Over the past few years, especially since the Financial Crisis of 2008, there have been several alternative economic systems proposed on the web. The basis behind these alternative systems has everything to do with the fact that the current system is broken. It leads to massive distortions in the markets, bankrupts individuals and trends towards unnatural outcomes. Using Austrian economic analysis, we can determine whether these proposals would deliver a net benefit or harm for society. We will see if they answer the underlying question, “Is this idea better than what the unhampered market can provide?”
Zeitgeist, Venus Project, and RBE
Some years ago, a new movement appeared on the scene that went viral on YouTube. It’s called the Zeitgeist Movement. The inspiration behind Zeitgeist came from an organization called The Venus Project. Founded by futurist engineer Jacques Fresco in 1994 in Venus Florida, Fresco attempted to merge his futuristic circular city model into a post-scarcity economic model that he mislabelled, The Resource-Based Economy1 (RBE). According to Peter Joseph of the Zeitgeist Movement, RBE is the basis for all future economic activity. There is no money and all goods and services are distributed to individuals who request them. The collective of the people control the means of production along with the distribution of the finished products. Everything is coordinated by a board of technocrats who base all decisions on science.
Although proponents of RBE claim it has nothing to do with socialism or communism, the similarities are hard to deny. Like the Soviet Politburo, these technocratic scientists will be in control of the means of production. They are supposed to decide the allocation of goods according to need and not according to demand. Somehow, not unlike what Karl Marx had proposed over a hundred years ago, humanity will no longer be driven by the desire to produce stuff2. RBE envisions a utopian future where the “new socialist man” is realized in a society that has all goods and services provided by a central authority because automation will do away with scarcity. This, they say, will all be done without money and without human labor. Somehow science will triumph over greed on the earth. The profit motive will no longer be the driving factor for innovation. If this sounds like an episode of Star Trek: The Next Generation you wouldn’t be far off.
Very similar to RBE is the theory of the Post-Scarcity Economy. PSE is another futuristic theory where technocracy rules the day. Proponents of this theory predict a world where scarcity could be avoided, but not completely eliminated, by way of technological advances. Although they don’t claim that all labor and all money would be eliminated, this idea does mirror RBE in many ways. A post-scarcity economy would be one where replication of goods would be the norm. They claim that the original goods would be scarce, but by replicating these originals, scarcity could be avoided. Think 3D printing on steroids or Star Trek replicators. Energy would be free and limitless, maybe through cold fusion, solar power or zero energy.
Much of PSE is based on speculative technological advancement. With robotics and automation getting ever more abundant, proponents theorize that eventually the labor markets will be replaced by automation and artificial intelligence. Humans would be freed from the unrewarding endeavor of producing goods to pursue more important things, like scientific discovery. Knowledge would also be free and superabundant through computer main frame coupling or uploading knowledge directly into the brain. Some even theorize that humans could upload themselves into a computer and then download themselves into an android. By doing so, human beings and the human experience could continue indefinitely. Again, if you’ve watched a science fiction movie all of this should start sounding familiar.
The Gift Based Economy
Yet another clone of RBE is the so-called Gift Based Economy. With no money or a profit motive, all labor and exchanges would be performed on a voluntary basis. In other words, an economy of gift-giving or “gifting”. As the theory goes, if you need a week’s worth of groceries, the store would just gift them to you. No questions asked. This would increase the store owner’s social status and come in handy when the store needed gifts to restock shelves. Relationships, rather than monetary exchanges, are what add value to any society.
There is some division in the GBE circles whether gifting should be based on reciprocity or without the expectation of receiving anything in return. But still, both sides agree that money exchanges, even barter, are the root of all that’s evil in societies. To complicate matters, property rights come into question in a gift-giving economy. Some claim that the original owner who gifts a commodity is actually only relinquishing the “use rights” of the commodity. The gift-giver should expect to have the commodity, or something of similar value, returned as they still maintain a property right in the commodity. Others claim that gifting is more like a “community service”. This is something known as a prestation. Gifting is more an act of representatives of a large collective interacting with representatives of another collective. By gifting between these collectives, relationships are kindled, nurtured and maintained.
Both sides of the discussion agree, that in order for a gift-based economy to be successful requires an immense paradigm shift in human consciousness. The human mind has been tainted by assessing value in monetary terms. They argue that value should be derived from the satisfaction of gift-giving. This outweighs any artificial value money could provide. Gifting causes people to maintain closer relationships and thus helps to stave off conflict. In a GBE culture, scarcity will no longer be an issue as producers will provide an abundance. The idea is that their status ranking would be higher than a producer who “hoarded” their goods.
There is a common thread among proponents of alternative economies and free-market economists. We all agree the current system is in seriously bad shape and something needs to change. I applaud them for their effort in attempting to make the world a better place for all of humanity. This is not an attempt to belittle anyone’s ideas or degrade anybody in any way.
The underlying issue with all of these proposals is a lack of basic economic knowledge. First, they label what we experience today with bailouts, cronyism, private-public partnerships, central banking and rampant currency devaluation as capitalism. Capitalism is the economic system that is based on the free exchange of goods and services in a marketplace.
The key to capitalism’s success is that it mitigates the time problem. Time is the most scarce resource. Scarcity can never be eliminated because we cannot produce more time. The valuable service a capitalist performs is, by investing in a project, capitalists are advancing time to entrepreneurs. They are allowing entrepreneurs enough time to acquire and manage the factors of production, pay workers, ship the finished products to market and produce a profit. In return, capitalists are rewarded with a dividend once the project proves to be profitable. Risk is limited to capital investors and entrepreneurs. The workforce gets paid whether the products they produce are profitable or not. Plus, all of this is done because of the profit motive, not in spite of it.
Secondly, they blame our current condition on money, as the source of all, that’s ill in society. Without money, they claim, then there will no longer be limits on what people could acquire. Again, a failure to understand simple economic concepts leads to a whole host of errors. As economist Robert Murphy pointed out in his article, “Venus Needs Some Austrians”, they all run into the Misesian Calculation Problem. Without a price mechanism, valuable information is kept from producers as how to properly allocate resources in their most productive alternative uses. Prices are not arbitrary. They send information to the producers of goods and services, as well as consumers, as to the best use of their scarce means. Ludwig von Mises demonstrated that a socialist economy could not function for long because those factors that produce goods must be privately owned and regulated by real prices. Prices are an outcome of private ownership because they reflect the owners’ valuations of those means or commodities. A central planning committee doesn’t see the value in an ore mine the same way a private miner would. Thus, central planners allocate resources from simple raw data figures and not based on actual risk or valuations. By allocating thousands of tons of resources to stockpile concrete, Soviet central planners failed to realize the need for some other more valuable use of those factors of production. Without proper money prices, scarcity actually becomes an even bigger problem.
Lastly, but certainly not least, these idealists can’t address the demand problem properly. A fictional account of human beings suddenly transforming into a state of continual satisfaction from endless wants is unrealistic. How do we transition from here to there? With every new invention or technology comes with it a new demand for those products or services. Having lived in Berlin Germany during and after the Cold War, I witnessed how the demand for consumer goods increased when East Germans were freed from the restraints of a centrally planned economy. Imagine uprooting a central African family and placing them in a modern American town. Would they be satisfied just to have the well produce enough clean water for them to carry home in buckets every day? Of course not, because demand is limitless.
So, we return to the question, “Are these ideas better than what the unhampered market can provide?” Certainly not yet. Until the Star Trek replicator is invented and made available to every human being, the post-scarcity economy cannot be realized. The resource based economic model is also flawed due to the calculation problem that plagues socialism. The gift based economy, although may have worked for smaller island communities in the Pacific, cannot be realized by our modern economies of scale. None of these provide the answer to the question of how we transition from here to there.
Capitalism, for all of its shortcomings, still addresses that basic flaw in human nature the best. The endless desire to acquire more stuff. By using money as a means of exchange, it allows for the calculations that entrepreneurs need to make in how to allocate scarce resources to their most productive uses. Because of the profit motive, the desire to leave oneself better off, producers and workers are ever building a better world for all of its inhabitants. When left alone, the unhampered market has, can and will produce what is needed exactly when it is needed. The sooner we realize that, the sooner we can realize the real culprit for all of our misery, waste and want. The State.
[Image Credit: Surbana Urban Planning Group]
1 A resource-based economy or natural-resource-based economy is the economy of a country whose gross national product or gross domestic product to a large extent comes from natural resources.
2 Grundrisse der Kritik der Politischen Ökonomie