Three Economic Systems
There are only three economic systems.
Liberal: the belief that government should have little or nothing to do with the economy and the free market.
Socialist: the belief that government should take an active part in the economy and the market, or actually be the economy.
Autarkic: the belief that a nations economy should align with its foreign policy.
There are no nations whose economy is not a combination or variation of these three systems, and there never will be.
None of these systems are designed, or function, “for the people,” because the people never make economic regulatory decisions in concert with the ruling class of any political system. Even democracies and constitutional republics do not do this. Nor do they have any real incentive to try. The rhetoric of “freedom,” “equality,” etc. exist only to distract people from the economic realities the ruling classes employ to sustain their power and keep the framework of society intact.
When we delve deeper into this, the most common economic system on earth is corruption. It has been this way for all of human history.
All social groups follow their incentive structure. The original intention of their political ideology or economic theory is irrelevant. All of the aforementioned economic systems are good for some things and bad for others. This is because all of them have to leave something out of the equation in order to create a comprehensive framework.
Liberalism was first articulated as a conscious philosophy in 18th century Britain and France. They believed that by removing government involvement in the economy, the result would be an increase in wealth. Eventually the United States and Britain embraced liberalism. This philosophy spread throughout the world and there are very few nations whose economy is not built from a liberal foundation. This idea is a very new phenomenon in human history because it goes against the grain of almost all previous economic systems. All systems of government are in attempt to replace chaos with order; and as a result, many nations chose to embrace some form of authoritarianism. Many people embrace strong in the audacious rulers, believing that they will keep the structure of society intact, despite their obvious corruption and tyranny.
One of the errors that Americans make is to immediately associate classical liberalism with left-wing politics. In light of the aforementioned principles, this misunderstanding is serious,, and borders on the ridiculous. The irony is that the political right is more liberal than the left. The assessment of liberalism that exists in America is woefully out of touch with reality.
Liberal philosophy could not have developed anywhere except Europe. For centuries the continent was divided between countless small kingdoms, city-states and church lands. Their rulers had to relinquish their political rights over cities and merchants in order to gain any form of economic advantage. Eventually the market and the law were elevated above political authority.
The dominant tenant of liberalism in its most original and primordial form is that the law is superior to the judgment of social leaders. All of the strengths and weaknesses of liberalism come from this principle.
The main strength of liberalism is that it allows the creation of massive wealth. This becomes a problem when social stability is so lacking it makes investments unprofitable. People will build and work as long as there is some hope that it will be profitable for them and that the law will protect their property. Nations with good and effective property rights become wealthy, and those without effective property rates are impoverished. There is no exception to this rule.
Liberals often fail to understand that property rights are dependent upon having a stable society. This can only be provided by a stable government. Liberals will often push for the removal of government power and situation when they need that government in order to stabilize property rights. Having no government does not achieve liberalism; it only achieves barbarity.
Feminists often attack capitalism; but women in general have profited more in capitalist societies than non-capitalist ones.
Furthermore there is a indisputable pattern in history that racist systems reduce profit margins. In this, economics and morality are in complete agreement.
Contrary to popular opinion, capitalism does not inevitably exploit labor. The amount of money people earn is equal to the productivity and the supply of labor. Capitalism does not necessarily end in monopolies. Monopolies are outcompeted unless they’re already providing a service as efficiently as possible. If any business or monopoly begins charging excessively high prices, it is inevitable that a competitor will arise and undercut them. Furthermore, corrupt monopolies that lobby governments to control their market are doomed to failure.
Liberal economics have some systemic self-destruct mechanisms. Even though markets always reset, this reset is not always advantageous. Liberals often ignore baseline things that are needed in the infrastructure of society. One example of this is education. Free-market liberalism cannot provide the necessary education for its citizens in order to create the stable society that liberal economics depends upon. Welfare is another example. Sometimes things happen to people outside of their control. A welfare system can assist people in getting their life together and become productive members of society.
Right wingers and libertarians almost never focus on the ruinous effects of social inequality. Their extreme politics cannot produce a stable society that allows the economy to function. This is especially true in terms of the environment. Liberal economics only pays attention to profit. Apart from exploiting natural resources, the ecology of the earth cannot factor into liberal economics. The result is the pollution and damage to the environment under the pretense and justification of increased profit. The result of this is millions of deaths, inevitable damage to the economy, and contributing to the extinction of human life.
In other words, a purely liberal economic system treats anything without a material or economic value as being worthless, irrelevant, incomprehensible, or even non-existent.
Liberalism is also difficult to maintain because it goes against human nature. Humans instinctively gather in tribes, and are family oriented. The idea of an outsider trying to help them can be horrifying.
While liberalism has been very effective and unpopular, socialism has been popular and very ineffective.
Socialist economic policies give government and bureaucrats more power. Ultimately it is based on a fantasy that attempts to change human nature.
Socialistic policies have dominated politics since the beginning of human civilization. The ancient Egyptian, Romans, Chinese, Incas, etc. had economic policies that were similar to modern left wing governments. All governments have attempted to exert power upon the economy; and this is perfectly understandable because it is in their self interest.
Modern socialism is an ideology first theorized by Karl Marx in the mid 19th century. It was a response to the drawbacks and problems created by industrialization. It’s influence grew in the early 20th century, when capitalist governments began employing socialist policies. By the middle of the 20th century 1/3 of the human race was ruled by communist governments in which the government controlled the whole economy.
Communism is responsible for the deaths of over 80 million people within a 60 year period (which exceeds the number of deaths caused by religious fanaticism since the beginning of human civilization). Furthermore communism has caused real measurable declines in the standard of living in every single nation it had ever been instituted in.
There is no economic justification for communism. As an economic practice it has a 100% rate of failure. The only thing that saved China from this fate was that it adjusted its economy to become an authoritarian capitalism.
On the other hand if you look at nations that instituted lower levels of socialist policies, you will find some of the most stable and prosperous societies in the world.
The only incentive that governments have is to stay in power. Politicians can be voted out of office or dragged through the streets and hung from lampposts. But bureaucracies can make decisions about how the economy functions. The degree to which any government works is entirely dependent upon how cohesive the society is. Just as capitalism cannot work in countries without a stable rule of law, left wing economic policies cannot work in non-cohesive societies. In corrupt societies, social programs become inefficient.
In countries where corruption is low (such as Sweden and Japan), people rarely go on welfare if they don’t need to. In such societies people will naturally work to better themselves and avoid cheating because this will result in social rejection.
The main function of any government is to hold businesses and citizens to standards. Any business will operate under the same incentive structure as anyone else. If no one is looking they can become extremely corrupt if they think it is in their interest.
The end of slavery in the United States was essentially an act of socialism wherein government interfered in the rights of local businesses.
Socialists are correct in that sometimes wealth is the result of “luck.” If you gave things like education, health, safety, etc. to the entire population, the effects would be advantageous to all.
Socialism degenerates into tyranny and error when it attempts to overreach. And they do it more often than they should. This is because government bureaucrats are accountable to no one, and exist only to expand their influence.
The biggest problem of socialist Philosophy is that they think intentions really matter in politics. I think that if someone in power has good will, that they will succeed. They fail to see their own limitations. This is terribly neglectful of reality. Then they start believing that anyone who opposes them is evil.
The ironic thing about socialist economics is that government imposing itself upon free market only ends up benefiting the wealthy and powerful. This is because the wealthy and powerful are already connected to the government and are in a position of influence.
Government regulation benefits pre-existing businesses that have the capital to adapt to changing conditions. Inflation (which is caused by the creation of more fiat currency than is equal to the gross national product) inevitably hurts the poor more than anyone. Eminent domain hurts those who do not have political influence. In situations where rationing takes place, banks and other organizations owned by the government and the friends of the government receive the lions share of rations.
Socialism can only conceptualize distribution. It is not equipped to perceive the realities of production. They see capitalists as nothing more than a social class they can take money from. Some socialists believe that money is a game that people play rather than being immutable rules and how we deal with a world full of scarcity. This is why socialists have a tendency to inflate their currencies. They raise taxes without thinking that industries have to compete with less taxed industries. American liberal cities increase taxes, which causes businesses to vacate, leaving less money to spend.
Socialists err in thinking that money is a fixed thing to divide rather than something that is produced in direct proportion to all other forms of material wealth.
The final economic philosophy to look at is Autarkies.
Autarkism is the desire to be independent from the rest of the world’s economy. It resembles mercantilism; the desire to have as much of the worlds economy as possible under one’s nation’s control. It is the natural state of economic government across history. Both sides of the political spectrum have used it, despite it being generally associated with nativist right-wing politics.
Modern economics generally oppose autarky / nativism. They feel they shouldn’t fear dependence on other countries for trade and resources. Most countries however cannot rely entirely upon themselves; International trade is essential to their survival. In times of war they are starved. And throughout history economic dependence has been a tool for political dependence. In our time, the Chinese are employing this tactic brilliantly (and have taken advantage of the ineptitude of the Trump administration to accomplish this).
Americans have difficulty understanding this because America is so geographically safe. The United States is surrounded by massive oceans on both sides and neighbors that are comparatively weaker. The threat of subjugation it’s not felt here. And the United States is one of the least dependent on foreign trade: only 15% of our economy is dependent on other nations.
A good example of a nation trying to survive through autarkism was Nazi Germany. Germany’s defeat in World War I was disastrous for them. They were a small country surrounded on all sides that starved during the wars. Their economy was inflated to ridiculous proportions. The national socialists believed that by conquering Europe, they could provide their nation with wealth and resources in that they wouldn’t be influenced by foreign economic powers.
Autarky works well under some circumstances and becomes a catastrophe in others.
One example of how it worked well was the 19th century America instituting protective tariffs. This protected developing industries from established industries in Europe. This allowed the United States to develop powerful industries that essentially conquered the world in the 20th century.
However the same practice was a disaster for Argentina and South Africa. Due to their lack of competition with the outside world, tariffs became the result of a really inefficient industrial sector. Unlike the United States, internal competition wasn’t sufficient for these nations. Like Socialism, tariffs create a problem by playing to special interests within its society. A nation must be very careful to have enough internal competition so it is not propping up a bloated and inefficient self interest group. Tariffs need to stimulate a nation’s economy, not stagnate it.
Mercantilism has a tendency for failure. European nations attempted to funnel their colonial economies through the mother countries. This almost never worked, and resulted in corrupt colonial interests.
Culture is also a component that cannot be ignored. Some cultures interact with others in a way that strengthen sand improves it. Others are destroyed. The British influence on Ireland was disastrous, while its influence on Scotland caused it to become rich and powerful. The west influenced Japan and increased its wealth and progress in science and industry, while the same influence upon China caused a century of humiliation.
Immigration is a similar situation. The American right tends to broad stroke immigration, labeling it as a bad thing (especially under the extremes of Trumpism). Their assessment of immigration does not resemble the reality. One example is that 80% of Laotian immigrants go on welfare but only 3% of Japanese do.
In general terms the most effective way of approaching economics is to use liberalism to make build wealth, use socialism to ensure that things are fair, and autarky to make sure that your nation stays as independent as possible. Ultimately a balance must be struck where The advantages of each system are instituted and its disadvantages are avoided by instituting the advantages of the other systems.
The only possible conclusion that can be drawn from this is that no single economic system works independently of any other. They all have advantages and disadvantages. Embracing one over the other will inevitably cause the disadvantages to damage a nations economy. Economic systems and the unrealistic political ideologies that support them demand blind loyalty rather than them being useful tools employed in a logical manner. This invariably produces the ruin of any society.