Political Systems, The Production Mix, and The Distribution of Goods

[Joe Leote]

This is a long video about one economic question: What should society produce?

The One Question To CRUSH The DSA

Economic production during a period is given by spending for Gross Domestic Product:

GDP = G + I + C + X

where G is government spending, I is private investment spending, C is private consumption spending, and X is net exports. Robinson Crusoe, alone in the wilderness, has to allocate his own labor (without spending anything) to produce the mix of I + C. Economists argue that saving equals investment. But note that Crusoe does not save in order to engage in investment! Instead, Crusoe needs to be efficient enough in the production of consumption goods so that he can devote more labor hours to the production of investment goods. Neither Crusoe nor society must save before it can invest! When Robinson Crusoe participates in society then he is enmeshed with others in the political decisions and actions which somehow produce the mix of G, I, C, and X as the product of an inherently political process. This is the coherent logic behind the Keynesian argument wherein society decides the mix of public goods, private goods, and consumption goods by allocating labor to those functions using plans and spending budgets! The financial institutions operate to help allocate labor for various purposes and the increase of financial instruments, the validation via cash flows, or the discharge of bad debts arises as the product of the continuous labor-allocation process. The net exports go to foreign lands which means domestic labor is producing things for foreigners. The main benefit for net exports, besides holding foreign financial claims, is to gain know-how in the domestic workforce via technology and skills transfer and to retain that know-how via skilled domestic jobs in strategic industries.

Robinson Crusoe, in the one-man economy, unilaterally decides how to allocate his labor and then acts to produce a desired mix of private investment and consumption goods. The production and distribution of public goods is not meaningful in the one-man economy. Political decisions arise whenever two or more persons make joint decisions and take coordinated action which are more complex than atomistic barter or purchase and sale transactions. Political decisions are inherent in the effort to produce and distribute a mix of public goods, private investment goods, and private consumption goods.

This article juxtaposes an ideal vision of libertarian socialism with the dangers of State Capitalism:

State Capitalism or Socialist Commonwealth? by Peter Petroff 1934

where I see institutional similarities between State Capitalism, Fascism, and Authoritarianism. State Capitalism is imagined as a step toward the social ownership of the means of production. Fascism holds the Supremacy of State Capitalism over the individual via loyalty and obedience to the Dictator. Authoritarianism is the corruption of liberal institutions by a party when it consolidates political power. I don't see how ideal libertarian socialism could possibly solve the Democracy problem recognized as The Tyranny of the Majority. 

To my knowledge, which is limited, the first historic conflict of Liberalism vs. Socialism emerged in the context called German Unification. The discussion of Realpolitik in the second video below explains how Bismarck used power to attain realistic goals without deference to ideals in the form of "isms". However, the decision to use power to accomplish desired outcomes without imposing other ideals is called political instrumentalism:

German Unification (Part I: The Failure of Liberal Nationalism) / Deutsche Einigung

German Unification (Part II: Bismarck's Realpolitik)

Wars of German Unification (Blood and Iron) / Deutsche Einigungskriege (Blut und Eisen)

Joe

[William Meyer]

But Crusoe can't just build capital goods?  Say he works on a fishing net to catch more fish and therefore doesn't have time to catch fish by swiping them out of the water with his hand.  He would starve.  He needs a stockpile of smoked fish (savings) to draw down upon in order to make the fishing net.  

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[Joe Leote]

Imagine for simplicity that Crusoe, operating alone without a completed fishing net, has two options for allocating his next unit of labor: he can produce more smoked fish or he can work on building the fishing net. If he elects to produce more smoked fish this may generate what Crusoe recognizes as a surplus of consumption goods. If he elects to produce a fishing net this generates what economists call a capital good for use in future production. At all times Crusoe can only allocate his time for leisure, or to produce more consumption goods, or to produce more capital goods for use in production, or to produce durable goods for use in future consumption.

Joe

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[Joe Leote]

This video briefly covers six 19th Century "Isms" including Conservatism, Liberalism, and Socialism:

19th Century Isms (AP European History)

Bismarck is widely credited with the creation of the modern welfare state in the context of the political clash between Conservatism, Liberalism, and Socialism unfolding in the context of German Unification during the Industrial Revolution.

Joe