– April 25, 2019

The term socialist has long meant different things to different people. In practice, it usually ends up meaning state control, which is to say, at the point of a gun. This is why it is such a massive threat to liberty, property, and everything we love.

But what if we charitably assumed the most innocuous rendering of the socialist idea? Let’s say by socialism people really mean: a system in which the society’s most valuable goods are shared by all.

That sounds rather nice, doesn’t it? Not only that: it might actually be possible, at least for some form of goods. I would go further to say that this kind of socialism is essential to capitalism.

Spreading Discoveries

The third point of Michael Munger’s fabulous piece on the core ideas of capitalism discusses “growth based on economies of scale.” He describes this as follows:

An improvement in technology or an expansion in the ways we can use liquid capital to create physical capital immediately improves the welfare of the whole world. Economists call this an economy of scale, which means that specialization and increased social capital in the form of discoveries quickly spread around the world as force multipliers for labor and entrepreneurs.

By technology and ways, he is speaking of the general category of something we can call plans, recipes, know how, learning, or, simply, ideas. Munger says that once they are invented, they spread quickly and are available to anyone with the desire to use them. This ideas-based capital serves as a driving force for expanding the division of labor, benefiting from economies of scale, making us all wiser, creating cascades of improved innovations, and thus spreading prosperity everywhere.

This phenomenon is not discussed enough in economic literature. Economics typically deals with the problem of scarcity, and finds answers to this problem in the form of certain institutions like private property, free-floating prices, exchange, and contracts. But what Munger is referring to here evades the restraints of scarcity. It is knowledge, and it spreads without the need of restraints to allocate and apportion ownership rights.

Ideas are Different

For example, you are reading this article. You can take its ideas. You can carry those in your head for 50 years. You can share them with others. You can apply them. No matter what you do with the ideas in this article, your decision takes nothing from me. I still possess all the ideas herein. So it goes for billions of others. Everyone can own and use the ideas in this article with no loss of rights to me or anyone else. It’s true for all ideas.

Munger is speaking about shared knowledge as capital. What intrigues me most about this point is that knowledge of the sort he is discussing is really a non-scarce good in the sense that it is available to everyone without limits on consumption, remixing, and reusing. You are welcome to think of this as the “socialist” side of capitalism.

We in the pro-capitalist camp believe in ownership, prices, and production structures for scarce goods because that’s what reality dictates best serves the goal. There is no better, more peaceful, more productive way to deal with the problem that there is not enough of everything for everyone. The best solution is to deploy a peaceful method of exchange and production so that, over time, there is more wealth for everyone.

At the same time, we believe in universal sharing of non-scarce goods like knowledge because that’s what reality makes possible. This distinction between scarce and non-scarce helps explain so much about the world around us. We have to learn to distinguish them so that we can apply tools of production and allocation in the proper way. Scarce goods absolutely require the application of economizing; non-scarce goods can be freely and expansively shared without the need for economizing.

The Confused Left

Notice that the socialist left makes a mess of this distinction, mixing up the two things. They want socialism for scarce goods and private ownership for non-scarce goods. How so? They want free college for everyone, health care for everyone, food for everyone, and they advocate all this with near-zero appreciation for the reality that these are scarce goods and so there are massive costs associated with these plans and everyone must bear them, not to mention endless force to make people do what they would otherwise not want to do.

At the same time, these same people apply the limitations of scarcity where it need not apply. They say there can be no cultural appropriation even though culture is a non-scarce good that is malleable and universally sharable. They demand identity politics even though identity is something anyone can adopt without taking away anything from anyone else. Identity is a non-scarce good and need not be commodified like a physical good. They also tend to accept “intellectual property,” particularly the artists and musicians among them who seek to profit from payments for consuming their product.

Notice, for example, how proud the socialist Bernie Sanders is of his book royalties that made him a millionaire; if I took the book’s contents and made a mint, he would undoubtedly cry foul. (It is possible to publish without the use of traditional copyright and still earn royalties; see AIER’s publishing model.)

They are mixing up scarce and non-scarce things, applying socialism to scarcity (doesn’t work!) and imposing capitalism on non-scarcity (with some extremely strange results, such as that an Irish woman can’t open up a Chinese-food restaurant without being hounded on Twitter).

The beginning of economic understanding is to distinguish between scarce and non-scarce things. What are some examples? The Bible vs. the sermon: one is physically scarce and the other is a body of non-scarce ideas. On the other hand, if you upload that Bible to the internet, where everyone can read without taking away from others, it too can become a non-scarce good.

Other examples: shoes vs. songs (I can’t wear your shoes without annoying you, but I can steal the song you just whistled and you will never know); the iPhone vs. the mobile app (one is a thing, and the other is infinitely shareable); the canvas vs. the image painted on it; the pill bottle vs. the medical recipe; the football player vs. the plays; the roast beef vs. the instructions on how to cook it.

There is no limit to the examples of the distinction between what must be economized and what need not be. We need to develop the capacity to know the difference. 

I have a theory about why today’s socialists are so bloody obtuse about understanding scarcity. They are mostly intellectuals. Their most valued personal production is within the realm of ideas. They share these ideas constantly with anyone who will listen. Their goal is to seek influence, which can occur without the need for allocating and apportioning their product. They are producing goods that are non-scarce.

They can’t understand why doctors, colleges, food growers, and factories cannot do the same. The problem of scarcity does not present itself in their profession so they remain oblivious as to the reality that scarcity exists for every single good other than ideas.

Why the rising popularity of socialism? Munger hints at the answer: “Much of the new wealth is digital, and takes the form of music, movies, or other entertainment or software, code that once written down can be reproduced at no cost and transmitted worldwide essentially for free.”

The great migration from the physical world to the digital world has vastly expanded the realm and pool of non-scarce wealth. That’s a wonderful thing. But this might tempt intellectuals to believe the same thing can happen in the physical world. And yet no matter how much we digitize, it doesn’t obliterate the essential distinction between scarce and non-scarce.

People might wonder, if my Twitter post can be universally distributed, why not vegan dinners and brain surgeries? Now you know the answer. This is the difference between scarce and non-scarce. One cannot be shared unto infinity and the other can. That’s a huge difference.

If we can’t get that straight, we can never learn to think with economic rationality. Even worse, failing to understand this, and barreling ahead with a system that mixes the two up, can destroy all prosperity and liberty.

Jeffrey A. Tucker

Jeffrey A. Tucker is Editorial Director for the American Institute for Economic Research. He is the author of many thousands of articles in the scholarly and popular press and eight books in 5 languages, most recently The Market Loves You. He is also the editor of The Best of Mises. He speaks widely on topics of economics, technology, social philosophy, and culture. Jeffrey is available for speaking and interviews via his emailTw | FB | LinkedIn

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