An intellectual's review

[Blake]

Originally posted by couerdelion
I find Blake’s micro-currency idea very interesting and can see certain merits in refining these sorts of things. Many of the real problems that emerge within a single large economic and currency area can be caused by the failure of such a wide area to take account of shorter term economic difficulties in individual communities. A local economy might then serve to smooth out hardships if the local economy can continue to operate up to a point.

But there are still problems that would need to be addressed.

...

2) Why would people accept a micro-currency if they can get the same (or better) benefit from the uber-currency

This is a very tricky question.
For example the utility from engaging in the micro-currency obviously depends on having surplus time. If someone "needs" to spend 13 hours a day working at minimum wage in the uber-economy in order to survive, then they have no "spare time".
It might actually be that if they engaged in a local-economy, they could get all their needs met working only 4 hours a day in the uber-economy and 6 hours in the local-economy.
Of course there's a "chicken and egg" problem - the benefits come when the system is thriving, not when it's just taking off. As long as everyone is stuck in soul-killing work, no-one can get out of it...

3) What happens when certain individuals or companies are net importers/exporters in this system of credit.

Not nearly as big a problem as you think.

The idea is they only SELL with the local currency to the extent which they can also BUY stuff with it.

An EXCELLENT example is restaurants which partake in this kind of system. The restaurant has off-peak times, but they still need to have their cook employed full time, so for some of the time he's sitting on his bum instead of cooking (and lets not abandon the whole slavery concept just yet). So what the restaurant might do, is offer a deal where they accept the local currency for meals, but only at certain times on certain days (maybe lunches, for example).
This way they increase their business in those slow times, and get in a small amount of the local currency and they can easily spend that SMALL amount locally, buying fresh produce from participating farmers, for instance. They can continue to buy the more exotic foodstuffs with the real currency they earn from the usual business. Maybe the cook refuses to accept local currency, but the cleaner will accept 20% of their wage in local currency. So there's a lot of room for compromise.

The other way to do it is with say 80/20 or 50/50 or 20/80 or whatever. Like normally a good might be worth $50, and the widget shop agrees to accept UP TO 20%, or 50%, or 80%, or whatever, of the widget's price in the equivalent local currency (but not 100%). The widget shop can buy some things locally (maybe wood), but it needs to buy other things (maybe screws and plastic) from elsewhere. By using a smart pricing scheme, they can always ensure they have the needed real dollars on hand.

4) How do people gain confidence in the system

This has already been raised but is a fair criticism because the system relies heavily on trust AND on a certain critical masses, the two goals being conflicting unless a single entity stands in the middle of all transactions as some sort of adjudicator/guarantor.

And it's a fair point. I made an early post where I provided a cynical definition of trust (equivalent largely to "people trust those who inspire fear").
So trust is really fear.
Once people fear that the old system wont provide their needs, more than the fear that the new system wont provide their needs, they'll readily make the transition.
This is why a recession or something is required. People are not motivated by ideological arguments, they are motivated by fear.
People these days are SO fearful of losing quality of life, that they'd actually be surprisingly willing to adapt to an alternative if it looks like their quality of life is going to soon plummet.

At this point there is absolutely zero point in trying to get people to join such a system, it's not worth the effort.
Then again I think it is worth the effort to learn about it, regardless.

I hinted in the response to question 2, that the problem these days is that people are basically enslaved to the uber-economy, they'd simply say "I have no spare time!". This is actually what the uber-economy is designed, or has evolved, to do. To consume all spare time.

[nbarclay]

Blake, it is wasteful to build warehouses to store commodities just so they can back up the money supply. The problem wasn't so bad with gold, which has such a high value per ounce that the only real problem in storing it is security. But with things like lumber and grain, the cost of putting commodities into long-term storage in order to use them to back up money would be enormous. And the waste would be even more enormous if the commodities would be allowed to sit until they spoil or rot.

One of the biggest things computers have done to enable businesses to operate more efficiently has been to decrease the amount of time that things have to sit in warehouses before they are used or sold to consumers. Maintaining massive stocks of commodities that have no other purpose for existing than to back up a society's currency would be a terrible waste of resources.

At first glance, it might appear that the same commodities could function both as backing for currency and as an emergency reserve. But the ability to use such a strategy would be limited because the only way to tap into the supplies as an emergency reserve while still maintaining the integrity of the system would be to withdraw currency from circulation, which could easily cause a recession. It would thus be important to ensure that the supplies used to back up currency will not be tapped in any but the rarest and most serious of emergencies.

Further, because of the waste involved, there is no practical way to get such a system started as long as the current economy is even a little bit healthy. If grain, lumber, and such are put into long-term storage in a warehouse to back up currency, that reduces the amount of those commodities available for people to use, which in turn would drive up their price (under whatever mechanism is used to pay for them until the new system is in place). I can see a possibility of a system along the lines of what you describe developing if a complete economic collapse would create so much chaos that money becomes worthless, so that the only way to have a valid medium of exchange would be to have it be backed by something tangible. But such a system is something that would be adopted out of desperation because no more efficient system is available, not something that would be adopted because of how great it is.

I also do not believe your claim that your system would make inflation impossible. On the contrary, the only way to prevent inflation would be to make sure the amount of goods stored in the warehouses, with money provided in return for them, does not grow faster than the amount of goods and services being exchanged in the economy. Suppose the warehouse keeps the price of corn constant, but keeps gradually accumulating more and more corn each year. The increase in corn in the warehouse would result in an equal increase in the money supply resulting from payments to corn farmers. That increase in the money supply would cause inflation, especially in the prices of services and of commodities the warehouse system doesn't buy and sell. The basic problem is very similar to the problem of controlling the money supply with fiat money, except that instead of just having to try to manipulate the supply of fiat money, you have to manipulate how much of potentially dozens of different commodities the warehouses buy and sell.

Also, you haven't even begun to address the problem of fluctuations in the velocity of money. Even if your mechanism would succeed in keeping the money supply constant in relation to the size of the economy, there would still be inflation when there is a tendency in the direction of people spending money relatively quickly when they get it, and recessions or deflation in periods when people tend to hang onto money longer before they spend it.

Finally, I would note that in a system with fiat money, it is entirely possible for a government to provide a "will-buy guarantee" if it really wants to. The catch is that such mechanisms use government power to increase the wealth of people who produce particular commodities at the expense of the rest of society. If your system provides will-buy guarantees, it would create the same kind of problem - for example, guaranteeing grain producers a particular price, but not providing any comparable guarantee to doctors or artists (whose work does not produce a commodity that can be stored).

The fact that your concept ties the value of money to particular commodities does not make price fixing by government any less problematical. On the contrary, it probably makes the issue more problematical because errors by government in setting prices could have a negative impact on the monetary system's stability in addition to the danger of encouraging surpluses or causing shortages.

[wodan11]

nbarclary -- spoilage would be an issue as well.

Wodan

[nbarclay]

You must have missed my sentence, "And the waste would be even more enormous if the commodities would be allowed to sit until they spoil or rot."

[Blake]

Originally posted by nbarclay
Blake, it is wasteful to build warehouses to store commodities just so they can back up the money supply.

Do you think these things aren't stored anyway? They are! You don't build warehouses to store stuff - instead you give the warehouses which already store it the ability to issue currency .

This is a way to bridge a gap - when there is something which is produced NOW, but needed LATER, or produced NOW, but the money to buy it isn't available YET. If it's produced now and needed now (and there is money to buy it now), it's simply traded right away.
If it's produced now but needed later, then in this scenario it can be sold right away so the producer gets their money, the consumer, once they are ready, then buy it.
The point here, is the producer gets their money, the producer spends there money, then that money finds it's way to the consumer who uses the money to buy the goods...

Making a sensible basket is a big part of making the system functional.

Also bear in mind that this kind of system is REALLY designed for international trade, not really at a personal level. This gets around having a "linchpin" currency for trade - instead a fully backed trade currency is used. You can see the disadvantages of using a linchpin currency, especially if the USD collapses one day (I'd be more inclined to say When than If).

There's a vast amount of storage in international trade, at docks, in container ships and so on.

Suppose the warehouse keeps the price of corn constant, but keeps gradually accumulating more and more corn each year. The increase in corn in the warehouse would result in an equal increase in the money supply resulting from payments to corn farmers.

Why do you willfully ignore the part where I say the market sets the price?

More to the point, the currency issuers also reflect the market price.

Think about what would ACTUALLY happen.

If the warehouse gives out too much money for corn (more than market rate) then everyone would bring their corn to the warehouse instead of selling it.
This would result in a shortage of corn in the market. People like corn, so the market price would go up. People would then start taking corn out of the warehouse.

The purpose of the economy is to enable wealth creation. If people are growing too much corn then that's negative - it would be better to grow other things. This is why the currency issuers MUST reflect the market value.

The fact that your concept ties the value of money to particular commodities does not make price fixing by government any less problematical. On the contrary, it probably makes the issue more problematical because errors by government in setting prices could have a negative impact on the monetary system's stability in addition to the danger of encouraging surpluses or causing shortages.

Why do you willfully ignore the part where I say the market sets the price?

[nbarclay]

Originally posted by Blake

Do you think these things aren't stored anyway? They are! You don't build warehouses to store stuff - instead you give the warehouses which already store it the ability to issue currency .

This sounds like a recipe for chaos. If the currency is backed only by whatever warehouse issued it, we're back to the bad old days when paper money was issued by individual banks rather than by governments, when people risked having their money become worthless if the bank that issued it went under. But allowing private entities to issue money backed by government would create a serious danger that the public will be harmed if the private entities issue more money than they can back up with the value of what they store. Consider, for example, what happens if the price of a commodity goes down after a warehouse issues money to buy it, or if the warehouse is lax in its security and someone steals its contents, or if the warehouse allows the commodity to rot or spoil. And if manufactured products would be included in your basket, consider what happens if a warehouse owner allows a product to sit around until a newer, better product becomes available, thereby reducing the value of the previous product.

Also consider the fact that with private entities issuing currency based on the contents of their warehouses, the amount of money in circulation would depend on how many warehouses are storing how much for how long. That isn't exactly conducive to having a stable money supply.

I'm sorry about failing to recognize your emphasis on market principles determining prices, but your words, ""Will buy guarantee," threw me off. I was thinking in terms of government warehouses being guaranteed to buy however much people want to sell, which would make it impossible to have a genuine free market. If the system would be based on private warehouses being able to issue money to buy whatever they consider worth buying, it would be possible to have the laws of supply and demand govern how much they are willing to pay. But as noted above, the system would get in trouble when warehouses don't always make good decisions about how much to pay, and don't always take good care of what is in them.

[Unimatrix11]

Originally posted by nbarclay


This sounds like a recipe for chaos. If the currency is backed only by whatever warehouse issued it, we're back to the bad old days when paper money was issued by individual banks rather than by governments, when people risked having their money become worthless if the bank that issued it went under. But allowing private entities to issue money backed by government would create a serious danger that the public will be harmed if the private entities issue more money than they can back up with the value of what they store.

Dude... as far as i take it, thats pretty much where we are at ! The central banks are not governmental instittiuons, they are controlled by private bankers. And they did issue more money than was backed up when they contributed to the 1929 crisis which did lead to a collapse of the many smaller banks, when they called in their margin loans. Private people control the price for money - thats what makes the system corrupt and unjust. What makes it dangerous and, well, ´sinfull´ is the loan concept, esp. on interest, cause that drags value from the future to the present, when you look at it philosophically, which makes it a) plausible why it generates so much wealth in the present and b) plain wrong imho.

[couerdelion]

Originally posted by Unimatrix11


Dude... as far as i take it, thats pretty much where we are at ! The central banks are not governmental instittiuons, they are controlled by private bankers. And they did issue more money than was backed up when they contributed to the 1929 crisis which did lead to a collapse of the many smaller banks, when they called in their margin loans. Private people control the price for money - thats what makes the system corrupt and unjust. What makes it dangerous and, well, ´sinfull´ is the loan concept, esp. on interest, cause that drags value from the future to the present, when you look at it philosophically, which makes it a) plausible why it generates so much wealth in the present and b) plain wrong imho.

Uni,

I still can’t see why you are so locked in to the idea that interest is wrong simply if it drags value from the future to the present. In fact it does nothing of the sort because interest is charged over the period in which the money is lent and is based upon the amount borrowed. Whoever is borrowing the money is getting, in their view, a higher benefit from having the funds up-front than it costs them to pay for that money.

What’s more, who even tells them that they have to borrow. They have a choice, don’t they. In which case, if it is bad, they should simply choose not to borrow in the first place and thus avoid paying any interest.

Take a simple example that I borrow $1m at 5% (payable at the end of each year). If I can use that $1m to make $100,000 over the year then I can pay the interest and take $50,000 for myself as a price for taking the risk in the first place.

The system without any loans would be one where we would have no industry and very little international trade. You and I would have little time to exchange views on this subject because most of our time would be spent just surviving in a naturally competitive world.

On the plus side, there would be a nice clean environment although people would still be dying young from some illnesses we now consider as innocuous (or extinct).

Sure we have upsets from time to time where bubbles burst but the reason why we consider them as such shocks to the system is that the financial markets have already improved life so dramatically that we are essentially falling from a much greater height.

Still I’m sure Marx meant well even though if obviously failed to understand a lot of things that he wrote about.

[nbarclay]

Originally posted by Unimatrix11


Dude... as far as i take it, thats pretty much where we are at ! The central banks are not governmental instittiuons, they are controlled by private bankers. And they did issue more money than was backed up when they contributed to the 1929 crisis which did lead to a collapse of the many smaller banks, when they called in their margin loans. Private people control the price for money - thats what makes the system corrupt and unjust.

In the U.S., the Board of Governors of the Federal Reserve is appointed by the President and confirmed by the Senate. The Federal Reserve is not a governmental institution from a perspective of ownership, but it is from a perspective of control.

The problem with margin loans in the 1929 crisis was that banks loaned out money to people who wanted to buy stock and allowed them to use the value of the stock as collateral for their loans. At the time the loans were issued, they were backed by what the banks thought was sufficient collateral. But when stock prices took a nosedive, the value of the collateral suddenly collapsed so that it was no longer sufficient to cover the value of the loans. That sudden drop in the value of banks' collateral, coupled with "runs" on banks when people were afraid the banks might be insolvent, was what put so many banks out of business.

In response to the Great Depression, the system for buying on margin has been changed to prevent lenders from loaning out as large a percentage of the value of stocks bought on margin, and to force people who buy stocks on margin either to put in additional money or to sell the stock if the value of the stock drops to a point where the percentage of the stock's value that is paid for by loans becomes too high. Couple that with the federal deposit insurance system, which has eliminated the old problem of runs on banks, and the system in the U.S. today is much less vulnerable than it was in 1929. I don't know much about other countries' systems, but I would expect that most other developed nations have instituted similar safeguards.

[nbarclay]

Originally posted by Unimatrix11

What makes it dangerous and, well, ´sinfull´ is the loan concept, esp. on interest, cause that drags value from the future to the present, when you look at it philosophically, which makes it a) plausible why it generates so much wealth in the present and b) plain wrong imho.

There are two different ways that loans can be used. One is to drag value from the future into the present - "Buy now, use now, but pay later." If you want to call that kind of behavior sinful in situations where people borrow money to buy things they don't really need, I won't object. (The situation is different in emergencies where people's only alternative to borrowing is to rely on charity.)

But most of the money people and organizations borrow serves a very different function. The loans enable borrowers to pay over a period of time for things that will be used over a period of time. As long as the duration of the payments is not longer than the useful life of the products, the system is essentially one where people are paying for what they use as they use it. The loans simply avoid situations in which people would be forced to save up the entire cost of something before they are allowed even to start using it.

The same basic goal could be achieved with a rent-to-own system in which the would-be lender buys the product and then rents it to the would-be-borrower, with part of the rental charge applying toward eventual ownership. But it is simpler and more efficient for the lender simply to rent the money to the borrower by charging interest.

Also consider the fact that when businesses borrow money (either directly or by having people borrow money to invest in them), it often enables them to create products of services that they could not have afforded to create otherwise. That helps to make society better off than would have been possible if the loans had not been available.

[Adam Weishaupt]

For what it's worth, I believe credit should occupy the same niche as beer, cannabis, gambling, prostitution, etc. If well-regulated legal credit providers are not in business, organized crime will prey on the short term thinking of innocent people. With this in mind, some sort of lending industry is useful to a modern society. However, deficit financing is no less a vice than anything else I've listed. With that in mind it should not be advertised or otherwise marketed so as to stimulate demand.

If legal channels do not permit people to engage in risky yet victimless behavior, then illegal channels will inevitably emerge to accommodate demand. Yet legal victimization occurs to the degree that businesses serving these demands actively promote increased levels of risky behavior. Operating a storefront where people who want credit cards can go to get them is a useful act to the degree it displaces illicit lenders. It is no worse than operating a liquor store. On the other hand, saturation bombing of campuses with credit card brochures and active recruiters to the "living beyond your means" lifestyle is bad in the same way that wallpapering campuses with liquor ads and letting distillers wander about passing out free shots would be bad.

Modern societies are still grappling clumsily with the nature of vice and appropriate responses to it. Heck, I'd wager more Americans understand that the prohibition of alcohol was a policy disaster than understand that the Earth orbits the sun. In spite of that, the prohibition paradigm guides a whole range of comparably disastrous policies that retain widespread support today. Reality will oblige seekers of truth, but getting there involves letting go of old misinformation in order to absorb "the facts on the ground," so to speak. Once it is widely understood that the only worthwhile vice policies combine legal accommodation with effective harm reduction strategies, applying that same thinking to a vice like consumer credit could lead to a body of policy that discourages borrowing binges (and irresponsible or predatory lending practices) without going so far as to drive consumer credit into the underground economy.

Regards,
Adam Weishaupt

[Unimatrix11]

Originally posted by couerdelion


Uni,

I still can’t see why you are so locked in to the idea that interest is wrong simply if it drags value from the future to the present. In fact it does nothing of the sort because interest is charged over the period in which the money is lent and is based upon the amount borrowed. Whoever is borrowing the money is getting, in their view, a higher benefit from having the funds up-front than it costs them to pay for that money.

What’s more, who even tells them that they have to borrow. They have a choice, don’t they. In which case, if it is bad, they should simply choose not to borrow in the first place and thus avoid paying any interest.

Take a simple example that I borrow $1m at 5% (payable at the end of each year). If I can use that $1m to make $100,000 over the year then I can pay the interest and take $50,000 for myself as a price for taking the risk in the first place.

The system without any loans would be one where we would have no industry and very little international trade. You and I would have little time to exchange views on this subject because most of our time would be spent just surviving in a naturally competitive world.

On the plus side, there would be a nice clean environment although people would still be dying young from some illnesses we now consider as innocuous (or extinct).

Sure we have upsets from time to time where bubbles burst but the reason why we consider them as such shocks to the system is that the financial markets have already improved life so dramatically that we are essentially falling from a much greater height.

Still I’m sure Marx meant well even though if obviously failed to understand a lot of things that he wrote about.

You talk about the interest system as if it was a matter of a single isolated actor. Fact is, by competetion, a lot of actors cant choose wether to obtain a loan or not. The biggest european tourism company, the TUI, for example, obtained 4 billion Euro in loans to buy many of their competitors, after which they had a yearly turn-over of about 10 billion. They bought and bought until the european anti-syndicate bureaucracy said "no more!". Now we are left with two major tourist companies for the whole european market (Thomas Cook and TUI). I actually heard the chief stragegic manager of TUI Germany in class once. He said for example that the low-cost-carrier business is one of "grow or go", which means you need to pick up loans in order to grow first, before you can even expect to make any profits. It is basically a question of who can raise the most funds first. "I gits there fustest with the mostest" as american civil war general Nathan Bedford Forrest put it. As with armies in war it is essential for a company to mobilize as much as possible as quickly as possible in order to penetrate a market properly and successfully. Competetion, and for this war is the best example, encourages practices that would be considered irrational otherwise. One hand forces the other, and that results in an escalation that theoritcally is limitless.

Your apparent assumption that progress is only feasable in the credit system is unfounded. I wont even begin to give examples. Also concentration of means of production and its inherent raise it provides for productivity (per capita) does not require a credit system. Neither does it require profit. But if it is built on credit, then it does require profits. When it does require profits, then the saleries will be set to minimum, esp. under competition. If a competitor fails to reap maximum profits, then he will be bought out of business. So there is no choice. If further concentraion results in higher productivity and thus enables further profits, and it can only be done by picking up loans, then there is also no choice. If in civ, your neighbor starts drafting units like crazy, and throws them at you, you eventually will need to do the same. Probably who did it first will win tho: One hand forces the other, before it even moves. In the begining (fortunately regulated by laws in most countries by now) this results in one inhumane idea of working condition forcing the next, each time with a comperative competition advandtage in mind, that was nullified as soon as the compititors adopted the same practice. Every progress (or innovation !) in that direction forced the other competitors to follow or go under. What once was an advantage of one, turns into a neccissity for all. When individual freedom becomes individual power over others, it starts eating up itself.

"falling from a greater hight" is a good one - cause thats what we are doing. We are falling, not seeing the ground yet, and go like "all is well so far - wheee - and boy we are getting faster all the time..." And yes, we are dragging value from the future to the present. I even find it hard to understand, why "having something now rather than later" is worth something, while "having something later rather than now" is not. This is not rational or some kind of natural law, that is just pure greed turned into a sick law with a number as a price attached to it. This way, things like the alaskian forests for example are bound to loose their "value". Having it tomorrow and in a thousand years is reasonable worth a lot, but in the credit system, if capital can be applied to it with profit, then the interest rate determines wether we should chop it today on interest or tomorrow applying our own money. Probably we will do it on interest today, cause if we dont, someone else will. The whole thing is something between a rush and a loot. But this is a one-way street and the shop we are so competitvely looting will be empty some day. Thats when we are gonna hit the ground. But until then: Lets accelerate somemore, not because we can, but because we are forcing ourselves to.

On Marx - i still dont think you read him and therefore should refrain from critizism. What did he not understand and write about ?

[nbarclay]

Originally posted by Unimatrix11

Also concentration of means of production and its inherent raise it provides for productivity (per capita) does not require a credit system. Neither does it require profit.

It requires either profit or coercion. Most people aren't going to lower their standard of living voluntarily in order to invest money in a venture that at best will merely break even, and at worst could lose a significant amount of money. The only way around the problem if profit is prohibited is for government to take money away from people under a threat of some kind of punishment in order to have capital to invest. But history has shown that the cost of waste and inefficiency in government bureaucracies tends to be dramatically higher than the cost of allowing private investors to make a profit if their investments succeed - in exchange for the risk that the investors might lose money if their venture fails.

I agree that the ability to operate on credit is not absolutely essential for the development of factories and such. But credit does speed up the process, enabling the building of more factories and other businesses more quickly than would occur otherwise. The knowledge that credit is available allows businesses to operate more efficiently because they don't have to tie up nearly as much capital in emergency cash reserves. And credit can save businesses from going bankrupt if an emergency causes them to need more cash than they have on hand.

In regard to the use of credit to buy businesses, I agree that it is a problem when governments allow businesses to buy up so many competitors that they create monopoly or near-monopoly conditions. But the ability to borrow money to buy businesses can also be a wonderful thing when it enables people to buy failing businesses and turn them around. Throwing out the entire idea of credit just because some people use credit in ways that shouldn't be allowed would be an overreaction.

And yes, we are dragging value from the future to the present. I even find it hard to understand, why "having something now rather than later" is worth something, while "having something later rather than now" is not.

Your words, "dragging value from the future to the present," are not a good description of what happens when the borrowed money is used to create assets that will still be there in the future, or that will pay for themselves plus interest by the time they are used up. For example, suppose I would borrow ten million dollars to build a factory. I've dragged ten million dollars in money from the future into the present, but I've also dragged construction of a ten million dollar factory from the future into the present. If my factory generates a profit after allowing for interest and depreciation, my future net worth will be higher with the loan than it without the loan, not lower.

Where problems exist, they are a result of how the borrowed money is used, not a result of the ability to borrow in and of itself. The same problems would exist if the same businesses could come up with a way to use the same tactics without borrowing - for example, by selling additional stock to raise capital, or by giving the owners of businesses they purchase stock instead of cash.

This way, things like the alaskian forests for example are bound to loose their "value". Having it tomorrow and in a thousand years is reasonable worth a lot, but in the credit system, if capital can be applied to it with profit, then the interest rate determines wether we should chop it today on interest or tomorrow applying our own money.

The point you raise here would be valid with nonrenewable resources. But forests are a renewable resource if the approach we take is the equivalent of Civ 4 lumber mills rather than the equivalent of Civ 4 chopping. As long as we have laws that mandate sustainable forestry practices, people can borrow money to harvest lumber now, and we can also have lumber available to harvest later. Thus, the ability to borrow increases the total production of lumber. It doesn't just drag lumber production from the future to the present.

[nbarclay]

On Marx - i still dont think you read him and therefore should refrain from critizism. What did he not understand and write about ?

I view the tactic of saying, "You haven't seen/read it so you aren't allowed to say anything," as fundamentally unfair. People form opinions based on second- and third-hand sources all the time. The more information people have from indirect sources, and the more they trust the sources of the information, the stronger their opinions become. It is dangerous for people to trust information from indirect sources to provide the exact truth, and it is important for people to be open to the possibility that information they have from indirect sources might be wrong. But if you want to cast doubt on opinions people have formed based on indirect evidence, you need to offer concrete reasons why they should believe that their information is wrong. Otherwise, the indirect evidence that people base their opinions on is better than the zero evidence you offer in response.

I haven’t read Marx’s work because what I’ve seen written about it leads me to believe that Marx was an ideologue who had some legitimate criticisms, but who became so caught up in his idealized fantasy world of how he believed an economy ought to work that he largely ignored a number of issues that are important in the real world. The following is a list of criticisms I've heard of Marx's views (adapted into my own words). It is possible that some of these criticisms are exaggerated, or are based on Marx’s followers taking some of his ideas farther than Marx himself ever did, or might even be outright wrong. But even if I make a large amount of allowance for such possibilities, it seems impossible that the discrepancy between my current impressions and what Marx actually wrote could be large enough that I would view Marx as having a good understanding of economics if I would take the time to read his work.

The criticisms I've seen, and can think of offhand, boil down to six major issues:

1) Marx was so focused on production and consumption that he largely ignored the importance of a good transportation network.

2) Marx largely ignored the way that good management can create value by finding ways to use resources more efficiently, and, conversely, the way that bad management can destroy value by using resources inefficiently. For example, it would have taken many hundreds of workers to do the amount of work that Henry Ford and his management team saved with their work making automobile assembly lines more efficient.

3) Marx never dealt adequately with the problem of how to motivate people to do their best if they are not paid any more if they do their best than if they just do the minimum required.

4) Marx never offered a good solution to the problem of how to persuade people to do the work that will produce the greatest value instead of the work they enjoy most if they are paid the same either way.

5) Marx's view of the nature of profit was one-sided, focusing on the costs that profits create for society but ignoring the savings to society when the time and money for failed ventures come out of private resources instead of public resources. (There are a lot of risks that we are perfectly happy to see people take with their own money, but would reject if we had to risk tax dollars to try the new ideas.)

6) Marx failed to recognize the enormous gap between the impossibly huge amount of information that central planners would need in order to manage an economy efficiently, and the much smaller amount of information that human minds are actually capable of understanding. Central planning sounds great if you assume that the central planners will have essentially perfect knowledge. But in actual practice, central planners have to rely on so many simplifications, generalizations, averages, and best guesses in order to make their job manageable that the picture they work with is grossly incomplete and not reliably accurate.

If some or all of these allegations are significantly off target, I’d love to hear an explanation of how they are off target. But if I don’t hear any evidence that the allegations are off target, I’ll go on believing that they are at least basically accurate.

[wodan11]

Well done, nbarclay.

I'll add just one thing. The very concept of central planning relies upon the assumption that government is well equipped to tell business how to best do whatever it is that business does. But government most assuredly isn't so equipped, and when it tries, more often than not it manages to muck things up more than it helps. We see this every day in governments the world over. Unimatrix, I believe you posted some excellent examples of this, yourself.

Wodan