To do:
- define resources, shared resources, and private resources
- define money
- define a market and various forms it can take
- open market
- free market
- horizontal integration of unrelated resources (“concentrated”/“distributed”)
- vertical integration of related resources (“flat”/“tall”)
- how those patterns interact
Private Enterprise in a Free Marketlink
Someone realizes that roller coasters are cool, and lots of people will want to ride them, but they don’t have enough money to fund the project themselves. They decide to get a loan to purchase the property and materials, and pay operating costs and employee salaries until these can be covered by ticket sales alone. But first, they need to do some research in order to convince whoever they ask for money that it will actually be a sound investment.
They find an engineer who can confirm that it is actually possible to safely construct a roller coaster, and provide an estimate for the cost of building and operating it. If the entrepreneur is lucky, the engineer is generous and does this for free; otherwise, they will need to pay out of pocket for this service. Then they find a marketing analyst who is willing to dedicate some free time to figuring out that the roller coaster can be expected to draw a certain number of riders who are willing to pay on average a certain price for a ticket. Then they find someone (such as a bank) who is willing to lend them money based on this business model. If they are successful, enough people pay for tickets that the income more than makes up for the costs and interest on the loan, and the excess (“profit”) can be used to buy the owner a new house, or used to fund further development of the business. If they messed up the business model somehow and they cannot pay off their loans, the bank will take back the property, and assuming that the business operated as an LLC, the company goes bankrupt, but the business owner doesn’t lose anything but the down payment on the original loan.
This system has several highly desirable features:
- the requirement for a well-thought-out business model reviewed by experts;
- rewarding successful entrepreneurs, and making it possible for them to fund future business ventures independently and with the benefit of experience;
- preventing unsuccessful entrepreneurs from being personally liable if their business fails (several people had to think it was a decent idea in order to get this far, so it makes sense that someone shouldn’t be made destitute for a mistake no one anticipated);
- supporting the local economy by providing employment and purchasing goods and services which go into operating costs;
- market forces of supply and demand regulate the monetary value of goods and services, rather than needing to embark on an impossibly complex pricing system;
- allowing people to do stuff just for fun, as long as they can pay for it, which encourages them to find employment and further benefits the local economy.
In practice, however, these features are only seen in the best-case scenarios, and in a completely free market in which private property is sacrosanct, unscrupulous individuals can dilute or completely undermine any of these otherwise laudable goals, and use those proceeds to further entrench their wealth. One of the most pernicious ways capitalism can enable evil is in the manipulation of public trust. Suppose someone builds a roller coaster. How does a potential rider trust that they won’t just fly off the rails to their death? The owner of the business is hardly impartial, and it doesn’t make sense to expect riders to get a structural engineering degree first so that they can verify its safety for themselves. The owner could pay a third party engineering firm to put a stamp of approval on it, but how can we trust them? Humans are (for better or worse) very quick to trust that if no one else is complaining, everything should be fine. A highly publicized and particularly extreme abuse of this kind of public trust caused the 2008 financial crisis, when supposedly impartial private investment rating firms colluded with banks to fraudulently certify bad loans (See also: The Big Short).
Another way that capitalism can exert a corruptive influence is by making wealthy people better able to afford legal protection. People who can afford to keep a respected (and therefore in demand, and expensive) lawyer on retainer are objectively more likely to be able to reduce or avoid financial penalties than someone represented by an overworked and underpaid public defender. Once they take their slap on the wrist, or even avoid prosecution completely, they can then either retire in luxury or move on to find a new way to manipulate the system to their advantage. Sufficiently faithful capitalists will even go so far as to portray this as a feature: if they got away with it, should we really blame them for successfully manipulating a system that wasn’t their fault to begin with, or which the public doesn’t seem to care enough to stop?
While this line of reasoning is deeply disingenuous, it is not without a kernel of truth: there isn’t really one person, or even any one consistent group of people, to whom we can attribute blame for an economic system that has developed over the entire course of human civilization. In fact, as in all things, we can probably even accept that most humans who have participated in the capitalist system were not doing so out of evil intent, and frequently acted in the genuine best interest of society as a whole. Unfortunately, no matter how genuinely beneficial some new economic policy may be, there will always be someone who is sufficiently intelligent and evil to manipulate it, as long as we stay distracted trying to plug these holes with policies that implicitly support the system which allows them to exist, we will be unable to fix the root cause. The fundamental core principle of capitalism is that wealth equals success, and with the benefit of hindsight, we can see that this is a complete lie.
Private Enterprise in the Millennial Utopialink
Suppose we have a hypothetical society in which everyone (somehow) works together with a central government to provide universal access to a basic standard of living, and any excess production is channeled into science and art. This is a suitable society if the entire population is willing to live like monks, but eventually someone will want to, for instance, ride a roller coaster, which (usually) doesn’t fall under either of these categories. The phrase “government-designed roller coaster” sounds like the setup for a joke, and indeed it is hard to imagine a convincing reason why the government needs to directly manage anything that doesn’t qualify as a critical good or service in the interest of universal equal rights.
On the other hand, throwing money at anyone who says “roller coasters sound cool” and hoping that everything works out for the best is hardly a recipe for content citizens. So in our hypothetical utopia, whenever people inevitably produce an excess of goods and services, half of that excess is converted into public funding for science and art; and the other half is set aside to fund operating costs for privately managed businesses and wages for anyone who seeks employment.
The exact nature of that “conversion” process is a somewhat intricate matter called monetary theory. The general shape of it should be apparent as we get into some details, but it is useful to start with some general points. Hopefully it is obvious that it would be difficult to convince people to take part in an economy where they might be paid in half a carrot or a bar of soap, depending on whatever the government happened to find extras of that day. Instead, we use money: an arbitrary measure of abstract value, and one of the most powerful and dangerous tools that humans have ever invented. The way that it is managed today is, like the rest of the economy, a massive kludge that doesn’t really work the way it’s supposed to. Recently, inventing new currencies (e.g. bitcoin) has become quite fashionable, but these do not really serve the purpose we need. A healthy monetary system needs to be supported by widespread adoption and trust in the organization that issues it. This immediately makes cryptocurrency unworkable for a serious, long-term program which needs a stable economic foundation; no one wants to live in an economy subject to wild fluctuations because of Internet memes! We must be content to run our economy on an established, nationally-backed currency, and only slowly start replacing the fuel with something more modern if that turns out to be in the best interest of the MSC.
Business Licensing and Provisioninglink
To do
Salarieslink
To do