Did You Hear the One About Capitalism?
A capitalist and a communist walk into a bar.
When the first post-communist Russian president Boris Yeltsin was visited in 1996 by his security chief Alexandr Korzhakov, he was in the throes of one of his ‘black moods’, a period of days that he spent holed up in his quarters at the Kremlin, drinking heavily, shunning all public appearances and receiving guests only in the form of his closest family members and Korzhakov himself. Yeltsin was up for a reelection that year and things were not going well. ‘Shock therapy’, a very crude form of privatization developed by a ‘dream team’ of University of Chicago economists, known as the Chicago Boys, headed by the libertarian Milton Friedman, plunged Russia into chaos. Gang violence, crime and poverty increased exponentially following the diktats of forced liberalization authored by the first democratically elected president. On the outskirts of the country Russia was yet again engaged in war after only six years of peace. Following the humiliation in Afghanistan, Chechnya was to be a stark contrast in geopolitical tactical warfare. In the first days of the invasion of Grozny, Russia detonated 4000 artillery shells per hour, carpet bombing the city into the Stone Age. By contrast, at the height of the Sarajevo siege there were ‘only’ 3500 detonations per day.
Despite the shock and awe tactics and Russia’s military dominance, the war in Chechnya was extremely unpopular. The Chechens, outnumbered and outgunned, fought a brutal urban guerrilla war punctuated by war crimes and unimaginable acts of terror. Combined with the ruined lives of Russian civilians due to rampant alcoholism, suicide and crime, the war helped plummet life expectancy for Russian males to 57. The formerly beloved Yeltsin found himself alone and hated by the nation he thought he saved from the depredations of communism. Sitting in the sauna with his corpulent security chief, Yeltsin was mulling over the terrible polling results and for the first time considered cancelling the elections. Un-ironically Korzhakov responded, “Boris Nicolayevich, democracy is good, but without elections it’s more a sure thing.”
During hard times jokes become more scathing, poignant, and real. Far from being simply a type of coping mechanism for the masses, jokes often tell a deeper truth about the era in which they have arisen and gained traction. Many jokes of this type are outwardly political in nature. For those who grew up in the dying days of really existing socialism of Central and Eastern Europe and experienced the post-communist Wild West of the 1990s, old Stalinist jokes serve as a reminder that society is always teetering on the precipice of total chaos and/or dictatorship no matter what the current political order happens to be.
It’s hard to say whether Korzhakov’s words were meant as a joke at the time, though they definitely become a joke in hindsight, given the conditions that Russia found itself in at the time. Jokes of this nature hide a kernel of nostalgia that is difficult to tease out. Korzhakov was alluding to the Soviet order which he knew and understood. It was simpler, direct, and above all orderly. By contrast modern capitalist democracy was the opposite: complex, confusing, and tumultuous. In his mind without a strong hand leading the way through unbridled democracy, only chaos ensued and calamity followed. And yet Korzhakov wasn’t seriously interested in turning the clocks back. Everyone in Russia, including the hardened communists, knew that the communist ideology was thoroughly defeated, at least as far as mass political movements were concerned, and that there was no possible return to the days of Glastnost, Perestroika or even earlier. It is precisely this element, the impossibility of the return that created the ideological space for the post-Soviet nostalgic fantasy to emerge. In every former Easter Bloc country, reformed communist parties gained political traction or were voted back into power by the mid-1990s, as people began to associate the chaos of privatization and market economy with the failures of leadership and government. Old Soviet jokes resurfaced and gained momentum as revolutionary euphoria subsided and conditions in post-communist societies normalized or continued to get worse as was the case in Russia, Poland, and Bulgaria.
Consider the joke that used to circulate in 1970s Czechoslovakia
The Four ‘cudesos’ of Socialism
Cudeso #1: Everyone is employed and nobody is working
Cudeso #2: Nobody is working and the plan is 100% fulfilled
Cudeso #3: The plan is 100% fulfilled and the stores are empty
Cudeso #4: The stores are empty and the people have everything
‘Cudeso’ is a vaguely Russian-sounding nonsense word that can be roughly translated as ‘axiom’. The origins of this joke are most likely to be found in the Soviet Union where similar jokes circulated for years before they made their way into Eastern Europe. The situation for the population in Soviet Russia was often even more absurd than in the satellite states, but by the 1970s it could be said that the flattening effect of Sovietization reached even the most ‘westernized’ nations like Czechoslovakia. There the above joke even came with two extra ‘cudesos’.
Cudeso #5: The people have everything and they complain about the regime night and day
Cudeso #6: Everyone complains about the regime night and day and the elections have a 100% participation rate
Isn’t our situation in the West similar to that of the poor Soviet and Eastern European populations? The inability of the population to affect change, even at the most granular local level through its elected representatives, is compounded by the frustrations with the realities at the highest levels of government where incompetence, nepotism and corruption ensure that the system remains unchanged and in the service of the power brokers and asset holders.
In the West, as was the case in former communist countries, access is enjoyed only by a privileged few, whose number shrink each and every year as the distribution of wealth, power and assets get concentrated at the top of the social hierarchy. On the opposite end of the spectrum, social mobility becomes an increasingly difficult, if not an impossible task for the majority of people, as prices of goods and assets increase, wages do not keep up with inflation and living standards fall. This is what today is called the K economy, which is a runaway and bifurcated economic system, with the market (stocks, bonds, derivatives, commodities, real estate, crypto, and finance) on the one hand and the ‘real’ economy (jobs, manufacturing, wages, retail, services, etc) on the other. The K signifies the divergence between these two economies into entirely separate entities departing from a single point, one heading up and the other down. The K economy essentially describes the ever expanding divide between the ‘haves’ and the ‘have nots’. The markets have often been symbolically representative of the real economy. If the stock market did well, the real economy did well. If the stock market did poorly, the real economy also did poorly. But this description no longer fits what is actually going on. The haves are accumulating wealth in the form of assets, power and access, at the expense of the have nots (via an actual wealth transfer upward through the classes and generations) and lobby government to write laws and regulations that create conditions for the have nots that are increasingly difficult to escape.
The high interest rates, meant to be a cooling mechanism for an overheated stock and real estate markets, are actually a sophisticated mechanism for extracting the remaining wealth from the have nots to the haves through debt issuance. Some banks have been rolling out credit cards with criminal 35% interest rates targeted at the poorest of consumers. Meanwhile house prices continue to inch higher as the asset holding class artificially restricts permit issuance and building starts keeping housing stock low and demand high, college tuition continues to increase year over year in lockstep with rising student debt, and the haves enjoy greater returns for keeping their wealth locked away in bonds, treasuries, real estate, dividend paying stocks and high yield offshore accounts.
This is in stark contrast to the very positive news that is bandied around whenever the Federal Reserve and its Chairman Jerome Powell post their latest data. The economy, the Fed says, continues to be resilient, the stock market is hitting all-time highs, unemployment is low, corporations are making record profits, and consumers continue shopping unabated and spending more and more money month-over-month on entertainment, vacations and luxury goods.
This is the typical virtuous cycle that elides simple, yet crucial facts and realities. The rate of increase in the net worth of the haves far outstrips the stagnant, some would say negative rate of increase of the have nots, meaning that on average everyone still seems to be making more money. Consumers are not spending money per se, they are purchasing products and services with more and more debt. Unemployment is low because corporations have found a way to keep their profit margins high by firing their full-time workforce and replacing it with part-time labor to which they do not have to provide any social safety nets like health insurance and retirement. This in turn raises their stock prices as investors generally see this as a positive sign of increased efficiency and revenue.
If we were to write new axioms that described the order of things as they appear today in so called ‘late stage’ capitalist societies, symbolized by the United States, they would go something like this
The Four Axioms of Capitalism
Axiom #1: Everyone is working all the time and no one has any money
Axiom #2: No one has any money and economic activity is at an all-time high
Axiom #3: Economic activity is at an all-time high and corporations are shutting stores and firing workers
Axiom #4: Corporations are firing workers and everyone is working all the time
This is of course how capitalism is SUPPOSED to work. The economy functions as a reflection of the desires and actions of the wealthy. According to 18th century economist Richard Cantillon the natural order of the liberal capitalist economy IS an unequal distribution of wealth. In his An Essay on Economic Theory Cantillon gives the example of ancient Rome, which began more or less as an egalitarian society.
“At the first settlement of Rome, each citizen was given two units of Land. Yet, soon after, there was great an inequality among inheritances as what we observe today in all the countries of Europe. The land eventually was divided among a few owners.” – Richard Cantillon, 1755
Cantillon’s essay was not a critique of capitalist society as much as it was an in depth study of its functions and effects. It naturalized the process of unequal distribution of wealth as a relationship between the money supply and the prices of goods. The essay was so influential that the Cantillon Effect is to this day one of the lasting descriptions of the processes behind the rich getting richer and the poor getting poorer. It took Rome a relatively short amount of time for differences to emerge between the rich, who ended up owning all assets and property and the poor, who either sold, gambled or were forced to give their share away to the rising elite.
At its core the Cantillon Effect works as a result of the early access to money and property that only a select few have. As the first beneficiaries of an increased money supply, they spend it according to their preferences and desires which causes prices to go up and their wealth to increase proportionally. This allows these first recipients to continually buy up more assets and further inflate the prices in a virtuous cycle of ‘wealth creation’.
The state of the economy is of course fodder for the social media content machine and the rows of ‘finfluencers’ all vying for Ad Sense and donation dollars courtesy of the have nots who have put hopes in social media as a source of help to escape the matrix of poverty conditions. Some YouTube creators attempt to explain away the state of the economy as a return to the mean, where a temporary spike in economic activity during the Covid years made everyone’s wallets feel full and their lives better, but ultimately resulted in feelings of loss, dejection and depression when the economy returned to its original pre-pandemic state. But that theory only sounds like a half-hearted attempt to buttress the current order. It does not explain where the money that was created during the pandemic and also the money that existed pre-pandemic actually went.
Where the money went is actually the more interesting and important question to ask. Cantillon’s answer is simple, it goes to the rich. It always goes to the rich. Most economists, sociologists and anthropologists would agree. There seems to be very little doubt in most people’s minds these days that something is wrong with the current state of capitalism. Where most people disagree is on the proposed solutions to those problems.
The contemporary process of the Cantillon Effect in action is very simply and effectively explained by Gary Stevenson in his analysis of the massive transfer of wealth that occurred during the pandemic. His solution? Tax wealth instead of income. Scott Galloway’s extremely popular TED talk on the solutions to the problems of modern capitalism is interesting for two very specific reasons. The first is his pragmatism – he calls universities like Harvard “hedge funds offering classes” and suggests they ought to lose their tax exempt status based on the size of their endowments vs student enrollment. He calls on Biden to redistribute the “$750 billion earmarked to bailout the 1/3 of people that got to go to college on the backs of the 2/3 that didn’t and give a $1 billion to our 500 greatest public institutions size adjusted for three things”, a reduction in tuition by 2% a year, expansion of enrollment by 6% a year, and an increase of vocational programs to 20% of degrees granted. This would have the effect of reducing tuition by half and increasing freshman enrollment by 100% within 10 years.
The second reason is that all the solutions he proposes to the problems of modern capitalism are mired in the same kind of revolutionary nostalgia that drove the Russian population to vote the Communist party back into power after the break-up of the Soviet Union. Galloway proposes, without irony, that the solution to modern capitalism is to literally turn the clocks back on capital accumulation, incidentally to the same revolutionary time period of the 1980s and 90s when he went to college and when capitalism made sense, because education was cheap, housing was attainable, social mobility an ideological given and liberal consumer culture won the fight against socialism. Ironically, Galloway’s proposal is vaguely socialist, calling for the redistribution of wealth through what he calls ‘negative income tax’ (a rebranded Universal Basic Income) and the handing out of earmarked government dollars to universities. In this sense Galloway is even more of a nostalgic than Korzhakov, who understood that Russia could never go back in time to solve its problems.
On both the left and the right of the political spectrum, failed solutions to age old problems of capitalism are gaining in popularity from Aleksandr Dugin’s regressive traditionalism of the Fourth Political Theory and Curtis Yarvin’s digital monarchism to MAGA Communism and leftist flirtation with aristorcratic identitarianism. The proponents and theorists of these solutions suffer from the same revolutionary nostalgia which blinds them to the realities of human nature which is always at odds with the conditions of the systems humans create to set up guardrails around human nature. Some, like Yarvin, Elon Musk, and Peter Thiel are on the record that changing human nature is part of their objective.
In the 1990s a joke circulated in Russia in the classic Radio Yerevan format.
Question: What did capitalism accomplish in one year that communism could not do in seventy years?
Answer: Make communism look good.
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