The One Question To CRUSH The DSA

I want you to break down socialism, but you can't say wealth and you can't say tax. >> All right. So, this is a video that's going to walk through the actual cause and effect and the mechanisms of um how economic systems come into existence full stop. Walking us through a quick history of how we ended up in capitalism and why Marxism and socialism rose up at the exact time that it did. >> The planet Earth is not infinite. It's 71% water. 29% of it is land. Of that land, about half is useful. This is what everyone is, for lack of a better term, fighting over. Scarcity and who owns what drives the thinking behind every system humans have come up with. And I've been hearing about one of those systems a lot lately. I don't think people really understand the idea of scarcity. And this is why I find uh video games like Minecraft to be so incredibly powerful is you realize that Minecraft is tapping into an evolutionary desire to go and accumulate scarce resources. Wealth accumulation did not give birth to a psychological principle. It is the exact opposite. You are born into a world where you are going to die if you don't accumulate shelter and food at a minimum and water. So if you don't have those resources, which are unfortunately scarce to varying degrees, you'll die. And so the human has over evolutionary time scales developed a desire to accumulate those resources to protect themselves from periods where you don't have anything. >> Is that socialism? >> Socialist. >> Socialism. >> I AM A DEMOCRATIC SOCIALIST. >> Ask 10 people to define socialism and you'll hear 10 different answers. from the government owns the businesses to free healthcare to Denmark to equality. But there is far more to it than that. This is a word that wars have been fought over that brings emotion out of people that almost everyone has an opinion on. >> I believe in socialism. >> And when you call it socialism, I think it's a misnomer. >> Socialism or capitalism? >> Capitalism. >> I think it depends on your interpretations. >> I don't know anywhere in the world where true socialism has worked. >> And some of those opinions are changing. More people are expressing interest in socialism today than they have in decades. [music] So why did it ever come about? Why has it stood the test of time? Does it mean the same thing today? What exactly is socialism? This video is sponsored by Zapier. More on them later. At first, there was no need to think much about the idea of ownership. We walked around and ate what we hunted or picked out of the ground. But as the population grew, we started bumping into each other. Tribes, clans, civilizations began to form. skirmishes grew into battles which evolved into wars with few exceptions leaving the leader of whichever group won these wars the owner of whatever land they controlled it was theirs to give. >> So when these civilizations these tribes the early proto civilizations were colliding with each other, one of the most precious things uh scarce resources that you could um kill the other tribe and take from them was women. There's something about that realization that really lands for me about how violent our past was. So that when you look at a modern context, one of the single most important things you can do is say, "How do we make sure that society continues to protect us from our own nature?" Because when you're going back and you don't, he's going to give you the punchline to why this works in a minute. But when you have a setup where the only way um conflicts over scarce resources like women are decided is through violence, then the world is a much much much worse place than what we have now where we use economics. So um keep that in mind. The population continued to grow. Kingdoms got bigger. One man could not defend every border, could not judge every dispute [music] or till every field. So the rulers started giving land to trusted warriors and lords. Hold this land as your own. Defend it. In return, [music] you'll send me your knights when I need them. Those lords, facing the exact same problem as the rulers, but on a smaller scale, divided the land further and gave it to people to work. Hold this land. Grow food for us on it. In return, I'll protect you. called different things around the world, varying in a few different ways, but the same basic idea. This system, feudalism, was how most of the world operated. A handful of well-connected people owned the land. People started to travel further. Ships got bigger. Villages turned [music] into towns, towns into cities. The ability to grow something on land and then sell to someone in a town or distant country for money instead of just consuming it yourself. This really started to change how people looked at land and where things >> this is a really important idea to understand. The accumulation of capital, the accumulation of capital is really important. When you can aggregate more capital than you're able to make by yourself, you're you're able to start scaling things up. So, when he talks about ships are getting bigger, that's what he's talking about. Um, every now and then I'll take somebody up to my um rooftop and I'll say, "Okay, look out at the city skyline." When you see buildings, what you're looking at is aggregated capital. That's somebody who either went to a bank or they borrowed money from somebody else and they're able to take more money than they were able to make themselves and they were able to put it together and build this incredible society that we see around us. But that requires the ability to overproduce to be able to um create more than you need in any one moment so that you can put it all together over time that excess and make something bigger, better uh than you would otherwise be able to build. And so the concept of getting away from it's just me and what I can do and my farm is able to just support my family but that's it. you start getting into grain silos and things like that where people are able to get themselves through periods like a winter. And so that idea of being able to accumulate more than you need right here in this moment is one of the most foundational things to human society. And so if you break that ability to allow the people who are really good at it and are able to um organize people or machines or whatever it is that they're organizing to create this over production. If you break the ability for people to overproduce to accumulate, you're not able to build the world that we see. It really does become these atomized things where we would fracture back into something preudalism. So not even feudalism. You go way back to tribal. You go back to people being on their own. And one of the first impulses we have is to group up so that we can do that. We can build more than we need. So you break that at your peril. That's going to become important later. Start to get interesting [music] and familiar where everything changed. Rulers, these queens, kings, emperors started to change what they demanded from the lords they had given land to. Forget your knights. I'll build my own army. From now on, you pay me taxes. gold, silver, coins, or goods I can trade to other kingdoms. That land I gave you can do more than just feed your estate. Figure out how to turn a profit on it and then give me some of that profit. Yes, your highness. And as was tradition, the lords turned right around and said the same thing to the people working their estates or [music] running its workshops. New plan, everybody. Grow more than you need. Sell it at the market. Give me some of that profit. That simple act of changing what it was about land that made it valuable. Moving from fight for me when I call to pay me money meant it didn't really matter who owned the land anymore. Whether you could fight really [music] well with a sword, whatever, as long as whoever owned it could pay the taxes on the land, which meant it was actually in the [music] interest of the ruler now to let people buy, sell, and mortgage land. And so they did. Slowly at first, but over a couple centuries, many people could own the land. This marked the beginning of where we are today. It's this huge break from thousands of years of tradition where the thought that you, dear peasant, could own land was not even a concept. That was not a thought that people had. This is so interesting for a couple knock-on effects that I just [music] have to touch on. It made the world less violent. The only way to acquire land stopped being raised an army and kill a bunch of people, take the land they were [music] on as your own. You could just buy it instead. Now, >> we start with this idea of um I'm going to go raid another village. And one of the most um incredible pieces of bounty that I can get is to kill the men and the children and to take the women. Okay? Because the ability to give birth and raise a child is extremely valuable. And so that becomes one of the first things that we kill for. Okay? Horrid. We start building these societies, but we keep killing for land because that's how we're going to feed the population. That's how we're able to grow. We need more soldiers. We need to be able to feed them. And so again, it's through conquest. Then we realize, okay, wait a second. We don't have to do it that way. We can do it through um economic acquisition. Now, he's going to be very careful to make the point this certainly doesn't end violence. And we go through a very horrible period where you've got things like the Dutch East India Company where you've got corporations going around doing the most unspeakable warlike things, conquest, taking over uh peoples. You've got Columbus and his people chopping off hands for people that didn't collect gold fast enough. I mean, you definitely go through a very dark period, but this is laying the seeds for the thing that becomes the modern world where we all agree that, okay, we're going to make money, this thing that I'm able to trade for my time. So, I'm actually able to capture the value of my time. This is so important. By getting good at something, I can now say, "Well, we all have the same 24 hours in the day, but if I can do something that you guys really value, then I can make more money from my time. I can build a surplus of value with my own individual time. And then the things that I need, we all agree that I can buy them. I don't have to steal them." This is such a shift. And because it happened so slowly and it took so long, people don't realize this is an invention of civilization. This is not the way things always were. This >> is so interesting for a couple knock-on effects that I just have to touch on. It made the world less violent. The only way to acquire land stopped being raise an army and kill a bunch of people, take the land they [music] were on as your own. You could just buy it instead. Now, not saying it ended violence, of course not. These were violent times and violence continued. But a new option came into play. If someone figured out how to get more out of land than someone [music] else, they would eventually use that more that profit to buy that other person's land, [music] expand whatever they were doing, make more profit, buy more land, building more and more capital. Which brings us to here, a big messy transition period between the eras when some could own land to anyone in theory. >> Because while anyone could own land, that did not mean that everyone did own land. Peasant life was brutal. It was dangerous. [music] You didn't live long. You couldn't leave the estate you were tied to without the lord's permission. You [music] had few freedoms, no real rights, but it was stable. Ah, life on the manor weren't half bad. A sturdy cottage, my own strip in the open fields, and the commons where the pigs rooted and the wife gathered kindly. Sure, the Lord took his [music] share. But come feast days, we danced, drank, and slept like kings. The seasons ruled us, not some clock. We ate what we grew, mended what we broke, and knew every soul in the village, stable as the old oak. Then the enclosures came. One spring they arrived with ropes and talk of [music] improvement. Commons fence for sheep. Pay a fee to work my strip or wool folded into the big man's profitable [music] fields. Progress, they said. Most of us couldn't. Suddenly we were free. Free to leave the land that had fed us. Free to trudge [music] to the town with nothing but calloused hands and rumbling bellies. Now I stand at the factory gate before dawn, trading my hours for coins that [music] vanish on rent and stale bread. No commons, no strip, no village dance. [music] Just the endless clatter of machines and the knowledge that I made some distant bastard rich while my children cough in a damp room I don't own. Oliver Twist by M. Rob, A Christmas Carol. All stories that are just bigger [music] versions of the story we just heard. Same time period with very few if any safety nets for those that couldn't establish themselves [music] except for workhouses aka poor houses which were not that different from prisons. Employers could pay and treat the lowest rungs of society [music] basically however they wanted. They needed money so they didn't end up in the poor house or worse [music] working conditions, the terrible pay, get hurt and you're completely out of a job, child labor, all the worst parts of working you've heard of. That was this [music] period. So it is no wonder that this is the time when the idea of socialism develops that the people as a group, not rich individuals, should get the fruits of their labor. First, it was this utopian idea based on right and wrong. And what if we just did things [music] like this? There was no reason why it would happen. Just that would be nice. until one book raised the stakes. Capital or the original version published in German dos capital. One volume turned into three 552 total pages. Carl Marx most famous for the communist manifesto and who lends his name to Marxism dropped what would become an enduring piece of history. >> This is going to be another really important piece of the story is you have to understand Karl Marx as a product of his time. So what was going on at that time um is that the way that businesses worked, you could only have a business if you were able to absorb personally the losses of that company. So if you started a company and it failed again, you could have this sort of infinite downside. And so only the wealthy would start companies because there was basically two ways to start a company. have a personal fortune big enough to absorb whatever losses you might have or to be so well connected in the government that you could get a charter from the government where they were going to pick up the tab if anything went wrong. As you can imagine, that was extraordinarily rare. So basically, the wealthy were the only people that were able to start companies. So, in a time where you've got these wealthy people that are starting businesses, they're accumulating capital, meaning they're like they're drawing it in from all areas. They're the only ones that are able to expand. You realize, okay, hold on a second. We've created a virtuous loop, but it's a virtuous loop that only benefits the wealthy, that can absorb the losses should a company fail. And so I get why Karl Marx starts thinking the way that he thinks in a world where only wealthy people can get wealthier and everybody else is stuck. But what he doesn't anticipate is I think like 30 years or something after he writes DOS Capital may have even been a little bit less. But anyway, after he writes DOS Capital um you end up getting the LLC, the limited liability um corporation. So the limited liability act passes because people looked at this and realized, hold on a second, we have a lot of very smart people that could probably do very extraordinary things, but they are not going to be able to absorb that sort of infinite downside. And so what we want to do is say your downside is going to be limited. And so this is the birth of the limited liability act uh which passed in 1855. Before then starting a business came with that like unlimited downside. So now everything changes but the momentum of what Markx had put out into the world is now starting to gain a life of its own. Now the crazy thing is Markx wasn't a big figure in his life. It's only after his death that this um sort of juggernaut of this idea of as the wealthy continue to get wealthier that resentment is leveraged by politicians and you start getting this desire based on the overproduction of elites to leverage that resentment to get the workers to rise up. We'll get right back to the show in a second, but right now let's talk about your supplement stack. I'm sure you've got one. Maybe reishi for immunity, probiotics for gut health, something for energy, something else for focus. Each doing its job in isolation, adding up to a routine you have follow on a good day. Nandica from Peak is built on a totally different principle. One daily ritual targeting cellular resilience, metabolic health, [music] mood, energy, and gut function. 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You get Shopify Checkout, the best converting checkout on the planet, so customers actually follow through with their purchase, and Sidekick, which is Shopify's built-in AI assistant. It's ready to answer every question that comes up, [music] so nothing slows you down from getting your sales. We use Shopify when Impact Theory had a merch store. Everything was so easy from day one. My team loved how simple it was. And honestly, I was jealous of entrepreneurs who had that leg up that I didn't have when I first started out. [music] So, start your free trial today at shopify.com/impact. [music] Now, let's get back to the show. All right. Marks was not a factory worker. He never stood at a factory gate before dawn. He was a middle-ass kid from what is now Germany. Born in 1818, lawyer as a father, good education, PhD in [music] philosophy. He wanted to be a professor. But his politics got in the way. So he became a journalist and he was good at it. Good enough to get his newspaper shut down by the government. [music] Then he got kicked out of Paris, then Brussels. By 1849, he landed in London, broke [music] and stayed there the rest of his life. And here's the part people don't spend much time on. Mark spent decades deep [music] in poverty, pawning his coat in the winter. Three of his children died young. And at one point, he couldn't afford a coffin. The man writing the book about capital had none of it. He survived on two things. freelance journalism, including a decade writing for a New York newspaper and money from his [music] best friend and writing partner Friedrich Engles, who co-wrote The Communist Manifesto. Engles family owned cotton mills [music] in Manchester, England. In a twist of irony, the book that would inspire revolutions against factory [music] owners was funded by factory profits. So sitting in the British Museum room day after day, year after year, Markx read everything. >> So it's important to understand that this is an overproduced elite. So when we talk about the overp production of elites and how important it is, this is what it looks like. This is somebody who is having to pawn his coat in the winter. His kids are dying, but he's not getting a job. He is busy writing a book about how the whole system that he could avail himself of that would have materially changed uh his um poverty. He is so philosophically against it that he instead continues to mire himself and his family in that poverty. this by all accounts this was a very smart person and so the question becomes why was he not doing that and that is what I think people miss is this resentment his own father said I don't understand how somebody who has been given so many gifts by God and so many gifts by birth in terms of being born into a wellto-do family that you would end up being this person so filled with resentment and that stopping him from engaging in the economy in a meaningful way um is an important part of Marx's story >> and he asked just one simple question. Why does this system produce so much wealth and so much misery at the [music] same time? Capital volume 1 came out in 1867. Almost nobody noticed. He died in 1883. 11 people came to the funeral. People who would never have guessed that [music] within 40 years a third of the planet would be governed in his name. rallied by one very simple, very potent idea. [music] Profit is unpaid labor. When you walk into a store, you see prices on the shelves. You don't see the workers who made the product, how long they worked, or how much they were paid. The relationship between the person who made it and the person who buys it is hidden. Your purchase looks like a simple transaction. Money for a shirt. But hidden inside that shirt is unpaid labor. The worker created more value than they were paid for. That difference, the profit, goes to the capitalist. Not necessarily because capitalists are evil. Marks would have said, but because it's built into how the wage system works, rich owners keep getting richer and more powerful workers compete for jobs, which keeps wages down. To escape this, you, me, us, the people as a whole must own the means of making the shirt. It's the only way to escape this oppressive working for wages. And it is here that two opposing forces that refuse to [music] budge fight over what exactly profit is. The capitalist saying, "What about losses?" [music] The socialist saying losses are just failed exploitation. Without profit, there can't be prices. How will you know what to make? We'll know. To date, where we are today, it is that final question, how to know what to make, [music] that has proven very hard for social societies to answer. Experiment after experiment has had to try in their own way. Because what [music] is probably the most interesting thing about DOS capital, the key literature of socialism, it does not say how things should work. Markx offered [music] no ideas for how to do things differently. No system, no outline. It's a full critique of capitalism, but the other side of the equation is left almost completely to interpretation to answer simple questions like how do you decide what to stock a grocery store with? >> Walk into any grocery store along with hundreds of other people who will visit it each day. And as you walk through the aisle choosing what you will and will not put in your cart, upon committing to some and paying for them, you are saying to whoever makes it, "Yes, [music] I want this. And against the infinite number of other things I can buy with $5, I'll take it." Add this up with all the people deciding how to spend their $5 and useful signals appear to those who make things. The group that made what sold makes enough money to keep making the thing. The group that didn't is now aware that they shouldn't keep making the thing, at least not at that price. [music] Unable to find a price that works, don't sell thing for long enough. And all the materials work, everything that went into making the losing thing will eventually have [music] to stop making those products and will now be available to be used by some new maker that wants to test [music] their hand at chocolate bars. Day after day, signals coming in from people of all walks of life saying, "Keep making that. Don't keep making that." A bottoms up system [music] that lets the people vote for how they want the world's scarce resources to be used. Now, walk into a different grocery store. The shelves were stocked months ago by a group of planners who sat in a room [music] and decided how much bread the store would need, how much bread every store would need, how much wheat to grow that bread, how many tractors to harvest that wheat, how much steel to build those tractors. There's no vote to add up because the deciding has already happened. The signal doesn't travel from your cart up to the maker. It travels from the plan down [music] to the factory. The facto's job isn't to figure out what you want. It's to hit the number it was given. Make 10,000 chocolate bars this quarter. Whether anyone wants those chocolate bars is a separate question. And honestly, it's not the facto's question. And when nobody buys them, nothing stops. The materials, the workers, the machines, none of it gets released to some new maker with a better idea because they were never the factories to release. They stay right where the plan put them until a new plan says otherwise. The feedback that took one bad sales week in the first store takes months, years, sometimes never in this one. Day after day, decisions flowing in one direction from the few [music] at the top to the many below. A top- down system where a small group of people get to decide how the world's scarce resources will be used. But what about the real world? Not two imaginary grocery stores. [music] What if we could set up an experiment? You're often going to hear that the debate came down like he laid out that this is um the labor value theory of capital. So that work the person doing the thing is the thing that creates the surplus of value. And you're going to hear people arguing about that till the end of time. Um Steve Keane who looks closely at this um says this is one of the flaws in uh Marx's thinking and he is very pro- Markx like very pro Markx and he was saying the the problem with Markx is that he did not want to admit that machinery also can help create this added value. So it isn't just human labor that creates it. Machines can also create it. One city, one people, split down the middle for 28 years, then rejoined for 35. [music] The finest grained natural experiment the world has ever run on socialism. Berlin is the experiment inside the experiment. [music] It's almost too good of an experiment. You have allies during World War II, everyone working together to beat Germany, but they were not all friends. Capitalist in [music] one group, the United States, England, and France, and a bunch of others. And then you have the Soviet Union, a fully socialist country, which became that way with a lot of help from the writing of Marx in capital and the communist manifesto, which we've talked about a lot. This is what it looks like where he said, "Revolution is necessary to tear down the system. It will not tear itself down. Rise against capitalism." This is what Vladimir Lenon used during the Bolevik Revolution. Anyway, with Germany defeated, the usual splitting up of the losers territory began. Germany as a whole was split up into four different zones with each of the four allied countries administering part of it. But Berlin was too important. It was the capital. France, the US, and England were like, "No, no, just because it's deep in the Soviet side doesn't mean we don't get to be there." So Berlin, completely surrounded by Soviet occupied Germany was split into four zones. The US, England, and France in the west, Soviets taking the east. A tiny sliver of democracy and capitalism in Soviet territory and a front to the Soviet system. So the Soviets try to force the issue. They cut off rail. They block roads. They try to force West Germany into their control. It doesn't work. >> 275,000 flights at an estimated cost to America and England of over $300 million defeated the Russians diabolical plan. They gave up the blockade on May 12th, 1949. All the barriers were lifted. Normal traffic began again. The free world had called Russia's bluff in the highstakes poker game of international politics. For 11 months, the West fed 2 million people from the sky, 277,000 flights. At the peak, a plane lands every 62 seconds. Most of the cargo, 2/3 of it, is coal. The Soviets blink. They lift the blockade and Berlin settles into being two cities wearing one name. And then the [music] quiet part starts. People leave. Not dramatically. A metro ticket, a suitcase, get on the train, ride a few stops, don't come back. Between 1949 and 1961, 2.7 million East Germans from Berlin and the rest of East Germany exit Soviet occupied Germany through this one open scene. Stepping over the line between East and West Berlin. The most disturbing part to the Soviets is half of them are under 25. Doctors, [music] engineers, teachers, the East loses a quarter of its physicians. That many people does not go unnoticed. It was quite obvious to everyone at this point. So 12 years after the last plane of the airlift landed, East Germany's leader holds a press conference. A journalist asks about rumors of a border closing. His answer, "Nobody has the intention of building a wall." The journalist didn't ask about a wall. Nobody had asked about a wall. He introduced the word himself. A Freudian slip as he certainly knew what would happen 59 days later. >> I've used Zapier for over 5 years, but the latest way I'm using it has made my whole team faster. It is a small team. Everyone's building their own tools now. Some in cloud code, some in codecs, chats, whatever they like. And every one of those tools needs to [music] reach the same apps. Slack, Google Drive, Stripe, email, Shopify. The old way, every single person sets up their own connection to every single service. Six people times a dozen apps. It's a mess and nobody really knows who has access to what. With Zapier MCP, everyone on my team makes [music] one connection. And that single connection puts more than 9,000 apps on the other side. Slack, Stripe, Shopify, our database. Cool stuff. One setup instead of a dozen. And nothing's off the menu. And I still have control over how it's all used. Permissions are set per tool. The team can read from our database, but not write to it. Instead of asking people to be careful and make the risky thing impossible, the team is more willing to build things and everyone can use their own tools. The Zapier MCP lets you build faster and make sure you keep your data, your tools, [music] your models, and your rules. You can start for free with my Zapier link, also in the description. Thank you to Zapier for sponsoring this video. Let's get back to it. >> MCPS are dope, [music] by the way. >> The barb wire was strung, streets torn up, train lines severed, all in one night. No wall when the sun went down. wake up and there's a wall running 96 mi through the center of the city and wrapping around the edges of West Berlin, cutting it off from East Berlin and the East German countryside. The concrete came within a week. We've all seen a wall, but this one, everything they built, the guard towers, the dog runs, the trip wires, [music] all of it faces inward. So now our two imaginary grocery stores are real and they're 20 minutes apart. East side, the Kafala at Lenin Plats, carries about 3,000 items, one of each, not yellow mustard and spicy mustard, one mustard. West Side, Bala, one of 120 in West Berlin. About 7,000 items competing with three other chains, including what would become today's Aldi. The West Side, it's a normal market. People buy things. The price of those things is set by the store. If they don't sell or more than normal sales, the store manager will adjust their next order. The east side is a much more interesting story. What you're about to see in here is exactly how the economy was planned for Berlin and the Soviet Union as a whole, using historical documents going from the top to the bottom. >> So, let's go a little bit deeper. So he planted the seeds already talking about this price signal. So this is going to be the argument that you're going to hear a lot. It's a brilliant argument and it really is the death nail to why socialism isn't going to work. It came from a guy named Lud Ludwig vaugh misses and he was trying to explain to people why um the markets in um a socialist system they always end up collapsing. And it's because you're getting rid of the price signal. And once you get rid of the price signal, then you're unable to uh maintain uh appropriate stocks. You're unable to maintain um the variety that you would see, the price competitiveness, etc. By creating competition and then allowing the consumer to vote, you push things to get better. You push people to improve their um logistics systems. You push people to improve their product quality. You push them to drive the cost down. So you're doing all of this stuff just through the mechanism of understanding that a person trying to run a store wants to win, right? They want to do well. They want to have a business that supports them and their family. Maybe they want to accumulate their own money. They want to get rich. They want to like have yachts and all that stuff. But the way that they have to do it because of this update to the system where this isn't feudalism anymore. This is capitalism. This is the ability to outperform people to accumulate more capital than the next person, buy things with that and expand. Okay, which is very different than what's going on on the other side of Germany where it's this top- down control. It's about authoritarian control. It is about saying, "Hey, we have to make sure that the wilted lettuce gets to everybody's table evenly, so everything needs to come up through this central command. We're not going to allow for this kind of competition." And so instead we get something totally different. Now again I've been very honest that we can have a totally different argument if we want about China and what the dangers are there. They are extraordinarily dangerous. But just to say communism as a philosophy and by the way socialism and communism are the same thing. Markx never once talked about socialism. He only talked about communism. It was Lenin who gave the word socialism trying to explain the path to com the the literal path was what he was trying to describe. >> The decision for what goes into the east side grocery begins 1,000 mi away in Moscow where the head of the Soviet Communist Party is located. The word pilot bureau you might have heard before. This is it. The head of the party. The pilot bureau, a committee of 11 men, sets the priorities for all of the Soviet Union for the next 5 years. What do we want for our population? How should we prioritize the military? Are there any industries we want to develop? Are there any we would like to shut down? Many big decisions all written down in the official 5-year plan. And it's a beast. It's huge. Hundreds of pages long. The 5-year plan is then handed to the state planning commission. 3,000 people in that commission map it all out in physical units. This much grain becomes this much flour becomes this many loaves of bread. 2,000 [music] commodities. grain, coal, gravel, glass, everything is balanced in a ledger with the explicit goal of ensuring fairness [music] in the spirit of from each according to their ability to each according to their contribution. But early on, the polip realized that if they just handed things out, here's your pair of shoes, here's your bread for the week, the people would feel like medieval peasants. That's terrible from moral and more importantly terrible for getting people to work. Somebody still needs to make the bread. [music] So the state planning commission was also in charge of deciding how much people should be paid. So they create the ledger of stuff to make and the wage scale which simply divides the entire workforce into [music] eight broad pay bands. The lowest worker earning 250 per hour, the highest earning seven. You cannot earn more and you could not [music] earn less. And here's where it's easy to feel lost. You're giving people wages, which [music] is money, which means you're going to buy something with that money, but everything is kind of free. What do you spend this money on? Okay, so there must be prices in the [music] system. It has to be prices. Okay, if there are prices, how is the price of a loaf of [music] bread decided? Enter the office of prices. That's its real name. They are handed the ledger of stuff to make and the [music] wage scale. With the wage scale, they can see how much in total wages will be paid. Here's our entire workforce. Here's how much it will be paid. They [music] can also see how much total stuff will be made. >> So, one of the really interesting things about this is understanding the fact that Markx did not opine on what exactly you should do with his ideas. This is exactly what I think is going on today. People have an idea of the problems with the system. So, they want to break the system, but they don't actually know what's going to replace the system. And once you start actually trying to replace the system and build something back, you start getting all the gotchas of the way that an economy works so that you end back up in this kind of situation where you're having to do things where you're like, "No, no, no. This isn't the same as capitalism. This is totally different." But it's actually dealing with all the same psychological principles that capitalism was born out of. So one of them is accepting that this is just the way the human mind works and it happened over a very long stretch of time and things have changed as society has changed like the introduction of uh feudalism from tribalism and then getting to capitalism post feudalism like these things just sort of evolve out of each other but they are they are coming up from the people not down from the top. And so now when you try to re-engineer the system, you suddenly realize, oh, those things that I hated, they exist for a reason. And this is where we run into trouble when we get into a cycle in history where people are merely painting the vision of how everything is going to be great, but they don't talk about how we actually get there. And that becomes the problem is what socialists are going to find out. It was the same for me as a game developer. you suddenly realize, oh my god, there are reasons that games that maybe I didn't like the way they were doing something, but there was a reason that they were doing that. They were dealing with some sort of knock-on effect from a decision that you make when you're building the world. And the same is exactly true for somebody trying to do a planned economy is you run into all these things that had reasons for existing. You didn't like them. You didn't understand them. But instead of treating it like Chesterton's fence, which is never knocked down a fence unless you know the reason. So you go up, you see that something's there, you don't know why it's there, so you knock it down because it's like, "Oh, I don't even know why it's there." Then you find out that you should do the exact opposite. If you go somewhere and you see a fence, your impulse should be to leave it because you don't know why it's there. And so these moments where you see these kinds of ideologies on the rise, that is somebody knocking down a fence that they don't understand. How much should a family of four spend [music] on bread? It should be cheap. Not more than 1% of the lowest earning worker. If the lowest earning worker earns a thousand Deutsch marks in a month and the ledger says they get 10 loaves of bread in a month, then a loaf of bread should be [music] one Deutsch mark. Asking this kind of question over and over until all their numbers added up in a way that balanced how much people were paid in wages against what the plan had said each person was allotted. Milk, furniture, car tires, gasoline, medicine. Every price was tagged, stamped on, or even engraved into the thing before it left the factory. The price was simply the price. It was not set based on anything other than deciding how much of a thing a person should need in a year and then how much of that person's pay should be used to buy it. All right. So, with prices set, the office of prices hands everything over to East Germany's Ministry of Trade and Supply. They take it and assign quotas and aotments across the region's 15 districts. Berlin [music] is the 15th district. You have this many people, you get this much. The bakery here makes this much bread, so you get this much flour. Everything is signed to a physical location. The state bakeries in the 15th district get flour delivered on a truck. They bake bread with it, put that bread on a truck, and the manager of the grocery store unloads the truck. They unload the truck with whatever arrives. The outcome of this experiment can be highlighted in many ways. By the time the wall came down, the East Berlin grocery store still had about 3,000 items, while the West ones pushed towards 10,000. Big markets cleared 15,000. But the clearest outcomes show up in two very different parts of life. By the time the Berlin Wall came down, the wait time for either of the two cars you could buy was over 10 years. The main car you could buy in East Berlin, the Trabant, was the exact same car the staterun auto company produced at the time the wall went up. Same materials, about the same engine, no upgrades for over 30 years. Used ones went for more than new ones because people didn't want to wait 10 years. [music] West Berlin, on the other hand, had dozens of cars and you could buy one same day. And then there was health. Over that same 30 years, these neighbors, friends, family who shared a city, they breathed the same air, had the same genetics. Those in East Berlin had a life expectancy two and a [music] half to three years shorter than West Berlin. It's well documented, deeply studied. Within 10 years of the wall being torn down, East and West being unified, 1989 to 1999, [music] the gap completely erased. Those in East Berlin had the exact same life expectancy as those in the West. This is um is a very important concept in entrepreneurship and it actually comes from a nautical term. So it's called velocity made good VMG. So velocity made good is the ability on a ship to go okay I'm trying to get you know over there which is let's say due north but the wind is blowing d east or do west or whatever and so I've got to find a way between angling my sails and tacking back and forth to build up this momentum but harness it in a very specific direction that may be against the way that the wind is actually blowing or at least not completely aligned with it. That is what an entrepreneur does. An entrepreneur takes an incredibly messy uh problematic situation and figures out a way to angle the sales to deal with the limitations that you're confronted with and be able to tack things back and forth so that you can get momentum going in the direction you actually want to end up with. I've talked about this before. Steve Jobs, one of the greatest entrepreneurs of our time, one of the greatest um creators of value essentially out of thin air, was just extraordinarily good at organizing otherwise desperate human beings, the employees in the company, and pointing them in a new direction and being the person who's making all those decisions about should we go this way or that way, which is actually one of the things that makes a decentralized utopia just mechanistically impossible. Humans just don't agree like that. So, we need somebody that sits at the top that's making these decisions so that when people don't agree, which is just the reality of the human mind, put a bunch of people together, they're not all going to agree. So, somebody has to be able to make good out of the energy, right? So, the wind blowing, they've got to be able to capture with the sales, tack back and forth, and get moving in a direction. That skill, that ability to make good of the velocity is very difficult. It is one of the most extraordinarily difficult things about being an entrepreneur. And if anybody has only ever encountered me as a um YouTube talking head, my background is entirely entrepreneurship. So I spent the last 25 years building companies. And I have spent a lot of time trying to figure out um what is that very difficult to describe thing that makes somebody either good or bad at being an entrepreneur. And it really is a huge part of this. So if you're going to talk about the value of labor and you don't talk about the need for somebody that has the vision, the ability to integrate all these different systems, the ability to make decisions when you have competing department heads or whatever that want to go in different directions. Uh if you never make sense of that, you're never going to understand what made Steve Jobs one of the most extraordinary entrepreneurs of our time and what he did. There's a a great movie called uh it's the one by Aaron Sorcin and um Fastbender, Michael Fans Bender plays um Steve Jobs and the um Waznjak character comes up to him and says, "What do you even do? You didn't invent the computer. Uh you didn't write a single line of code. So why are you the one that gets all the accolades for Apple?" And he says, "Uh was you're a tremendous um instrument player. you're the best in your row, but I play the entire orchestra. What he's trying to get at is he is the one that brings all of these disperate voices, disperate talents together to point them in a direction to um get the public to believe a certain thing about the company to create a certain sense of what it is and through marketing and things like that through strategic partnerships to uh pick the right partnerships to point the company in the right direction. And because it's even as an entrepreneur, it's very hard to understand this thing. Uh I don't expect um economists or talking heads that haven't spent decades running companies to be able to understand this. But it is precisely the thing that Karl Marx failed to understand. The need to galvanize people, to have a dream, to have a vision, to have a mission in the company, to point people in a direction, to know what to say yes to, what to say no to. Uh all of that stuff is incredibly valuable and it is the way in which you end up getting the surplus value out of these disperate employees who yes when they come together you are getting a disproportionate amount of value out of the careful orchestration of all of those people but them being able to do it by themselves is impossible because you're just not going to be able to get enough moving pieces. you very quickly realize, oh, I need other people in this company. Once you start having other people, you realize that you need orchestration. And anybody that's worked for bad managers will tell you when it's done wrong, it's really done wrong. And when it's done well, it's done well. Now, I think there's a very worthy debate to be had about are companies doing themselves a disservice by capturing too much of the profits and not making sure that the employees are sharing in that more profoundly so that you have a thriving middle class so that there are people to actually buy your stuff. Yes, I think it is very important that we have that debate. However, if you're trying to talk about socialism and you don't understand this concept of velocity made good, you don't understand the concept of somebody that's orchestrating the whole and that that is the only way for that value to be created, that those people by themselves would not be able to create that surplus value. And if they could, they should just go do it themselves. And in an era where somebody cannot start their own company, I certainly understand why Markx would push back on that. But we don't live in that era. We live in an era where if somebody really does have the right idea, they really can go do it. And that brings us to the failed utopias. Now, if you guys don't know uh about these that there are some absolutely extraordinary ones um that have failed in America, let alone around the world. And so if you look at them, um there was uh the most famous one was founded by this guy named Robert Owen. He was a wealthy Welsh industrialist who founded the famous but extremely ill- fated cooperative commune of New Harmony. This was in Indiana in 1825. Now he was um a I think he was Scottish. So he had these factories in Scotland. Very wealthy man. Comes to Indiana. He talks to any politician who will listen to him and he's like listen guys there's a better way to do this. and this whole capitalist thing, it's really um detrimental. I've got a better way and I'll prove it. And so he starts New Harmony. And they end up abolishing private property. Uh they want everything to be done as a collective. Literally the idea of everybody should do what they can according to their ability and then everybody should be given according to their needs. So nobody can do something private. But then there are these mechanistic knock-ons. So what happens when everybody's working but nobody owns what they work? Where do you take the food? You don't take it to your house. So you create some sort of collective place for them to drop it off. And this is what literally happens in New Harmony, which by the way, it didn't even last a year despite the fact that it was being funded by this wealthy guy. Put 80% of his net worth into it by the way. And so abolish private property. You go work in the fields. You take your lettuce as one example and you drop it off at the like distribution place. I think there was 800 people in the commune. So not even a big group. You drop it off and now people were saying that by the time it ended up on your plate because getting rid of private property ended up creating all these 10,000 like bureaucratic little steps. And so you couldn't even get fresh lettuce onto your table when there's only 800 of you. And so people start getting really frustrated, really annoyed. And you run into what is the single most important thing to understand about why socialism always, always, always will lead to violence. It is something known as the free loader problem. you will inevitably get to the point where some people are very good at what they do and they're out there and they're working hard and that then creates more than they that person needs because they're so good at doing that thing. And then other people that aren't working are able to take advantage of that. And so the person working hard starts saying, "Well, hold on a second. Why am I working so hard when you're not, but you're getting just as much as I'm getting? That doesn't make any sense." So that person stops working as hard. You already have the wilted lettuce problem. So now you've got this wildly inefficient system that's actually being driven by the most productive among you. They start getting angry because the freeloaders are just taking advantage of those people working. And the message that spreads is not, hey, come work really hard so that other people can ride on the back of your hard work and talents. It becomes, hey, come get this stuff. It's really easy. All this stuff is free. And so the message gets out that it's free, that it's easy, which I hope sounds very familiar to uh people following the socialist movement and you promise all this easy stuff, but you forget that it's all going to ride on the back of this orchestration problem. It's all going to ride on the back of people needing to be actually effective at being able to either through orchestration or overperformance or most likely both that you can get this uh surplus that can then be distributed to the other people. And very quickly you get a replication of society which is you get people that have a right-leaning temperament who do not like being taken advantage of. And then you get the people who are being taken advantage of starting to uh basically try to rise up, organize to work against those other people and force them to keep delivering otherwise the whole thing falls apart. And that's exactly what happened. And by the way, they weren't the only one. There were several other um examples of these utopian societies that popped up and they all failed for the exact same reasons. And that's why from a mechanistic standpoint, you've got to understand that idea of velocity made good. Why and how exactly we create the um more abundance than we have to pay the individual person for. It is not that that person is being exploited. It's that that person is part of a system that requires other things other than just them doing their thing. Yeah, you get >> what's not clear to me today though is if this is what people mean when they talk about socialism, this true top down kind of society. That's not what Nordic countries are. Sweden, Norway, Finland, they're free markets. Prices are set by the grocery store owner. The government then collects a lot of tax on everyone, not just the wealthy. Businesses can hire and fire at will. There's nothing different about their capitalism than a place like the US. But there's a massive safety net funded by taxes. If you did it in the US, the average income here is about $70,000. So in Denmark, if you make 1.5 times more than the average, you pay about 54% in total taxes. [music] So that would be an income of about $105,000 here. Everybody is taxed. But the means of production are most definitely not owned by the government, the people. [music] In fact, the Nordic countries intentionally set themselves up like this. They watched what happened in the early part of the Russian Revolution and were like, "No, we're not going to do that." So we've never seen a true socialist system of any size really fulfill the ideas laid out by Marx. We've seen a very real dedicated effort to do it, but they've all ended up at about the same spot. So why hasn't it worked? >> Stalin 29 years. >> Mao Za Dong 27 years. Fidel Castro 49 years. The average rule for leaders of socialist systems is over 15 years. Longer if you look at the ones who are ruling for a long time but died in office like Hugo Chavez. Blame the person. Yes, these men were not good people, but there have been no truer words spoken than these. Play the cliff. >> The basic rule on incentives is you get what you reward for. >> A center that decides where everything goes. It is the ultimate place of power a human can be stationed. Directing the flow of calories, electricity, medicine. [music] So much power radiating out from one point changes the incentives of everybody in the system. The manager of the East Berlin [music] grocery store has no reason to care what customers actually want. If the store runs out of milk by 10:00 a.m., the manager doesn't lose a dime. In fact, fewer [music] customers means less work. Croissants are incredibly timeconuming to make, layer by layer, just right. Otherwise, they don't puff. The bakery is much better off having dense, thick loaves of bread that take a fifth of the time to make and fill their quota [music] faster. They have no other bakery to compete with for customers, so no consequences. And the truck driver moves weight, not loaves of bread. Gravel, nails, bricks, [music] machinery will all be moved before bread because the faster the quota is filled, the faster the driver can be done. [music] Why would you work any longer than you have to? Because the planning board has said what you will be paid. Doing better is just more work that doesn't come with a reward. And the 3,000 people in the planning commission, they just want to be told the quotas they assigned were hit. Last thing the chief of the commission wants to do is tell the pilot viewer they made a mistake. [music] It's all downside. If you get fired, what other planning commission is there to work for? And the people in the very top really don't want to hear the area they're responsible for isn't working anyway. So much power is concentrated at the top. There's no way to get there except [music] for someone to select you to the post that a weakness in your area is someone else's political ammunition to have you removed. So a very very small group of people ends up running [music] the system and they run it blindly because no one brings them problems because why would they? Unless of course that person is trying to move up the [music] system in which case that's a threat for those occupying one of those few spots at the top should probably get rid of that person so they can't make any more noise and install someone who tells you everything is going well. So the leader hears no bad news and would be skeptical if he did. paranoid from years of people trying to get to [music] the center of power to adjust the system in their favor because adjusting the whole system in your favor or taking someone else's power is the only route to getting more. Can't go start a business, can't get elected. The pie is fixed. [music] So, one person doing better takes from someone else. The result has been one person and a tiny group of trusted advisers consolidate control of two things. [music] The military and the means of production, a monopoly on violence and a monopoly on production. Human nature is simply not intended to hold that much power. It's so tempting to make sure you stay in power. To put your thumb on the scale. There's the old saying, power corrupts and absolute power absolutely corrupts. Maybe that could change. One of the things that could change that is a massive amount of abundance. If there isn't scarcity, socialism, and even communism seems almost likely. There would be no reason for markets, prices, and power structures. Everything is just available. Enough to go around. No needing to fight over who gets what. Perhaps the flaws in our human nature are smoothed out, but we aren't there yet. We still live on a planet with 71% water, 29% land, and a finite amount of resources. Because of that, the question of who owns what is not going to go away. Both of the systems we looked at today, at their core, human attempts to solve the exact same problem. How to manage that scarcity. One system trusts chaotic decisions of millions. The other trusts a collective plan vision. Maybe the ultimate system isn't one we've tried yet. Or maybe until we reach a world of absolute abundance, we are destined to keep shifting the needle back and forth between the security of the collective and the freedom of the individual. But whatever the future holds, it will still be driven by that very basic, very human question, who owns [music] what and who gets to decide. >> Indeed. All right, that was uh that was great. I don't I hadn't encountered this guy before. Um what's his name? Let's make sure that we give him a shout out. >> Bill Andrews and his channel is called Maxonomics. >> All right. uh make sure that we link to that in the description. But that was great, man. Really great video. Definitely somebody I'm subscribing to now. Uh you guys should do the same. That was really wonderful. Um that was wild, man. I don't know if there is going to be one of the defining questions of our time. And I don't hear a lot of people that are able to really articulate what's actually going on very well. Uh and this is definitely going to be an ideological battle that's going to rage for quite some time. Um, yeah, >> there were some people in the chat that said, "Yes, this is true. The pilot bureau didn't do a good job doing central planning, but if we gave it to AI, they might be able to fix that problem for us." >> Here's the thing that really is possibly true, and all of this might be moot once AI comes along. I do think people have to be honest, though, about um, is there something in us that yearns to breathe free? Is there something where I don't want to be told even if you're going to make my life better, I I want to choose whether I listen to you or not. And so I want the ability to go do my own thing. Now, if I have the ability to go do my own thing, great. But if I don't have the ability to do my own thing, and you're forcing me to listen to the AI, even if it's going to make my life better and longer, that I just have some fundamental aversion to that. I think that really is true of the human spirit. And I think that we're going to have to find a way to let people avail themselves of AI and not force them to abide by AI. But when you start thinking about things like, well, you can't be on the road driving your own car. it's too dangerous. >> So AI cars, they all pot up, they all talk to each other, >> and they can drive perfectly fast in perfect unison, in perfect sync. Uh their accident rate is, you know, vanishingly small compared to human drivers. So now we're not going to let you drive. And then it's like, okay, well this other thing also we need AI, so we need the cameras everywhere to make sure, right? And so that one is going to be another debate of how much are we willing to give up for safety? I think people will give up a lot, much to my dismay. >> If you like this conversation, check out this episode to learn more. >> Everyone right now is comparing today's AI stock boom to the.com bubble of 99, but the sharpest minds on Wall Street have a different vision. One of those people is Warren Buffett. Warren Buffett is uh I know that he's no longer with Berkshire Hathway. Emy's chairman, but he's not active.