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CAPITALISM & SOCIALISM AREN'T WHAT PEOPLE THINK THEY ARE
(a thread)
1/ Capitalism is the idea that property is private, whereas socialism is the idea that property is public.
Before I explore the implications, let me address some misunderstandings.
(a thread)
1/ Capitalism is the idea that property is private, whereas socialism is the idea that property is public.
Before I explore the implications, let me address some misunderstandings.
2/ Those who think that socialism means high taxes and free services are actually talking about a social state.
A social state has nothing to do with socialism, and the other way around.
A social state has nothing to do with socialism, and the other way around.
3/ Those who think that capitalism means that rich owners can do whatever they want are actually talking about oligopolies. In capitalism, one person not only owns property, but is also responsible for the good and bad that comes out of it.
4/ Those who argue that the means of production should be property of individual workers (a bit to each of them) are actually arguing for capitalism.
Socialism implies that the means of production aren't owned by anyone, not that they are owned by workers.
Socialism implies that the means of production aren't owned by anyone, not that they are owned by workers.
5/ In fact, neither capitalism nor socialism make any judgement on "poors/rich" or on "bosses/workers". They are only concerned on whether individual property is a thing (capitalism) or not (socialism).
6/ Now that it is clearer what capitalism and socialism are, let's continue with the implications.
First, the definition once again:
Capitalism is the idea that property is private, whereas socialism is the idea that property is public.
First, the definition once again:
Capitalism is the idea that property is private, whereas socialism is the idea that property is public.
7/ What happens if, say, an industrial machine malfunctions and kills a worker in the factory?
- In capitalism, because there are clear individual owners, assigning responsibility is easy.
- In socialism, because everyone owns the machine, no one is responsible for it.
- In capitalism, because there are clear individual owners, assigning responsibility is easy.
- In socialism, because everyone owns the machine, no one is responsible for it.
8/ The incentives are clear:
- In capitalism, because there are owners, and they are liable, they care about maintenance & improvement.
- In socialism, because there aren't owners, no one is liable, so no one cares about maintenance & improvement.
Now, this is not fully true:
- In capitalism, because there are owners, and they are liable, they care about maintenance & improvement.
- In socialism, because there aren't owners, no one is liable, so no one cares about maintenance & improvement.
Now, this is not fully true:
9/ There are many instances in capitalist countries in which owners aren't held liable.
As I will explain later, these are not failures of capitalism, but instances in which capitalism wasn't applied.
Ownership of assets means ownership of responsibilities.
As I will explain later, these are not failures of capitalism, but instances in which capitalism wasn't applied.
Ownership of assets means ownership of responsibilities.
10/ Similarly, there are many instances in socialist countries in which workers (which are not owners) are held liable (for example, of the machine they are maintaining).
Again these are instances of distances from the ideology, not proper of the ideology itself.
Again these are instances of distances from the ideology, not proper of the ideology itself.
11/ Now, let me introduce the concept of borders.
12/ In capitalism, because ownership is private, there are borders EVERYWHERE within the country, that divide ownership. Some are physical (the walls of my house) and some are abstract (my phone is mine even if I don't keep it in a safe).
13/ In socialism, there are some borders, but not everywhere and, in general, those which are in place are permeable to the state.
More importantly, even if there are borders between assets, there are less borders between responsibilities, which are mostly shared.
More importantly, even if there are borders between assets, there are less borders between responsibilities, which are mostly shared.
14/ What happens when borders are removed?
15/ Incentives are scale dependent.
The average of individual incentives is larger than the collective incentive.
(a form of Jensen's inequality)
The larger the scale, the larger the inequality.
The average of individual incentives is larger than the collective incentive.
(a form of Jensen's inequality)
The larger the scale, the larger the inequality.
16/ When borders are removed, incentives plummet.
Because the scale of the territory encompassed by the few standing borders is large.
The larger the area encompassed by the smallest border, the smaller the incentives.
Because the scale of the territory encompassed by the few standing borders is large.
The larger the area encompassed by the smallest border, the smaller the incentives.
17/ The more borders (i.e. the more property is private), the more individuals are incentivized towards the collective.
This is what capitalism got right and socialism got wrong.
This is what capitalism got right and socialism got wrong.
18/ Unless, of course, responsibility is maintained through social policing (aka "grandma slapping you", which can happen at small scales only. This is why communism works for families & tiny communities but fails beyond 50-150 people.
19/ Now, the problem with capitalism is that if owners are responsible, sometimes consequences can be very bad (for example, someone falling very sick or an entrepreneur going bankrupt).
20/ Humans change their behavior principally based on frequency of consequences rather than on their impact.
Removing all consequences leads to bad behavior.
Consequences have to be capped, not removed.
(I explain this in )
Removing all consequences leads to bad behavior.
Consequences have to be capped, not removed.
(I explain this in )
21/ The best option to cap consequences is the social state.
However the social state only works in the measure it caps but not remove consequences.
A social state which removes consequences essentially is socialism, for if one is unaffected by consequences, he doesn't own them
However the social state only works in the measure it caps but not remove consequences.
A social state which removes consequences essentially is socialism, for if one is unaffected by consequences, he doesn't own them
22/ The social state is fully compatible with capitalism if it only caps consequences of bad decisions rather than removing them.
23/ I hope that with this thread I clarified a bit the relationships and differences between capitalism, socialism and the social state.
If you have any comment or question, let me know!
Meanwhile, a recommended reading: academia.edu/38433249/Multi…
If you have any comment or question, let me know!
Meanwhile, a recommended reading: academia.edu/38433249/Multi…
24/ To maximizes taxes (or other forms of wealth redistribution) Socialism has to maximize exit costs (otherwise, the most taxed citizens could just move to another country).
25/ Conversely, capitalism (as intended in the context of this thread), to maximize market size, engages in international trade, resulting in lower exit costs for its citizens.
26/ It follows that socialism tends to be easy to get in, hard to get out (a trap). To end, it has to collapse.
