Communism, Karl Marx, Marxism, Surplus Labor and the Labor theory of Value

Posted by PITHOCRATES - August 20th, 2013

History 101

(Originally published December 13, 2011)

Some would call Putting Profits before People Heaven if they had Lived in the Caring Hell of Communism

No ideology killed more people than communism.  In total numbers.  Such as Joseph Stalin in the Soviet Union.  Or Mao Tse-tung in the People’s Republic of China.  Or as a percentage of population.  Where Pol Pot’s Cambodian genocide holds this honor alone.  These communist leaders killed their people directly for political purposes.  Or starved them to death because of agrarian reforms that produced famines.  All in the name of freeing their people from the horrors of capitalism.

Heaven and hell.  That’s how a defector who escaped communism and made it to capitalism would describe what it’s like to live under each system.  Capitalism would be heaven.  And communism would be hell.  The problem with communism was that it didn’t work.  Economically.  People lived in want of the basic staples of life.  And often went hungry.  When they didn’t starve to death by yet another famine.  And if they complained or spoke out against the system they risked torture.  Or they simply just disappeared.  Banished to a work camp.  A reeducation camp.  Or killed.  So it’s no surprise that people trapped in these countries tried to escape.  Which is why communist states were oppressive police states.  To prevent people from escaping their horrible lives.

And yet to this day some people still hold up communism as the ideal socioeconomic system.  The one that cares about the people.  The one that puts people before profits.  Unlike capitalism.  Which puts profits before people.  Of course some would call putting profits before people heaven.  Especially if they had lived in the caring hell of communism.

Communism as an Economic System is an Utter and Abject Failure

Those who champion communism don’t blame the ideology.  They say it’s the people.  The few who use the ideology for personal gain.  And by few they mean basically everyone.  But if everyone is doing it it’s not the people.  It’s the ideology.  And it goes back to its utter and abject failure as an economic system.

Communism goes back to Karl Marx.  The guy that coauthored the Communist Manifesto in 1848.  And from which we get the terms Marxism.  And Marxist.  To describe varying forms of communism.  And communists.  He’s the guy who said that capitalism exploited the working man.  Those with money (capital) who owned factories, the industrial bourgeoisie, charged more for their goods than they paid their workers to make those goods.  Because Marx believed the value of any good was the labor that made it (the labor theory of value), this excess value (profit) was a labor surplus.  And belonged to the worker.  So he encouraged class conflict.  For the proletariat (the working class) to rise up and take over the means of production from those who owned it.  These middle class capitalists.  The industrial bourgeoisie.  And establish a dictatorship of the proletariat.  So the bourgeois capitalist pig-dogs couldn’t exploit the proletariat any more.  And everyone would then live happily ever after.

But no one ever did.  Like in capitalism.  Where happiness abounds.  Because, in capitalism, the market determines prices.  Not some bureaucrat counting up labor inputs through the manufacturing process.  From the mining of resources.  To the final assembly.  Which can make things very expensive.  And, worse, unwanted by the people.  Because when the market sets the price and assigns value, the market tells people what to make.  Normally when something is a hot seller it tells manufacturers to make more of it.  To cash in on those high prices.  So they do.  And people tend to buy this surge in products.  But when the market isn’t setting the price and assigning value, the market can’t tell people what to make.  So a bureaucrat must.  Which is what happens in communism.  Bureaucrats decide everything.  From what to make.  To the allocation of resources.  To the selling price.  And the things they decide to make are rarely what the people want.  Explaining why stores in communist countries were full of stuff no one wanted to buy.  And why people had to stand hours in line to get the things they did.  Or paid more on the black market.  Which is why communism as an economic system is an utter and abject failure.  And why people wanted to escape it.  Their only obstacle being that brutal and oppressive police state.  Which was necessary because if everyone left that wanted to the communist leaders wouldn’t have anyone to provide for them.

There are no Such Things as Market Failures under Capitalism

Communism was one of the worst man-made tragedies to ever befall man.  Karl Marx was wrong.  And his asinine theories killed tens of millions of people.  People enjoy life and prosper under capitalism.  Under communism they set records for genocide.  Why?  Because the communist economic model is an utter and abject failure.

The struggle between communism and capitalism was an economic one.  And pitted the market against bureaucrats who thought they were smarter than the market.  But it turned out they weren’t.  Not by a long shot.  And despite this history people are constantly talking about market failures and the evils of capitalism.  Much like Joseph Stalin, Mao Tse-tung and Pol Pot.  But for them it was never about the economics.  It was about the power.  Much like it is today.  Because there are no such things as market failures under capitalism.  It’s the bureaucrats who fail.  Not the markets.  At least, based on all recorded history.

Markets fail only when they aren’t free.  They fail when bureaucrats insert themselves into the economic process.  Via regulatory policy.  Or high taxes.  When they try to shape market forces to a political end.  And when they do it is capitalism no more.  It’s crony capitalism.  Or worse.

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The Left still attacks Free Market Capitalism and the Invisible Hand despite the Left’s Record of Economic Failure

Posted by PITHOCRATES - April 14th, 2012

Week in Review

No matter how many times their policies fail those on the left never give up.  The free market capitalism that gave us the Industrial Revolution was not as good as the mercantilism it replaced.  The free market capitalism that won World War II was not as good as Nazi Germany’s National Socialism.  The free market capitalism that won the Cold War was not as good as the Soviet Union’s communism.   No, any economic system that doesn’t place smart people in the government (and from our most prestigious universities) in charge is an inferior economic system.  At least, according to those on the Left (see There Is No Invisible Hand by Jonathan Schlefer posted 4/10/2012 on the Harvard Business Review).

One of the best-kept secrets in economics is that there is no case for the invisible hand. After more than a century trying to prove the opposite, economic theorists investigating the matter finally concluded in the 1970s that there is no reason to believe markets are led, as if by an invisible hand, to an optimal equilibrium — or any equilibrium at all. But the message never got through to their supposedly practical colleagues who so eagerly push advice about almost anything. Most never even heard what the theorists said, or else resolutely ignored it.

Interesting.  Using the economists of the Seventies as the authoritative position for government interventionism into the economy.  Why, that would be like having the captain of the Titanic being the authority on how to miss icebergs in the North Atlantic. 

The Seventies were the heyday of Keynesian economics.  Where the government was aggressively intervening into things economic.  And the results of their policies were so bad that we had to create new words to describe it.  Like stagflation.  A heretofore unheard of phenomenon.  And something that just wasn’t supposed to happen when the Keynesians used inflation to lower unemployment.  But it did.  Even though you weren’t supposed to get inflation and high unemployment at the same time.  Stagflation.  Like we did.  In the Seventies.

Believing far too credulously in an invisible hand, the Federal Reserve failed to see the subprime crisis coming. The principal models it used literally assumed that markets are always in instantaneous equilibrium, so how could a crisis occur? But after the crisis exploded, the Fed dropped its high-tech invisible-hand models and responded with full force to support the economy.

The subprime mortgage crisis was a government-made crisis.  Precisely because government refused to allow the Invisible Hand to guide the market place.  Instead they stepped in.  Forced lenders to make risky subprime loans to people who couldn’t qualify for a mortgage.  With tools like the infamous Adjustable Rate Mortgage (ARM).  And then they had Fannie Mae and Freddie Mac buy those risky mortgages.  To get them off the lenders’ balance sheets so they would make more risky loans.  Then Freddie and Fannie chopped up these risky loans and repackaged them into ‘safe’ investments to unload them to unsuspecting investors.  Getting these toxic mortgages off of their balance sheets.  (In case you don’t know, Fannie and Freddie are Government Sponsored Enterprises (GSE).  Which are for all intents and purposes the government.)  This house of cards imploded when the Fed raised interest rates.  After keeping them below what the Invisible Hand would have set them at for far too long.  The government created the real estate bubble.  Then blew it up when those higher interest rates reset all the AMR mortgage payments beyond the homeowner’s ability to pay.

There are many economists in the world.  And the consensus of economic thought tends to be one that supports large government intervention.  Which proves the economic consensus is wrong.  For if history supported this consensus the Soviet Union would have won the Cold War.  East Germany would have absorbed West Germany.  China would not be experimenting in ‘Invisible Hand’ capitalism.  And Cuba wouldn’t be experimenting with a little capitalism themselves to fix their broken government command economy.

All these market failures economists like to point to aren’t market failures.  They are the unintended consequences of government intervention into the market.  As the subprime mortgage crisis clearly proved.  Which never would have happened in the first place if the government didn’t try to be smarter than the Invisible Hand.

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Communism, Karl Marx, Marxism, Surplus Labor and the Labor theory of Value

Posted by PITHOCRATES - December 13th, 2011

History 101

Some would call Putting Profits before People Heaven if they had Lived in the Caring Hell of Communism

No ideology killed more people than communism.  In total numbers.  Such as Joseph Stalin in the Soviet Union.  Or Mao Tse-tung in the People’s Republic of China.  Or as a percentage of population.  Where Pol Pot’s Cambodian genocide holds this honor alone.  These communist leaders killed their people directly for political purposes.  Or starved them to death because of agrarian reforms that produced famines.  All in the name of freeing their people from the horrors of capitalism.

Heaven and hell.  That’s how a defector who escaped communism and made it to capitalism would describe what it’s like to live under each system.  Capitalism would be heaven.  And communism would be hell.  The problem with communism was that it didn’t work.  Economically.  People lived in want of the basic staples of life.  And often went hungry.  When they didn’t starve to death by yet another famine.  And if they complained or spoke out against the system they risked torture.  Or they simply just disappeared.  Banished to a work camp.  A reeducation camp.  Or killed.  So it’s no surprise that people trapped in these countries tried to escape.  Which is why communist states were oppressive police states.  To prevent people from escaping their horrible lives.

And yet to this day some people still hold up communism as the ideal socioeconomic system.  The one that cares about the people.  The one that puts people before profits.  Unlike capitalism.  Which puts profits before people.  Of course some would call putting profits before people heaven.  Especially if they had lived in the caring hell of communism.

Communism as an Economic System is an Utter and Abject Failure

Those who champion communism don’t blame the ideology.  They say it’s the people.  The few who use the ideology for personal gain.  And by few they mean basically everyone.  But if everyone is doing it it’s not the people.  It’s the ideology.  And it goes back to its utter and abject failure as an economic system.

Communism goes back to Karl Marx.  The guy that coauthored the Communist Manifesto in 1848.  And from which we get the terms Marxism.  And Marxist.  To describe varying forms of communism.  And communists.  He’s the guy who said that capitalism exploited the working man.  Those with money (capital) who owned factories, the industrial bourgeoisie, charged more for their goods than they paid their workers to make those goods.  Because Marx believed the value of any good was the labor that made it (the labor theory of value), this excess value (profit) was a labor surplus.  And belonged to the worker.  So he encouraged class conflict.  For the proletariat (the working class) to rise up and take over the means of production from those who owned it.  These middle class capitalists.  The industrial bourgeoisie.  And establish a dictatorship of the proletariat.  So the bourgeois capitalist pig-dogs couldn’t exploit the proletariat any more.  And everyone would then live happily ever after.

But no one ever did.  Like in capitalism.  Where happiness abounds.  Because, in capitalism, the market determines prices.  Not some bureaucrat counting up labor inputs through the manufacturing process.  From the mining of resources.  To the final assembly.  Which can make things very expensive.  And, worse, unwanted by the people.  Because when the market sets the price and assigns value, the market tells people what to make.  Normally when something is a hot seller it tells manufacturers to make more of it.  To cash in on those high prices.  So they do.  And people tend to buy this surge in products.  But when the market isn’t setting the price and assigning value, the market can’t tell people what to make.  So a bureaucrat must.  Which is what happens in communism.  Bureaucrats decide everything.  From what to make.  To the allocation of resources.  To the selling price.  And the things they decide to make are rarely what the people want.  Explaining why stores in communist countries were full of stuff no one wanted to buy.  And why people had to stand hours in line to get the things they did.  Or paid more on the black market.  Which is why communism as an economic system is an utter and abject failure.  And why people wanted to escape it.  Their only obstacle being that brutal and oppressive police state.  Which was necessary because if everyone left that wanted to the communist leaders wouldn’t have anyone to provide for them.

There are no Such Things as Market Failures under Capitalism

Communism was one of the worst man-made tragedies to ever befall man.  Karl Marx was wrong.  And his asinine theories killed tens of millions of people.  People enjoy life and prosper under capitalism.  Under communism they set records for genocide.  Why?  Because the communist economic model is an utter and abject failure.

The struggle between communism and capitalism was an economic one.  And pitted the market against bureaucrats who thought they were smarter than the market.  But it turned out they weren’t.  Not by a long shot.  And despite this history people are constantly talking about market failures and the evils of capitalism.  Much like Joseph Stalin, Mao Tse-tung and Pol Pot.  But for them it was never about the economics.  It was about the power.  Much like it is today.  Because there are no such things as market failures under capitalism.  It’s the bureaucrats who fail.  Not the markets.  At least, based on all recorded history.

Markets fail only when they aren’t free.  They fail when bureaucrats insert themselves into the economic process.  Via regulatory policy.  Or high taxes.  When they try to shape market forces to a political end.  And when they do it is capitalism no more.  It’s crony capitalism.  Or worse.

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At Harvard Energy and Environmentalism are One and the Same

Posted by PITHOCRATES - November 26th, 2011

Week in Review

Harvard is working on our energy solution.  And it coincidentally happens to mesh with their environmental agenda (see Harvard Study Calls for Radical Increase in U.S. Energy Innovation Spending by William Pentland posted 11/23/2011 on Forbes).

The U.S. government could save the economy hundreds of billions of dollars annually by 2050 by expanding support for energy innovation, according to the results of a three-year research project at the Harvard Kennedy School.

Okay, two problems can be noted from the get-go.  The report is from Harvard.  And it’s by the Kennedy School at Harvard.  Two names that don’t jump to anyone’s mind when you think of profits and energy.  No.  What you typically think of when you hear these names are liberal causes.  At our expense.  Increasing the cost of daily life with their regulatory policies.  To drag Americans kicking and screaming into a world we don’t want.  But one that they believe is in our best interests.

The U.S. federal government should implement policies that create market incentives to develop and deploy new energy technologies, including policies that have the effect of creating a substantial price on carbon emissions, and sector-specific policies to overcome other market failures.

There are no such things as market failures.  They like to use that term when their market tinkering doesn’t produce the results they want.  That is, when their policies have failed.  But they can never blame their policies.  So they blame the market.  Call their failures market failures.  So they can create more policy to correct their past failures.

The price on carbon emissions would the biggest tax ever levied on the American people.  And that’s why they want to levy it.  For the money the government can spend on other liberal folly.  And the control they could use to strangle the American economy when it fails to do as they wish.

The U.S. government should take a strategic approach to working with the private sector on energy innovation, expanding incentives for private sector energy innovation, and focusing on the particular strategies likely to work best in each case.

In other words, they think the government should pick the winners and losers in energy.  Just like they did with Solyndra.  Where the government can reward political campaign donors with lucrative government loans.  Just like they did with Solyndra.

The U.S. government should undertake a strategic approach to energy RD&D cooperation with other countries, to leverage the knowledge, resources, and opportunities available around the world, incorporating both top-down strategic priorities and investment in new ideas arising from the bottom-up.

Sort of a Kyoto writ large.  Only with more bite.  As the global warming agenda passed at Kyoto had very little bite.

Anytime you see an energy report coming out of Harvard consider the source.  And their ulterior motive.  One world, liberal government.  With them at the top.  And the rest of us doing what they tell us to do.

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LESSONS LEARNED #66: “In socialism you don’t get what you want. You settle for what you get.” -Old Pithy

Posted by PITHOCRATES - May 19th, 2011

Prices, Price Controls and Rationing

People think high prices are just how rich people stick it to the poor.  But prices, high or low, are an automatic mechanism that matches supply to demand.  Things in high demand but low supply have high prices.  This helps discourage some from buying leaving supply available for those who are willing to pay the higher price.  High prices also tell the market where to expand.  Because high prices typically indicate high profit.  So others will rush in to fill that demand to get in on those high profits.  That’s why store shelves are typically full in capitalistic countries.  Because prices are always matching supply to demand.  And shelves are often empty in socialist countries.  Where a distant bureaucrat decides what people should build.  And what people should buy.

When you interfere with this automatic mechanism you get market failures.  As in socialist, command economiesPrice controls, though they sound kind and caring, hurt.  For example, rent controlled apartments in New York reduced the supply of apartments.  Which reduced the supply of affordable housing.  The exact opposite of the goal of price controls.  Why did this happen?  For the same reason you don’t invest your money for a negative return on investment.  Investors build and manage income properties (i.e., apartment buildings) for a profit.  With rent control, apartments became a bad investment.  So investors built condominiums instead.  And did little to maintain their rent-controlled income properties to limit their losses.

Price controls put people before profits.  Or so they thought.  Rent control kept rental prices down.  But only for the few who could find an apartment.  And those who did saw the quality of their housing decline.  Because they couldn’t pass on the cost of any improvements in higher prices, owners made few improvements.  With no profits there are no incentives.  So rent-controlled housing served as little more than a write-off against profits made from other good investments.  Rent control ultimately destroyed low-income housing.  In quantity as well as quality.  And low-income renters had to settle for what there was.

When OPEC cut oil shipments to the West in the Seventies gasoline prices soared.  People demanded that the government do something.  So the Nixon administration did.  Price controls.  They reduced the price of gas to what people were willing to pay.  And what happened?  The price indicated there was a higher supply of gasoline than there was.  So people bought as if there was more gasoline than there was.  Until the gas pumps pumped dry. And cars ran out of gas.  Gas was affordable.  There just wasn’t any to buy.  If the market had set the price, there would have been gas.  It would have been expensive, but it would have been there to buy.  Price controls took a scarce commodity and made it even scarcer.  So instead of gas at any price, people had to settle for life without gas.  And find another way to get places.

The People have Voted, Capitalism is Better than Socialism

After the communist revolution in China, Mao Tse-Tung began to collectivize agriculture.  Taking land from the wealthy and giving it to the poor to work.  For the state.  The People’s Republic of China.  Who cared about the people.  And even more about the grain they grew.  Because that was how they were going to raise the capital to industrialize China.  Buy low (i.e., take from the farmers) and sell high.  And beat anyone who didn’t get on board with the new way.  So there was no price mechanism.  No profit incentive.  In fact, the only incentive was not to get beaten.  They called this great plan the Great Leap Forward.  It was a disaster.  Unless famine was the goal.  And as far as famines go, this was one of the bigger ones.  They call it the Great Chinese Famine.  Some 15 million died.  Or 30 million.  Depending on who crunches the numbers.  No, the people did not fare so well in the People’s Republic of China.

Doing things for the people sounds good.  It sounds like you care about the people.  But the people rarely do well in nations with ‘People’ in their name.  The Chinese suffered and died wholesale.  They’re doing a lot better now.  But that’s only where they let some capitalism loose.  Allowed people to make a profit.  Gave them an incentive.  In the big cities by the sea.  Life was good.  Soon, people left the poverty and famine of the rural country and looked for a job in the city.  For a better life.  A better life provided by capitalism.  Not socialism.  They had had enough of the kind and caring state taking care of them.   They’d rather work for some rich guy who paid decent wages in a factory.  Because they could choose their life.  And not settle for what the state would give them.

You see, there is no such thing as a communist/socialist utopia.  The truth is, life is horrible in communist/socialist countries.  That’s why Cubans risked their lives on rafts to cross the ocean to escape their utopia and go to Florida.  And why Haitians did likewise.  Even though Cuba was far closer and was itself a communist utopia.  They said thanks but no thanks and took the longer and more deadly trip to Florida.  For they knew life was better in the United States than in Cuba.  Because capitalism is better than communism/socialism.  The people have voted.  At least the Cubans and the Haitians.  And everyone else that went to America.  Or any other capitalist country.

Venezuela Rations Food and Electricity

Hugo Chávez of Venezuela is a big fan of socialism.  He’s turned the whole country into a socialist utopia.  He launched a revolution.  The Bolivarian Revolution.  Nationalized industries.  Including the big one.  Oil.  Put people before profits.  Set up price controls.  Expanded education to the people.  And health care.  The kind of things that resonate with the people.  The people love him.  For sticking it to the rich.  And to the United States (who gets a lot of oil from Venezuela).  Oh, they got a kick out of him saying he smelled sulfur following George W. Bush to the UN podium.  Because George W. Bush was the devil.  He even said he smelled sulfur from Barack Obama in Copenhagen.  Where he called capitalism “the road to hell.”  So he sports true socialist bona fides.  So Venezuela must be a socialist utopia.

Well, we’ve seen what can happen when the market doesn’t set prices to match supply to demand.  And so it happened in Venezuela.  The supply of food dwindled to where they had no choice but to ration it.  They even bartered for food.  Traded some of their oil for Argentine meat and dairy products.  Because the price controls so disrupted the economy domestic production of food plummeted.  Food was affordable.  There just wasn’t much food to buy.

But food isn’t the only thing they’re rationing.  They’re also rationing electricity.  Through rolling blackouts.  This in a country rich in energy.  Oil.  If any nation should not have an electricity problem it’s Venezuela.  But the infrastructure is not there.  What they have is falling apart.  Insufficient.  And nationalized.  That is to say, they put people before profits in the electricity business.  And with no profit incentive, there was no incentive to provide more reliable electricity.  Those in government know they need more.  They tried to add more.  But socialist planners are just not good business people.  Or good electrical engineers.  And they’ve failed.  As an energy-rich nation suffers through humiliating rolling blackouts to ration what electricity they have.

Low Prices and Empty Shelves

People may get what they want in socialism.  For awhile.  At least, they feel good for awhile.  Knowing that the rich are finally getting theirs.  But rarely does life change for the better.  For the little guy.  Those in power live well.  But peasants are still peasants.  The hungry are still hungry.  Or, worse, dying from famine. 

With capitalism, you can always count on a grocery shelf full of stuff you want to buy.  Because prices and the profit incentive put the things you want on that grocery shelf.  Or it puts gas in your car.  Or you in housing.  You can’t always get what you want.  But your complaints will be more of the “I’d rather have steak than hamburger” variety than the “I’d rather have food than fair prices and empty shelves.” 

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