Tuesday, April 21, 2015

Sustainable Economic Systems, Capitalism, Socialism, and Constraints Imposed by Empire

This post is primarily about socialism, capitalism, the means of production, and the constraints imposed by empire. I'll split this post into six sections:
1. Introduction.
2. Capitalism
3. Socialism
4. Constraints Imposed on the Means of Production by Empire and Warfare
5. Why Do Countries with Peacetime Capitalist Structures Generally Win Wars?
6. Conclusion

1. Introduction:
Among socialists, leftists, and statists there's a common idea thrown out which says that the basic idea and structure of capitalism is based for warfare while socialism is what we need to work towards as a more sustainable way that's less likely to lead to war. As regular readers of my blog know, we shouldn't take socialists, leftists and statists seriously as they almost always just spew nonsense. This case is no different.

A typical leftist, socialist, or statist would argue, how can anyone say that socialism is better suited for war when capitalism is all about "exploitation by the bourgeoisie" or "the lower classes are being oppressed" or "it's the upper classes that start/want war"? Of course, these people have simply shown the inability to think clearly by making such statements while adding nothing of value to the discussion. However, I'm gonna throw aside such nonsense arguments as they add no value and instead start by talking about the primary differences between the way capitalist and socialist economic structures operate.

Let's start by focusing on empire and the constraints imposed by empire. These constraints are the fundamental reason why truly capitalist economies, if their organizational structure remains completely unchanged, are completely incompetent and cannot survive in warfare. During wartime, capitalist economic structures are forced to give way so that the means of production can be directed to where they need to go as dictated by geopolitical constraints. 

2. Capitalism:
First, I'll start off by defining capitalism. Capitalism is a system of economic organization built on the private ownership of the means of production as a means to accumulate capital, which is any input that's not land (natural resources) or labor. As I've discussed in my post on the basics/dynamics of real wealth creation, an economy is like an ecosystem with inputs and outputs with outputs paying for inputs. The laws of thermodynamics tell us that you can't create something from nothing, so the only sustainable way to increase output is by increasing the use of natural resources, labor, or capital (which is, by definition, anything not land or labor).
Note: Environmental degradation, which almost always accompanies the extraction of natural resources, destroys capital, but natural resources are necessary for production.
Note: All natural resources can be extracted in different ways and most have substitutes. For example, the use of oil or natural gas can be substituted with coal or firewood/biomass. The only natural resource I can think of with no substitutes is water, which is usually far more limiting in terms of food production than land.

Therefore, the entire idea of accumulating capital is inherently sustainable. Not only is it inherently sustainable, but the idea of capital accumulation is the ONLY sustainable economic system over any sustained period of time. Increasing doesn't enhance living standards as people are simply working more to produce more. Increasing the use of pure natural resources is actually destructive, forces future generations to bear the costs, and can actually destroy capital because it forces costs onto future generations. Therefore, THE ONLY SUSTAINABLE ECONOMIC SYSTEM IS ONE BUILT ON CAPITAL ACCUMULATION!

3. Socialism:
Now, I'll talk about socialism. Socialism is a system of economic organization built on the social ownership of the means of production as a tool for society to use as it pleases. Again, socialism is not an economic system designed to accumulate capital, but one that allows society to use inputs as it deems best. This system--due to its lack of emphasis on the accumulation of capital and emphasis on the pleasures of society at a given time--is almost always unsustainable because the pleasures of society rarely desire a sustainable way to accumulate wealth as it takes smart work, risk-taking, volatility, and difficulty. Usually, society desires easy riches over hard-won sustainable wealth as they seem to require less work and provide more. The classic example is old-school imperialism where nations or empires would go into places to take loot. Again, many dictators, military men, and politicians have done this (and still do this) as a tool to gain the support of the populace to rise to, or maintain, power.

In other words, socialism is about controlling the means of production and the direction or use of the means of production (this comes straight from the definition) towards some common goal as society deems it. Unless the goal of society is specifically determined towards the accumulation of capital, whether knowingly or unknowingly, living standards and quality of life cannot sustainably increase under socialism.

Of course, a socialist, leftist, or statist might say that the people can determine and choose such an outcome or that a king/dictator/monarch can choose such an outcome, but I'd like to point out that this choice is rare and unlikely. Again, the accumulation of sustainable wealth (capital) is difficult and takes sacrifice. Wealth accumulation requires both prudence, temperance, and courage, which is hard to find in any large group of people. Note that I'm making an implicit assumption about human behavior that basically says prudence, temperance, and courage together are rare qualities for most people to possess. I find it naive to expect society at large will choose an organization wherein the society at large suffers what seem to be large, up-front costs for benefits that may accrue in the future with lots of toil and hardship. Keep in mind that winner-take-all benefits will dominate in the creation of wealth, which makes it even less likely for a society following a socialist model to take up.

4. Constraints Imposed on the Means of Production by Empire and Warfare:
Now that we have a basic idea on what socialism and capitalism comprise of and the underlying ethos on the organization of both economic systems, we can talk about the impact of these systems on war. War is an armed conflict between autonomous regions that are either governments or behave like governments (ex. confederation). Wars usually contain a certain objective (or they end up with nation-building and as a waste of time like the War in Iraq) with the goal of the government to achieve those objectives. Those objectives could be to seize a territory, kill a certain person, ruin a city, take natural resources, or whatever. The important point to grasp is that whatever the objective or goal, the means of production must be directed toward that goal.

For example, at least some of a country's manufacturing capacity must be directed towards the procurement of arms. Real resources used in elsewhere in the economy must be redirected towards other ends. Infrastructure must be built and maintained in order to secure the transport of various goods or services critical to fight the war, regardless of the impact of infrastructure on productive capacity. Supply lines for troops must be protected. Certain classes of society must be used towards goals as deemed by the constraints of war (ex. nurses and doctors must be transferred towards taking care of soldiers). Capital must immediately be redirected towards the financing and operation of warfare.

Basically, the constraints imposed by warfare implies that resources must be redirected towards some other alternative goal or desire than those of private wishes. Capitalism, as I've described it, becomes very difficult for a society to use in warfare simply because of its structure and design. Capitalism is the private ownership of the means of production towards the accumulation of capital, but the accumulation of capital is useless during warfare. The goal of warfare is victory and the goals of the war for a government is whatever that victory requires.

In socialism, the means of production can be redirected at will towards whatever goal society deems necessary. If a society suddenly goes to war, the very design of the economic mode of organization provided by socialism makes it very easy to shift economic inputs toward warfare. It's in the nature and design of the system.

5. Why do Countries with Peacetime Capitalist Structures Usually Win Wars?
After reading until here, a socialist, leftist, or statist would often respond with a statement like, if socialism is better fit for warfare, why do capitalist economies perform better in warfare? That must mean that socialist economies cannot be designed for war. On the surface, such statement would seem to make sense, but capitalist economies are forced to shift their economic mode of organization in wartime when certain geopolitical constraints are present. In other words, capitalist economies basically turn socialist (or at least partially socialist) in times of war by constraints imposed on political systems.

Also keep in mind that capitalist systems, due to the emphasis on the accumulation of capital, tend to have higher levels of productivity, more wealth, better technology, and are more sustainable than socialist systems (as discussed above). This is why when capitalist societies do shift their economies towards war time, they often times overwhelm the other side given that they can fully transition to a wartime state given that they've secured key natural resources and supply lines (ex. US in World War I and World War II).

As ironic as it may seem, peacetime capitalist economic structures have won more wars and are more capable of winning wars not because they're built for warfare, but because they're built towards sustainable wealth creation. In warfare, all economies are, at least partially, socialist. However, war drains economic inputs that could be used elsewhere that end up being directed toward destruction and control. Increasing or diverting production towards goods and services purely designed to destroy other things is not a productive use of resources. It's just that peacetime capitalist structures just have a much large source of resources and inputs that can be wasted or put towards unproductive causes, which is why they tend to win wars.
Note: I'm assuming all else is equal when comparing capitalist and socialist economic structures during wartime. Of course, all else is never equal.

6. Conclusion:
Controlling the direction of labor, nationalizing entire industries, shifting natural resources to certain areas at certain times for certain goals, large and sudden increases in manufacturing capacity, the construction of large-scale infrastructure at will for whatever purpose, increases of certain kinds of production at certain times, control of certain lanes to supply certain groups in certain places, and other things of this sort for the "desire of society" is socialist, but it's also necessary for warfare.

Suppose we have a firm in a capitalist providing a service for, say, providing underlying technology infrastructure for other businesses or individuals. Taking control of the firm to direct the firm's assets, its workers, and its capital toward a societal goal is socialist, but that's exactly what happens in war. Profit and capital accumulation become secondaries to the common goal of victory in wartime. Capitalism, by itself, has no mechanism of organizing itself for warfare when necessary.

In essence, the idea that capitalism is suited for warfare is wrong. Capitalism is not built for war and cannot function in wartime while still maintaining its underlying structure. Socialism has a much better design for warfare than capitalism, which is why peacetime capitalist structures are forced to morph under the guidance of political systems when geopolitical constraints become imposed on the society in question.


  1. Suvy: here's my problem; I'm in a back-and-forth with DvD on Pettis' blog; I sent a reply but it didnt print; now, when I re-enter, Wordpress tells me "you have already sent this comment;" very annoying; I'd like to sent to you and you forward.

    1. Try changing the account. The same thing happens to me (on other blogs) as well.

    2. You can email me the comment if you'd like. My email is suvy.boy1@gmail.com

  2. Here's your comment Dan Berg:
    "DvD and Csteven: Let’s try this again, because I think the central point of our disagreement is important. In para. 3: “this capacity of central banks to create domestic currency against foreign-exchange reserves . . .” I’m arguing that this is NOT the case. You correctly point out that China increased “new loans” by 180%. Zimbabwe increased “new loans” by much more than that with zero US dollar reserves. How? Banks create domestic currency loans with or without US dollar reserves.
    Ref. interest rates you are correct; should have read 1 year, which have been 0 (approx) since 2008; source: FRED, stlouisfed.org"

  3. thanks; but my mistake; I wanted you to sent the comment into PETTIS" blog;

  4. thank you; I again tried to comment on DvD' latest confusion but again was unsuccessful. I'll try changing the account. Very annoying; I sent them an e mail; no response

  5. thank you; I again tried to comment on DvD' latest confusion but again was unsuccessful. I'll try changing the account. Very annoying; I sent them an e mail; no response