"Socialism" and "capitalism" are the same

[Thesh]

Okay, trying to understand this here.

- Individuals put their money in banks, presumably because it pays some interest.
- The bank lends that money to cooperatives expecting to make more interest so the bank can turn a profit (the cooperative pays back the loan plus interest from their profits).
- If the cooperative fails, the bank gets the money back from the cooperative's assets. If the cooperative doesn't have enough assets (which is very likely in the case of a start-up) they get that money from... who?

Banks can take a loss. They charge interest at inflation + risk.

You said "banks and insurance companies take on the risk itself" (presumably insurance the bank is paying for?), which I think means they get the money from no one, right? The bank just eats the loss, or their insurance does. Seems to me, that just means they'll just need to charge higher interest rates to make sure they get their money back.

The model I'm personally in favor of, but by no means the only possible model, is one where every loan is insured 100% by the borrower (this is for the sake of decentralized fiat currency). The bank would lend out at inflation, and have no real risk. The insurance company would be responsible for recovering the money, and the banks would just be concerned about customer service.

You also said that "[the entrepreneur] can take on some of the risk if they want, but they don't have to", so if a bank wanted to charge a lower interest rate on the condition that you cosign against your personal wealth, that be allowed, right?

Correct. You may also choose to co-lend if you have money.

I think I might not be understanding the fundamental difference between what you're describing here and capitalism. Seems like there are two main differences:
1) All businesses must be cooperatives, owned equally by the workers.
2) All land is owned by "the community" and is rented rather than owned by businesses and private citizens.

Businesses would be democratically owned by workers or consumers, yes; it's still a market system, so not much changes in that regard. There are many models for land ownership; some are occupation based, but I prefer one where it is rented.

Could you define what role the community plays in this system, apart from land ownership/taxation through rent? Are they the lawmakers as well? What levels of government exist in this system, and is there a level of government above the banks?

The community is just the people. Government, I'm not too concerned about. Most everything about market socialism can work in our society today with our laws, or even an anarchist system of government.

I was under the impression that you were thinking this system was meant to address some injustice; I'd been presuming that was wealth inequality. Is that the goal?

If so, I don't really see how that is addressed, exactly. Seems to me that a successful company will be making more money, therefore their workers will be making more money. Let that simmer for a century or so, and I imagine you could end up with great inequality, especially if individuals are not taxed directly, but are allowed to have personal wealth (just no land).

Most of our inequality is not from wages, it's from property income. Most of our wage inequality is caused by direct attempts to limit opportunity for the sake of creating profits. If your rand is rented, you can pay our a social dividend that pays everyone equally, and the more centralized the ownership the more equal the wealth overall. Democratically owning the businesses, either as workers or consumers, means that you have more equal power over the business. For the most part, the incentives of capitalism - people seeking to make more money than they can make by working a regular job - are what cause the inequality.

[trpmb6]

One question I have is, in your economic model; what drive's innovation and change? Who decides to reallocate resources from already existing demands to pursue these things?

Well, first off, in my experience as a programmer the vast majority of innovation is shower thoughts done by people solving problems that they come across in their job. They never think "What's it worth to solve this problem?" they just... solve it. Most of the patent trolls are going after this type of innovation. It's also my experience in a capitalist economy that unless the government throws massive amounts of money at it, then it doesn't happen - the people who benefit also look to solve those problems. The crowdsource model shows that even with this high level of inequality, people will organize and work together to get the things that they want.

I agree, a lot of innovation happens at the ground level and the effects are usually immediate - therefore every rational person wouldn't bat an eye at it.

I guess I'm just thinking too much into this aspect - even for say a brand new jetliner with all new tech that takes 10 years to develop - you're still doing it for the reason that it will be say 15% more efficient than whatever it is replacing. The difference between capitalism and socialism might be that the capitalist sees a potential for profit by making a more efficient plane, where as the socialist sees it as a betterment for everyone because of an efficiency increase. Is that an accurate assessment in your view?

[Thesh]

With the jetliner, if it's more efficient then the airlines will fund them themselves, as it will result in either lower prices (consumer co-op), or higher wages (worker co-op). I also like a futures model for risky investment i.e. fund clinical trials with a futures contract conditional to the success of the trials (buyer must purchase x units at $y if trial is successful, pharmaceutical company eats loss if failure).

[SDK]

Most of our inequality is not from wages, it's from property income. Most of our wage inequality is caused by direct attempts to limit opportunity for the sake of creating profits. If your rand is rented, you can pay our a social dividend that pays everyone equally, and the more centralized the ownership the more equal the wealth overall. Democratically owning the businesses, either as workers or consumers, means that you have more equal power over the business. For the most part, the incentives of capitalism - people seeking to make more money than they can make by working a regular job - are what cause the inequality.

Does property income outstrip investment income in our current economy? Given that my money is invested in companies rather than land, and guys like Warren Buffet are rich primarily due to investments, I assume investment income is the big one.

That still exists in your society ("you may also choose to co-lend if you have money"). Those with more money will make more money, and the power of decision making is in the hands of individuals or banks, not the community. I don't see how you can call this socialism. It feels more like you're just taking capitalism and cutting the edges off to leave more community-oriented options as the only legal way forward. That's fine, but it's not socialism.

You mentioned crowdsourcing earlier, and I feel like that's a much healthier source of investment income than banks for a market socialist economy (if the crowdsourcing is coming directly from a source of pooled resources, which is what I thought you were advocating for at the start of this conversation). The community needs some power to push the market in a desired direction, and the individual must be taxed personally to some extent if you're going to try to prevent wealth inequality. The people need some direct stake in these businesses, otherwise you've just got capitalism.

[Thesh]

Does property income outstrip investment income in our current economy? Given that my money is invested in companies rather than land, and guys like Warren Buffet are rich primarily due to investments, I assume investment income is the big one.

I'm including stock ownership as "property" here.

That still exists in your society ("you may also choose to co-lend if you have money"). Those with more money will make more money, and the power of decision making is in the hands of individuals or banks, not the community. I don't see how you can call this socialism. It feels more like you're just taking capitalism and cutting the edges off to leave more community-oriented options as the only legal way forward. That's fine, but it's not socialism.

In this case, the banks are owned by depositors. So you're borrowing from the individuals within the community. The reason that it's not capitalism is that you don't really earn money on your money - if your money sits in the bank, the real value of that account remains unchanged. It's just that if you sit on money and don't lend it or spend it, then it loses value over time.

Capitalism and socialism are just the models for which control of property is decided. The beauty of market socialism is that it isn't that different from capitalism, and you can easily transition from a capitalist to a market socialist economy.

The difference is that in a market socialist economy, the only real way to increase your wealth is to earn wages.

[Pfhorrest]

The difference is that in a market socialist economy, the only real way to increase your wealth is to earn wages.

"QFT" is a dumb thing kids on the internet say, but I find myself wanting to say it here. This is a very good concise summary of the matter.

[trpmb6]

I sometimes look at the Bezos and Buffets and think about what their wealth numbers really mean. Bezos (as of today) is around 144 billion in net worth. But his annual compensation as CEO is only 1.8 million a year (Of this 81,000 was salary and the rest bonuses - someone should probably call the IRS about this because I feel like he is skirting FICA by doing that). That's a paltry sum compared to many CEO's in today's world. His net worth is almost entirely locked up in the 80 million shares of amazon stock he owns. Amazon does not pay dividends which is a little unusual considering their market cap and revenue levels.

So to my point. Bezos is lauded (or decried) as the richest person on Earth. Yet realistically almost all of that is invested in Amazon. And he can't just instantly sell all of that. So is it fair to say he is the richest person on Earth? Is it fair to say that all that money is invested in that company for the betterment of all the workers? As an aside - what would happen if he did try (supposing the board approved it) to sell all of his stock at once. Would the company itself survive such an action?

[Pfhorrest]

this is not a reply to the above but something i was going to edit into my own post

another quick way of summing things up could be i think: the important difference socialists are concerned with eliminating is not that between people with good jobs and people with shit jobs; but that between people who need jobs, be they good or shit, and people who don't need jobs at all.

(of course there's a spectrum, not a hard line, between the former and the latter, and a better job will make it easier to move toward the latter on that spectrum, but that's not the point).

[trpmb6]

Really the one thing i've struggled with the most is somewhat along those lines. Shit jobs vs jobs requiring highly specialized skills vs how do you get people to do both without it being unfair

[Tyndmyr]

Most of our inequality is not from wages, it's from property income. Most of our wage inequality is caused by direct attempts to limit opportunity for the sake of creating profits. If your rand is rented, you can pay our a social dividend that pays everyone equally, and the more centralized the ownership the more equal the wealth overall. Democratically owning the businesses, either as workers or consumers, means that you have more equal power over the business. For the most part, the incentives of capitalism - people seeking to make more money than they can make by working a regular job - are what cause the inequality.

Does property income outstrip investment income in our current economy? Given that my money is invested in companies rather than land, and guys like Warren Buffet are rich primarily due to investments, I assume investment income is the big one.

Home rentals in total cost the US 485b in 2017, or approximately 2.6% of GDP.

That said, if one counts stock ownership as "property income", the numbers would look quite different. It's an odd accounting, but stocks are ownership after a fashion. In any case, whoever is in charge of Thresh's system owns 100% of the property, and the rest, none. The property is still owned, but very few people own property.

In this case, the banks are owned by depositors. So you're borrowing from the individuals within the community. The reason that it's not capitalism is that you don't really earn money on your money - if your money sits in the bank, the real value of that account remains unchanged. It's just that if you sit on money and don't lend it or spend it, then it loses value over time.

I do not see why anyone should wish to deposit or own such a bank. Also, the final two sentences contradict. If the real value of your account remains unchanged, that is inconsistent with losing value over time.

As an aside - what would happen if he did try (supposing the board approved it) to sell all of his stock at once. Would the company itself survive such an action?

Well, he'd need to find one or more buyers. In general, it is difficult to divest large volumes of a given share at the current price. Insufficient buy orders. If he insisted on selling it all immediately at whatever the market price is, rationality be damned, the stock price would immediately drop harshly, and he would get vastly less than the price you see reported. The company would probably be okay, but the change in leadership would probably matter in cases where leadership goes along with stock.

[trpmb6]

Well, he'd need to find one or more buyers. In general, it is difficult to divest large volumes of a given share at the current price. Insufficient buy orders. If he insisted on selling it all immediately at whatever the market price is, rationality be damned, the stock price would immediately drop harshly, and he would get vastly less than the price you see reported. The company would probably be okay, but the change in leadership would probably matter in cases where leadership goes along with stock.

Which kind of leads me to my set up for this in that - really - he isn't worth 144 billion dollars at all. Because he can't do anything with that money.

[Tyndmyr]

Well, like anything else, financial reporting is often pretty rough if you know more about it than the writers. The same is true of other news, I cringe a bit when reading a lot of discussions of technical things. You get some good writers, then you get some pie in the sky BS like solar road fans.

Generally, the super-rich have their wealth mostly sunk into productive things to help society. Depending on the individual, they may not have a ton of liquid funds at all.

[SDK]

I'm including stock ownership as "property" here.

Okay, but a company selling stock is kind of similar to a loan at the end of the day, in that both are raising funds for the company. I don't see much difference between your company being a million dollars in debt to me vs. me directly owning a million dollars worth of your company. The loan has a fixed rate of return, the stock has an expectation of growth, but in both cases I'm giving the company money for the expected interest. In both cases I'm making money because of your work, not mine - all I take on is the risk.

In this case, the banks are owned by depositors.

Ah, right, that makes some sense. I was thinking the bank was owned by the workers, but if the depositors are making their interest directly from the banks investments, that's cool. The community is the bank then, to some extent - they decide who gets funding.

The difference is that in a market socialist economy, the only real way to increase your wealth is to earn wages.

I'm not seeing this, maybe because I don't understand this next quote:

The reason that it's not capitalism is that you don't really earn money on your money - if your money sits in the bank, the real value of that account remains unchanged.

I own a portion of the bank by depositing my wealth there, right? I assume if I've got $1000 in the bank, I own a larger share of this cooperative than the guy who's got $1 in the bank. Since I am a partial owner, surely I get some share of the profits just by virtue of having my money there, correct? The bank is making money and I am an owner.

So even if the bank is owned by the people who have money there, I still get more if I have more money, and I don't have to work to make that money.

[Tobias]

Which kind of leads me to my set up for this in that - really - he isn't worth 144 billion dollars at all. Because he can't do anything with that money.

Once you get enough money this is basically true of everything. Even if he had that $144 billion in literal dollar bills, actually spending it effectively decreases his total wealth because he could do a pretty good job of exhausting whatever market he directed it towards and thus driving up the price. Actually spending that money has a number of logistical costs associated with it as well. There's various taxes to take into account.

Is someone with $144 billion dollars in dollars really worth $144 billion, when the value of money decreases the more of it you spend?

[trpmb6]

In this case, the banks are owned by depositors.

Ah, right, that makes some sense. I was thinking the bank was owned by the workers, but if the depositors are making their interest directly from the banks investments, that's cool. The community is the bank then, to some extent - they decide who gets funding.

This is what a credit union is.

Here's the weird thing: I have my house mortgage with my credit union. So in a way, the dividends the credit union pays to me each year for keeping my savings deposited there is partially funded by me also paying interest on my mortgage.

And as far as who gets to decide what to invest in etc. The membership of the credit union props up the leadership there who make the investment choices (almost entirely home and small business loans). These loan officers have a fiduciary obligation to make sound investments in the interest of the depositors. If they were to purposefully make bad loans resulting in a high rate of defaults they would face legal consequences and the credit union itself would probably end up failing. So it's really in their best interest to ensure they use your money properly for the right investments.

I wonder if the same argument can be said about hedge fund managers etc. They have less legal implications - but if they want to keep their high paying job they better get the best return possible for their clients or they'll take that money elsewhere.

[Tyndmyr]

Which kind of leads me to my set up for this in that - really - he isn't worth 144 billion dollars at all. Because he can't do anything with that money.

Once you get enough money this is basically true of everything. Even if he had that $144 billion in literal dollar bills, actually spending it effectively decreases his total wealth because he could do a pretty good job of exhausting whatever market he directed it towards and thus driving up the price. Actually spending that money has a number of logistical costs associated with it as well. There's various taxes to take into account.

Is someone with $144 billion dollars in dollars really worth $144 billion, when the value of money decreases the more of it you spend?

Oh yeah, he's almost certainly take a capital gains bath in cashing out, and sure, supply and demand mean that any market has some pretty hard limits no matter how rich you are. In niche markets, this can be quite small. If you really like a given board game, there are only so many copies in your area, and the supply chain for it includes a slow boat from china. In some cases, you can hit hard supply limits with only hundreds of dollars. It's a far bigger factor for the rich, particularly as high end luxury markets are extremely limited. If none are for sale, it doesn't much matter how much money you have.

As an aside, it annoys me when Hollywood portrays rich people without understanding this. Every Nolan Batman film has at least one "I just bought your restaurant" moment in it, and...that's not how sales work. Someone has to actually agree to sell. You can be as rich as hell, and if it ain't for sale, it doesn't matter.

[Thesh]

...

Loans decline in value as payments are made, whereas stocks are entitled to a share of payments for the rest of future time and retain value. In an economy with 0% real interest, the lender simply gets paid back exactly what they put in. The bank doesn't profit, the depositors pay the operating costs for the bank and nothing more. The bank is just a service, place to keep your money. All the interest is paid to depositors, and your membership is non-transferable. if the bank was sold, the only real value would be whatever equipment is left over, and all of that was paid for by the depositors.

[Tyndmyr]

How do you propose to have exactly no inflation or deflation at all times?

[Thesh]

Inflation-indexed loans.

[Tyndmyr]

Both the US and the UK already issue those. Both still have inflation.

[Thesh]

Sorry, I read that as interest, not inflation. The answer is, I don't.

[Tyndmyr]

Ah, gotcha. No interest, but inflation/deflation happens as per normal.

If there is no possibility of return from a bank, why should I select such a bank for depositing? As mentioned earlier, even credit unions in the US return interest to investors(I have such an account). After all, there is some non-zero risk of the bank collapsing, due to covering bad bets or simply not making enough to cover ongoing expenses. In such a case, I am out money, with no potential gain to counterbalance that risk. Why should I not instead keep it under my mattress?

[Thesh]

Convenience, security, and inflation.

[Tyndmyr]

In general, it is more convenient to have things now, rather than later. Why should I save for later instead of spending now? In such a case, I have no significant savings. In such a case, neither security nor inflation are a concern.

[Thesh]

Is that sarcasm?

[Chen]

Convenience, security, and inflation.

So your deposits would increase in line with inflation if you put them in the bank?

[Thesh]

Correct.

[Tyndmyr]

Is that sarcasm?

Not at all.

The rewarding of savings is to encourage them(not a great deal, with current interest rates, but still). Generally, the big reasons people save up are for large property purchases. House is the big one for most folks. Under your system, that would not be necessary, correct? Given neither of those things, why would people want to save?

Is there a lack of a social safety net, requiring them to save for unforeseen disaster?

[Thesh]

And you aren't trolling?

[arbiteroftruth]

When it comes to the problem of people who don't need jobs at all because their investments alone provide enough income to live on, here's how I see it.

The idea in capitalism is that an investment is a risk. The investor is providing a real service to the business in particular and to society in general by taking the risk upon himself. If the business fails, he's the one who personally loses money. If the business succeeds, it's fair that he should be compensated for the service he provided by taking the risk. The idea of permanent investments (ie. stocks) is basically a shortcut for continually re-investing in the same business, continually accepting the associated risk, and continually being compensated for that.

The only problem there is that unlike loans in general, the compensation rewarded to the investor does not scale with the amount of risk involved. Let's consider sole ownership to keep things simple. The sole owner/investor of a startup is accepting a lot of risk, because there's a very good chance the startup will completely fail. Being the sole investor, he is entitled to 100% of the profits. The sole owner/investor of a huge company that has for all intents and purposes become an institution in society has very little risk, because the business is already established and stable. But being the sole investor, he would still be entitled to 100% of the profits. The compensation scales with the amount of money being risked, but not with the actual amount of risk.

'Market socialism' seems designed with the goal of removing that issue, by eliminating the concept of private investment (at least as it exists in capitalism) and replacing it completely with loans, so that the actual amount of risk is taken into account in the interest rate of the loan. The startup is riskier, so would have a higher interest rate on its loans, while the huge institutional company could get very low rates on its loans. But just like the capitalist investor, the lender is the one accepting all the risk.

That seems like it would solve the problem of absentee ownership allowing a sufficiently wealthy person to essentially get free money, but I suspect at the smaller scale with startups, the capitalist model ends up being more effective. For a startup that hopes to grow as fast as possible for the first x years, it's better to keep the profits directly in the company's control to immediately spend it on growth, which works better when you have an investor who might sell his shares at an indefinite future date rather than having a loan with a pre-negotiated payment schedule and interest rate.

There are genuine uses of the capitalist model, and killing it completely because of its disadvantages at large scales seems like throwing the baby out with the bathwater. Some sort of hybrid method could be better by allowing the traditional investment model to work where it's useful, but making it untenable at scales where it becomes exploitative. Something along the lines of allowing the company to unilaterally buy back its own stock at a pre-negotiated rate (probably some fixed markup above the corresponding asset value) and distribute the share of ownership to the employees. So the investor model can be used wherever it makes sense, but as soon as business loans become a more viable approach for the company, they can take out those loans to pay for buying out the investors, and become a co-op.

[Tyndmyr]

No, I genuinely do not see an incentive for an individual to save under such a system. Thus, I'm checking to make sure I didn't miss anything.

I don't *think* that no safety net is what you're aiming for, but since the system seems predicated on significant saving, I'm looking about for the reason why that'd exist.

[Thesh]

The answer is that you are not describing how humans behave. You're describing some sort of machine who has the exact same expenses month over month, never takes time off, and is scrapped when they retire.

[Tyndmyr]

So retirement savings is still required, then? That's something. I suppose it depends on what sort of safety net you have. If it doesn't include retirement care, then yeah, folks will need to save for that.

However, since that's a long term investment, there will be an immense difference between zero-interest retirement savings and current plans.

As for the idea that humans naturally seek to preserve things for the future, I suggest you look at the environment for counter-examples.

[Thesh]

And as a counter, I point to all of the people across the country who have savings even though interest pays less than inflation. Your gotchas get stupider with every post.

EDIT:

Missed this before.

There are genuine uses of the capitalist model, and killing it completely because of its disadvantages at large scales seems like throwing the baby out with the bathwater. Some sort of hybrid method could be better by allowing the traditional investment model to work where it's useful, but making it untenable at scales where it becomes exploitative. Something along the lines of allowing the company to unilaterally buy back its own stock at a pre-negotiated rate (probably some fixed markup above the corresponding asset value) and distribute the share of ownership to the employees. So the investor model can be used wherever it makes sense, but as soon as business loans become a more viable approach for the company, they can take out those loans to pay for buying out the investors, and become a co-op.

There are other lending models that can be used to deal with that. An extreme example would be a ten year bond that has no coupon. For the first ten years, they wouldn't have to make any payments, and then at the end of the ten years the whole value is due. Startups can also be funded through crowd-sourcing from the people who stand to benefit from founding that business.