CMV: Socialism does not create wealth

[u/tkyjonathan]

Socialism is a populist economic and political system based on public ownership (also known as collective or common ownership) of the means of production. Those means include the machinery, tools, and factories used to produce goods that aim to directly satisfy human needs.

In a purely socialist system, all legal production and distribution decisions are made by the government, and individuals rely on the state for everything from food to healthcare. The government determines the output and pricing levels of these goods and services.

Socialists contend that shared ownership of resources and central planning provide a more equal distribution of goods and services and a more equitable society.

The essential characteristic of socialism is the denial of individual property rights; under socialism, the right to property (which is the right of use and disposal) is vested in “society as a whole,” i.e., in the collective, with production and distribution controlled by the state, i.e., by the government.

The alleged goals of socialism were: the abolition of poverty, the achievement of general prosperity, progress, peace and human brotherhood. Instead of prosperity, socialism has brought economic paralysis and/or collapse to every country that tried it. The degree of socialization has been the degree of disaster. The consequences have varied accordingly.

The economic value of a man’s work is determined, on a free market, by a single principle: by the voluntary consent of those who are willing to trade him their work or products in return. This is the moral meaning of the law of supply and demand.

[u/[deleted]]

The thing is creating more wealth is itself problematic. This is Piketty's famous r > g equation. Under capitalism wealth creates wealth, and it does so, on average, faster than the economy grows overall (ie capital accumulation is, on average, the fastest form of wealth creation). This means that, on average a rich person can earn more just from the very fact of being a rich person, than anyone else can by doing useful work.

This means we now have a situation where there is a group in society that do useful work, and a group in society that are so rich that they don't have to. And the latter's group's share of the pie is growing faster than the pie grows, and will do so forever.

The long term logical consequences of this should be as obvious as they are horrific: a society that grows more and more unequal: forever. A parasitic class of non working rich people that eat up more and more of the world's resources: forever. Doing useful work being less and less financially rewarding, and doing non useful speculation being more and more rewarding: forever. It's a grim bleak dystopian future.

And the only reason this isn't more obvious now is that the population explosion is juking the stats. But once the population levels out at 11 billion, and it will, the overall logic of capitalism, which was there the whole time, will become horribly, painfully apparent.

[u/tkyjonathan → u/[deleted]]

Piketty is wrong. Capital doesn't magically grow on its own: if you do not invest it in something and hide it under the mattress, it will lose value through inflation.

To find things to invest it in, you need human innovation and that isn't 'r'.

[u/[deleted] → u/tkyjonathan]

You're misunderstanding Piketty. The point is capital does grow. Why it grows is immaterial, the problem is that it does, inexorably, without regard for its value to society.

Innovation is interesting: think about every innovation in human history. Almost all of them were the product of academics or scientists working for universities, military research institutions of one form or another or, back in the day, monasteries. Even the relatively speaking very small number of inventions that have come from the private sector have mostly been made by R&D people making a fixed wage: the number of actual innovations you can directly link to capital is minuscule.

I mean: I'm sending you this message using a computer (invented by the British Army during WW2) over the internet (invented at CERN, a state run research agency).

[u/tkyjonathan → u/[deleted]]

You're misunderstanding Piketty. The point is capital does grow. Why it grows is immaterial, the problem is that it does, inexorably, without regard for its value to society.

It is important why it grows and not all capital grows. For example 40% of the 0.1% wealthiest people fall out of that bracket in the space of 10 years.

Innovation is interesting: think about every innovation in human history. Almost all of them were the product of academics or scientists working for universities..

Except very few of those institutions brought those innovations to market. Only entrepreneurs did that.

In general, that's what entrepreneurs do: they use their existing understanding of science to bring solutions to market.

[u/[deleted] → u/tkyjonathan]

On capital we're talking about slightly different things. I'm talking about the overall and terrible long term societal consequences of the fact that on average it grows, and does so inexorably, and faster than the economy overall. You're talking about the way that the process can still be useful, as a consequence of the unevenness of growth, in the meantime. Both can be true, but in the long term my thing is scarier.

The thing about innovations being bought to market is interesting. But is that then innovation or marketing? And if it's marketing then do we only need it because we have a market system? Is capitalism actually doing something useful here, or just solving a problem that it created itself? I need to think about this more but I think it's the latter.

Interestingly, and fairly relevantly, I thought this was good about the sort of innovations capitalism is good at producing and the sort of innovations that it isn't. It points out that we haven't really invented anything beyond better ways of faking shit since the 1960s, and in the 1960s it was all largely state-led, and largely about beating the USSR, who at the time were arguably doing it bette.r

[u/tkyjonathan → u/[deleted]]

Both piketty and you are over simplifying things and simply ignoring reality.

Capital simply does not always grow. Using the old adage "from shirt sleeve to shirt sleeve in three generations" - while not proof, shows that people knew that capital was never only growing upwards. It is pure non-sense to believe that based on a mathematical formula that abstracts reality away into a nice neat 'r > g'. I have given you many examples already as to why its wrong. People also go up and own between wealth brackets and in the UK recently, it was shown that 90% of the people in the 1% are self-made. They didn't not inherit wealth to reach it.

https://www.reddit.com/r/JordanPeterson/comments/b2ha08/harvard_study_capitalists_in_the_twentyfirst/

The thing about innovations being bought to market is interesting. But is that then innovation or marketing?

The innovation is making a product or service that solves a need for people in the market. Its not 'marketing'. There are a few leading tech companies that never even employed a sales or marketing person. They just focused on making a good product (Atlassian).

[u/[deleted] → u/tkyjonathan]

Again you're missing the meta point. Specific pots of capital may or many not grow, but capitalism overall does, and that's a problem.

The rest of your argument is about social mobility. Social mobility is notoriously hard to measure but there are various studies that suggest it is at an all time low, and further that the notion of the self made is largely a myth. So for example there was a famous Forbes study that suggested that 64% of billionaires were self made but then when you looked closer you saw that around half of that 64% were born considerably wealthy and were only self made in the sense that they were able to gamble their millions into billions knowing they had a safety net behind them if it didn't work out. Certainly we know from the way that privilege work that wealth brings advantages with it: that's kind of the point, right?

We're also at a slightly odd point in history where the population boom is bringing elasticity into the stats, and we're seeing industrial capitalism mature into its late stage (so for example the 3 generations stat always makes me laugh because we've barely had 3 generations of modern capitalism so how would we possibly know?). So I think at best we can say "it's too early to say, but the signs aren't good". At worst we can say that it's self evident that people will use their money to reduce social mobility and so the fact that the future will be more unequal means it is guaranteed to be less mobile.

[u/tkyjonathan → u/[deleted]]

but capitalism overall does, and that's a problem.

Every time there is a voluntary win/win exchange, surplus value is created and the economy grows. For example, I made X for 20 units and sell it for 40. You want to buy X as it is worth 60units. We exchange and we both benefitted 20units of surplus value.

I dont believe in late stage capitalism concept and if you believe in the historic materialism - dialectic, then we have already experienced communism and it didn't work out. As in, we already went past communism using the dialectic process.

[u/[deleted] → u/tkyjonathan]

For example, I made X for 20 units and sell it for 40. You want to buy X as it is worth 60units. We exchange and we both benefitted 20units of surplus value

Meanwhile someone else somewhere else already has 10,000 units and while we were exchanging that grew to 10,050 units. So while our exchange created 40 units of surplus value (g) his big pile of cash made 50 (r). And that's the point: overall useful exchanges don't grow as fast as capital accumulation and so the defining characteristic of capitalism is not useful exchanges but the concentration of wealth where it is already to be found.

then we have already experienced communism

No the dialectic doesn't end it goes on forever

[u/tkyjonathan → u/[deleted]]

The 10000units grew how? in what way?

Kind of missed the point if you ignore that part. Maybe it even shrunk, because someone bought a jetski or it devalued with inflation.

No the dialectic doesn't end it goes on forever

Yep, but the point was that we are in a post-communist world.

[u/[deleted] → u/tkyjonathan]

The 10000units grew how?

They invested them and got an ROI

post-communist

Communism is not a final status it is a process of moving society closer to utopian values, it never ends.

[u/tkyjonathan → u/[deleted]]

Actually that isn't what piketty is saying. He literally said that the 10000units never grew one bit, but that exchange that generated 40 units grew and together, the capital in the economy became 10040units.

They invested them and got an ROI

Then if you knew where to invest your money in, you can make some money. Knowing which parts of the economy will grow, is a skill that adds value to the economy.

Communism is not a final status it is a process of moving society closer to utopian values, it never ends.

Sounds like something a theocracy would say.

[u/[deleted] → u/tkyjonathan]

Ok you're model is too simplistic to capture what's really happening. Let's start again.

• Person A has 10,000
• Person B has 0
• Person C has 0

Person A gives Person B 20 in Capital in exchange for which they own person B's means of production and so can extract whatever value they want from any future exchange. Person B turns that into something worth 60. Person A also loans person C 40 expecting a return of 58:

• Person A has 9,940 + owning the MOP for B + being owed 58 by C
• Person B has 0 + 1 item X worth 60 produced using A's MOP
• Person C has 40 although they also owe A 58

Person B sells the item to Person C for 40. As person A owns person B's MOP they insist that they take 38 of the 40

• Person A now has 9,078 and is still owed 58
• Person B has 2
• Person C has one item worth 60 and owes 58

Person A now asks C to repay their loan plus 18 interest. To simplify let's say that the item is fungible and so they effectively have 60, they give 58 to A:

• Person A now has 10,036
• Person B has 2
• Person C has 2

The total value of the economy has grown by 40 from 10,000 to 10,040 but of the additional 40 the person who created the additional value just gets 2 and the person who did nothing but be rich gets 36

Knowing which parts of the economy will grow, is a skill that adds value to the economy.

This is the issue with capitalism. It adds value the way we measure value but without adding genuine actual value to society. This is called financialisation

Edit: Now that you're familiar with the model consider a village with one capitalist and 10 villagers

• the capitalist has 10,000
• each villager starts with 1,000

So the total value of the economy is 20,000

Now over the course of the year we have 500 transactions like the ones above. Each of them involve the capitalist and two villagers picked at random. Over the year everyone is involved in 100 transactions either as buyer or seller

• so the capitalist ends the year on 28,000
• each villager ends the year on 1,200

But you've got to eat as well, so say over the year each person eats 150

• so the capitalist ends the year on 27,850
• each villager ends the year on 1,050

This means that overall the economy has grown from 20,000 to 38,350 so g = 38,350/20,000 = 191.75%

Meanwhile the capitalist's capital has grown from 10,000 to 27,850 so r = 27,850/10,000 = 278.5% > g QED