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Wednesday, October 10, 2012

The Pyramidal Theory of Capitalism Explained in Simple Terms.

The Pyramidal Theory of Capitalism Explained in Simple Terms.

Originally published 1.07.2010

Capitalism[1] is mostly misunderstood and is not popular with people who cannot participate in this natural trade system. Capitalism is “unfair” and only the greedy can play the game and these tenets are solid political platforms for leftist politicians and policies we are told. Theories of government and other social structures often describe the capitalist process using the pyramid as an illustration of how it appears to function.[2] The pyramid has, as its most important feature, an apex at the very top and a broad base with steep sides offering the impression that it is a long and arduous clime to the top where the power resides and represents a corporation or a collection of corporations in the advanced stages, but smaller pyramids spontaneously form even in primitive societies. The climb to the top is indeed difficult, expensive and even the slightest mistakes can collapse the pyramid into several pieces. Few pyramids survive for more than a few decades and most corporations fail within a mere 5 years of operation.

Modern capitalism is actually a complex confluence of “isims” rooted in basic human nature and conduct and demonstrated clearly in history as a process that is disciplined and operates mostly in a nonpolitically slanted manner. This is because political “thinking” is not truthful or sound in the business world. The leaders reside at the top of the pyramid, enjoy a disproportionate share of the benefits and retain their position at the apex until the system fails to perform to standards then the pyramid collapses or waits for new leadership and they lose their jobs or are given other assignments with less power. The detractors of capitalism cite a plethora of negative performance factors including but not limited to mercantilism, unfair trade mechanisms, barter, black markets, greed, discrimination, economic imperialism, smuggling, war mongering, excessive wealth accumulation and more. The many other accusations and condemnations are mostly directed at attacking the uneven power distribution of this system using observations and complaints focusing on how capitalism fails to treat all individuals equally or even at all either inside or outside the pyramid. [3] This essay provides a simplistic discussion of the core attributes of capitalism in lecture form and shows its benefits contrasted with other social systems that employ control and command structures by governments. The descriptions are given in the simplest terms and without caveats. It is amusing, in contrast, that Marxism, Fascism and socialism, among others, only permit a few citizens, usually 3-5%, or sometimes much fewer, to enjoy the full benefits of their society thus establishing an elite control group that objectively attracts all the complaints that the detractors use to criticize capitalism and their complaints are even stated directly in their very same terms. Thus hypocrisy is an inborn attribute of those who attack capitalism with limited complaints and blindly offer an alternative system that is less efficient. Most socialist and other leftist organizations mostly select certain people that would be quickly demoted in the capitalist world for their manifold failures in numerous areas. Failure to provide minimal goods and services for their citizens [or frequently known as victims] is usually not a sufficient criterion to demote politicians. Thus Castro’s Cuba is some kind of model to be praised as is Kim’s of North Korea despite destitution and starvation and the need for a huge police state.

Capitalism is a subset of local governments and does not pretend to govern in its pure form. Many socialist governments closely control capitalist pyramids for their benefit as did Italy in the 1920s and Germany in the 1930s. What is very clear is that capitalism is admittedly an excluding process and not even remotely inclusive with respect to entire populations or even small groups in a given region of the planet. I maintain that capitalism is the natural default social mechanism of sharing and production by small groups and that when significantly perturbed the elements that were used to generate this capitalist system, however small, are scattered or dismembered for a time, but those elements will spontaneously recombine with new players and new resources and even new places if necessary and is thus regenerated anew. No matter how large a corporation may get it is only and ensemble of smaller departments or divisions that are subdivided and controlled by middle management. The only process that prevents the broad-spectrum rise of capitalism is government or some similar force that directly focuses negatively on the capitalistic progression and these are usually shown to be places of high poverty, oppression and failure like North Korea, Cuba, the USSR and parts of Eastern Europe or just about anywhere in Africa. Those forces must dismantle or prevent commerce from operating in free markets to be successful then they have to provide for their citizens what capitalism could have provided and frequently they cannot do so. Capitalism is self-regulating and continuously improving—two attributes conspicuously absent in many forms of government. The profits from capitalism are viewed as evil and greedy until one realizes that such wealth is useless if not used to form new pyramids or to buy goods and services or build real estate.  Capitalism produces capital as its product and this is usually money at risk for expansion or held to be used later. The theory that capital is used to create new jobs is offensive and mysterious to many in the leftist political camps who believe that government can create jobs, and it cannot. Many liberals cannot bear to think about the fact that 99% of the tax revenues in the US come directly or indirectly from businesses or from taxes on salaries of their employees. Many think the government can ‘create jobs’ but they only create parasitic bureaucratic or other questionable positions that burden the taxpayers. Such arguments, though true, inflame the left who have nothing in their future except what they can drag out of higher taxes and regulations.  California[4][5][6] is the best example of how not to run a government outside of Cuba or a few spots in Africa.

Capitalism creates efficient jobs by definition and when those jobs become inefficient they are summarily eliminated or the job holders retrained or given new assignments. Marxism is a failed ideological system that originally attempted to capture and redirect profits from the capitalists and return them to the masses with government control and ownership of the means of production, but that was never the case in practice. Mao demoted corporate executives to menial tasks such as sweeping floors in their own factories and placed political hacks with no business skills in charge and even selected a person who had no college education to run the University of Peking. Needless to say, this process was a failure. Marxism, supposedly based on equality, is even more exclusory than capitalism when viewed on a distribution of wealth basis because only the party members have wealth and power. Statists[7] insist that the state is more important than the sum of the individuals and that individuals can be sacrificed and replaced for the benefit of the state thus pogroms and reeducation camps and gulags are necessary to force many citizens into some kind of leftist cartoon feature as an example to all. Capitalism insists that individuals perform functions efficiently and are regarded as valuable as individuals if they fulfill this requirement and are rewarded according to their particularized contribution to the efficiency of the pyramid. Many capitalists are not easily replaceable [except when traded among different pyramids] and this violently collides with and is in direct opposition to statist dogma.  Jobs are not easily transferable among the various levels of the pyramid in opposition to the statist dogmas and this is what determines the height of the pyramid and the steepness of the walls or the higher the apex the more successful the pyramid. The secondary enemy of capitalism or the modern corporation is the union that continuously recites the hackneyed slogan “equal pay for equal work.” There is no equal work above the levels of menials in pyramids and the unions attempt to put in work ‘rules’ that require more employees to be hired [featherbedding] thus boosting costs and reducing profits and endlessly harp about job definitions to expand their power. Unionism forces many pyramids to collapse and move elsewhere as in the US steel industry, the auto industry and textile businesses. Unions cannot comprehend, or wish not to acknowledge that they can, the notion that rank and file wages and benefits are different from country to country and that high costs make the corporation less competitive and prone to spontaneous dismantlement or toward the nearest exit. What unions and statists also fail to observe is how easily pyramids can be folded and reconstructed in a different locale or under a different governmental system thus they were mystified and stunned when US and European manufacturing plants migrated to Asia, but not South American or Africa. Socialism, much like unionism, requires that the citizens depend on the state for nearly everything; capitalism requires that individuals contribute much more than a single individual could do in another setting for the general benefit of both the pyramid and the individual. Capitalism is thus positive and productive whereas socialism and its variants are destructive and negative.

There is no equality[8] in this world although such a nostrum is the enduring foundation for grand speeches and maudlin politics and majestic welfare systems that purport to change the world in such a manner as to achieve this unattainable attribute for all of us.  If we inspect a randomly assembled group of humans in a cluster no larger than 10 it is difficult to show that all members are equal in any respect. It is even more difficult to find two specimens in this cohort that are ‘equal’ in more than a few basic attributes. The physical differences and age range of the members are enough to demonstrate that equality in any form cannot exist for long. If the cohort was expanded to 10,000 and sorted to form smaller groups of the same age, weight, cognitive skills or any of a host of attributes these smaller groups would, again, show that although many are similar there is no broad equality in this biased selection. People have different gifts, learned skills and desires. Capitalism naturally accommodates most of these differences into different strata and directs people to perform diverse essential tasks according to their attributes to the mutual advantage of the group. Socialism strives to have only two groups: the masses and the elites. Strangely, success in economic terms is not that important in Marxist and socialist governments.

Since there is no equality that can be demonstrated in even small groups we then come to the abrupt and perplexing question: who, then, can work the levers of capitalism [or any other system such as socialism or Marxism or a feudal system] and provide the leadership and successful structure for the group? The answer to this question is really not very amenable to description or even analysis and cannot be answered in detail because of the variations in human society itself. Much of this is trial and error especially in capitalism. Pyramids are trial balloons and rise and fall when current results are compared to the mandatory business plans. Those who can make this natural process function successfully stay in leadership positions in capitalism and conversely in socialism where failure is tolerated at the top.

Some theoretical and somewhat whimsical examples follow to examine the process of capitalism: If we inspect a primitive society that consumes mostly, say, fish for food and their health and future depends upon gathering fish using boats or nets or spears in some water space then we quickly notice that some are skilled in one or more aspects of the fishing process. Here, equality is not even desirable because if the group only had one basic skill it might not survive due to various critical tasks not being accomplished to a level of standards that would support the ongoing existence of the group.  Such a group needs net makers,  menders, fish driers, boatmen or spear throwers and cooks and many other tasks so only a few will actually catch fish. Every task in this sequence from living fish in the waters to food for consumption is essential and any break in this progression may be fatal leading to starvation.

Such a group as this spontaneously forms a pyramidal structure as there is a need for a central planner and work force director and a need to distribute tasks with some efficiency so that the output of the group exceeds the sums of the collective harvest of individuals who would have to do every fishing task by themselves. The antithesis of this would be that everybody catches their own fish and this is not observed even in the most primitive societies. Thus, by sharing diverse duties in a cooperative group the means of production is made more efficient and all potentially benefit from the supportive work process. This is obvious if one views the process where individuals would have to provide their own food and other necessities for a long term. No equality is implied in this theoretical primitive world. None is needed in this and numerous other contrived examples because people are not equal and neither are jobs and other factors.

This fishing group example thus forms a small pyramid where essential skills are sorted out by some leader or similar leadership process and applied to the necessary tasks to streamline the means of production and produce goods and services. This model seems to persist as the group is enlarged although the model changes somewhat as the size increases to incorporate large numbers of participants. For larger and larger groups with more diverse production the model now must incorporate an ensemble of pyramids that may cooperate in the production of many different goods and services. Now, inequality is again delineated as the ‘values’ of the various items of production are not equal. In the example above, if fish are abundant then the value of the  fresh fish above certain survival maintenance levels is not very high and production of more fish even with drying and other storage mechanisms may not increase the collective ‘wealth’ of this group. A different group, such as one that makes huts or tree houses may produce products with much higher intrinsic ‘value’ and attain a higher standard of living so to speak for its members. Makers of jewelry or clothing or priests or entertainment specialists or doctors form pyramids, even of a single person as in medicine, and these collective pyramids collaborate to form a unit cooperating society that supplies most of the needs of the entire group. Thus whole villages can manage to supply most human needs by matching skills with production duties for the benefit of the group.

This capitalism process normally grows or expands according to the supply and demands of food and other needs and must change to accommodate new items or challenges. There is an abrupt change in the habits of a tribe when they, even for a few weeks or months, decide to give up the hunter-gatherer mechanism of obtaining food and such and live for a long time in one place in some suitable region. Here, the amount of natural food sources tends to diminish as the inverse square of the distance away from the central camp with time. Game and berries and such are quickly depleted so the stationary tribe must have an abundant alternative supply of these or work long-range foraging teams. Also, new jobs are created because wealth is now created in terms of fields, caves, wells, fences and cultivated produce and other sources of food and includes the important new factor that these assets must be defended from marauding tribes or predatory animals. The concept of long-term food storage now becomes a new and important factor. The concept of defense becomes a top priority for a stationary group. The skill set requirements of the group thus expands and such an expansion produces essential jobs for many people.

If several tribes merge into a larger tribe or clan for any of many reasons such as security then two adjacent larger clans might be in competition for food or shelter hence conflict may occur over certain assets or products. Here, the concept of the military is established and defensive techniques or a bunker mentality first appear.  Since all the landmasses or seas are not equivalent in providing resources and assets, the selection of the most promising or highest yielding areas promote competition among the groups in order to occupy and control such places. This eventually leads to war or some conflict equivalent thereof. Food supplies may vanish in hours if not protected from attack thus forcing the careless or losing tribe or clans to regress to foraging or hunter-gathering techniques or starve. Eventually some group of tribal leaders assembles to work out problems in resources and assets and the defense of the entire region occupied by an ensemble of clans. As the clans cooperate this effort leads to the feudal system or something approximating that form of central government.

Leadership ladders routinely range from the head of household to the clan chief or patriarch or extended family leaders to a hamlet chief and onto regional chiefs ultimately leading to regional leaders, vassals, kings and other forms of royalty. Here, inequality in its highest form is observed as most royal groups stay intact and retain leadership authority by hereditary mechanisms and most tend to promote the eldest son as the next potential leader. This system usually metamorphoses into a formal feudal system consisting of only four roles: royalty [or gentry], serfs, merchants and artisans. No feudal system is large enough or sufficiently skilled to provide all its needs and must trade with skilled persons who can supply scarce items or products impossible to obtain or build for the feudal group. Artisans and merchants travel among these new duchies or kingdoms or extended clusters of clans and trade various items or skills for a profit and now capitalism is running at full throttle.  The law of supply and demand thus appears and governs the price of good and services from the demand and supply curves. Merchants are differentiated from artisans in the role they play with goods and such in that merchants bring in the goods from afar and artisans build or create structures and other facilities using materials at hand in the kingdoms.  Any hint of equality vanishes when the feudal system is operating. It is clear at this point that of the four classes of clan members the serfs cannot perform the duties of any of the other three roles unless trained to do so. Artisans and merchants also have no replacements among serfs or gentry in such cases and tend to form closed societies with trade secrets and guard special arts and recipes. At this point it is amusing to think of some socialist council or authority that could select the individuals and match them to appropriate jobs with any efficiency or success. Here the political processes of persuasion and promises may be quickly viewed with disdain if any of the essential processes of the group are mishandled. Capitalist systems tend to promote successful individuals to positions of leadership and skill-matched jobs while political systems tend to select those with interpersonal skills.

In terms of wealth, land, structures and control of resources like bridges and streams and access to lakes and seas the small collective system now resembles a large pyramid but is actually an ensemble of operating parts each with their own pyramidal structure. Tiny kingdoms with their little pyramids are in competition with other frequently larger kingdoms and wars and other factors may lead to a growth in the power and wealth of merged pyramids or the converse if disease or war destroys a larger pyramid. In either case, events that tend to influence the amounts of food and other assets will force pyramids to rise and for many to quickly collapse. A characteristic of all pyramids is that those people with the least skills, retain the smallest share of power and wealth and are at the bottom of the pyramid and conversely. Thus, unlike political systems where leaders need few skills other than political ones the capitalist system continually refines the role of their leaders and rewards performance quite unlike the political system which tends to make excuses for failures and retain the current leadership and control at all costs.

Wealth now becomes power so groups or clans within one pyramid may take their skills and assets and leave and form a more efficient new pyramid thus becoming more powerful or independent. The temptation is now for larger pyramids to assimilate smaller ones by business forces and purchases and discard the uninteresting or inefficient parts and improve efficiency.  This is a key feature of capitalism in that the lack of efficiency in some business or production process frequently stimulates change and forces a restructuring of the pyramid. Somewhere in this process the ability to generate wealth by skill and wit becomes more important than hereditary factors that led to royalty owning and controlling everything. Here, peasants and serfs and other menials may start their own capitalistic businesses and through trade or barter accumulate wealth and if an ensemble of these folk is successful then they may posses more wealth hence power than the competing feudal leaders and choose to revolt or break away and become independent. Thus in the industrial revolutions in Rome and England and most other places those with wealth-generating skills gyrated to positions of leadership and control and the aristocracy lost power if they lacked the skills to compete thus upsetting the feudal system and replacing it with other forms of government and those successful ones were those who could accommodate and complement capitalism. Eventually, the other forms of government tend to depend only on taxes from the capitalists for their total survival and power base and abuse of taxation frequently leads to voluntary folding and dissolution of a pyramid and a transfer of their assets and skills to another locale with lower taxes. California and New York are such examples. States with excessive taxes and oppressive rules tend to drive capitalists away and different states sometimes set up to receive such refugees to their benefit. The global economy facilitates this.

Due to wars, famine and shifting fortunes pyramids inevitably and routinely collapse or unwind based solely on their inability to efficiently generate desirable goods and services and the pieces are scattered. Unlike artificial governments based on socialism or other systems, the pieces tend to spontaneously rearrange into new pyramids discarding old methods and enlisting new leaders and ideas and the process continues to improve. Alternately, when artificial governments like Marxism or utopias collapse they do not spontaneously regroup into new governments—they tend to collapse and vanish as an entity and are replaced by new governments and new capitalistic pyramids form naturally from the chaos. Marxism is responsible for more death, destruction, lost business opportunities and economic failures than any other known system. Marxism destroyed or damaged several dozen countries in the last century and caused the deaths of 100 million people. Still, the anti-capitalist basis of Marxism is a major political vector even today.

Thus, in this example capitalism is shown to be self-erecting and self-streamlining and tends to refine the aggregate economic system while other artificial systems usually tend to promote leaders who are only accomplished in political skills and not business or capitalism or any other useful art. Socialist or similar systems tend to seize capitalist assets and squander them by frivolous dissipation or war by their leadership thus minimizing and corrupting the beneficial processes of the means of production. Utopias have never worked out and all have collapsed spontaneously. Plato’s Republic is a mystical place where some philosopher king can make all decisions for a group although such a person has never been identified and Plato failed to tell us where we could find or even train one. This point of his essays, missed by socialists, was a direct attack on democracy which failed miserably in Greece due to politics.  Demagoguery forced voters to authorize ineffective or corrupt governments and policies that did not benefit the group as is the usual case in capitalist pyramids and these governments crashed. It is amusing to know that Cuba, North Korea and the USSR were [or still are] democratic republics who ran only one candidate per office thus making a farce out of the democratic process. When socialist systems disintegrate the surviving society inevitably reforms into small pyramids and capitalism regenerates itself until again dominated by political forces. This happened in the USSR, Eastern Europe, The People’s Republic, Viet Nam and many other places. Getting back to prosperity through capitalism is easy; getting back to prosperity through Marxism or socialism is difficult. Capitalism appears to function well for about 85% of a given populace and the remaining fraction that cannot or will not participate is always viewed and nosily denounced as some intrinsic failure of capitalism. But, given the fact that with socialist governments 95% of the populace must live in a system with minimal rewards and privileges while the top 5% enjoy the production of goods and services it is not surprising that many opt for capitalism. Socialist systems tend toward social and economic stagnation because of the inability to produce and distribute goods and services efficiently while capitalism readily accomplishes the opposite outcomes and is thus more desirable. The fate of the lower 15% is not much different in these two cases and for many reasons such as sloth or crime there is actually no system where people of this lot can excel. Capitalism is usually prevented from making a business for the bottom 15% by using their lower cost requirements but this is always denounced as some exploitation of the masses. Any chance for the poor to rise in the corporate world is thus squashed for political reasons.

On the macroscopic view, Marxism and socialism have failed to produce enough goods and services for their citizens and many such political systems are inefficient, brutal and retain the available wealth only for the top echelons of their political leadership. Fascism is a middle case where the corporate pyramids are tolerated as long as they produce goods and services and profits that suit the leadership which is usually militaristic. A better case appears to be the People’s Republic where the totalitarian government tolerates a hands-off approach to the practice of business and allows capitalists to do what they do best and then share in the proceeds thus we view a unique and mutually non-interfering separation of powers: business and politics. So far, the fate of the ‘bottom 15%’ in the PRC is probably favorable in terms of subsistence although criminals and drug addicts are summarily executed thus offending socialists.

Socialism or one of its variants cannot supply the needs of a society as their leadership is always selected from a group that excludes people who can produce goods and services. Thus socialism acts as a predator and a compromiser of capitalism and usurps the fruits of this superior system until both collapse, usually financially or economically. Capitalism thus spontaneously reforms and, unfortunately, so does socialism some time after in too many places. The poor and others remain unequal as before with no chance for success under either system. In many leftist states capitalism is outlawed or severely dominated by political cadres to the point where they cannot be successful and cannot contribute to society as in Cuba and North Korea.

The ultimate system would be for individuals to choose capitalism or some social government where business decisions and policies are directed in command fashion. This is not possible because if people can choose then many will exit the social environment and leave the state with fewer effective resources. This would not matter, theoretically, to the state if people were ‘equal’ as those who remain could be trained to replace those who left. In practice, however, the ‘best’ continue to seek fortunes for themselves in pyramidal clusters thus depriving the state of essential taxes and services, a process known as brain drain. Socialist states deselect leaders who can efficiently solve problems and prefer ideologues that can follow some stale and unyielding social plan based on dogma. This usually leads to disaster. It is interesting and amusing that military systems all around the world employ a capitalist pyramidal structure where decisions are made by a few skilled at the top and orders flow down the pyramid. Corporate and military officers frequently have the same rank and privileges in their respective organizations e.g. officers do not work but make decisions and give commands.

The eventual solution to the problem is the hybrid capitalist state, unknown at this time to the full extent, where business decisions would also apply to state functions and it is possible that the People’s Republic may be close to this optimum.  We shall see if that hybrid system survives after a few more pyramidal collapses.

A proper treatment of human inequality might provide a form of equality for all—even for the bottom 15%--, but those in the leftist world owe their existence to criticizing the cases of inequality in capitalism or other systems with various vain promises  and thus encourage economic failure or stagnation in their own camps. Perhaps this lesson can be broadcasted around the planet until the citizens of the world awake to reality and demand that their political leaders abandon this inefficient process. We shall see. Those who pursue success through capitalism will find their dreams come true as long as they can avoid the treachery of leftist governments. Those who believe in the demagogic proclamations of their leftist leaders are doomed to mediocrity or extinction if they finally learn the truth and object too loudly.


Comments to:

[3] Variants on capitalism include anarcho-capitalism, corporate capitalism, crony capitalism, finance capitalism, laissez-faire capitalism, technocapitalism, Neo-Capitalism, late capitalism, post-capitalism, state capitalism and state monopoly capitalism. There are also anti-capitalist movements and ideologies including Anti-capitalism and negative associations with the system such as tragedy of the commons, corporatism and wage slavery.

[4] The Road to Social Success, Peace and Justice: California has NO Vision!
Revised and originally published 6.26.2008

[5] As Predicted: California Heads for the Financial Latrines.

[6] Copulating with Coprolites: The Unveiled Mechanism of Governance by Progressive Liberalism in California

Revised and originally published 6.23.2009

[7] “Statism (or etatism) is an economic position that includes a major state role in directing the economy, either directly through state-owned enterprises and other types of machinery of government, or indirectly through economic planning. It may also refer to a political philosophy that
sovereignty is vested not in the people but in the national state, and that all individuals and associations exist only to enhance the power, the prestige, and the well-being of the state. The fascist concept of statism, which as seen as synonymous with the concept of nation, and corporatism repudiates individualism and exalts the nation as an organic body headed by the Supreme Leader and nurtured by unity, force, and discipline.”

[8] The Futile Attempt of Forcing Equality Among the Masses.
Posted by rycK on Thursday, April 30, 2009 9:06:57 AM

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