Systems Matter Part 11: Profits and Losses

Repeatedly we have asked why some countries are poor and other countries are rich. Our discussions keep bringing us to the conclusion that the countries that are wealthy, or becoming wealthy, are those that are capable of producing higher levels of income. Those higher levels of income are generated from successful production of goods and services based on the effective use of the country’s natural resources. 

In order to make the best and most productive use of the natural resources in a country, the individuals within that country must experience cultural and economic freedom. They must be free to pursue their own interests and be allowed to make choices that they personally determine will result in their ending up better off. When those freedoms exist, the individuals are allowed to generate higher incomes by creating new wealth to be enjoyed by themselves and their country. To the degree that those freedoms are denied or restricted, the country will be less wealthy. 

It is good to remember that profits are absolutely necessary to the existence of enterprises. Not very many people would run the risks of ever establishing a business without the possibility of making a profit. Without businesses, we wouldn’t have the goods and services we enjoy and to which we have become so accustomed. But let’s take a deeper look at the function of profit.

  • Profit: The phenomenon of profit is the indicator of growth. It is the mechanism that sends the message that growth is being experienced in the economic system. Profits inform us of the positive value that has been added to the country’s economy, sometimes referred to as the gross domestic product (GDP).
A technology company in the Silicon Valley of California might take a measure of sand and transform it from the recognizable sand granules into a highly desirable and useful computer chip. They may sell the computer chip to another manufacturing company or to an individual. The expense required to transform the sand into a marketable product would be considered their cost. The money received from the purchaser of the computer chip would be their sales price. The difference between the chip manufacturer’s costs and the sales price would be the company’sprofit. When the company registers its newly generated profit, it simultaneously records that the wealth of the nation has just increased by the same measure. That wealth represents brand new just- created riches that up until that time had neither existed nor been recorded.
Effectively built into the free enterprise economic model are inherent signals and guidelines that work for increased success and growth. No one specifically designed the model to offer such signals . . . it just functions that way. But those signals and responses all happen so quickly and so silently, even without any individuals or committees in control of the signals. As a result of the simple market forces, individuals are guided to use the nation’s natural resources in the best and most efficient way. That is all possible because the consumers, as well as the business folks, act with the same cultural and economic freedom of choice in the specific areas oftheir self-interest. They also believe that their choices will make them better off in the end.
When the consumers buy goods and services, their collective purchases direct resources to businesses that are meeting consumer wants. Their actions also direct resources away from businesses that are not meeting consumer wants. If the consumers purchase enough of a certain product to create a profit for the business, then the business can receive and rely on the signal that it should continue to offer that product for sale.

Adam Smith saw all of those seemingly instant and automatic signals coming out of the existence of the free enterprise economic model, and referred to the anomaly asthe invisible hand. That invisible hand utilized all the unintended consequences of all the individuals who were simply acting with cultural and economic freedom of choice while pursuing their own operations of self-interest. 

Even high profits send an important signal and serve a necessary function. High profits attract other players into the industry. As new businesses come in, the competition increases. It is the competition of the new firms that forces prices and profits down, thus increasing the efficiency of the total economy. It is interesting that profits encourage the very competition that keeps profits in check. 

The inherent signals coming from the components of prices, profits, losses, and wages, determine not only which industries continue to exist but also which products survive. Only profitable industries, firms, and products survive. That also makes for a more efficient economy. 

  • Losses: The concept of losses plays an equally important role in sending signals to the economic marketplace. Businesses must match their production choices with the consumer choices or face losses and eventual bankruptcy. In the system, profits seem to be the rewards and losses seem to be the pain. But in the long haul, even the pain of the losses serves to bring about rewards. Losses send the signal that something must change because the natural resources are not being used for the highest and most efficient means.
Just as high profits in a certain industry will send signals for new businesses to get involved in the same activity, so also do losses send a strong signal for others to pack up and get out. Those negative signals are strong and equally important. 

When a business incurs costs that exceed profits, it is in trouble. It is time for it to change its approach and use its resources some other way. That is a hard lesson to learn. But failure in a business simply means that the business is not making other people better off. When that failure occurs, the resources that the business was using can now be used for other purposes. Other managers can now have a go at managing those resources. It is hoped that they will be successful in making people better off, and, as a result, make a profit from redirecting those resources.

 It is important that we ask why some countries are wealthy and others are not. It is likewise important to ask why some countries were wealthy and are presently becoming less wealthy. It is important to investigate at what level the individuals of a country are presently experiencing cultural and economic freedom as they access a country’s natural resources. It is still important to observe if the individuals are allowed to generate higher incomes by creating new wealth to be enjoyed by themselves and their countries. 

Let’s keep observing and asking questions. Let’s keep discovering! 

Next Week: Wages

(Research ideas from Dr. Jackson’s new writing project on Cultural Economics)

© Dr. James W. Jackson   

Permissions granted by Winston-Crown Publishing House

Systems Matter Part 10: The Magic of Free Enterprise

By the early 1990s, I was spending a lot of time in the Marxist/Communist countries of the world: Cuba, Russia, North Korea, Romania, and even the philosophically tainted countries of South America. In the Soviet Union, members of the average household spent nearly forty hours per week standing in lines attempting to procure just the basic necessities for the family. 

In places like Ukraine I would occasionally stand in lines with my new friends just to see what it felt like to participate in the economic debacle of Marx, Engles, Lenin, and Trotsky. We would line up behind the old faded blue military flat-bed trucks, draped with a swatch of gray canvas, and wait our turn to have a government comrade hand down the loaves of bread or canned vegetables . . . if they still had any left. 

Marx and Lenin had not only scoffed at, but had officially outlawed, anything that even smacked of free market, free enterprise, or portrayed the slightest capitalistic nuance. With that stance they negated any advantage of market-generated information that would have helped guide them with their economy. 

There was no concept of economic growth or production. They had squelched any intrinsic market signals and had shut off any built-in factors for motivation and incentive to help the economic system run smoothly. They had locked themselves into a system that glorified mediocrity and stymied excellence. That was the price they were paying so that they could retain absolute control over a centralized economic system of redistribution. They really believed that they could figure it all out by themselves and control the attitudes and actions of millions of individual workers in their centralized system. But, they could never get it right.

  • The flash of genius regarding the magic of prices had been observed and written down by Adam Smith, and it had been available to the socialists for a hundred years. Its efficiency had been well documented and not hidden at all from the public. Smith had recognized that the prices that emerged from individuals entering into voluntary transactions in a free market could silently coordinate the activities of millions of people almost immediately. Each individual would be seeking the area of his own interest, but his actions would result in an experience of unintended consequences where everybody ended up better off. Those transactions sent silent signals out to the entire economic system. Those signals guided the actions of the other individuals in the economic system so that they could make enlightened decisions on their own without the necessity of any politburo or centralized Marxist Gosplan telling them what to do.

In Milton Friedman’s bestselling book, Free to Choose, he brilliantly explains the three elements of Prices: Prices perform three functions in organizing economic activity. First, they transmit information; second, they provide an incentive to adopt those methods of production that are least costly and thereby use available resources for the most highly valued purposes; third, they determine who gets how much of the product – the distribution of income. These three functions are closely interrelated. (1) 

Prices are the nervous system of the free enterprise economy. Individuals like to buy at the lowest price possible, and sell at the highest price possible. At some point there is a mark where the seller is willing to sell his product and the buyer is willing to buy the product, and each feels that he is coming out of the deal better off. If that mark cannot be struck, then the deal fails to be consummated. If agreement is made, then price for the product or service has been established. Additionally, the successful transaction encourages the individuals to pursue yet more transactions in order to feel better off again and again, thus expanding the total economy. 

In experiencing the Gosplan in action in the old Soviet Union, I observed that there were constantly surpluses of the wrong things and shortages of the things needed. In Armenia, my new friends at the shoe factory pointed out that the Gosplan would try to figure out how many comrades needed to plant enough hectares in hay to feed enough horses and cattle to provide sufficient leather hides to be delivered to the shoe factory for the making of military boots. They always got it wrong somewhere along the line. They would experience a drought (that was always one of their favorite excuses for failure) where there was not enough water to grow sufficient hay for feed, or they would grow so many tons of hay that it would spoil or mold and have to be discarded. 

In a free enterprise economic system we do not observe many incidents of surplus or shortage or inconsistent availability of products. Prices make that happen. That is because prices balance the demand for goods and services with their supply. The quantity that the consumers want to purchase is assured to match the quantity producers want to sell. The balance between supply and demand is no accident. Prices make it come out right each time . . . unless there is interference by some control-seeking government entity. Even in times of economic upset or disaster, goods and services are available at the present market price. 

To pursue our shoe factory example, let’s return to the Soviet Union’s Gosplan and see how it differs from an economic system of free enterprise. If a retailer needs to purchase from the open market certain numbers and styles of shoes in order to advertise and sell them from his spring shoe catalogue, he may contact a shoe manufacturer and enter into an agreement to purchase said shoes to be delivered to a certain location by a certain date for a certain price. Each party is free to enter into such an agreement. As soon as the shoe manufacturer commits to fill the order for the retailer, he immediately secures the necessary leather to fill the order. 

But, let’s say the manufacturer is dilatory and waits for a period of time to purchase the leather. And in the meantime there is a drought, (or some other kind of impediment in the leather supply). Immediately information goes out into the marketplace regarding the shortage of leather, and the cost of the remaining available leather supply goes up. But leather is still available at the new price. The cattle growers in Texas receive the free information and may decide to not sell the entire cow to their beef steak market in Japan, but, rather, butcher the cattle in Texas and save the leather hides to sell to the shoe industry, and just send the custom steaks to Japan that year. The cattleman’s neighbor hears of the leather shortage and decides that next year he will switch his ranch operation from growing sorghum to raising cattle, because the selling price of leather has increased sufficiently and he now has an opportunity to make a handsome profit. 

The prices of shoes for the spring season are going to go up. There will not be a shortage of shoes, but the potential customers will have to make a decision as to whether or not they want to pay a higher price. Since the company with the spring shoe catalogue has a firm contract with the manufacturer for the leather products at a lower price, he stands to make a better profit from raising his shoe prices, or he has an edge on the market and can afford to sell his shoes faster at a lower price than his competitors who had to increase all their prices because of the increased leather costs. 

But the manufacturer now has to scramble and find some leather available at the price that existed when he signed his contract with the retailer, or he will experience a sad loss. 

The manufacturer grabs the Wall Street Journal and turns to the commodity price page in search of leather. All this information is free and available in the open marketplace. He locates a leather supplier in Brazil who is willing to sell him the leather at the previous year’s price and even assume part of the shipping costs. The manufacturer has covered his potential losses and can fulfill his contract with the spring shoe catalogue. All that information exchange and human initiative happened almost instantaneously, without needing to be gathered, sorted, and distributed to everybody in the economy. Everyone had access to all the information, but those who did not have a personal interest in the leather or shoe industry could simply ignore the information and go on with their own interests. There is no way in God’s green earth that all that could have taken place under Gosplan! 

Of course, all the cattle ranchers who jumped in to raise more cattle and sell the leather at the increased prices, now have the prerogative of going back to raising sorghum. But everybody in the system had the right to pursue his or her desires to become better off. Everybody in the system had instant and pertinent information available making it possible to pursue those free choices. 

Nothing has ever been designed to match the efficiency of free enterprise. That is because nobody designed the free market. Nobody manages the free market. Nobody controls the free market. It is a phenomenon that registers thousands of personal preferences in a nanosecond. 

It can deliver information that can peg the market value of a million different products all at the same time. It can inform people in every corner of the earth what to produce, when to produce it, how much to produce, and how much to buy at any given time. It can even let you know where to go to search out job opportunities within your scope of interest. If none of that information is pertinent to you . . . you can simply ignore all of it! 

All of that instant information is not mined, gathered, filtered, stored and made available by one individual or one big box superstore of technology. All that collaborative wisdom is freely made available and is the result of millions of individuals working in union with one another while seeking to be better off within the scope of their own interest. 

The anomaly tagged as free market that operates within the phenomenon of free enterprise just simply exists in all of its sophistication wherever individuals exist who have been granted freedom of choice in areas of culture and economics. Those are the individuals who have a deep desire to end up better off. That phenomenon of free enterprise is a precious gift to the world! 

Next Week: SYSTEMS MATTER Part 11: Profit and Loss

  •  Profits
  •  Losses
  •  Wages

(Research ideas from Dr. Jackson’s new writing project on Cultural Economics) 

© Dr. James W. Jackson   

Permissions granted by Winston-Crown Publishing House

Systems Matter Part 9: Essentials of Free Enterprise

So, what’s the big deal about the free enterprise idea? Civilizations over the centuries seem to have bumbled along just fine utilizing economic systems directed by dictators, despots, and greedy socialists . . . haven’t they? 

Please recall that the whole reason behind this discussion is the valid and penetrating question, why are some nations rich and other nations poor? We have concluded that the reason is not because of the difference in the people. I have observed in my lifetime of travels that the people of the United States are precious and wonderful, but they are not necessarily more clever or skilled than those in other venues of the world. 

A supply of natural resources doesn’t necessarily guarantee that a nation will be wealthy either. Japan has almost no natural resources, yet it is relatively wealthy. Brazil is larger than the continental U.S. and is rumored to be blessed with more natural resources, but it is still considered a developing country and poorer by far than the U.S. India and North Korea have resources in abundance, but they are not wealthy. 

We have certainly validated in our previous discussions that just because a country cranks up the presses and prints more money, it does not make that country wealthier. In fact, printing more money relative to the amount of goods in a country’s economic system simply sets that country on a course of bankruptcy through inflation. 

Production of goods and services is the established reason for nations being wealthy. Income is created through production. Discourage or destroy production and you take away income. Take away income and you have a nation of poverty. Let industrious people be allowed to keep for themselves the fruit of their individual and corporate labors and they will realize prosperity. Allow a dictator or a corrupt government to steal the fruits of conscientious labor through excessive taxation or greedy manipulation and coercion, and you will experience not just resentment and rebellion but unemployment, want, and increased crime. 

Cultural and economic decisions set into motion individual and national consequences. Cultural and economic systems are the means of transportation that carry out those predictable consequences. Cultural and economic systems make all the difference in the world. 

If the individuals of a nation are allowed to experience a system of freedom of economic and cultural choices within a framework of legal fairness and rule of law, they will spontaneously use their God-given talents and abilities to jointly utilize the available resources to produce needed and desirable products. That production will then materialize into individual and corporate income. The end result will be a wealthy nation. 

I have noticed an interesting economic irony in my international travels. In Great Britain, some parts of Europe, and especially in the United States, the country may have started out with an economic system built on freedom of economic and cultural choice. Production flourished, industrial revolutions took place, income was generated, and the country became wealthy. 

But then the governments began tinkering with the formula of free enterprise. Myriads of special-interests groups decided to vie for pieces of the profits. Labor unions decided to build their empires of closed shops, quotas, regulations, dues, and manipulation. Politicians began to see that the exercise of increased taxes could deliver monies not only directly into their own endeavors, but also make it possible to garner votes necessary to seize additionally desired control. 

This tinkering did not take into consideration that there is a direct and positive correlation between stifling the freedoms of economic and cultural choice and the net wealth of a nation. They somewhere forgot that the secret of a wealthy nation was an economic system that allowed individuals to create wealth. The more onerous the restrictions, the less would be the production. The more extortionate the taxation, the less would be the income and money for reinvestment. 

In 1776, there seemed to be a straight line running from the 1215 signing of the Magna Carta at Runnymede, England, directly to Thomas Jefferson and his friends in Philadelphia. Individuals would be allowed not only personal freedom, but economic freedom as well. By the 1930s and the Great Depression, that straight line seemed to be running directly from London and John Maynard Keynes to Franklin D. Roosevelt at the White House in Washington DC. From that time until the present the economic system has changed from one of growth and production to one of outrageous politics, unbalanced budgets, burdensome regulations, programs with gargantuan deficits, and a prevailing economic philosophy that truly believes it is possible to spend one’s way out of seventeen trillion dollars of federal sovereign debt and tax one’s way into prosperity. 

All that having been said . . . let’s look at the bright side and discuss the five essential factors necessary for realizing a successful free enterprise system:

  • The right to own property is the fundamental basis for free enterprise. Ownership includes the individual’s exclusive possession and also the right to transfer that ownership to someone else. Individuals must be free to agree with other individuals to voluntarily enter into contracts. There must be the possibility to personally succeed in the endeavors and also the possibility to fail. The property is not just limited to real estate or land, but also to any personal property or capital. Perhaps the most important resource that you own is your labor. You have the right to exchange your labor for income or other benefits. 
  • Free enterprise is based on the freedom of cultural and economic choice. But, it is not anarchy or lawlessness. In order for free enterprise to work, there must be an established and recognized government. The fact that two individuals are entering into voluntary agreements presupposes that there is going to be some kind of establishment with the authority to enforce those agreements. There must be a fair and enforceable rule of law.

Next session we will discuss the absolute magic of the Free Enterprise System when we look at the last three essentials: Prices, Profits, and Losses.

  • Prices 
  • Profits
  • Losses

Next Week: The Magic of the Free Enterprise System

(Research ideas from Dr. Jackson’s new writing project on Cultural Economics)

© Dr. James W. Jackson   

Permissions granted by Winston-Crown Publishing House

Systems Matter Part 8: Self-Interest vs. Selfishness

When Adam Smith introduced the verbiage of “self-interest” into his economic and cultural reporting he laid himself wide open to misunderstanding, misinterpretation, and criticism.

A person of a different economic ilk, wanting to end all arguments regarding the intent and integrity of Adam Smith, and dismiss him as a greedy scoundrel, would only need to portray him as the champion of selfishness. Such a person needed only to claim, “Smith is the epitome of the bourgeoisie capitalist interested in only grabbing, at any cost, the wealth of this world at the expense of the poor and downtrodden.” The verbal assassination would have pretty much been accomplished at that point.

Instead of indulging in the semantics game, let’s stop and examine just what Adam Smith was saying:

. . .the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men. The sovereign is completely discharged from a duty in the attempting to perform, which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and in directing it towards the employments most suitable to the interest of the society. According to the system of natural liberty, the sovereign has only three duties to attend to, three duties of great importance, indeed, but plain and intelligible to common understandings: first, the duty of protecting the society from the violence and invasion of other independent societies; secondly, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice; and thirdly, the duty of erecting and maintaining certain public works and certain public institutions, which it can never be for the interest of any individual, or small number of individuals, to erect and maintain, because the profit could never repay the expense to any individual or small number of individuals, though it may frequently do much more than repay it to a great society.(1)

Adam Smith presumes that every person wants to end up better off in life. If left to pursue voluntary transactions of business and barter with other free individuals, the only transactions that will be successfully completed are those transactions where both free trading partners end up better off. A system that promotes that freedom where everybody ends up better off not only encourages additional such transactions but greatly increases the total volume of successful business.

But the human desire to end up better off could be, but is not necessarily, selfish. To possess the desire to make good decisions and end up better off in life displays the admirable qualities of accountability. Good stewardship of life and of those things we possess reveals our willingness to accept and practice personal responsibility.Selfishness is the attitude and spirit where an individual insists on his or her own arbitrary demands on other people regardless of consideration or cost. It is the whole idea of me first . . . it’s all about me. That spirit of selfishness is counterproductive to good business because both parties do not end up better off.

That is why Adam Smith insisted that the government must not be greedy or selfish either. The greedy intentions of the government, or the individuals who control the government, are also counter-productive to the positive growth of an economy, because when they are greedy all parties involved do not end up better off.

Smith tried to build into the system checks and balances to control the selfishness and greed even of the government or Sovereign by saying that their reach and function should be limited to (1) protecting their citizens from outside danger or oppression, (2) the rule of law where the citizens are protected from other individuals within the country, and (3) the establishing and maintaining of certain institutions or services that could not be offered by a single person or a small group of individuals, e.g. courts, recording of public documents, road systems, etc.

The very government itself has the power and opportunity to induce its constituency, by promises of largesse, to believe that the government can exclusively make the citizens better off through receiving favors, grants, and subsidies from it. Those promises are based on a delusion that the government of the nation envisions, generates, and controls all the wealth of that nation, and has the right to distribute that wealth to whomever is willing to totally acquiesce to the government leaders making those promises. The government does not earn any of the money it promises to give away, but, rather, has to take the money away from individuals who have already earned it. Those promises of favors, grants, and subsidies are a form of buying-off the constituents.

When the government promises to take away from those constituents who have earned wealth in order to redistribute that wealth to those who did not earn the wealth, they are appealing to the selfishness of the recipients who would enjoy receiving largesse gained from the efforts of others rather than from their own efforts. A government or Sovereign may have the power to manipulate a model of redistribution through coercion, but, obviously, all the individuals in the deal do not end up better off. At that point the economic model moves into a model of contraction rather than an economic model of growth and production, and over the long haul it cannot remain sustainable.

As we will see later, the free market system depends on the possibility of voluntary and free political and economic choices within the framework of a fair and just rule of law. Throughout history there have been very, very few occasions where cultures and civilizations have experienced the phenomenon of the combination of political and economic freedom at the same time. Great Britain and the United States experienced that kind of exceptional freedom.

The resulting economic system did allow for the observing of what could happen if that political and economic freedom could come together and function successfully. There had never before been such a model created of economic growth, production, and expansion, and to think that the successful experiment had been realized in such a relatively short amount of time.

The exceptional results of the American experiment are largely due to the thinking and writing of several men of common ancestry divided by a large body of water called the Atlantic. They were able to compress, condense, and consolidate the dreams and the desires of the millions of people throughout the centuries who had longed for the opportunity to experience economic and political freedom.

In America, Thomas Jefferson was writing about a new nation that would be the first in history established on the principle that every person is entitled to pursue his or her own values. On the other side of the ocean, Adam Smith was writing about the possibilities of a free market where individuals could pursue their own objectives of voluntary transactions. Both believed that the role of the government should be that of an umpire and not a participant. Each believed that the pursuits of one’s own values and interests were not necessarily greedy or selfish, but necessary for everyone to end up better off.

Those men of creative vision believed that an entire group of people could move forward and achieve the goal of personal as well as national wealth. It was possible to pursue self-interest without being selfish or greedy, and the end result would be a unique model where everybody ended up better off.

Next Week: Essentials of Free Market

(Research Ideas from Dr. Jackson's writing project on Cultural Economics) 

© Dr. James W. Jackson   

Permissions granted by Winston-Crown Publishing House

Systems Matter Part 7: Self-Interest

There are really only two ways of trying to coordinate the activities of the people of this world into systems of culture and economics. First you must sell those people on a delusion and false promise that they will become better off from their buying into your offer to collectively take care of them . . . if they will fully agree to submit to your centralized system of control, even if it includes coercion; or second, by the voluntary cooperation of individuals based on the pursuit of their own self-interest.

One of Adam Smith’s keenest observations reported in his book, An Inquiry into the Nature and Causes of Wealth of Nations, is that each nation found by Smith to be wealthy was promoting an economic system that allowed for individuals to have the freedom to make choices that served their self-interests. Interestingly enough, all attempts by those individuals to enhance their own interests were, at the same time, furthering the interests of others.

Smith interpreted this to mean that individual pursuit of self-interest will unintentionally produce collective good for the general society. A system could be successful by combining the freedom of individuals to pursue their own objectives with the intense collaboration and cooperation of others in producing our food, clothing, housing, or any other conceivable need.

Smith’s insight was that both parties agreeing to an exchange can benefit and that, so long as cooperation is strictly voluntary, no exchange will take place unless both parties benefit from the deal . . . everybody has to end up better off! No coercion, no outside force, interference, or violation of freedom should impede the free cooperation of individuals, all of whom can benefit from the transaction. That is why, as Smith put it, an individual entering into a deal with another individual may intend only his own gain, but, at the same time, like an invisible hand, promote an end that was no part of his intention. That end is the simple fact that the other individual in the transaction also ends up better off. As Adam Smith would say it:

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. (1)

I discovered, in my own business dealings in our Jackson Brothers Investments enterprise years ago, that to pursue and conclude a successful business deal it was more advantageous to not address myself to the other person’s humanity or talk to him about my needs or necessities, but to the advantages he would experience should our proposed deal be put together. The deal must be good for both parties or it will not successfully go together and stay together.

If, by some stroke of good fortune, a person could ever discover the depth of this one cultural and economic principle, the fatal flaw of collective, centralized socialism would be exposed and understood. For example, the cultural economic model Marx and Lenin were unwisely espousing was a model of contraction and not one of growth, production, and expansion. It was doomed to fail from the start. Wealth is built on production. Socialistic redistribution is built on contraction.

The redistribution system keeps taking away from the corpus itself, as well as the incentive to replace it and develop new growth. At some point the redistributive model will go bankrupt. Never has it worked over the long haul. If there are human institutions, including revolutions, that can induce individuals to extend themselves for the glory goal first and their self-interest second, such earthly institutions have not yet been found.

In a communal setting, individuals will continue to put effort into the scheme only as long as the hippy endeavor is capable of giving them what they were looking for when they signed up. Individuals continue to make precise calculations of what they feel their physical and mental capital is worth in trade. They cannot be persuaded to make a bad trade over the long haul by promises of some distant reward. They may waste a few years of their life chasing the illusion, but, eventually, they will walk away from the painted hippy bus.

The collective state could not fool the shoe factory workers in Armenia into extending themselves, even though their comrade overseers fed them the deceptive hope that if they kept working with all their might, things would get better. The workers indicated to me that the most common greeting to one another as they arrived for work at the big warehouse each morning was, “As long as the comrades pretend they are paying us a decent wage, we will pretend that we are working a decent shift.”

After a certain point, workers do not intend to work harder in order that everyone else will obtain a little bit more; because that usually means that they have to give up things like leisure. That reticence is especially true where a significant part of the whole group has no intention of working harder, but still expects to receive more.

In a model based on growth and production the worker can pursue that self-interest goal by discovering and choosing an innovative way to work less but more efficiently. Suddenly some new invention or method is hatched and the same effort is put forth, but the level of production is increased. There is no such option available in the contraction or redistribution model of Marx and Lenin. People under such a system have no incentive to work harder or be more innovative because they cannot keep the fruits of their labors for themselves. Productivity inevitably falls.

In a very real sense, what my new friends in Armenia had found out was that they were being offered less for working more. It came as no surprise that continually less was being produced for the system as a whole. And even if the army boots were produced and shipped nobody could wear them. The goods did not satisfactorily meet the demand of the redistributive system. Therefore, the economic system continued to contract and did not grow. The wealth of the nation decreased.

When designing a nation’s economic and cultural system that does not allow for individuals to pursue self- interest, the leaders always eventually come to the same conclusion as did Marx, The class struggle necessarily leads to the dictatorship of the proletariat. In common language that means that more rules are imposed. More individual freedom is taken away. At the end of every violated rule is ultimately a gun.

Eventually, all the promises of the revolution run dry, the people realize that the redistributive system has gone bankrupt, and there is no such thing as free. When that happens, and there are no material rewards as incentives to expand output, the leaders must always resort to coercion, force, and punishment. The workers must then make uneconomic trades of their labors.

In the old Soviet Union, for example, the most severe penalties were reserved foreconomic crimes. Those crimes could even be as simple as bartering with your neighbor some eggs you saved out of your chicken project in exchange for a bit of coal he had not yet burned that winter. Those infractions were deemed as draining the productive effort from the official economy.

In 1961 the death penalty was reinstated for economic crimes, and even in 1966 it was reported that one fourth of all crimes in the Soviet Union involved misappropriations of state property. (2) It was state property because everything was state property. Those trades for the workers’ labors did not conform to the imposed ideology.

There is a positive correlation between economic freedom and prosperity. The genius of the free market concept is that it does not try to coerce or compel the individuals to work. Instead, leaves the individuals free to choose to work and it rewards their work by letting those individuals keep the fruits of their labor. Back in 1776, Adam Smith reported it this way:

That security which the laws in Great Britain give to every man that he shall enjoy the fruits of his own labour, is alone sufficient to make any country flourish . . . The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security, is so powerful a principle, that it is alone, and without any assistance . . . capable of carrying on the society to wealth and prosperity.(3)

Indeed, systems matter!

Next Week: Self-Interest vs. Selfishness

(Research ideas from Dr. Jackson’s new writing project on Cultural Economics)

© Dr. James W. Jackson   

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Systems Matter Part 6: A Productive Nation

In retrospect, the economic part of the Marxist/Leninist plan of total revolution in 1917 was pathetic . . . almost laughable. They knew nothing of economics or running a business, let alone a nation, or more ludicrous, the world. If you have been reading just these posted weekly articles over the past four years, you already know at least ten times more about economics and business than did Marx, Engles, Trotsky, and Lenin put together!

The communist coterie was so concerned with the total revolution and the smashing of all Russian systems that no serious thought at all was given to the basic systems of managing the economics of a nation. . What shall the dog that is chasing the car do with the car should he catch it?

The junta was desperately preoccupied with killing the czars and their families and grabbing the uncalculated wealth of the Czar’s golden egg. They just knew that if they could capture the treasure chest of the wealth that was stored somewhere, they could spend their time and creativity in distributing the booty and controlling everything and everybody forever. They never gave a worry about the question fromwhence cometh the golden egg? They figured that the golden egg was stored in the banks and they would own the banks. They just presumed that business would simply run itself as it always did, only they would own it and there would be no bourgeoisie involved. Obviously, the businesses were too big to just fail!

Karl Marx’s theory was that someday soon all proletariat workers around the world would angrily rise up en masse and kill the bourgeoisie bosses. They would get sick and tired of the bosses exploiting them because they were cheating every worker. The claim was that the bosses always kept the surplus value of a commodity that was created by the worker. That was theft.

That generalization was based on Marx’s misunderstanding of how the real world works. He touted that the value of a product should be determined only by the value of the labor that went into producing it. Only the laborer was entitled to receive the proceeds from the commodity or product produced, and there should be no such thing as surplus value for the bourgeoisie bosses to steal.

The conclusive answer for Marx was to let the proletariat own everything, and then it would not be necessary or possible for the rich bosses to get their hands in the middle of the process and steal the money rightly deserved by the workers. There would no longer be any expenses such as rents, costs of raw materials, utilities, or anything else, because the workers would own everything themselves, and everyone could keep and divide the entire value generated by all efforts. There would only betrue value. There would be no such thing as surplus value.

Of course, it would never work. But with the frenzy, the emotion, and the very idea that all the people would be wealthy and all their wants supplied, they were moved to action. No one else would have anything more than what someone else personally possessed. That line of emotionally charged promises bought out the very souls and brains of the proletariat peasants. Because of their personal desire to receive something for nothing, and the hope that the government would take care of them from the cradle to the grave, they were convinced to pick up guns and kill those who would dare keep them from receiving their promised dream.

Neither Marx nor Lenin understood that it wasn’t just the hours of labor of the proletariat workers that determined the value of a commodity or product. Perhaps they did not wish to understand, if understanding limited the possibility of their dreams of total revolution coming true. The leader’s wild rhetoric implied that after the revolution the proletariat would be in total control of the new world. But the politburo never entertained another thought different from Marx’s own words that The class struggle necessarily leads to the dictatorship of the proletariat. Vladimir Lenin would be that ruthless dictator at any cost. The resulting power and spoils would be his personally, if only the revolution could be successfully accomplished.

Even when it dawned on Lenin and the revolutionaries that there would be some management required after their successful and bloody revolution, Lenin calculated it to be no problem at all. They were the revolutionary leaders, and the politburo consisted of the elite thinkers when it came to all things concerned. Their intelligence would figure out the answers to such simple and bothersome matters as business and economics.

The all-wise comrades finally formulated a plan of economic management called theGosplan. Gos was an abbreviation for the Russian word for government: thus, the Government Plan. Gosplan figured out the strategy. Gosten figured out and set prices. Gosnab decided the allocation of the supplies, and Gostude handled issues of wages and labor assignments. It seemed to be a right-tidy management package.

Gosplan was designed and written for a five year model. The plans never worked! They tried to modify them to one year. That never worked. The truth is that communism and resultant socialism has never figured it out.

Can you even imagine the egoism and arrogance necessary to believe that you personally, or even your appointed Gosplan group, could successfully coordinate such an assignment? The complexities of trillions of necessary decisions to be centrally made would be an administrative nightmare.. You could never get it right.

In the country of Armenia, I stood in a very large building that had been formerly used as a leather processing plant and a facility for manufacturing of shoes. The old Soviet Communist forces that had occupied the country and run the shoe operation had long since pulled out and returned to Russia. But some of the old workers had subsequently gone back into the old building and started up a leather processing plant and a shoe factory on a free market basis where they owned and operated the business.

Through my translator I engaged the successful owners in a long and revealing conversation. I wanted to know how the Gosplan functioned under the communists. They laughed aloud. It didn’t! They told me that a large number of people were assigned to the shoe manufacturing part of the operation. Some people were assigned to stamp a pattern on the leather, others cut out the leather pieces, others sewed the upper part of the shoes together, and others were in charge of stitching the bottom soles onto the uppers and pounding an appropriate heel on the shoe. Other people were assigned to dying the entire shoe, drying them and packaging them in large crates, which were shipped off to somewhere and stored in warehouses. Everyone had a quota to meet.

But the constant problem was that, more times than not, all the workers just sat around and sipped vodka. Something would break down in the leather curing and tanning operation and there would be no leather available for making shoes. Many times the leather operation would never receive the horse or cow hides because the butchering plants never had enough animals to kill and skin out.

They explained that the reason for the shortage of the animals was because they had miscalculated in the Gosplan how much hay and grain it was going to take to feed the animals, and even if the animals had produced babies, the offspring would die, which would affect the proper number of animals that were needed for the years to come. If they didn’t have enough feed for the animals, or the weather was not cooperating with the Gosplan, then everybody involved in the whole leather and shoe production could only sit and wait for someone to figure out how to revise the Gosplan.

No one really cared whether they produced the number of tons of shoes or the number of animal hides required, or for that matter, the amount of hay required each day to feed the animals. It wasn’t their fault or concern if someone down the line or up the line messed up. They received the same kind of housing, the same quality of clothing, the same allotment card for the same kind of bread and the same measured handful of vegetables whether there were any shoes produced or not.

One of the new entrepreneurs was laughing and slapping his knee as he recalled for me an incident that had taken place right there in that old facility under the management of the Soviets and their Gosplan. Their shoe operation had been assigned a quota to produce a given number of tons of military boots for the Soviet army. They were to be manufactured by a certain date, placed into huge crates, and shipped to a central warehouse. The orders from the Gosnab planning group of theGosplan central committee had not stipulated what size the shoes should be, the style, or the color . . . just so many tons of military boots.

“Guess what we did,” my new friend howled. “We found the heaviest leather we could find and made every one of the pairs of boots size fifteen with no dying of the leather, placed them in huge crates, and let the Soviets pick them up and deliver them to their destination! They could figure out who else they wanted to make the smaller sizes. When the loads arrived at the central warehouse, the Gosplan people actually sent us a commendation and some vodka for having met our quota of tons, but no army could have ever worn those huge boots.”

Next Week: Systems Matter: Part 7: Self Interest

(Research ideas from Dr. Jackson’s new writing project on Cultural Economics)

© Dr. James W. Jackson

Permissions granted by Winston-Crown Publishing House

Systems Matter Part 5: Investigation into Free Enterprise

In the year 1776, a unique serendipity occurred that eventually affected the cultural economics of the world. The unusual occasion, however, could never have taken place had King John not signed the Magna Carta at Runnymede, England, in 1215. That proclamation of emancipation for the first time established a constitutional underpinning that the power of the king could be limited by a written document. Historically, that agreement became the cornerstone of freedom and the main line of liberty against arbitrary and unjust treatment of the citizens of a nation state. 

In 1776, Thomas Jefferson articulated the Declaration of Independence expressing the general thinking and desires of his countrymen. There would be a new nation formed upon the vision of the Magna Carta, established on the principle that every person is entitled to pursue his or her own values.

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights: that among these are Life, Liberty, and the pursuit of Happiness.”(1)

The other component of that 1776 serendipity was the economic masterpiece that was published in Great Britain March 9 of that same year. Adam Smith was a brilliant and energetic professor well trained in the early concepts of economics. Smith was intrigued as he pragmatically viewed the cultures and economics of the different nations of the world. I like to think of Adam Smith as the first ever cultural economist. He was not only concerned about the charts and matrices of the discipline of economics, but was also concerned about people, jobs, human desires, motivations, factories, and systems. 

Adam Smith’s intellectual curiosity drove him to seek the answer to a fascinating cultural economic question, Why are some countries rich and other countries poor?He was willing to travel and simply observe and research and then compile and report. He did not just sit back and conjecture or speculate. He did not simply rely on the jaded propaganda of the politicians. He was not trying to figure out an economic and political scheme to control the world. 

Smith was not coming from a position, as was Karl Marx, where he felt his true calling in life was to debunk, destroy, and overturn the world as he had found it. Neither was he coming from a position like that of Vladimir Lenin, where he was driven to follow a different path. That path had led Lenin on a sick and vindictive payback scheme for the Czar’s hanging of his brother for the attempted assassination plot. Lenin had vowed to totally destroy, through a Marxist-style uprising, every vestige of Russia’s culture and economic system through total revolution. Adam Smith simply wanted to find out and report the answer as to why some countries were rich and some were poor. 

In 1776, Adam Smith’s findings were published in his book An Inquiry into the Nature and Causes of the Wealth of Nations. That book established the Scotsman, Adam Smith, as the father of modern economics. He felt that “The theory that can absorb the greatest number of facts, and persist in doing so, generation after generation, through all changes of opinion and detail, is the one that must rule all observation.”(2)

From their experiences and observations, Adam Smith and Thomas Jefferson were each aware that concentrated government power could be a great danger to the ordinary man. They saw the protection of the citizen from the tyranny of the government as a necessary and perpetual need. Adam Smith observed that “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.”(3) 

Based on Smith’s observations regarding the role of government in the affairs of a nation, he concluded that it was “first, the duty of protecting the society from the violence and invasion of other independent societies; second, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice; and, third, the duty to erecting and maintaining certain public works and certain public institutions, which it can never be for the interest of any individual, or small number of individuals, to erect and maintain: because the profit could never repay the expense to any individual or small number of individuals, though it may frequently do much more than repay it to the great society.”(4) 

So, in the nations that were viewed as better off, the functions of the governments were intentionally more restricted to protecting the civilians from enemies from without, protecting the civilians from each other from within, and establishing and maintaining certain public works that could not be offered by limited individuals. 

Other principles that emerged from Smith’s observations and recorded in his book were:

  • The basic assumption that the prime psychological drive in man as an economic being is the drive of self-interest
  • He assumes the existence of a natural order in the universe which makes all the individual strivings for self-interest add up to the social good
  • The best program is to leave the economic process severely alone (non-intervention)


One more helpful insight that is gleaned from Smith’s report in the Wealth of Nationsis that his definition of real wealth is the annual produce of the land and labor of the society. In other words, he sees production, or the ability to produce income, or theper capita income of a nation, as the determination of the true wealth of that nation. A nation that can produce high levels of income is wealthy. One that is capable of only low levels of income is poor. 

But what is it that allows a nation to create a high level of income? Smith declares that the answer to that question is a simple one. The key to a wealthy nation is a productive nation. A productive nation is based on an economic system of individual freedom. The key lies in a system of free enterprise. 

Indeed, the serendipity that came together in the year 1776 initiated a glorious experiment in economic and cultural freedom that has expanded the hopes, dreams, and expectations of the pragmatic and spiritual world of culture and economics. What now should we do with this system . . . with this dream? 

Next Week: Systems Matter: Part 6: A Productive Nation

(Research ideas from Dr. Jackson’s new writing project on Cultural Economics)

© Dr. James W. Jackson   

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Systems Matter Part 4: Marx, Communism, and Cultural Economics

Before we move forward, I would like for us to realistically consider the radical transformation that took place in Russia as a result of Lenin’s Bolshevik revolution. In previous articles we have made the statement that all transformation takes place at the intersection of culture and economics.

It is difficult for us to comprehend what actually happened when Lenin uncompromisingly pushed for the communist agenda of totally smashing the entire culture of Russia. It was total revolution, the destruction of all systems, a declaration of complete and new ownership of all assets, all accumulation, and all wealth and value. It was an unchallenged authority with full power that would determine what each individual would access, consume, possess, or utilize. That power would determine where the individuals would live, what they would eat, the clothes they would wear, what they would read, and even what they would think or talk about.

In prior discussions we have addressed the economic components of land, labor, capital, and the entrepreneur. All of the land and production of Russia was no longer allowed to be held or even influenced by any such things as market factors or individuals. All actions of labor and work would be directed ultimately by the politburo. All capital, including personal property, all livestock, all machinery, all furniture or utensils of work would be owned, possessed, and managed by the elite politburo. As for the entrepreneur . . . there would be no such thing.

On the cultural side of the matrix, traditions would be abolished. Those institutionsthat carried forward those traditions would no longer legally exist. The family would be restructured and the individual would be melded into the seamless whole of the communist party.

When I think about the profound and primal transformation that took place at the very announcement of Lenin– when he declared that the Soviet government under the direction of himself, the politburo, and the enforcing management of the soldiers, the peasants and the workers– I am reminded of the scene from the film Dr. Zhivago.

When Dr. Zhivago returned to his home in Moscow, from having been conscripted to treat the wounded and medically needy of the Red Army, he was met by a houseful of newly entitled citizens who now had equal possession and management of what had formerly been his family’s home. Zhivago, his wife, and her parents had been relegated to a very small area for their living quarters. The new inhabitants were even going to hold court when they discovered that the doctor was going to use some of the wood that he had formerly owned to burn in the small stove. No longer was the wood his, neither was the stove his, nor the house!

I have tried to picture in my mind and vicariously experience with my emotions the impact of that day of announcement. The Russian economy and culture bear the stripes of inefficiency, shortage, and lost opportunity to this day.

The Chinese, in the aftermath of their Cultural Revolution and bout with communism, have been forging ahead trying to rediscover the secrets to efficiency and abundance. Russia continues to reject the phenomenon of efficient production and abundance. When it runs out of the supply it has taken from the czars, stolen from its close neighbors, or pillaged from all the old members of the former Soviet Federation, President Putin can only resort to the one strategy Russia knows for accumulation of wealth: theft by appropriation, or simply, theft.

When you don’t produce things then you must resort to taking wealth by stealing. Russia is once more embarking on the old strategy of stealing through the practice of expansionism. They must now have, again, the wealth of Ukraine.

I recall riding in an automobile near Sinuiju City on one of my trips to North Korea. As I viewed the countryside quilted with rice paddies and rectangular concrete communist housing units, I was plagued by a menacing thought. Finally, I decided to risk asking one of the communist leaders in the car this probing question:

“This is beautiful land for agriculture. I would suppose that before the Marxist revolution it had been owned continuously by four or five generations of families in succession. What was the response of the families who had owned the land for so long when Great Leader Kim Il Sung announced that they no longer owned the land, tore down their homes and dwellings, and insisted that everyone move into the rectangular concrete buildings?”

“Oh, it was a wonderful day,” was their scripted reply. “Dr. Jackson, there is no way you can understand how eager everyone was to respond to Great Leader’s glorious announcement that now no one owned anything, but everyone owned everything. From that day on Great Leader Kim Il Sung would personally take care of all of our needs. No one would be in want of anything. They were all so happy to move into their new homes with others who would be tending the communal rice fields together with them.”

I quietly continued my research over the years and discovered that the problem of surrendering the family inheritance was simply solved by graciously allowing the family members to hint at an attitude of protest only once. They were murdered. At that point the rice production strangely fed a higher percentage of the population than before. As the years have gone by the sad truth is that the population has decreased but the production has dwindled until there is not enough rice produced to even feed the hungry population, to say nothing of having any excess to sell to eager international buyers. Systems matter!

Next Week: SYSTEMS MATTER Part 5: Investigating Free Enterprise.

(Research ideas from Dr. Jackson’s new writing project on Cultural Economics)

© Dr. James W. Jackson   

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Systems Matter Part 3: From Theory into History

In this intriguing saga of cultural economics and social systems one more player needs to be introduced. Vladimir Lenin was the founder of the Russian Communist Party, the Leader of the Bolshevik Revolution, and architect of the first ever Soviet state. Had it not been for Vladimir Lenin, it is very probable that the theoretical writings of Marx and Engles would have remained as interesting conjecture and late night reading material. But it must also be said that without the systemized writings of Marx and Engles, Lenin would not have had the articulated basis for his brash and flawed experiment of organized communism.

The name Lenin was an alias. He was born Vladimir Llyich Ulyanov in 1870, three years after Marx had written Das Kapital. The oppression of the Russian culture had radicalized the entire Ulyanov family, and all eventually became involved in acts of revolution. Vladimir’s oldest brother Alexander was hanged for participation in a terrorist bomb attack in an attempt to assassinate the Czar, Alexander III. His brother’s execution is considered the tipping point for Vladimir’s overwhelming determination to succeed in his lifelong revolutionary exploits.

A picture entitled We Will Follow a Different Path portrays Lenin and his mother grieving over Alexander’s hanging, and for Vladimir that meant absolutely embracing the Marxist approach for total revolution and communism. It was Lenin who translated the writings of Marx and Engles into the Russian language. In 1889 Lenin declared himself a Marxist communist and said, “Give us an organization of revolutionaries and we will overthrow Russia.”(1)

Marx and Engles, as well as Lenin, saw the wealth and opulence of the Czars and the bourgeoisie class in Russia and Europe as an “object” or a thing. They truly believed that if the proletariat would finally become poor enough and hungry enough they would rise up en masse against the wealthy, plunder the riches, grab the golden egg of the Czars, and once and for all eliminate the upper class. Then they would be free to take their newly acquired goods, redistribute them amongst the proletariat, and they would all live happily ever after.

In order to see the plan successfully accomplished, it was absolutely imperative that there be a total revolution, a dismantling of all systems, a declaration of new ownership of all wealth, and the announcement of a fair and equitable plan for redistribution.

In 1905, the Czar Emperor Nicholas II became embroiled in a bitter war with Japan. The Russian rag-tag army lost nearly every battle and suffered debilitating casualties. The Russian people were sick of the war and sick of the costs of the conflict that left the economy in shambles. The famine and starvation that followed drove the people to the streets in protest of the Czar’s failures and a representation formally gathered to submit petitions of protest to the Emperor. The Emperor’s soldiers summarily shot and killed the bearers of the petitions. The stage was set for a rebellion and revolution.

But the Emperor moved quickly and agreed to concessions including the creation of a people’s elected legislation assembly called the Duma. Was it possible that could have been the turning point in history as much as King John of England agreeing to the signing of the Magna Carta at Runnymede?

The Magna Carta had been in place in England and had proven to be the cornerstone of liberty, and a viable defense against arbitrary and unjust treatment of the citizens, and the framework of liberty and enterprise. Was Czar Nicholas II not moving in the same direction? Would that model not have become Russia’s correction burn and opened the door to the free world and prosperity?

We will never know. Lenin returned to Russia from self-imposed exile. He was driven by the fear that an absolutely good revolution could go to waste. He was consumed by the memory of his hanging brother and his vow of total revolution and the crushing of all existing systems by the Marxist creed.

There might never be another prime opportunity for the violent overthrow of the Russian government to take place and the Marxist/Leninist experiment of communism instituted. What a shame it would be if the Menshevik Party could settle the dispute and receive from the Czar not only a sign of willingness to a movement toward reconciliation and representative government, but openness to ideas of democracy and free market.

There was too much historic potential to lose. Marx had propounded that the total overthrow of the Czar and the confiscation and control of everything would set communism in a position to also seize full control of the world by surrounding and isolating the capitalist nations of the west and also bring them to their knees. Resistance to Lenin was from the Menshevik Party. They feared that Lenin’s plans would lead to a one man dictatorship. In response, Lenin organized a separate entity with uncompromising mandates of total revolution and control. He now appealed not only to the peasants and the workers, but especially reached out to Russia’s discouraged and disenfranchised soldiers of the Czar.

Lenin was determined to win at any cost. He implemented tactics of terror and genocide to secure his power base. He initiated Red Terror to violently wipe out all opposition within the civilian population. The unchecked war between the revolutionary Red Army and the loyalist White Army raged for another three years.

The Czar and his family were deposed in 1917. They were whisked away and assassinated without hearing or trial. Lenin then proclaimed that Russia was a Soviet government ruled directly by soldiers, peasants, and workers. The people rejoiced. Lenin had won the revolution and had established the first ever Soviet Communist State.

Vladimir Lenin suffered two strokes in 1922, thought to be the result of the doctors not being able to remove bullets that were lodged in his body following a failed assassination attempt. He died in 1924 following another stroke at the age of 53. Joseph Stalin assumed the leadership of the communist Soviet State. He proved to be even more despotic and violent in his leadership than was Lenin. But he cleverly was able to solidify the population of Russia by encouraging a cult-like atmosphere that glorified the theories and teachings of Lenin that had been based on the writings of Karl Marx and Friedrick Engles.

Next Week: Systems Matter Part 4: Marx, Communism, and Cultural Economics

(Research ideas from Dr. Jackson's new writing project on Cultural Economics)

© Dr. James W. Jackson  

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Systems Matter Part 2: Poles Apart

What is the most efficient method possible to successfully utilize the resources of planet earth in order to meet the needs of the planet’s inhabitants? Each answer will reflect the varied respondent’s world view. Two diametrically opposed views are represented by two different men who lived almost exactly a hundred years apart.

Adam Smith was a well trained and intuitive economist and teacher. He was raised in Scotland and influenced by an agrarian and mercantile culture that operated under the British monarchy. The country also operated under the significant prominence of the Magna Carta.

Until 1215, kings and queens had ruled England with an iron hand. But then, King John’s rebellious barons won from the monarchy a series of concessions that established for the first time a paradigm- shaking, constitutional principle. The signing of the Magna Carta established for the first time that the power of the king could be limited by a written document. It is historically considered the first nationwide emancipation document that became the cornerstone of liberty and the mainline defense against arbitrary and unjust treatment of the citizens.

In his studies, Smith became intrigued with the question “why are some countries rich and other countries poor?” It appeared that some countries experienced relative wealth and others knew only misery and poverty. Why did that difference exist?

Adam Smith’s intellectual curiosity compelled him to travel the world and conduct his research. Perhaps he could discover the reason why some countries were rich and others poor. Currently, most people just abbreviate the title of his book and refer to it as Wealth of Nations. But the true title of his book is An Inquiry into the Nature and Causes of the Wealth of Nations. His work explains what he found to be successful components of economic systems that were producing wealth for their nations and satisfaction for their constituents.

A hundred years later, on the other side of the world, another intellectual was writing. He, too, was writing within the context of his world view. Karl Marx was born in 1818 in Prussian Rhineland. The Marx family was Jewish, but disconnected from their Jewish faith. Karl’s father was appointed a local magistrate a year after his formal conversion to the Evangelical Lutheran Church. Karl Marx received no formal Jewish education, but his Jewish self- consciousness was unavoidable.

Marx’s educational background was eclectic and scattered. The doctoral dissertation that he presented to the University in Jena in 1841 was entitled The Difference between Democritean and Epicurean Philosophies. Young Karl Marx felt his task of philosophical reason was to

“Criticize whatever exists, whether in social institutions, religious doctrines, or the realm of ideas, for what exists is limited, always incompletely rational, and politically open, illusions, self deceptions, group delusions, plain factual errors were to be exposed, the incompletely rational, the spurious, and the idolatrous would be recognized, and partly by being known, righted .”

Philosophy, for Marx “turns itself against the world that it finds.” In 1842 he became first a contributor, then the editor of a politically extreme newspaper in Cologne, where he met Friedrick Engles, the son of a wealthy fabric manufacturer and merchant. A year later they moved to Paris and aligned themselves with French radicals and communists. In 1849 he was deported from France and moved to London.

Except for the brief time with the radical newspaper, Marx was unemployed and earned no money to support his family. For the rest of his life, Friedrick Engles had to give Karl Marx money to keep him in housing, clothes, food, and necessities for his family. In 1848, they together wrote Manifesto of the Communist Party, and in 1867 Marx wrote Das Kapital. The following is an example of Marx’s views regarding free market capitalism: 

''The bourgeoisie, wherever it has got the upper hand, has put an end to all feudal, patriarchal, idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his ‘natural superiors’, and has left remaining no other nexus between man and man than naked self-interest, than callous ‘cash payment.’ It has drowned the most heavenly ecstasies of religious fervour, of chivalrous enthusiasm, of philistine sentimentalism, in the icy water of egotistical calculation. It has resolved personal worth into exchange value, and in place of the numberless indefeasible chartered freedoms, has set up that single, unconscionable freedom — Free Trade. In one word, for exploitation, veiled by religious and political illusions, it has substituted naked, shameless, direct, brutal exploitation.''

Karl Marx spent his lifetime fully expecting that the masses of the world were going to suddenly and violently rise up at any time and completely abolish all elements of freedom, capitalism, and free trade in exchange for the redistribution of the wealth that they had not earned but could now suddenly possess by murder and brute force.

Even though the rhetoric continually emphasized that the governance of the proletariat would be carried out by the masses of the workers themselves, at the top there was never any question that a small group of elite thinkers and philosophers, the politburo, would be in total control of determining just how equal all the “equals” would be. Marx’s claim was that “the class struggle necessarily leads to the dictatorship of the proletariat.”

The most important principle of communism is that everyone is one and no private ownership of property or production is allowed. Previously accumulated wealth, property, and all means of production, as well as all wealth flowing from future production, is to be held by everyone and distributed to everyone equally, “from each according to his abilities, and to each according to his need.”

Additionally, under communism there is an abolition of all rights of inheritance; emigrants and rebels lose all property rights; all procedures of banking and credit are centralized and owned by the state, as well as are all means of transportation, communication, and education. Each person voluntarily submits to the state to determine occupation, education, residence, and lifestyle. Religion is outlawed and resistance to the state is punishable by death.

But there was always the enduring confidence promoted that through communism’s economic and political system of equality, protection, fatherly care, and provision for everyone, there would be lasting personal peace and sufficiency forever.

Next Week: Investigating Free Enterprise

(Research ideas from Dr. Jackson’s new writing project on Cultural Economics)

© Dr. James W. Jackson  

Permissions granted by Winston-Crown Publishing House