that have been tried.’ A similar statement could apply to capitalism.

Cons:
-Monopoly power. Private ownership of capital enables firms to gain monopoly power in product and labour markets. Firms with monopoly power can exploit their position to charge higher prices. See: Monopoly

-Monopsony power. Firms with monopsony power can pay lower wages to workers. In capitalist societies, there is often great inequality between the owners of capital and those who work for firms. See: Monopsony exploitation

-Social benefit ignored. A free market will ignore extenalities. A profit maximising capitalist firm is likely to ignore negative externalities, such as pollution from production; this can harm living standards. Similarly, a free market economy will under-provide goods with positive externalities, such as health, public transport and education. This leads to an inefficient allocation of resources. Even supporters of capitalism will admit that government provision of certain public goods and public services is essential to maximise the potential of a capitalist society.

-Inherited wealth and wealth inequality. A capitalist society is based on legal right to private property and the ability to pass on wealth to future generations. Capitalists argue that a capitalist society is fair because you gain the rewards of your hard work. But, often people are rich, simply because they inherit wealth or are born into a privileged class. Therefore, capitalist society not only fails to create equality of outcome, but also fails to provide equality of opportunity.

-Inequality creates social division. Societies which are highly unequal create resentment and social division.

-Diminishing marginal utility of wealth. A capitalist society argues it is good if people can earn more leading to income and wealth inequality. However, this ignores the diminishing marginal utility of wealth. A millionaire who gets an extra million sees little increase in economic welfare, but that £1 million spent on health care would provide a much bigger increase in social welfare.

-Boom and bust cycles. Capitalist economies have a tendency to booms and busts with painful recessions and mass unemployment. See: Boom and bust economic cycles

http://www.economicshelp.org/blog/5002/economics/pros-and-cons-of-capitalism/

[spoiler=Socialism]

http://www.studylecturenotes.com/management-sciences/economics/243-what-is-socialism-mba-economics-notes

I was sadly unable to copy-paste the text, you'll have to read this one. Also, I'm sorry if this sources quality isn't up to snuff. It was the best one I could find that wasn't partially or entirely locked behind a pay wall.

http://www.investopedia.com/articles/personal-finance/082415/pros-and-cons-capitalist-vs-socialist-economies.asp

It's also worth noting that no society is purely capitalist or socialist.

Edited November 28, 2016 by The Blind Idiot God

[blah the Prussian]

Responding to Life from the previous thread: "Dictatorship of the Proletariat" means that the lower classes are in control of the wealth, and therefore society. Marx argued that there was no difference between wealth and governance. The Dictatorship of the Proletariat isn't literally arguing for a dictatorship. It's still a terrible idea, though.

[Tetragrammaton]

Since this was derailing the election thread, I've decided to make a new topic for economic systems. Starting with the characteristics of various systems seems like a good place to start:

[spoiler=Capitalism]

Characteristics:

-Lack of government intervention

-Means of production owned by private entities

-Goods and services distributed according to price mechanism, as opposed to government price controls

Pros:

-Economic freedom helps political freedom. If governments own the means of production and set prices, it invariably leads to a powerful state and creates a large bureaucracy which may extend into other areas of life.

-Efficiency. Firms in a capitalist based society face incentives to be efficient and produce goods which are in demand. These incentives create the pressures to cut costs and avoid waste. State owned firms often tend to be more inefficient (e.g. less willing to get rid of surplus workers and less incentives to try new innovative working practices.)

-Economic growth. With firms and individuals facing incentives to be innovative and work hard this creates a climate of innovation and economic expansion. This helps to increase real GDP and lead to improved living standards. This increased wealth, enables a higher standard of living; in theory, everyone can benefit from this increased wealth, and there is a ‘trickle down effect‘ from rich to poor.

-There are no better alternatives. As Winston Churchill, ‘“It has been said that democracy is the worst form of government except all the others that have been tried.’ A similar statement could apply to capitalism.

Cons:

-Monopoly power. Private ownership of capital enables firms to gain monopoly power in product and labour markets. Firms with monopoly power can exploit their position to charge higher prices. See: Monopoly

-Monopsony power. Firms with monopsony power can pay lower wages to workers. In capitalist societies, there is often great inequality between the owners of capital and those who work for firms. See: Monopsony exploitation

-Social benefit ignored. A free market will ignore extenalities. A profit maximising capitalist firm is likely to ignore negative externalities, such as pollution from production; this can harm living standards. Similarly, a free market economy will under-provide goods with positive externalities, such as health, public transport and education. This leads to an inefficient allocation of resources. Even supporters of capitalism will admit that government provision of certain public goods and public services is essential to maximise the potential of a capitalist society.

-Inherited wealth and wealth inequality. A capitalist society is based on legal right to private property and the ability to pass on wealth to future generations. Capitalists argue that a capitalist society is fair because you gain the rewards of your hard work. But, often people are rich, simply because they inherit wealth or are born into a privileged class. Therefore, capitalist society not only fails to create equality of outcome, but also fails to provide equality of opportunity.

-Inequality creates social division. Societies which are highly unequal create resentment and social division.

-Diminishing marginal utility of wealth. A capitalist society argues it is good if people can earn more leading to income and wealth inequality. However, this ignores the diminishing marginal utility of wealth. A millionaire who gets an extra million sees little increase in economic welfare, but that £1 million spent on health care would provide a much bigger increase in social welfare.

-Boom and bust cycles. Capitalist economies have a tendency to booms and busts with painful recessions and mass unemployment. See: Boom and bust economic cycles

http://www.economicshelp.org/blog/5002/economics/pros-and-cons-of-capitalism/

[spoiler=Socialism]

http://www.studylecturenotes.com/management-sciences/economics/243-what-is-socialism-mba-economics-notes

I was sadly unable to copy-paste the text, you'll have to read this one. Also, I'm sorry if this sources quality isn't up to snuff. It was the best one I could find that wasn't partially or entirely locked behind a pay wall.

http://www.investopedia.com/articles/personal-finance/082415/pros-and-cons-capitalist-vs-socialist-economies.asp

It's also worth noting that no society is purely capitalist or socialist.

Copy for you

[spoiler=Socialism]

http://www.studylecturenotes.com/management-sciences/economics/243-what-is-socialism-mba-economics-notes

What is Socialism

In socialist economic system means of production are owned and managed by the State. Ownership of means of production is not allowed. In socialism economic activities are carried on mainly for social gains and personal interest is of less significance. In this economic system the anti social activities like smuggling and hoarding find no place. Economic activities are planned with the motive of social benefit by a central planning authority.

The individuals in socialistic society surrender their economic freedom in exchange of assurance of freedom from wants by the State. It is the responsibility of the State to provide food, lodging and clothing besides other requirements, by assigning a suitable job to each one of them.

Characteristics of Socialist Economic System

Following are the Characteristics

In socialism means of production are owned by the State

Economic activities are planned by the central planning authority

Absence of competition

Equal opportunities to all

No economic freedom to the people

Advantages and Disadvantages of Socialism

Following are the merits and demerits, advantages and disadvantages of socialism.

Advantages of Socialism

Following are the benefits or advantages of socialism

Greater Efficiency

Economic efficiency under socialism is greater than under capitalism, the means of production are not left in the market forces rather they are controlled and regulated by the central planning authority towards chosen end. The central planning authority makes an exhaustive survey of resources and utilizes them in the most efficient manner.

Greater Welfare

In a social economy, there is less inequality of income as compared to capitalist economy because of the absence of private ownership of means of production. In socialist economic system every one works hard and paid as per his skills & ability.

Absence of monopolistic practices

One of the benefits of socialism is that it is free from monopolistic practices to be found in a capitalist society. Since under socialism all means of production are owned by the state, the exploitations by the monopolist are absent. Instead of private monopoly, there is state monopoly over the productive system but this is operated for the welfare of the people.

Absence of business fluctuations

A socialist economy is also superior to a capitalist economy that is free from business fluctuation. Generally planned economy co-ordinates the action of various producing units, prevents discrimination between saving and investment and make full use of available resources. It is able to control over production and avoid general deflationary trend.

Economic Growth

I will consider economic growth as an important advantage of socialism because it adopts economic planning as a means of promoting rapid economic growth. A planned socialist economy functions right according to the plan in a systematic and orderly manners and marches rapidly on the road to economic progress.

Disadvantages of Socialism

Following are the demerits or disadvantages of socialism.

Elimination of Individualism

There are many disadvantages of socialism but first come in my mind is the lack of economic freedom. In socialist economic system everything is controlled by a centralized body. Individuals are not allowed to own any assets, everything belongs to the state. Workers are assigned specific jobs and are not allowed to change them without consent from the planning authority.

Red-Tapism and Inefficiency

In socialism there is a lot of involvement of bureaucracy and are the drivers of all economic machinery. The work civil servants are not comparable with the private entrepreneurs. Civil servants merely do the jobs because it is their duty and they will get paid whatever the consequences. Thus inefficiency arises and in the long run the economy suffers.

An Artificial System

As a socialist economy is a planned economy, every aspect of the economy is to be determined by the government. Forces of demand and supply do not apply which is one of the disadvantages of socialism. Thus in the long run the economy becomes state rather than wasted, whereas these make an economy prosper.

Consumers Suffer

In the final analysis it is the consumer who loses out. Sovereignty of consumer does not apply in a socialist economy. Consumers do not enjoy the status of a consumer as in a capitalist economy. Choices of goods and services are able to maximize their total satisfaction.

Economic Equality

Socialists claim more equal distribution of wealth but practically it is proven that complete economic equality is virtually impossible. There is a distinction between the rich and poor. Moreover since it is a planned economy the poor suffer even more.

Non-existence of economic and political freedom

Freedom of enterprise, freedom in choice of occupation and many other essential freedoms for an economy to prosper are out‑rooted from society. The true spirit of democracy dies away. The basic needs Although it has been agreed that the six basic needs in life are met within a socialist economy but all this is obtained at the expense of economic and political freedom.

Non-existence of Competition

It is due to competition that an economy becomes prosperous. The competition between producers and consumers leads to the production of a good quality product which may even be relatively cheap here it is one the disadvantages of socialism. Thus talents and initiatives of mankind develop and in the ultimate analysis the country incurs rapid growth.

[ping]

Responding to Life from the previous thread: "Dictatorship of the Proletariat" means that the lower classes are in control of the wealth, and therefore society. Marx argued that there was no difference between wealth and governance. The Dictatorship of the Proletariat isn't literally arguing for a dictatorship. It's still a terrible idea, though.

I'm not an expert on this topic, but isn't Socialism according to Marx a necessary step between Capitalism and Communism, which is per definition a classless society, making a dictatorship of any class impossible? I might just misremembering things, though.

Also, I'll take the liberty to quote from GDR school:

"Friedrich, what is the nature of capitalism?

- "That man will opress man!"

"Splendid! And what about socialism?"

- "It's the exact opposite!"

Well sure but there's also the idea of supply vs. demand. If a company prices its product out of the masses' income scale, the company fails until it reigns back in the price. And if it is because they can get away with paying workers less (which causes average incomes to fall), eventually the price of said product will also have to fall to meet the demand.

There's lots of discussion to be had on how much restraint should be put on Capitalism but the main takeaway from my point is that no company is forcing someone to work for less with the use of force. Not so under Marxist ideology since you owe your workload to the state.

I honestly don't think this is true. Unless you believe children in Bangladesh working in clothes factories because their family would starve otherwise can be considered unforced labor. I can accept that people in the west paying absurdly high prices for a product just because someone stitched a little crocodile on it is their own fault, but calling child labor in third world contries is rather cynic, in my opinion.

[Life]

The biggest problem with socialism (I find) is that Lenin was absolutely correct when he said that Communism is the ultimate goal of Socialism.

Are there issues with unfettered Capitalism? Absolutely. I just don't think that wealth inequality is actually a problem, even in unfettered Capitalism.

Show of hands. How many people have actually read Atlas Shrugged cover to cover?

[Yojinbo]

Also, I'll take the liberty to quote from GDR school:

"Friedrich, what is the nature of capitalism?

- "That man will opress man!"

"Splendid! And what about socialism?"

- "It's the exact opposite!"

This is an extremely important quote for all ideology-warriors to take note of.

An argument of Capitalism vs Socialism is pointless because they're just two different extremes of the same flawed system. The only system that came close to working out well was the soziale Marktwirtschaft / social democracy because it balanced the strenghts and weaknesses of both systems off against each other. I've made a couple of in-depth posts on that matter in the thread about the rise of right populism, starting from here.

Capitalism and Socialism on their own do not work and have, in fact, failed many times.

[Life]

That's not Marxism, you're just simply don't understand it enough.

The truth is "well, Marxism hasn't worked yet because we're not at the societal level where it can".

It's in the far future, it must be at least hundred years before any of us can reach to that level.

Stalinism, Maoist or Communist, while they claim they are, they all have misunderstood, and practiced it in a wrong way.

It's like in a game, you know your final boss right from the beginning of the game, but you can't deal with it until you reach some certain level, find high end gears, learn all the required skills, etc...

None of us has reach to that level yet, anyone want to try that before the time comes will be doomed.

This is from the other thread and I wanted to comment on this.

What makes your brand of "Marxism" the correct interpretation? I mean, isn't it funny that every single government that attempted to use Marxism became an oppressive dictatorship within years of the implementation?

Forget USSR/Mao China/Cuba for a second. What about Cambodia? Is it just a coincidence that Marxism relies on brutal oppression, no matter where it is applied?

I'm pretty sure that I understand Marxism quite fine but I'll re-read The Communist Manifesto just to make sure.

Edited November 28, 2016 by Life

[Yojinbo]

Show of hands. How many people have actually read Atlas Shrugged cover to cover?

*raises hand*

About ten years ago, I believe?

[Life]

*raises hand*

About ten years ago, I believe?

Great. The question wasn't sarcastic, by the way.

I'm not saying that I agree with Ayn Rand entirely (because she did believe in unfettered Capitalism) but she brings up excellent points in a lot of the book. The trial of Hank Rearden is one and another one is Francesco D'Anconia when he talks about how money cannot possibly be the root of all evil. Those are important passages to read if you want to critique Capitalism.

[Tetragrammaton]

This is from the other thread and I wanted to comment on this.

What makes your brand of "Marxism" the correct interpretation? I mean, isn't it funny that every single government that attempted to use Marxism became an oppressive dictatorship within years of the implementation?

Forget USSR/Mao China/Cuba for a second. What about Cambodia? Is it just a coincidence that Marxism relies on brutal oppression, no matter where it is applied?

I'm pretty sure that I understand Marxism quite fine but I'll re-read The Communist Manifesto just to make sure.

Cambodia also failed.

Marxism can not be achieved before Capitalism reaches to the highest perfect level.

In other word, you cannot promote to 3rd tier class before you reach level requirement and promoted to 2nd tier class.

[Life]

Cambodia also failed.

Marxism can not be achieved before Capitalism reaches to the highest perfect level.

In other word, you cannot promote to 3rd tier class before you reach level requirement and promoted to 2nd tier class.

No. My point is that they succeeded rather than failing. You only consider them failed because they became brutal dictatorships. I am saying that this is the reality of Marxism. Oppression is required to enforce the system.

[Tetragrammaton]

No. My point is that they succeeded rather than failing. You only consider them failed because they became brutal dictatorships. I am saying that this is the reality of Marxism. Oppression is required to enforce the system.

Again, you are misunderstanding. That is not Marxism.

It is not related to force anyone to do anything.

Real Marxism will simply happen when all the conditions are met, by the choice of the people.

https://www.theguardian.com/technology/2016/nov/17/elon-musk-satellites-internet-spacex

This is an example, a trait of the perfect Marxism/Socialism.

[Excellen Browning]

@ping: Essentially yes. Socialism as proposed by marx is a way to transform a classist society into a classless society, which is essentially a community without any regulations and where everyone tolerates each other, problems are always solved, nobody commits any crimes etc. It's an anarchism, and historically, around the early 1900's communism/socialism and anarchism were used interchangedly.

Further onto economic models; yes, the point you make about forcing people to work is somewhat true, but Life's point is also just somewhat true. The truth is that if you want to apply orthodox supply and demand logic to reality, you run into problems, and these problems get very bad very quickly. The first problem with supply and demand rationale is that suppliers can manipulate demand and supply; they can market their products(rather effectively, says Apple), and they can also decide to simply supply less to drive up relative demand.(happens with oil cartels etc)(if they have enough market share) Demanders on the other hand are usually not capable of influencing supply (as manufacturing goods is always capital intensive, which is not easily available in the needed amounts), can't usually easily decrease demand(especially if supply is critical), or might not even be aware they're overpaying.

In some other cases, like the job market, supply is not easily adjusted to demand. In case of large supply, like in early industrial, urban areas, the amount of people needing to work to sustain themselves is greater than the demand for them. What happens in this case is that the demanders can lower what they pay for the supply of workers, which can and has gone below the point needed for self sustenance.(the majority of Indians right now feed on food sold to them at 1/10 the market value because they earn too little to sustain themselves, as an example) (this also happens in various other markets, like agriculture and mining)

What would happen in this case is that suppliers have to work to at least partially sustain themselves, until demand increases or until they starve to death or go bankrupt. In case of workers, some might opt to leave the supply and demand economy and produce their own sustenance. In case of companies, they might reduce their production, or try to reduce spending so they can survive. In any case, demanders of these supplies are not always interested in or capable of adjusting their demand. They might not have the funding to increase their production, they may not want to increase production out of fear of losing profitability on their own products, or they might just want to pocket their profit and not care.

[Excellen Browning]

How many people have actually read Atlas Shrugged cover to cover?

Atlas Shrugged is dogshit and ironically its' philosophy is completely wrong for the same reasons why communism is wrong.

[Yojinbo]

Great. The question wasn't sarcastic, by the way.

I'm not saying that I agree with Ayn Rand entirely (because she did believe in unfettered Capitalism) but she brings up excellent points in a lot of the book. The trial of Hank Rearden is one and another one is Francesco D'Anconia when he talks about how money cannot possibly be the root of all evil. Those are important passages to read if you want to critique Capitalism.

I still think you overrate the book's significance - at the end of the day it's still a novel. Fiction.

Incidentally, I remember one of the passages you cite here -the one about money not being the root of all evil- irking me the most when I read the book. While it's one of the few positions where I fully agree with Rand, I also think it's the one she was being the least truthful about in the book. Because in her world-view of so-called 'objectivism' money isn't just 'not the root of all evil' but closer to something like the end to justify *all* means. Compared to Rand's actual view on that matter D'Anconia's speech seems to be a bit restrained, ideologically speaking. I want to avoid the term 'sugar coating' here because I frankly don't remember the details of the book to that extent anymore but I know I wasn't particularly convinced by it when I learned more about Ayn Rand's ideology.

[blah the Prussian]

No. My point is that they succeeded rather than failing. You only consider them failed because they became brutal dictatorships. I am saying that this is the reality of Marxism. Oppression is required to enforce the system.

Cambodia objectively did not enforce Marxism. Whatever Pol Pot thought up was Marxism but applied to agriculture instead of industry.

[Radiant head]

@ping: Essentially yes. Socialism as proposed by marx is a way to transform a classist society into a classless society, which is essentially a community without any regulations and where everyone tolerates each other, problems are always solved, nobody commits any crimes etc. It's an anarchism, and historically, around the early 1900's communism/socialism and anarchism were used interchangedly.

the difference is mostly how to get there. marx had a lot of disagreements with anarchist philosophers like bauknin. anarchists usually want to abolish the state and go from there, whereas marx more believed that you would have to transform bourgeois democracy (the current system) into a proletarian democracy, and then the state would eventually wither away as that happens globally.

the problem with the ussr and china is that socialism is intended to be a post-capitalist phase. capitalism was a revolution of the merchant/bourgeois class, and socialism would be a revolution of the working class. but russia and china were still agrarian and feudal, so they had basically a state-run capitalism that was intended to act as a dictatorship of the proletariat, but both ended up just being state capitalist with the state functioning in the same role as capitalists do here.

Edited November 28, 2016 by Radiant head

[Excellen Browning]

While I will agree China was essentially an agrarian society well into the sixties, Russia under Lenin saw strong industrialization.

[Life]

To me, this is a conversation best done in person via Skype. For me specifically, I'm much better at articulating my points verbally than I am at writing them down (especially since I go off of my phone).

If someone wants to oblige for the Marxist case, that would be amazing. I suggest we record it (you don't have to show your face even though I don't mind showing mine) and we all can then discuss afterwards.

Anyone up for it? I am a lot less confrontational in person, by the way.

Besides, who doesn't want to see a hippie arguing for Capitalism?

Edited November 28, 2016 by Life

[Excellen Browning]

I'm not interested in listening to your Randist memes on skype. Also if you're going to defend capitalism(lol), why not read Hegel or Locke.

[Radiant head]

While I will agree China was essentially an agrarian society well into the sixties, Russia under Lenin saw strong industrialization.

yeah, meant to say that they adopted a quasi-capitalist mode of production to industrialize

[Life]

I'm not interested in listening to your Randist memes on skype. Also if you're going to defend capitalism(lol), why not read Hegel or Locke.

A few points:

1) Nobody is forcing you to listen. If you don't want to, don't.

2) If I'm so wrong, then it should be easy to embarress me on a medium where I am more effective at explaining my position and presenting arguments.

3) I'm currently working on re-reads of Leviathan, The Prince and a reading of Thomas Sowell's Conflict of Visions. I read Locke years ago (like almost 10 years ago) but it'll take me a while before I get to him again. I can only read so many books at the same time.

Edited November 28, 2016 by Life

[Lord Raven]

I do not understand how you are any different at expressing it in voice chat. Is it because it's easier to ignore points because there's no like evidence of someone saying something? Because that's all you do here - and the reason you don't engage in arguments (or nobody wants to do so with you) is because you ignore points and bring points back up again that follow from a discussion where you did not get the last word.

Edited November 28, 2016 by Lord Raven

[Time the Crestfallen]

I'm not an expert on this topic, but isn't Socialism according to Marx a necessary step between Capitalism and Communism, which is per definition a classless society, making a dictatorship of any class impossible? I might just misremembering things, though.

Also, I'll take the liberty to quote from GDR school:

"Friedrich, what is the nature of capitalism?

- "That man will opress man!"

"Splendid! And what about socialism?"

- "It's the exact opposite!"

Pretty much. Capitalism and Socialism ultimately wind up with the same flaw; reliance on extremely powerful entities (private firms and the state respectively) with little accountability to act in the good of the people, but consistently failed to do so. Historically, socialism has often given way to dictatorships and the existence of sweatshops and crony capitalism is evidence of what private firms get up to when left to their own devices, not to mention the consequences of wealth disparity.

[Excellen Browning]

A few points:

1) Nobody is forcing you to listen. If you don't want to, don't.

2) If I'm so wrong, then it should be easy to embarress me on a medium where I am more effective at explaining my position and presenting arguments.

3) I'm currently working on re-reads of Leviathan, The Prince and a reading of Thomas Sowell's Conflict of Visions. I read Locke years ago (like almost 10 years ago) but it'll take me a while before I get to him again. I can only read so many books at the same time.

In order; you're free to post a challenge to a general audience, and its the right of individuals of this audience to say no, individually. I'm really not interested in baiting, regardless. Leviathan is crap, principe is crap, conflict of visions I don't know about.

Also recent discovery of mine, all economic "systems" are ideological variations on concepts of ownership, decision making, distribution and allocation of profit. Also a not so recent discovery of mine is that the world is not run on capitalism on a variation thereof, but is a mix of various ideas of economic organization coexisting, and all of it is a small variation of some sort of basic economic behaviour.