Thursday, March 06, 2014

A Primer on Capitalism, Socialism, and Communism

I received an interview request from a student who was writing an economics paper.  The questions I realized were probably questions many people had and though they may tangentially be educated about various economic systems a good introduction into the three man economic systems may be called for.

1.    Can you define each of the three? Communism, Socialism, and capitalism. What are the differences?

There is debate between the definitions of all three.  But traditionally the three fit along a spectrum from total government ownership of everything (communism) to technically the absolute absence of government (anarchy)  “Socialism” fits in between where the government owns OR TAXES at a rate of around 50%. However, sometimes people refer to “socialism” as the same thing as “communism.”  So when you are reading or talking about socialism, you need to know what context it’s in.  Are they talking Sweden or Norway where 50% of GDP is taxed, or are they talking SOCIALISM as in a purely 100% totalitarian Marxist control of the economy.

2.    Can you list examples of each? Can be modern examples or past examples.

Capitalism – Bermuda, Singapore, 1940’s America, Cayman Islands, Hong Kong
Socialism – Current day US, all of Europe, Canada
Communist – Venezuela, Cuba, Soviet Union, North Korea, East Germany, California (just kidding)

3.    Are there any misconceptions that people have? If so why might people believe these misconceptions

Yes, absolutely.  The reason people have misconceptions is because most people (Americans) are idiots when it comes to economics.  They’re more concerned about Kim Kardashian than they are the US federal deficit.  The most typical of these misconceptions is that the US is somehow a “capitalist” country or that China is a “communist” country.  None of them take the time to study economics, tax rates, spending rates, etc., so most people are arguing from idiotic emotions rather than unbiased, cold, heartless facts and statistics.

4.    How does government play a role in each? How does the citizen population play role?

Citizen population only plays a role in terms of voting.  But the government plays a role based on how involved or how much ownership it has in an economy.  If the government tax or spending rate is 50%+ of GDP, then it’s a solid socialist or communist country.  If the government only consumes or spends 20% of the economy, then it’s a solid capitalist country. 

5.    Are there any flaws in each of them? What are they and can they be fixed?

This would take 10 books to answer.  In short, the biggest flaw in socialism or communism is that it invariably ends up with more parasites than producers in the economy.  Government spending and welfare freebies make it more attractive not to work than to work.  Economic production collapses to the point it can no longer support itself and you get deficit spending, trade deficits, and inevitably countries cut you off and you collapse.  Starvation and general economic crappiness ensues. 

Capitalism, however, is not without its problems.  Usually economic growth is so great it allows for one, even three, generations to live off of the work and backs of just one.  Those successive generations lose the lessons of hard work, toil, and innovation. Consequently, the money runs out and you have spoiled little brats expecting a free handout.  Also, capitalism is high susceptible to “crony capitalism,” wherein successful business use their money and lobbying power to bribe the government to pass unfair laws that advantage said people.  The bank bailouts, Chesapeake Energy’s shutting down of the Keystone Pipeline, even the teapot dome scandal are all examples of capitalism becoming corrupt and thus “crony capitalism”
Both have their disadvantages, but crony capitalism has yet to kill 100 million people in peacetime through starvation.

6.    Do some just work in theory and not in reality? If so why?

Yes.  Communism is based in a (veritable) madman’s idealism (just look up the personal habits of Karl Marx).  Capitalism is based in human nature by much more hygienic and sane 18th century philosophers.  People are always greedy, always going to serve themselves, so why not build an economic system around it.  Only idealistic idiots think about puppies and flowers and unicorns about “wouldn’t it be great if everybody made the same amount of money” blabbity blah blah blah.  Besides, Marx and Smith are moot.  There’s over 200 years of track records between the two ideologies.  Socialist/communist countries have failed miserably compared to the capitalist counterparts.

North Korea vs. South Korea
East vs. West Germany
The US vs. the USSR
Communist China vs. Capitalist China.

Not to abbreviate or dumb down the life long economic argument, a system that allows its people to keep the majority of the fruits of their labor will result in people producing more fruit.  You want to confiscate/steal/tax them, then you deter work and deter economic production.  The fact this is even a debate shows how political forces have desperately tried to corrupt it.

7.    Has a country ever switched to another system (ex. Communism to socialism, socialism to capitalism) ? If so why? Was it successful? Did it fail? What were the reasons for its outcome

Not drastically, but then again, I’m going off of the current knowledge I have now.  A historian would know, but no examples are coming to me now.  There are some instances (say the Baltics) that broke away from Soviet Russia and did quite well in the 90’s, but many of those countries reverted back to their socialistic tendencies and are in the crapper again.  But anything as “drastic as that” is not available.  Countries change slowly over time.  So your best case studies are countries divided by socialism and capitalism a la the Koreas and E. vs. W. Germany.

8.    Do these systems affect the quality of life, standard of living, or freedom?

Most certainly yes.  All one has to do is compare South Korea standards of living vs. the North. East vs. West German standards of living.  The comparison isn’t even close.  The “most successful communist country” (USSR) only had 33% the standards of living the US did.  About the only “socialist” successes are the Scandinavian countries .  But even they had financial problems or (in the case of Norway) are lucky enough to have oil account for a full 25% of their economy.  Those abberations aside you can expect most socialist countries to be a 2nd place/2nd rate western European country like Spain, Italy, France, etc.

9.    Do factors such as corruption, poor leadership, geography, population, crime etc. affect these systems?

Oh, most certainly and this gets back to the issue of crony capitalism.  Technically Russia today is a capitalist country.  But that is only by stated tax rates.  It’s so corrupt nothing else can get done.  Corruption is largely a non-economic issue.  If corruption has influenced and infected a country, then it’s economic policies are largely rendered moot.  Africa is a perfect example of this.  You and me and everybody else could debate the economic policies of Somalia all day.  It doesn’t matter, because it’s a shithole that’s highly corrupted, highly war-torn and until you have the establishment of law, “economic theories” are truly first world problems that are not relevant to Somalia. 

As for other factors (geography, population), not and Hong Kong, Singapore, the Caymans, etc. prove this.  If you do not have corruption and a motivated AND MORAL work force, you can achieve anything. Sinapore’s and Hong Kong’s stratospheric rise in economic growth is proof you don’t need a ton of resources.  You just need smart people motivated people, and honorable people.   This is one of the best things about capitalism in that it allows people to achieve their best no matter what the geographic or natural resource handicaps are.  Smart people always find a way to succeed, it’s an issue of whether a government will let them, or tax/steal from them so a politician can bribe poorer people to put him/her into power.

10.    Why do some work for certain countries while others seem to work better for different countries

There are absolutely various sociological reason an economic system works better than not.  For example the Scandinavian countries seem to do very well with socialism.  But they are (at least for now) a homogenous society with a solid national identity.  In the US it doesn’t work so well because, bluntly, there are various races and instead of focusing on talent, skill, and character, political lines have been drawn (primarily by the democrat party) to alienate and pose against different sex, creed, colors, religions, etc.  So if you have a variable (like homogenous population), sometimes socialism “can” work.  But once you get different groups of people in, then natural human envy takes hold and an argument for the transference of wealth of a “privileged” class to the “underprivileged class” occurs, consequently destroying the economy in the process.

11.    Which one is better in your opinion? Why?

Capitalism.  NOT CRONYcapitalism.  But real capitalism.
And there is no opinion.  It’s because it is what has helped serve and advance society and humanity the most.  And the argument isn’t even close.  Capitalism, free markets, free men have yielded more inventions, more advances, more drugs, more innovations, etc., than any socialist or communist nation has.  It boils down to whether or not you’re going to let individual achieve their best and reaps the rewards of them achieving their best, or go some idiotic, whinny, wimpy, “woe is me I need other people’s money” route.  Do you award the winners or losers.

Even the losers benefit from a capitalist society because the Steve Jobs and Jonas Salks and Wright Brothers are allowed to achieve their best, creating new innovations and creations that improve the standards of livings of EVERYONE infinitely more than mere income transfers and socialist parasitism can.  It’s why North Korea today presumably spends all of its money on “the people,” but the poorest people of the US are richer than your average “rich” North Korean.

12.    Can you give modern examples of each one?

Sure, North Korea, South Korea.
1980’s US vs. 1980’ USSR
East vs. West Germany
Monaco/Lichtenstein/Luxembourgh vs. All of Europe

Just look at history and ask yourself a simple question:

Do countries that allow their people to be free and keep the majority of the fruits of their labor result in higher standards of living, higher life expectancies, higher innovation, and higher economic growth


Do countries that confiscate/tax 80% of their people’s production, to transfer it to people who don’t work or are as not efficient, result in higher standard of living, higher life expectancies, higher innovation, and higher economic growth.

The question is so simple it moots the entire “study” of economics.


Dave said...

Before 1917, the words "socialism" and "communism" were used interchangeablely. After that, each country had one or more socialist parties based on various interpretations of Marxist doctrine, and one Communist Party that received its daily marching orders from Moscow. Sort of like the difference between Protestants and Catholics.

Anonymous said...

Communism is the application and enforcement of flawed socialist economics by firing squad.

To illustrate let me tell you a true story of what happened to my mother on a Kolkhoz (state farm) in the former Workers Paradise.

My mother was assigned to a dairy farm, to help milk the cows and other duties as befitting a farm girl. The farm had a quota which was to be picked up and delivered to the milk processing plants. As long as the cows were healthy and happy, the quota was maintained.

One day, however, the cows got sick and milk production dropped to less than half the assigned quota. A few days later the commissars came by to investigate. The commissars refused to accept the fact that the cows were sick and accused the farm manager of stealing the milk. My mother said that he just went white as a sheet. They also threatened the manager and half the staff, including my mother with execution if the thefts didn't stop.

The manager said that he would take steps to ensure that from now on full quota would be delivered on time.

Of course the cows were still sick and couldn't provide the volume of milk required to fulfil the quota.

The solution? Simply top up the half empty milk containers with well water and voila, quota met.

Socialism, Communism Fascism and Nazism are all branches of the same tree and ALL are EVIL.

Unknown said...

You are so right, but your problem is that most likely it is only a handful of people who are listening.

I already know this bro. And I salute your great rendition on this. The problem is, and you are right, we are at almost 50/50 when it comes to moochers vs producers.

We cannot maintain this for long. And the wisest, most frugal among us are waiting for the "hammer" to drop before they start to invest in anything!

JKB said...

I found this definitions of socialism in an article published in the 1890s before the disinformation campaign got going. I say disinformation because I believe in the 1930s they started letting communism be denigrated to hide the real danger, socialism, and promote it as the "middle-ground". The common ownership of resources in society didn't last that long in the so-called communist countries. And remember it was the Union of Soviet SOCIALIST Republics.

"That Communism is essentially negative, confined to the prohibition that one shall not have more than another. Socialism is positive and aggressive, declaring that each man shall have enough.

"It purposes to introduce new forces into society and industry; to put a stop to the idleness, the waste of resources, the misdirection of force, inseparable, in some large proportion of instances, from individual initiative; and to drive the whole mass forward in the direction determined by the intelligence of its better half.

"In this sense the advocacy of a socialistic act or measure will not necessarily characterize a Socialist. Socialism will mean, not one, but many things socialistic. Thus, for example, protection is socialistic. Yet the protectionist is not, as such, a Socialist. Most protectionists are not Socialists. Many protectionists are, in their general views, as anti-socialistic as men can well be.

"The Socialist, under this definition, would be the man who, in general, distrusts the effects of individual initiative and individual enterprise ; who is easily convinced of the utility of an assumption, by the State, of functions which have hitherto been left to personal choices and personal aims ; and who, in fact, supports and advocates many and large schemes of this character.

"A man of whom all this could be said might, in strict justice, be termed a Socialist. The extreme Socialist is he who would make the State all in all, individual initiative and enterprise disappearing in that engrossing democracy of labor to which he aspires. In his view, the powers and rights of the State represent the sum of all the powers and all the rights of the individuals who compose it ; and government becomes the organ of society in respect to all its interests and all its acts. So much for the Socialist.

"Socialism, under our definition, would be a term properly to be applied (1) to the aggregate of many and large schemes of this nature, actually urged for present or early adoption ; or (2) to a programme contemplated, at whatever distance, for the gradual replacement of private by public activity ; or (3) to an observed movement or tendency, of a highly marked character, in the direction indicated. "

Goober said...

Communism and socialism are the same thing; they differe only in the degree.

The general idea behind socialism is "state ownership of the means of production." That way, everybody works, everybody gets a paycheck, and the state is the only employer, but people still get to buy and own property and live as they choose, more or less.

Communism is just socialism taken to an extreme, where private property does not exist, and the state owns everything. You live where the state tells you, and work where they tell you, and die when they tell you.

Both are proven failures. Venezuela tried socialism. Look where they are now - they've just reached the "killing protesters in the street" phase, which comes some time after the "can't even buy toilet paper or flour" phase, due to shortages created by the inability of central command structures to control anything so complex as an entire nation's economy.

I speak to it here,

but the general idea is this:

If every single time your grand idea of utopia is tried, it ends up resulting in murder, death, misery, and gulags, then THAT is what your grand idea is, not the wonderful concept of it that you've somehow convinced yourself is possible.

Speculative Measures said...

Socialism is the distribution and dispensation of resources, administered by the state.

Capitalism is the distribution and dispensation of resources, administered by market forces.

Communisn is Socialism applied to both economic and behavioral activities of a society.

Blaximus said...

The " moochers " argument is old, tired, and just plain wrong. It's a myth not remotely bourne out by factual numbers.

.... unless you want to count tax-dodging corporations and well connected multi millionaires and billionaires.

There's an old theory that I think sums up many of the ills in America today. When we become an oligarchy, false flags will be put in place to prevent the populace from rising up. The flags are " envy ", " race ", and " freeloaders ".

Who is the bigger taker of tax money ( without paying taxes ) than our banks/financial systems? C'mon fellows...THINK. You pride yourselves on knowledge, open your eyes, take off the blinders and take a " cold hearted look " at the factual numbers in TOTAL.

It's not " makers vs. takes ". That is a simple and stupid argument. It's a smokescreen. It's the crown jewel of the CRONY capitalists and too many of you are buying it at face value.

Captain Capitalism said...

Uh, Blaximus,

Welfare/social sevices/EBT, etc., out-consume taxpayers money by about 10 to 1 that of corporations.

You just have to look at the federal budget and federal reserve balance sheet.

Or is that too much work, accounting and intellectual honesty for you?

Your next response better be, "OK, I'll look up the numbers, because I don't tolerate uneducated blathering here.

Anonymous said...

Great thing about capitalism is the power it gives to customers. With free contract and private property no one can make you give them some of your money unless they meet some of your desires or needs. So businessmen constantly think of ways to please or solve problems for customers. Your pile of earned geld might be pretty small at the end of each week but countless businessmen think obsessively about how to offer you enough value to get you to spend one of your dollars with their company.

I was in (an internet) business and I thought all the time about how to do better and get maybe another ten thousand customers who would spend maybe a dollar each month and increase my revenues one hundred twenty thousand dollars per year. You might be a small fry but car companies spend effort trying to make their cars better for you, facebook tries to make the experience more entertaining for you, businesses try to get you to answer surveys about what you want/prefer, someone who figures out a cost effective way to make your life easier can probably make a lot of money.

Old Broad said...

Thank you, Cappy, for summing up the 10 books. You've provided a public service. My grandpappy would say, "Too many ticks on the dog."

Anonymous said...

All the terminology in previous posts is redundant - for all these 'principles' were inventions of capitalist scum, plain and simple.

Nothing is more titillating to the Globalist psychopaths than the perverse irony of observing their provender-fed sheep wrack their brains, trying to figure out what it what, forever looping in an endless circle to decipher how it all originated, never to find an answer.

Good luck with wasting your time.

Greed is the only evolutionary factor that keeps our repugnant species alive, and that causes all the happiness and suffering in our world. It will never change, and never end.

Hundreds of millions of years from now, it'll be the same set of rules, and the same arguments and hair-pulling will reiterate.

In case you all haven't figured it out yet: Your entire existence has been orchestrated. You, your parents, your grandparents, your great-grandparents, and your great-great-grandparents have been brainwashed into being ultra-consumers - so much so that you are willing to accept a life of slavery for the 'opportunity' to have more material goods than the next guy.

It's laughable, you wannabe capitalists.
You sell out your integrity and 'soul' and embrace whatever invented system allows you to 'be better' than your neighbor, all the while blissfully ignorant of what true wealth and power is.

You will never know what true wealth and power is, but yet you console yourself with the fact that you're a slightly bigger minnow in the ocean of sharks.

Case in point: The truly wealthy and powerful (sub-trillionaires and Uber-trillionaires) would never bother to post blogs online - even if they did have the time. That sort of thing is for the 'poor'.

You get it yet?

Good luck achieving your 'dreams'.
Maybe your next hyper-car purchase will make others so jealous that they commit suicide on the spot, or cause nubile young women to get so frothy that they'll pull their wedding rings off as they run across the street to embrace you!

Isn't that what you're striving so hard for?

Thank goodness the day will come when the final human being has breathed its last, and our despicable life form is no more.