Capitalism and Socialism are just two sides of the same coin
Capitalism promotes the individual. Socialism gives higher prominence to the group. Yet we are not one or the other. We are both individuals and society.
The challenge is balancing these two world views.
The problem that both world views are trying to solve is how to create and share more with more people while reducing destruction of the biosphere… and, without engendering push back from entrenched interests, in a way that most people can understand!
To do this we need to see money for what it is: a tool to direct the allocation of resources. What gets done depends on how we spend our money. The outcome is a combination of our individual and collective choices.
Money is nothing more than ‘information’.
It simply records the value that one person (the seller) gives (in the form of goods or services) to another (the buyer), who hands over the money as the ‘record of the value’ they have received.
The money then gives the seller the right to take out of the community (that accepts the money) the same value they provided to the buyer.
It enables performance of a basic principle that (all else being equal) you should be able to take out what you put in (not more or less).
For this to work, a few things need to occur.
The form of the record must be difficult (ideally impossible) to counterfeit and be immune from loss, destruction or theft, and it ought to cost zero to produce or exchange, and should not be subject to inflation or deflation! It should also only be given ‘for value’ — or equally to everyone.
Modern paper (plastic) notes make reasonable money, but are still cumbersome and can be readily stolen, while inflation and deflation remain major risks.
Emerging eMoney will be very close to the ideal, when combined with new ways to create and destroy money (to keep the supply balanced to the needs of the community, restraining both inflation and deflation). Bitcoin and its ilk is NOT it!
It also requires a mechanism to determine ‘fair value’.
This is best set in ‘a market’, where there is a large number of buyers and sellers competing to buy and sell similar goods or services, where all have the same knowledge and power, with full awareness of the social/environmental consequences of their actions, such that all parties act in good faith! This applies as much to the buyer as to the seller.
In such a case, no seller will sell for more than a competitor (else no one will buy from them), nor will one buyer pay more than any other. This sets the ‘fair value’ of the trade (the market price). Sellers who cannot make a profit at the ‘market price’ go out of business, ensuring our resources are allocated to the most efficient producers.
Profit in this case is just the value added by the seller (over and above the cost of inputs). It represents the value of their work in organizing the materials, people, equipment, facilities, processes and money to create and deliver the required good or service where and when it is needed. This is as true for a corporation, as for an individual seller.
Of course, there is no such thing as a ‘perfect market’. Far from it.
To counter ‘market imperfections’ we require good governance that sets and enforces regulations designed to protect the common good, as well as to limit anti-social behaviour, by setting and enforcing the ground rules for all market participants. So, for example, you cannot sell adulterated food (as was the case before food safety laws were enacted), or you cannot pollute the air or water, or defraud buyers, or engage in anti-competitive behaviour, etc.
Balance is the key.
Unfortunately, the libertarian mindset often fails to see that every right brings with it restrictions and responsibilities. My right to make noise when and where I want, at whatever level I want, is constrained by your right to peace and quite. In balancing these rights, my right to make noise is often restricted to certain volumes in certain places at certain times, placing on me a responsibility not to make noise outside those bounds. And a responsibility on others to accept my noise within those bounds, restricting their right to quiet. Among other things, this ‘balancing of rights’ is what ‘society’ means.
Ideally, these rights, restrictions and responsibilities should simply flow from the values we imbue our children with.
Unfortunately, such enlightenment is hard won. It may yet be centuries before the whole of humanity evolves to see the worth of both society and the individual, and gets the balance right. In the meantime, we need government to enact laws, and police and courts to enforce them, on our behalf. To make this as easy as possible, our laws should be written so they can be known and understood by the average person.
This is hardly the case today. Sadly, the law has been subverted by those whose rights we seek to restrain. How we get back to a simpler set of rules is a major challenge, beyond the scope of this comment. ‘Thou shalt not steal’ is a good start, with a jury of peers appointed to determine the facts: what did you do, and would it be regarded as theft? If yes… you suffer the consequences.
However, we also need to recognise that everyone is driven by chance of birth and circumstance that determine our fate in large measure. One way to level the playing field, is to provide everyone with a good education and a basic standard of living, in the process improving mental and physical health, while reducing crime. The problem is how to do this without destroying the incentive to work.
Before looking at any possible solution, we need to understand the cause of the problem.
I believe that the failure of the capitalist system is in the failure of most people to understand money. How it is created and destroyed, and its dual roles in the economy.
Money has two roles:
First, money signals the value provided by the seller to the buyer. Capitalists seem to think only of this side of the coin.
Secondly, money is the means by which people signal their needs to the market.
Without money, a person’s needs are invisible to the market, so the market can never respond.
Few capitalists seem to understand this role. Nor do they understand that money flows up much faster than it trickles down! Regardless of how ‘new money’ is first allocated; over time, it inevitably flows into the hands of higher paid executives, owners and investors in the form of increased salaries, interest, rent and profit as the new money flows through the economy.
On the other hand, the socialist seems to forget that the money earned, whether as wages or profit (barring fraud and other unconscionable conduct) represents value added through work or investment. If I have added value and not consumed it (by spending what I have earned), then I am a net contributor to the wealth of society.
All else being equal (which it never is), and assuming ‘fair trading’ (which is often not the case), the more wealth I have, the greater the benefits to society I must have delivered and not consumed for my own use!
When considering access to all the goods and services available, use is much more important than ownership
If you look across the whole of society, at all our houses and office buildings, shops, warehouses and infrastructure and utilities (water, energy, transport, health, education, etc); clothes, cars and other devices; and all the services we collectively provide to each other, you will see that these are used by the majority of the people who work to provide them.
On the other hand, if you add up the steel and concrete and other materials and people employed in providing goods and services used by rich (their houses, cars and yachts, etc.), they are a very very small proportion of the total.
Even a mansion may be used by future owners, as it is not ‘consumed’ through use, so to that extent it remains a ‘community’ resource.
In measuring wealth, what is also forgotten is that most of the wealth of the rich is in the businesses that they own (directly or indirectly) which collectively provide our goods and services.
If a business earns a profit from, say, providing good quality low priced shoes, the benefit of the shoes goes to the buyer. The business just gets some money (information) that represents the value its has added by transforming raw materials into shoes. This value added is called ‘profit’.
If the owner goes on banking the profit, they have the potential to take out the value they have created, but while they don’t spend it, they are simply creating value (in the form of new shoes) and not consuming anything. The increase in their wealth (measured in money) represents value they have provided to their customers!
If the rich begin to consume resources, their wealth goes down.
If they invest their money, they are helping others create more goods and services for the community and should rightly be entitled to a share of the extra wealth.
Investing in securities is largely irrelevant in this context. If the businesses are owned by a small group of people, whether the amount recorded as the ‘share value’ is one billion dollars, or one hundred billion, it make no difference to the rest of us. If the shares are sold, all that happens is one person had money and another shares, and after the sale the reverse is true. It has zero impact on the economy… though those trading in the ‘financial economy’ would like you to think otherwise :)
Barring inheritance, gifts, crime and gambling, a person can only spend more than they help to create (through work or investment) if they borrow. However, every loan has to be repaid out of future work or investment. Once the loan has been repaid, the borrower will have put back in the same value they took out when they spent the proceeds of the loan.
As for inheritance and gifts, if you have created and not consumed value, why should you not be allowed to pass that ‘unconsumed value’ to your descendants?
Of course, everyone ought to share some of the value they help to create with those who are unable to participate in the production process: the young, old, incapacitated and those who care for them without pay, as well as those without the skills required by the market.
If everyone is paid their gross incomes (that represent the value they have added by creating new resources), then we could take tax out at the time the money is spent to consume resources (regardless of what it is spent on).
Those who work to produce resources would be entitled to a refund of all the tax they pay, so only the end consumer pays tax. As no business would pay tax, it would have no incentive to structure its operations to avoid tax.
With a flat rate of tax, the more you spend, the more tax you will pay.
If money is spent off shore it does not matter as the person spending will have created value but not consumed it within their home country. If other countries adopt the same system, the person spending overseas will then pay tax overseas.
To avoid double taxation on assets, the lesser of the tax paid on the original purchase, and the tax rate times the sales proceeds, could be refunded upon resale. No one could avoid tax, because as soon as you went to spend the proceeds of sale (plus tax refund), the tax would again be paid as the money was withdrawn to spend. With electronic money this is becoming much easier to administer, and could in fact be done by the banks at very little cost. And, because tax would be paid at the same rate on all spending it would cease to be a factor in decision-making.
While wealth builds wealth, if the rich invest unwisely (so that instead of adding value, their investment destroys value) — they are the loser! It is this aspect of ‘the market’ that helps to ensure our resources are allocated to their ‘highest and best use’. No one has to understand the whole economy. Each business only has to understand their own customers needs.
Rather than begrudging wealth, we should celebrate it as a measure of accumulated value added…
As long as we move ever closer to the ‘ideal market’ constrained by appropriate rules of behaviour, with those at the bottom having the means (money) to express their basic needs and the opportunity to do better… without destroying their incentive to do the work needed to provide the goods and services we all require. All this without destroying the planet (less population would be a big help)!
The trouble is not with the ideal of ‘capitalism’ or with ‘the market’. It is with the money system that creates and allocates money, and with governance.
We simply need to regulate and enforce compliance to ensure that antisocial activities are kept in check, to protect the environment and to prevent exploitation.
It means recovering control of our governments that seem to have become captive to sectional interests. But that too is another topic!
With all that in mind, there is a way to ensure everyone is provided with a basic standard of living, without taking anything from anyone else, while keeping inflation in check, and ensuring everyone retains the incentive to work to make the goods and services we need.
It is the ‘Market-based Universal Basic Income’ (MUBI). As explained here, the MUBI can be funded from ‘new money’ issued by the Central Bank in keeping with its twin aims: to keep both inflation and unemployment low.
The combined effect of the flat amount MUBI and flat % tax on all spending is ‘progressive’.
Which is to say, the combination of the MUBI and flat % tax would put proportionally more of the ‘new money’ into the hands of the lower paid — which is what we want — even though everyone is treated the same.
Not only does it set a floor for well-being, it also helps to recognise that at least 50% of valuable human activity takes place outside the ‘paid economy’, including care of family and community activities, as well as ‘play’.
The MUBI does not take anything from anyone else. Instead, by putting new money into the hands of those who have less than (or none of) the money required to signal their basic needs, the MUBI (as it is spent) redirects businesses to satisfy a whole new set of customers that are currently invisible to them. This boosts business, tax revenue and well-being. And, as long as the new money is issued by the Central Bank in keeping with its inflation target, it can be done without causing inflation.
The MUBI is necessary, but not sufficient, to ensure long term human well-being. Ultimately, our well-being is dependent on the health of the bio-sphere. Protecting it also requires much stronger regulation to ensure the additional goods and services are not at the expense of the bio-sphere (but that is another topic).
You can read about the MUBI here.
