How to build a pragmatic Communism that works intelligently and efficiently, part 2 of 3

All economies are mixed economies

(See Part I)

Humans are messy. They have emotions, and emotions are messy. Economies are made out of humans. Therefore economies are messy. It's the transitive property of human messiness.

The same idea was expressed, with different rhetoric, by the economist Joseph Schumpeter: "The social process is truly one indivisible whole" but in defense of his profession he allowed: "However, for the sake of understanding this cycle of activity, we may draw forth from the wash of events those that are economic in nature."

All economies are mixed economies. Even when a society seems to follow one paradigm, that society will have criminals who break the rules. You could pass a law that says everyone needs to share everything, but some people would be greedy. Likewise, you could pass a law saying that everyone must be greedy, but then some people would break the law so as to help the poor.

Anyone who thinks their society follows a single paradigm is ignoring too many of the motivations that animate their fellow citizens. For instance, you might believe that "greed is good," and you may feel this is a healthy maxim for your fellow citizens to follow. But this is a self-inflicted ignorance. You'll lack any understanding of the soldier who gives their life for their country, the priest who gives his life to God, or the woman who sleeps in the chair in the hospital next to her dying father. Worst of all, when your house is burning down, and your children are trapped inside, you'll have no understanding of the firemen who run into the house and save your children. The solider, the priest, the woman, the firemen: None of them are motivated by greed, so if you decide you only understand greed, then you are deciding that there will be a great deal in life that you won't understand.

What is capitalism?

(Much of what follows summarizes from Fernand Braudel, mentioned below.)

By the late 1700s the word "capital" had acquired its modern meaning.

The word "capitalist" was created by Karl Marx in the mid 1800s.

But what about the word "capitalism?"

In the 1820s there was a French writer who used the word to refer to finance. This was an eccentric usage which did not catch on.

During the 1860s and 1870s Europeans were increasingly aware that their civilization was pulling away from all the other civilizations. Science and industrialism had given the West the power to conquer the world. Historians were increasingly interested the question of why this was happening. The word "capitalism" was then invented to refer to the odd mix of private and public interests that allowed Spain and Portugal to conquer much of the world in the 1500s: ships had gone forth that had the power to conquer territory in the name of the King, yet those ships were often financed by private interests. So were these ventures public or private? In fact, they were both.

In the English speaking world, it was only in the 1890s, with the sudden growth of interest in Socialism, that the word "capitalism" became popular, as a counterweight. And then there was a sudden change in the way the leadership of Western nations described the essential nature of those societies. For as long as she was alive, till 1901, Queen Victoria defined the British Empire as primarily being a Christian empire. As soon as she was dead it became common for the leadership in Parliament to say that Britain was, above all, an exemplar of capitalism.

Some great writers of the past have gained symbolic significance, but it is not clear that they would now agree with the arguments assigned to them. There is a modern mythology that argues that Adam Smith was in favor of capitalism, whereas Karl Marx was against it. Is that true? Both men were dead before the word "capitalism" became common, so how can we know what they thought of it?

For centuries capitalists in the West favored national strategies known as "Mercantilism." That was capitalism for centuries. Adam Smith wrote The Wealth Of Nations as an extended attack on Mercantilism. So did Adam Smith hate capitalism? He was attacking the strategy followed by the nations during the centuries that historians think of as witnessing the birth of capitalism. But if you point to The Wealth Of Nations and say "That book defines capitalism" then what would you call the system that existed for centuries before and after that book? Are you saying capitalism never really existed? Perhaps it was merely an aspirational ideal that no human society ever achieved? (There are many libertarians who make this argument: free markets have not failed us, but rather, free markets have never been tried.)

Was Karl Marx opposed to capitalism? Again, he died before the word came into widespread use, so we know little about his actual opinion. The word does not appear in any of his books. Right before his death some Italian students wrote to him and asked him his opinion about this new word, and he wrote back to suggest that the Feudal stage had been one phase of human development, and the era of the Bourgeoisie was another phase of human development, and Communism would be the next phase of human development. There was nothing in his historical schema that allowed for the word "capitalism." Capital could never be an "ism" it was simply a tool in the hands of the Bourgeoisie. Did Karl Marx hate the Bourgeoisie? Maybe, but he also saw them as historically necessary. And Marx and Engels, writing in the Communist Manifesto, wrote the most romantic paragraph that will ever be written about entrepreneurship:

The bourgeoisie cannot exist without constantly revolutionising the instruments of production, and thereby the relations of production, and with them the whole relations of society. Conservation of the old modes of production in unaltered form, was, on the contrary, the first condition of existence for all earlier industrial classes. Constant revolutionising of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones. All fixed, fast-frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into the air, all that is holy is profaned, and man is at last compelled to face with sober senses his real conditions of life, and his relations with his kind.

(Writing this summary, I'm drawing from The Perspective Of the World, by the French historian Fernand Braudel.)

The Continental tradition

Following the Continental tradition (different from Britain or America) Braudel suggested that the economies that existed in the civilizations of the world, during the centuries he covers (1500-1800) had 3 layers, that had built up over time:

1.) barter, the non-monetary economy, exchange based on personal relationships, mutual gift-giving. This part of the economy goes back thousands of years, to long before the establishment of the first civilization.

2.) the market, where money is used to exchange goods and services

3.) capitalism, the super-structure of civilizations, the world of monopoly powers, the handful of national champions, advancing across the world with the help of their nation's armies

In 1500, the non-monetary economy dominated the Earth, and the zone of money was small. Today, the only surviving remnant of the non-monetary economy are all of the tasks that are typically referred to as "women's work," in particular, child raising. This is the work that allows the human species to survive, generation to generation, yet it remains outside of all economic paradigms. It is not done for profit, nor is it a luxury (not a luxury because there is nothing superflous or excessive about it, it is literally the most essential activity if the human race is to survive).

The level here described as "the market" is full of small businesses that compete with each other. This is the world of the family business. Here too, the profit motive is only one of many incentives, and often it is not even the most important incentive (many families are willing to make huge sacrifices to keep a family business going, even when the business is not profitable).

At the top of the society is the level of capitalist enterprises, relying on their government and the armies of their nation to provide them with monopoly profits, with some of those monopoly profits going back to the government so the government can then build more powerful armies.

The importance of the 3 tiers has changed a great deal over the last 500 years, but all human societies continue to mix these 3 levels, as well as invent fractal shards of new levels, blending the basic elements in new ways, achieving novel combinations, but always a mix.

So what does the word "capitalism" mean?

Does Braudel offer a clear definition of "capitalism?" No. His use of the word is supple — almost every sentence that uses the word uses it in a different way. Asking "What is Braudel's definition of capitalism?" is like asking "What is Shakespeare's definition of love?" — the only way to find out would be to watch Shakespeare's 36 plays several times. And even then, any short definition would probably leave something out.

And this diversity of definitions is true in the general case, and I'd include all the people I've discussed economics with, over the course of decades. It would be impossible to summarize the diverse ways I've heard people use the word "capitalism."

Examples:

At one point, many years ago, I shared a large house with several housemates. One day my friend Ana came home and showed me some clothes she had bought at a thrift store. For her, capitalism meant buying new products in stores, so in her effort to avoid capitalism, she would only buy things secondhand. Still, she felt that even a thrift store was part of capitalism, because she was buying products without knowing the creator of the products. She wanted to have a personal relationship with the seamstress who had created the blouse she had acquired, and it bothered her that she never would.

At the opposite extreme, I once spoke with a man who insisted that America became a Socialist nation, especially after 1932, but it had once been a capitalist country, especially in the early and mid 1800s. I pointed out that the USA was formally a slave state during the years he most admired it. Many libertarians engage in weird word games when the issue of slavery comes up, but this man was refreshingly straightforward: he said free trade meant free trade, and that had to include everything, including people. He offered a hypothetical: imagine a man sees his children starving, but he knows he can get good money if he sells himself into slavery. Shouldn't we admire the man who sacrifices his freedom to help his children? Shouldn't the man have the right to sell himself into slavery if he wanted to?

I was grateful to him for speaking plainly, though he was openly craving a dystopia. His language was more honest than most libertarians: history teaches us that when markets are truly free, humans will be traded. Indeed, all of us have a moral obligation to fight against free markets, exactly because a truly free market will involve the buying and selling of human beings, with all the horror that entails.

Some writers have argued that capitalism is necessary for democracy. Others have argued that capitalism undercuts democracy. Some writers have suggested that any society with markets has capitalism, and therefore capitalism has surely existed for thousands of years; other writers use "capitalism" only to refer to modern economies.

Even treating the word "capitalism" as a political or economic word is relatively rare. It's more common to see it used as an aesthetic stance. Go on Twitter or Reddit and you'll find people who'll write "I hate capitalism" when they mean they hate cheap goods from China, or they hate the preference for the new over the old, or the excessive over the minimal.

My own feeling is that the word "capitalism" means nothing. A word is only useful if it lets me communicate something specific to another person. The word "blue" is only useful if other people agree with me that the sky is blue, the sea is blue with some green, the USA flag contains blue, along with white and red. If you and I agree what "blue" refers to then "blue" has some meaning. But a word that is as hotly contested as "capitalism" ends up meaning nothing at all.

Given the lack of clarity, it's best that we refer to the constituent things that might make up the word: when we mean monetary exchange, we should say that, when we mean "women's work", we should say that, if we mean options and derivatives trading, we should say that, if we mean slavery, we should say that, if we mean industrialism, we should say that. The specifics are better than the labels that have lost all meaning.

Every economy is unique to a time and place

Any economic system will have some concept of a "commons" and some concept of "private property" but both concepts have varied a great deal with time and place, and it is best to be specific. Likewise, the role of the lower classes, the upper classes, and the relations between them, are constantly in flux. Of women's work, there are generalizations that hold for thousands of years and dozens of cultures, and yet there are also many variables: do the women marry at age 13 or 23, are they educated, are they allowed to work outside of the home for money?

Labels tend to bleach the color from the actual human experience of a time and place. When using labels, one has to define exactly what one means.

When did capitalism begin?

Can we put any definite date on such a vague thing? Consider the Dutch Republic, in the late 1600s. Here is a passage (from Braudel's book) that emphasizes its free-trade ethos:

Page 206:

In short, for the Dutch, commerce was King, and in Holland commercial interests effectively replaced raison d'etat: "Commerce desires to be free", wrote Pieter de la Court in 1662.

"Gain is the sole and unique compass by which these people are guided," exclaimes La Thuillerie, the French ambassador, in a letter to Mazarin on March 31, 1648.

At about the same period, in 1644, the directors of the Dutch East India Company were energetically arguing that "the places and strongholds which the (ship) Heeren XVII captured in the East Indies should not be regarded as national conquests, but as the property of private merchants, who were entitled to sell those places to whomsoever they wished, even if it was the King Of Spain or to some other enemy of the United Provinces" (the Netherlands).

Holland's enemies, of which there was no shortage, had no difficulty in drawing up long lists of such charges, in all good conscience, as if the faults of others were somehow a proof of one's own merit. A Frenchman wrote:

In Holland, the interest of the State in matters of commerce serves that of the private individual, they go hand in hand [in other words, the state and commercial society were one and the same thing.] Commerce is absolutely free, absolutely nothing is forbidden the merchants, they have no rule to follow but that of their own interests; this is an established maxim which the State regards as a thing essential to itself. So when an indvidual seems to do, in his own commercial interests, something contrary to the State, the State turns a blind eye and pretends not to notice, as is easy to judge by what occurred in 1693 and 1694. France was short of grain, famine was widespread in the provinces. The war had reached a critical point, this appeared to be the fatal moment for France and one favourable to the allies united against her. Could there have been any greater raison d'etat than for the said Dutchmen and their allies to have contributed to France’s defeat and to have obliged her at the very least to agree to peace on terms which they would dictate? Far from providing her with grain, should they not have sought every means within their power to deprive her of it completely? They were not ignorant of this political circumstance, and they published stern prohibitions forbidding all merchants to go to France on any pretext; but did that prevent Dutch merchants from communicating with the said French merchants in order send grain to France, using Swedish and Danish vessels, or their own vessels flying the assumed flag of neutral nations, or what was even worse, their own ships flying the Dutch flag?

In Amsterdam, however, no one voiced any criticism of such attitudes, nor of the speculation and series of embezzlements typified by Isaac Le Maire's criminal activities at the end of the seventeenth century. Business was business. According to the self-appointed moralists from abroad, anything could happen in this country "which is not like any other." During the Second Anglo-Dutch War 1665-1667 the French ambassador, the Count d'Estrades, even imagined that there was "a risk of this country submitting to the English. There is a great cabal within the state with this aim." [The war interrupted trade.]

Is this a libertarian paradise? On the surface, the attitudes highlighted are the attitudes that libertarians often praise. And yet, this society continued to have large elements of Feudalism, with a rigidity in the relations between classes that most libertarians would reject as being untrue to the spirit of capitalism. It remained true that certain privileges continued to attach to the nobility, and no matter how wealthy you were, you could not buy your way into the nobility. This is only one case, but there are thousands of such examples: every time we discover acts of greed we are tempted to say we've discovered True Capitalism, but every time we scratch the surface and discover the actual human experience of the times, we find contradictions.

If every society is mixed, then what is a Communist society?

Why did I waste so many words, above, wrestling with a definition of capitalism? To defend a definition of Communism that allows for a mixed society. In particular, if the aim is to build a society where all productive resources are owned by the government, we will almost immediately run into the difficulty of abolishing the family business. Economic activity arises naturally from family units, parents build something and naturally want to leave it to their children, it is difficult to root out, and trying to root it out is inconsistent with the spirit of pragmatism which offers the only path to an intelligent and sustainable Communism.

(An aside: I've many friends who have participated in Intentional Communities and they would want me to mention them as a valid type of business, a chosen family rather than a biological family. All of which is true, some communities, such as Twin Oaks, set themselves up as businesses, producing yogurt, tofu, hammocks and more, and they've thrived for 60 years now. Everywhere I've mentioned "family" in these essays, I could have also mentioned "Intentional Community." All the same, these communities are not easy to setup, please see what we wrote in "Creating A Life Together”.)

Let's assume we don't want to live in a world of oligarchs. No more billionaires. Private, personal wealth will be limited to some reasonable number. That number might be high, but not at the level of oligarchs. Let's say $10 million, or $20 million. That's enough to own 3 nice homes, several nices cars, send all of one's children to expensive private schools, pursue any hobby a person might be into, and have substantial savings for an emergency. If $20 million doesn't seem like enough, then lets say $30 million. Or, hell, $40 million. I don't care. But let's agree there is some limit on private wealth, with a tax of 95% on anything in excess of the limit.

Could we abolish all private wealth? Yes, but there are some difficulties. Again, let's consider the problem of grocery stores (see part 1).

Small size means no profits

See “The greatest irony of market economies: they rely on firms that make no profits.”

When we say that Germany has 20,000 grocery store chains, we should keep in mind that is counting a large number of independent groceries that are run by a single family. These stores are too small to generate significant profits. In general, all they do is generate enough income for the family to have a decent life. But if you were trying to hire a professional CEO, that CEO would never be willing to work for such a small establishment, as the base pay would be too small, and the profits non-existent, and therefore the bonus promised to the CEO would also be non-existent.

Incentives matter, but money is only one of many incentives: for a family owned grocery store, the incentive is to keep the family together, happy, healthy, with a specific way of life. For the family, the goal is not money. Such small businesses would never be able to pay a professional CEO, nor could they offer large returns to the agency that invests in them. So the idea that the government could set up 20,000 grocery store chains, for a society the size of Germany, is a lie. Or it could be done, but it would involve setting up the kind of large government bureaucracy that would waste resources. There is something fundamentally awkward about having something as big as the government dealing with something as small as these microscopic family run businesses. A pragmatic Communism reproduces itself, generation to generation, without having to rely on government subsidies.

To put this differently: if we have a society where everything is owned by the government, and there are no government subsidies, so every government venture has to create substantial returns for the agencies that invested in it, then you won’t get 20,000 grocery store chains for a society the size of Germany. You’d be lucky to get 100. You’d be in the world of large scale ventures generation substantial profits. So you would have less competition, so consumers would pay higher prices for less quality. There are only two ways you can have 20,000 grocery store chains:

1.) if you allow family-owned businesses

2.) if you’re willing to have a government agency subsidize marginal chains that never generate a profit

The first options means you have a mixed economy, the second option means you have a pure economy, but it is not very pragmatic. All the old questions come up: where does the money come from to subsidize this sector? And why subsidize grocery stores, rather than, say, steel mills or tech startups? If you subsidize everything then eventually the economy will be stagnant.

(Of course, I acknowledge, every human society subsidizes something. For reasons that may or may not be rational, all Western nations have subsidized their agricultural sector, while allowing other important industries (steel, ship building, textiles) to migrate to Asia. Was this smart? I suppose time will tell. So if you think you have a good reason to subsidize some particular industry, go for it. But be careful. This is one of the major ways countries get into trouble.)

Of course, such small, barely profitable businesses are not worth much, and therefore, if people are allowed to have a small amount of personal wealth, then such small businesses could be privately held. As I said above:

"Private, personal wealth will be limited to some reasonable number. Let's say $10 or $20 million... If $20 million doesn't seem like enough, then lets say $30 million. Or, hell, $50 million."

In the USA today, if you were running a family owned grocery store, it would probably be worth something between $0 to $5 million. The amount would easily be inside the limits we discussed for private property.

Is it possible to build a True Communism in which nothing is privately owned? A True Communism in which all the forces of production are owned by the government? Difficult. Very difficult. The informal economy will always be with us, even one thousand years from now. The informal economy will be with us for as long as Homo Sapiens are Homo Sapiens.

Can the entire formal economy be owned by the government? Sure. That's just a matter of engineering. But, as Braudel said, there will always be lower levels to any economy, and the lower levels cannot easily be run in the formal manner that is implied by government ownership.

So if we want to set up a pragmatic Communism, a Communism that would be intelligent and efficient and liberal and free, then we would have to accept that all economies are mixed economies, and even if we can re-design the top level of the economy as a kind of Communism, we would have to accept that the lower levels of the economy would continue to be made of private actors, the same as happens now.

And again, you might reasonably ask why should we want to do this? Why should we want to go to such extreme efforts merely to re-create much of what we already have? The answer: to eliminate vast concentrations of wealth in private hands. Full stop. That is, I believe, the only good that can come of Communism. There would be no more oligarchs, no more Bill Gates or Steve Jobs or Elon Musk or Jeff Bezos, no individual who concentrates in their hands enormous amounts of private property.

But the new system can probably only work if it continues to rest on lower levels that remain unchanged, in particular, the family business.

Read part 3 of 3.

(If you enjoyed reading this essay, you might also enjoy reading my book, How To Destroy A Tech Startup In Three Easy Steps.)