This One Bread Story Explains Why Every Planned Economy Collapses — We Had To React

Key Takeaway

Before tearing down a rule, process, or system you dislike, identify the problem it was designed to solve and the feedback signal that keeps it accountable. Today, pick one frustrating workflow at work or home and ask: What constraint does this address? Who receives feedback when it fails? What would replace it? Improve the system with a small experiment rather than a wholesale redesign. This protects you from trading visible imperfections for hidden, costly consequences.

Episode Overview

Tom Bilyeu reacts to a Macsenomics video tracing the historical emergence of capitalism, Marxism, and centrally planned economies. The discussion argues that decentralized prices, incentives, ownership, and entrepreneurial coordination help societies allocate scarce resources, while also acknowledging the need to debate worker compensation and social protections.

Full Transcript

Transcript of This One Bread Story Explains Why Every Planned Economy Collapses — We Had To React from Impact Theory. Auto-generated from episode audio; may contain minor errors.

I want you to explain socialism, but without using the words "wealth" or " taxes." OK. So, this video will tell you about the real causes, consequences, and mechanisms of the emergence of economic systems. Let's start with a brief history of how we got into capitalism and why Marxism and socialism emerged when they did. Planet Earth is not infinite. It is 71% water and 29% land. Of this land, only about half is usable. This is what everyone, for lack of a better word, is fighting for. Scarcity and the question of ownership are at the heart of every system invented by humans.

Lately, I've been hearing a lot about one of these systems. I don't think people really understand the idea of ​​scarcity, which is why I find video games like Minecraft incredibly apt, because they tap into the evolutionary drive to hoard limited resources. The accumulation of wealth did not give rise to a psychological principle. Everything is exactly the opposite. You are born into a world where you will perish if you do not accumulate at least shelter, food, and water. So if you don't have these resources, which unfortunately are scarce to varying degrees, you will die.

And therefore, during evolution, humans have developed a desire to accumulate these resources to protect themselves from periods when there is nothing . Socialism. Is this socialism? Socialist. Socialism. I am a democratic socialist. Ask 10 people to define socialism and you will hear 10 different answers. From "government owns business" to "free healthcare", "Denmark" or "equality", but everything is much more complicated. This is a word over which wars have been fought. It evokes emotions in people, and almost everyone has their own opinion about it . I believe in socialism.

And when you call it socialism, I don't think that's a completely accurate term. Socialism or capitalism? Capitalism. I think it depends on your interpretation. I don't know of any place in the world where true socialism has worked. And some of these opinions are changing. More people are showing interest in socialism today than at any time in recent decades. So why did it even arise? Why has it stood the test of time? Does it mean the same thing today? What is socialism really? This video is sponsored by Zapier.

More about 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 found in the ground. But as the population grew, we began to encounter each other more and more often. Tribes, clans, and civilizations began to form. Skirmishes escalated into battles, and those into wars, and with rare exceptions, the victor became the owner of all the lands controlled by the defeated side. It was their right to dispose of it . So when these civilizations, tribes, early proto-states came together, one of the most valuable and scarce things that you could kill another tribe for and take from them were women.

There's something about this realization that really strikes me, showing how brutal our past has been. So, looking at the world today, the most important thing we can do is ask, "How do we ensure that society continues to protect us from our own nature?" Because when you delve into the past...he'll explain in a minute why it works. But when you have a situation where conflicts over scarce resources, like women, are resolved only through violence, then the world is much worse than the one where we use economics.

So keep that in mind. The population continued to grow. Kingdoms became larger. One person could not defend every border, arbitrate every dispute, or cultivate every field. Therefore, rulers began to distribute land to trusted warriors and lords. " Own this land as your own. Protect it. In return, when I need them, you will send me your knights." These lords, faced with the same problem as the rulers, but on a smaller scale, divided the land further and gave it to the people to cultivate. " Own this land, grow food for us on it.

In return, I will protect you." It was called differently in different parts of the world, with certain variations, but the essence was the same—the system of feudalism under which most of the world functioned. A handful of influential people owned the land. People began to travel further. Ships became larger. Villages turned into towns, towns into cities. The ability to grow something on the land and then sell it to someone in a city or another country for money, instead of consuming it yourself, has fundamentally changed the way people view the land.

OK. This is a very important idea to understand— capital accumulation . Capital accumulation is really important. When you can raise more capital than you can earn on your own, you can start scaling things. So when he says ships are getting bigger, that's exactly what he means. Every now and then I go up to my roof with someone and say, "Look at the panorama of the city." When you see buildings, you see accumulated capital. This is someone who went to a bank or borrowed money from someone else, was able to get more money than he earned himself, pool it together, and build this incredible society that surrounds us.

But it requires the ability to overproduce, the ability to create more than is needed at the moment, so that over time you can accumulate that surplus and build something bigger and better than you could otherwise. So the concept of moving away from " it's just me and what I can do, and my farm can only feed my family, and that's it," is key. You start using granaries and things like that where people can survive periods like winter. So , this idea, the ability to accumulate more than you need right now, is one of the fundamental foundations of human society.

And if you destroy the opportunity for those who can actually do it, who can organize people or machines to create this overproduction—if you take away the opportunity for people to accumulate, you can't build the world that we see today. It really turns into atomized things, where we break down into something that predates feudalism. Not even feudalism. You are going back to the tribal system, to being every man for himself. And one of our first impulses is to come together to be able to do this. We can build more than we need.

So you destroy it at your own risk. This will become important later. everything becomes interesting and familiar where everything has changed. Rulers —queens, kings, emperors—began to change the demands placed on the lords to whom they granted lands. Forget about your knights. I will create my own army. From now on, you pay me taxes: in gold, silver coins, or goods that I can exchange with other kingdoms. The land I gave you can do more than just feed your estate. Find a way to profit from it and give me a share of that profit.

Yes, Your Majesty. And, as was customary, the lords turned around and said the same thing to the people who worked on their estates or ran their workshops . New plan, all together. Grow more than you need, sell it at the market, and give me some of the profits. This simple shift in the understanding of the value of land—from “ fight for me when I call” to “pay me money”—made it no longer matter who owned the land. It didn't matter how good you were at swordsmanship; The main thing was that the owner could pay taxes on the land, so it became profitable for rulers to allow people to buy, sell, and mortgage it, which they did.

Slowly at first , but over the course of several centuries, many people were able to own land. This marked the beginning of where we are today. This is a huge break with millennial traditions, where the very idea that you, dear peasant, could own land was impossible. People couldn't even think about such a thing. This is so interesting because of a few side effects that I have to touch on them. It made the world less cruel. The only way to get land was no longer to gather an army, kill a bunch of people, and seize their lands.

Now it could simply be bought. We start with the idea of, " I'm going to raid another village," and one of the most incredible pieces of loot I can get is to kill the men and children and take the women for myself, okay? After all, the ability to give birth and raise a child is extremely valuable. And so that becomes one of the first reasons why we kill, understand? Terribly. We start building these societies, but we continue to kill for the land, because that's how we feed the population, that's how we're able to grow.

We need more soldiers, we need to be able to feed them. So again —it's through conquest. Then we realize, " Wait, we don't have to do it this way, we can do it through economic acquisition." Now he will be very careful to emphasize that this, of course, does not stop the violence, and we are going through a terrible period when there are organizations like the Dutch East India Company that are committing incredible war crimes, conquests, and the capture of peoples. There was Columbus and his men who chopped off the hands of those who couldn't collect the gold fast enough.

I mean, we are really going through a very dark period. But it lays the foundation for what will become the modern world, where we all agree that, okay, we're going to make money—something I can trade my time for. So I can actually get value for my time. This is very important. By becoming a master of my craft, I can now say: well, we all have the same 24 hours in a day, but if I can do what you truly value, then I can get more money for my time.

I can create surplus value with my time, and then the things I need, we all agree I can buy them. I don't need to steal them . It's such a big shift, and because it happened so slowly and took so long, people don't realize it's an invention of civilization. This is not the state of things that has always been. This is very interesting because of several implications that are worth touching on. It made the world less cruel. The only way to get land was no longer to raise an army, kill a bunch of people, and appropriate their land; now you could simply buy it.

I'm not saying it ended the violence, of course not. These were brutal times, the violence continued, but a new opportunity emerged. If someone found a way to get more from the land than someone else, they would eventually use that profit to buy out the other person's land, expand the business, make more profit, buy more land, accumulating more and more capital. Which brings us to the present, a great complex transitional period between eras when land could only be owned by a few, to the theoretical possibility of ownership for everyone.

For although everyone could own land, that did not mean everyone owned it. The life of a peasant was cruel. It was dangerous, people didn't live long, you couldn't leave the estate you were tied to without the lord's permission. You had few freedoms, no real rights, but it was stable. Ah, life on the estate was n't so bad. A sturdy house, my own plot of open fields and public lands where pigs grazed and my wife gathered brushwood. Of course, the lord took his share , but on holidays we danced, drank, and slept like kings.

We were governed by the seasons, not by some clock. We ate what we grew, fixed what was broken, and knew every soul in the village, stable as an old oak tree. And then came the fencing. One spring they came with ropes and talk of improvement, fenced off pastures for sheep, demanded payment for cultivating the plots or threatened to give them over to the profitable fields of the rich. Progress, they said. Most of us couldn't pay. Suddenly we were free: free to leave the land that fed us, free to wade into the city with only calloused hands and hungry bellies.

Now I stand at the factory gate until dawn, trading my hours for disappearing coins for rent and stale bread. No pastures, no plots, no village dances, just the endless rumble of cars and the realization that I've enriched some scumbag while my children cough in a damp room that does n't belong to me. Oliver Twist, Les Misérables, A Christmas Carol—all of these stories are just larger versions of what we just heard. The same period, with almost no social guarantees for those who could not find employment, except for workhouses, or poorhouses, which were almost indistinguishable from prisons; employers could pay and treat the lower classes of society as they pleased.

They needed money to avoid ending up in the poorhouse or worse. Working conditions, terrible pay, getting injured and losing your job, child labor —all the worst aspects of work you've heard about. That was this period. It is therefore not surprising that it was at this time that the idea of ​​socialism was developing: that people as a group, rather than wealthy individuals, should receive the fruits of their labor. At first, it was a utopian idea based on the concepts of good and evil: what if we just did it this way?

There was no reason why this should happen, it just wouldn't be a bad thing. Until one book raised the stakes. Capital, or the original version published in German, Das Kapital, one volume that became three, totaling 552 pages. Karl Marx, best known for The Communist Manifesto and the man whose name Marxism bears, published what would become an immortal part of history. This will be another very important part of the story: you have to understand Karl Marx as a product of his time. So what was happening back then: business worked in such a way that you could only do it if you were able to personally cover the company's losses.

So if you started a company and it failed, you again had this kind of unlimited risk. And that's why only the rich started companies, because there were actually two ways to start a business. One must have sufficient personal wealth to cover any possible losses, or have such good connections in the government that one can obtain permission from it to assume the costs in the event of failure . As you can guess, this was an extremely rare occurrence. So , essentially, only the rich had the opportunity to start companies .

So, in times when rich people start businesses, accumulate capital, that is, attract it from everywhere, and only they are able to expand, you understand: "Okay, wait a minute." We have created a vicious circle, but it is a circle that benefits only the rich, able to cover the losses in the event of a company's bankruptcy . So I understand why Karl Marx started thinking this way in a world where only the rich can get richer and everyone else stays the same. But what he didn't foresee was that about 30 years after writing Capital , perhaps even a little less, the limited liability company would eventually emerge.

So the limited liability law was passed because people looked at it and realized, "Wait a second." We have many very smart people who could do extraordinary things, but they wouldn't be able to withstand such endless risks. Therefore, we want to say that your risks will be limited. Thus was born the Limited Liability Act, passed in 1855. Until then, starting a business involved these boundless risks. So, now everything changes. But the momentum of ideas that Marx released into the world begins to take on a life of its own.

The strangest thing is that Marx was not a major figure during his lifetime. Only after his death did this idea become a real driving force: while the rich get richer, politicians exploit this discontent, and there is a desire— against the backdrop of elite overproduction —to use this discontent to incite workers to revolt. We'll be back to the show in a moment, but for now let's talk about your supplement stack. I'm sure you have it . Maybe reishi for immunity, probiotics for gut health, something for energy, something for focus—each component does its job separately, adding up to a routine you follow on a good day.

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And also Sidekick—a built-in AI assistant from Shopify. He is ready to answer any question so that nothing prevents you from selling. We used Shopify when we had a merch store at Impact Theory . From the first day everything was very simple. My team loved this simplicity, and to be honest , I envied entrepreneurs who had an advantage that I didn't have at the beginning of my journey. So, start your free trial today at shopify.com/impact. Now let's get back to the show. OK. Marx was not a factory worker.

He never stood at the passing plant until dawn. He was a middle-class guy from what is now Germany. Born in 1818, father a lawyer, well educated , PhD in philosophy. He wanted to become a professor, but his political views prevented him from doing so. So he became a journalist, and he was good at it . So good that the government shut down his newspaper. Then he was expelled from Paris , and later from Brussels. In 1849 he found himself in London penniless and remained there for the rest of his life.

And here's the part that people rarely stop at. Marx lived in deep poverty for decades, pawning his coat in the winter. Three of his children died at an early age, and at one point he couldn't even afford a coffin. The person who wrote the book about capital didn't have any himself . He survived on two things: freelance journalism, including a decade working for a New York newspaper, and money from his best friend and co-author Friedrich Engels, with whom he wrote The Communist Manifesto . Engels' family owned cotton mills in Manchester, England.

Ironically, the book that inspired revolutions against factory owners was financed by the profits of those factories. So, sitting in the reading room of the British Museum day after day, year after year, Marx read everything in a row. It is important to understand that this is a representative of the " overproduction" of the elites. When we talk about the overproduction of elites and how important it is, here's what it looks like in practice. This is a person who is forced to put away their coat in the winter, whose children are dying, but who still doesn't go to work.

He is busy writing a book about a system that could materially change his poverty, but he is so philosophically opposed to it that he continues to plunge himself and his family into this misery instead. By all accounts, he was a very intelligent man. And so the question arises: why did n't he do it? And that's what I think people overlook —this feeling of resentment. His own father said, "I don't understand how a person gifted by God and born into a wealthy family could become so full of hatred." And the fact that this prevented him from fully participating in economic life is an important part of Marx's story.

And he asked just one simple question. Why does this system simultaneously create so much wealth and so much suffering? The first volume of Capital was published in 1867. Almost no one noticed this. He died in 1883. 11 people came to the funeral . People who would never have guessed that in just 40 years a third of the planet would live under his name are united by one very simple and powerful idea. Profit is unpaid labor. When you walk into a store, you see the prices on the shelves.

You don't see the workers who created this product, how long they worked, and how much they were paid. The connection between the person who created the product and the person who buys it is hidden. Your purchase looks like a simple transaction: money in exchange for a shirt. But hidden inside this shirt is unpaid labor. The worker created more value than he was paid. This difference, i.e. profit, goes to the capitalist. Not necessarily because capitalists are evil, Marx would say, but because it is inherent in the very nature of the wage labor system.

Wealthy owners are becoming richer and more powerful. Workers compete for jobs, which holds back wage growth. To avoid this, you, I, we, people in general, must own the means of producing this shirt. This is the only way to escape this oppressive wage slavery. And it is here that two opposing forces, unwilling to yield, argue about what exactly constitutes profit. The capitalist says, "What about the losses?" The socialist replies : "Loss is simply unsuccessful exploitation ." "Without profit, there can be no prices. How do you know what to produce?" We will find out.

To date, the question of how to know exactly what to produce has proven to be the most difficult for socialist societies. Experiment after experiment forced me to find my own path, because the most interesting thing about Capital, the main work of socialism, is that it doesn't say how everything should work. Marx offered no ideas on how to act differently, no system or plan. This is a complete critique of capitalism, but the other side of the equation is left almost entirely up to interpretation. Because the answers are simple questions: for example, how do you decide what to stock your grocery store with?

Go into any grocery store with hundreds of other people who visit it every day, and as you walk down the aisles, choosing what to put in your cart and what not to put in your cart, selecting items and paying for them, you're saying to the manufacturer, " Yes, I want this, and of the many other things I can buy for $5, I'm going to choose this." Add to that all the people deciding what to spend their $5 on, and there are useful signals for manufacturers. The group that produced what was sold receives enough money to continue production.

The group whose product did not sell now knows that it is not worth continuing production, at least at that price. If you can't find an acceptable price and the product doesn't sell for a long time , then all the materials, labor—everything that went into producing the unprofitable product—will eventually become free and available to a new manufacturer who wants to try their hand at, say, making chocolate bars. Day after day, the signals from people from all walks of life say, " Keep doing it." "Stop doing that." a bottom-up system that allows people to vote on how they want to use the world's limited resources.

Now go to another grocery store. The shelves were filled months ago by planners sitting in an office deciding how much bread this store needed, how much each store needed, how much wheat for that bread, how many tractors to harvest it, how much steel for those tractors. There is no vote to be counted here, because the decision has already been made. The signal doesn't go from your cart to the manufacturer, it goes from the plan to the factory. The task of the factory is not to find out what you want, but to carry out the plan.

Produce 10,000 chocolate bars per quarter. Whether anyone needs these bars is a separate question, and, frankly, not the factory's problem. And when no one buys them, nothing stops. Materials, workers, machines— nothing is passed on to another manufacturer with a better idea, because they never belonged to the factories to be given away. They stay where the plan placed them until a new plan says otherwise. The feedback that worked in the first store in a week takes months, years, and sometimes never works here . Day after day, decisions flow in one direction—from the few at the top to the many at the bottom; It is a top-down system where a small group of people decide how the world's limited resources will be used.

What about the real world? Not two imaginary grocery stores. What if we could conduct an experiment? You will often hear the discussion boil down to what he explained—the labor theory of the value of capital, that it is the labor of the person doing the work that creates the surplus value, and you will hear people arguing about it until the end of time. Steve Keane, who studies this closely, says that this is one of the flaws in Marx's thinking, even though he is very pro-Marxist . He said that Marx's problem was that he didn't want to admit that technology could also help create this surplus value.

So, it's not just human labor that creates it, machines can do it too. One city, one people, divided in half for 28 years, then united in 35. The best natural experiment the world has ever conducted on socialism. Berlin is an experiment within an experiment. This is almost too successful an experiment. You have allies during the World War, all working together to defeat Germany, but they weren't all friends. Capitalists in one group: the United States, England, France, and a whole host of other countries. And then the Soviet Union—a fully socialist country , which became so thanks to Marx's works "Capital" and "The Communist Manifesto, " which we talked about a lot .

This is what it looks like. Where he said: “A revolution is necessary to destroy the system. It will not destroy itself . Rise up against capitalism." This is what Vladimir Lenin used during the Bolshevik Revolution. Be that as it may , after the defeat of Germany, the usual division of the territory of the defeated began. Germany as a whole was divided into four different zones, with each of the four Allied countries governing its own part, but Berlin was too important. This was the capital. France, the US and England said: “No, no.

"Just because he's deeply on the Soviet side doesn't mean we shouldn't be there." So Berlin, completely surrounded by Germany occupied by Soviet troops , was divided into four zones. The USA, England and France in the west, and the Soviet Union in the east. A tiny piece of democracy and capitalism on Soviet territory , a challenge to the Soviet system. Therefore, the Soviet Union tried to resolve the issue by force. They cut the railways and blocked the roads, trying to bring West Germany under their control. It did n't work.

275,000 flights, costing America and England over $300 million, destroyed the Russians' diabolical plan. On May 12, 1949, they abandoned the blockade. All barriers were removed. Normal traffic has resumed. The free world has called Russia's bluff in the high-stakes game of international politics . For 11 months, the West fed 2 million people from the air. 277,000 flights. At peak times, a plane landed every 62 seconds. Most of the cargo, two-thirds, is coal. The Soviet Union retreated. They lift the blockade, and Berlin turns into two cities with the same name.

And then the quiet phase begins. People are leaving . Without unnecessary drama. A subway ticket, a suitcase, you get on the train, go a few stops and don't come back. Between 1949 and 1961, 2.7 million East Germans from Berlin and the rest of East Germany left the Soviet-occupied country through this open gap, crossing the line between East and West Berlin. Most alarming for the Soviet Union was that half of them were under 25 years old. Doctors, engineers, teachers—the East is losing a quarter of its doctors.

Such a large number of people does not go unnoticed. At that point, it was quite obvious to everyone. So, 12 years after the last airlift plane landed, the leader of East Germany is holding a press conference. The journalist asks about rumors about the border closure. His answer: " No one intends to build a wall." The journalist didn't ask about the wall. No one asked about the wall. He used that word himself. A Freudian slip , because he certainly knew what would happen in 59 days. I've been using Zapier for over 5 years, but the latest way I've used it has made my entire team faster.

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Thank you to Zapier for sponsoring this video. Let's get back to business. By the way, MCP is a cool thing. Barbed wire was stretched, streets were dug up, railroad tracks were torn up—all in one night. When the sun set, the wall was still not there . You wake up and there's a 96-mile-long wall in the middle of the city, encircling West Berlin, cutting it off from East Berlin and the surrounding area. The concrete appeared within a week. We've all seen walls, but this... everything they've built: towers, dog kennels, banners—everything is directed inward .

So now our two imaginary grocery stores are real, and they're 20 minutes apart . On the east side, the Kaufhalle store on Leninalleeplatz has about 3,000 products, one of each: not yellow mustard and hot mustard, but just mustard. West side, Balla, one of 120 in West Berlin, about 7,000 products, competing with three other chains, including what later became the current Aldi. The west side is a regular market. People buy goods, the prices for which are set by the store. If they don't sell or sell better than usual, the store manager adjusts the next order.

The east side is a much more interesting story. What you will now see and hear is exactly how the economy was planned in Berlin and the Soviet Union as a whole, using historical documents, from top to bottom. So let's dig a little deeper. He has already sown the seeds by talking about this price signal. This will be an argument you will hear repeatedly. This is a brilliant argument. This is truly a death sentence for why socialism won't work. It was put forward by Ludwig von Mises in an attempt to explain to people why markets in a socialist system always eventually collapse.

And all because you lose the price signal. And once you lose the price signal, you can't maintain proper inventory, product variety, or price competitiveness . By creating competition and letting the consumer vote, you stimulate improvement, forcing people to improve logistics, increase product quality, and reduce costs. You do all of this with the understanding that the person running the store wants to win, right? They want to succeed. They want to have a business that provides for them and their families. Maybe they want to save their own money.

They want to get rich. They want to have yachts and all that stuff. But the way they have to do it is through a renewal of the system, where it is no longer feudalism, but capitalism. It is an opportunity to outperform others, to accumulate more capital than the next person, to buy goods with it, and to expand. Which is very different from what is happening on the other side of Germany, where centralized control is in place . This is about authoritarian control. It's about saying, "Hey, we have to make sure that wilted lettuce gets to everyone's table equally, so everything has to go through this central headquarters." We are not going to allow such competition.

And so in return we get something completely different. So, I'll be blunt again: we can argue about China and what dangers it poses in a very different way. It is extremely dangerous, but it is easy to call communism a philosophy ... By the way, socialism and communism are one and the same. Marx never once spoke about socialism. He only talked about communism. It was Lenin who introduced the word " socialism" in an attempt to explain the path that must be taken—he tried to describe this path literally.

The decision about what goes into a store on the East Side is made 1,000 miles away in Moscow, where the leadership of the Communist Party of the Soviet Union is located. You may have heard the word "Politburo" before. This is it. Party leadership. The Politburo, an 11-person committee, sets priorities for the entire Soviet Union for the next 5 years. What do we want for our population? How do we prioritize the army? Are there any industries we want to develop? Are there any that we want to close ?

Many important decisions are written into the official five-year plan, and it's a real monster. It's huge, hundreds of pages long. The five-year plan is then submitted to the State Planning Commission. The 3,000 people on this commission are writing all this down in physical units. So much grain becomes so much flour, so many loaves of bread become. 2,000 goods: grain, coal, gravel, glass —all balanced in the ledger with the clear goal of ensuring fairness in the spirit of “from each according to his ability, to each according to his contribution.” But pretty early on, the Politburo realized : if they just give things away...

Here's a pair of shoes. Here's your bread for the week. People will feel like medieval peasants . This is terrible for morale and, more importantly, terrible for work motivation. Someone has to bake the bread anyway. Therefore, the State Planning Commission was also responsible for determining the amount of wages. So they create a register of what needs to be done and a pay scale that simply divides the entire workforce into eight broad pay ranges. The lowest rate is 2.50 per hour, the highest is seven. You couldn't earn more and you couldn't earn less.

And here it is easy to get confused. You give people a salary, that is, money. This means they are going to buy something with this money. But everything is supposedly free. What to spend this money on? Okay, so there should be prices in this system. There must be prices. Okay, if there are prices, then how is the price of a loaf of bread determined? Go to the pricing office. This is his real name. They are given a ledger with a list of goods for production and a salary scale.

On the salary scale, they see the total amount that will be paid as salary. Here is our entire workforce. Here's how much they will be paid. They also see how much of everything will be produced. One of the most interesting things here is the realization that Marx did not express opinions about what exactly should be done with his ideas. This is exactly what I think is happening today. People see the problems with the system, so they want to destroy it, but they don't really know what will replace it.

And as soon as you start replacing the system and building something new , you run into all the pitfalls of economics, going back to a situation where you have to say, " No, no, no, this is not the same as capitalism." " This is completely different." But in reality, it is working with the same psychological principles from which capitalism emerged. One of them is the acceptance that this is how the human mind works, and it has been happening over a very long time, changing with society, like the transition from tribalism to feudalism, and then to capitalism after feudalism.

These things just evolve from each other, but they come from people, not from the top down. And now, as you try to redesign the system, you suddenly realize, “Oh, those things I hated don’t exist for nothing. ” This is where we get into trouble, when we find ourselves in a historical cycle where people only paint utopian pictures but don't say how we will get there. And this becomes a problem. Socialists will understand the same thing as I do as a game developer. You suddenly realize, "God, there are reasons why games did things the way I didn't like them—there were reasons for that ." They were dealing with the consequences of decisions made during worldbuilding.

The same goes for someone who tries to create a planned economy: you are faced with everything that existed for a reason. You didn't like them, you didn't understand them, but instead of treating it like a " Chesterton fence," never tear down the fence until you understand the reason for its appearance. So, you walk up, you see something standing there, you don't know why, and so you take it down because you think, "Oh, I don't even know why it's there." And then you find out that you should have done the exact opposite.

If you come somewhere and see a fence, your impulse should be to leave it because you don't know why it's there . And so at times like these, when you see the rise of such ideologies, it's someone tearing down a fence that they don't understand. How much should a family of four spend on bread? It should be cheap, no more than 1% of the income of the lowest-paid worker. If a worker with the lowest salary earns a thousand Deutsche Marks per month, and the account book says that he is entitled to 10 loaves of bread per month, then a loaf of bread should cost one Deutsche Mark.

Asking these questions over and over again until all their numbers converged to balance the salary level with what was allocated to each person according to the plan. Milk, furniture, car tires, gasoline, medicine—every price was listed on a label, stamped, or even engraved on the product before it left the factory. The price was just a price. It was set solely on the basis of how much of something a person needs per year and how much of their salary they should spend on it. OK. So, after setting prices, the price office hands everything over to the East German Ministry of Trade and Supply.

They take that and distribute the quotas and allocations among the 15 counties in the region. Berlin is the 15th district. You have this many people, you get this many goods. The bakery here bakes so much bread, so you get so much flour. Everything is assigned to a specific physical location. State bakeries in the 15th district receive flour delivered by truck. They bake bread from it , load it into a truck, and the grocery store manager unloads it. They are unloading the truck with everything that has arrived.

The results of this experiment can be illustrated in many ways. At the time of the fall of the wall, an East Berlin grocery store still had about 3,000 items, while a Western one was approaching 10,000. Large markets offered over 15,000. But the most obvious result was in two very different areas of life. At the time of the fall of the Berlin Wall, the waiting time for any of the two available cars exceeded 10 years. The main car in East Berlin, the Trabant, was the same model that was produced by the state-owned car factory when the wall was first built.

Same materials, almost the same engine, no updates in over 30 years. Used cars were more expensive than new ones because people didn't want to wait 10 years. In West Berlin, on the contrary, there were dozens of models, and you could buy a car the same day. And there was also health. During those same 30 years, neighbors, friends, and relatives living in the same city breathed the same air and had the same genetics, but East Berliners lived on average 2.5–3 years less than their Western counterparts. This is a well- documented and extensively studied fact.

In the 10 years after the fall of the Wall and the unification of East and West, from 1989 to 1999, the gap disappeared completely. Residents of East Berlin began to live as long as people in the West. This is, you know, a very important concept in entrepreneurship, and it comes from a nautical term. It is called " speed in the desired direction" , or VMG. So VMG is the ability of a ship to say, "Okay, I want to get there, let's say, due north, but the wind is blowing due east or west." So I need to find a way, by changing the angle of the sails and maneuvering, to gain speed, but direct it in a specific direction, even if it is against the wind or at least not coincident with it.

This is what an entrepreneur does. An entrepreneur takes an extremely difficult, problematic situation and figures out how to set the sails to overcome the limitations, and constantly maneuvers to move in the direction they really want to go. I've talked about this before. Steve Jobs, one of the greatest entrepreneurs of our time, one of the greatest creators of value from literally nothing, was extremely skilled at bringing together disparate people—the company's employees —and guiding them in the right direction, making all the decisions about where to go, which, in effect, makes a decentralized utopia mechanically impossible.

People simply cannot come to such an agreement. So, we need someone at the helm who will make these decisions. So that in a situation where people disagree—and that's just the reality of human thinking— you put a bunch of people together and they're not always going to agree. So someone has to be able to channel this energy in the right direction, right? So, when the wind blows, you need to be able to catch it with your sails, maneuver and move in the right direction. This skill, this ability to use speed effectively, is very complex.

This is one of the extremely difficult things in entrepreneurship. And if someone only knows me as, um, a " talking head" on YouTube, my background is all about entrepreneurship. So for the last 25 years I've been building companies. And I spent a lot of time trying to figure out, um, what is this thing that's so hard to describe that makes someone a good or bad entrepreneur. And that's actually a huge part of it. So if you're going to talk about the cost of labor and you don't mention the need for someone who has the vision, the ability to bring all these different systems together, the ability to make decisions when you have competing department heads or whoever who wants to move in different directions.

If you never grasp this, you will never understand what made Steve Jobs one of the greatest entrepreneurs of our time. And what he did was a great movie, it's from Aaron Sorkin, and Michael Fassbender plays Steve Jobs. And Wozniak's character comes up to him and says, "What do you even do? You didn't invent the computer. You didn't write a single line of code. So why exactly do you get all the credit for Apple?" And he says, "Woz, you're a great musician. You're the best in your class, but I conduct an entire orchestra." He's trying to say that he's the one who brings all these different voices, different talents together to steer them in a certain direction; to make the public believe a certain thing about the company; create a certain perception of it through marketing and the like; choosing the right connections through strategic partnerships; to lead the company in the right direction .

And since it's hard for even an entrepreneur to understand this, I don't expect economists or " talking heads" who haven't spent decades running companies to be able to understand it, but this is exactly what Karl Marx couldn't understand. The need to unite people, to have a dream, to have a vision, to have a mission in the company, to direct people in a certain direction, to know what to say " yes" to and what to say "no." All of this is incredibly valuable, and that's how you get the added value from these disparate workers who, when combined, create disproportionately more value through the careful coordination of all of these people.

But what they can do on their own is impossible , because you simply won't be able to get enough moving parts working. You realize very quickly, "Oh, I need other people in this company." As soon as you have other people, you realize that you need coordination . And anyone who has worked for bad bosses will tell you that when it's done wrong, it's done really badly. And when it's done well, it's done well. Now, I think it's worth having a decent discussion about whether companies are hurting themselves by taking too much profit and not giving workers a bigger share, so that there's a thriving middle class to buy your products from.

Yes, I think it's very important that we have this discussion. However, if you try to talk about socialism and don't understand the concept of the efficiency of the movement, you don't understand the concept of someone coordinating the whole, and that this is the only way to create that kind of value; that these people on their own would not be able to create such added value, and if they could, they would simply do it themselves. And in an era where someone couldn't start their own company, I certainly understand why Marx would object to that.

But we don't live in that era. We live in an era where, if someone really has the right idea, they can really go and make it happen. And this leads us to failed utopias. If you guys don't know about them, there are some absolutely extraordinary ones that have crashed in America, let alone the entire world. So if you look at them, the most famous one was founded by a guy named Robert Owen. He was a wealthy Welsh industrialist who founded the famous but extremely unsuccessful cooperative commune of New Harmony.

This was in Indiana in 1825 . Now, he was... I think he was Scottish. So, he had these factories in Scotland, a very wealthy man, comes to Indiana. He talks to any politician who is willing to listen to him. He says, " Listen, guys. There's a better way to do this. And this whole capitalist thing , it's really, um, harmful. I have a better way, and I'm going to prove it." And so he founded the "New Harmony". And they ultimately abolish private property. They want everything to be done collectively.

Literally the idea that everyone should do what they can according to their abilities, and then everyone should be given according to their needs. So, no one can have anything private. But then these mechanical consequences arise. What happens when everyone works, but no one owns what they work on? Where do you take the food? You don't take it home with you . So you create some kind of collective place to drop it off. And this is literally what happened in "New Harmony", which, by the way, didn't last even a year, despite being financed by this rich man.

He invested 80 % of his fortune in it, among other things. So, private property has been abolished , you go to work in the field, take your lettuce, as one example, and take it to a kind of distribution point. I think there were 800 people in the commune . So, not even a large group. You bring it in, and people start saying that by the time it gets to your plate, because the abolition of private property has led to 10,000 bureaucratic microsteps, you couldn't even get a fresh salad on the table, even though there are only 800 of you.

And people start getting very annoyed, very angry, and you come across the most important thing to understand about why socialism will always, always, always lead to violence. This is what is known as the " parasite" problem. You will inevitably get to a point where some people know their stuff really well, they work hard, and it creates more than they need because they work so well . And other people who are not working can take advantage of this. And then the person who is working hard starts saying, “Wait a minute.

Why do I work so hard when you don't, but get paid just as much as I do? "This doesn't make any sense." So this person stops working so hard. You already have a problem with salad delivery. And so you have this extremely inefficient system that is actually driven by the most productive among you. They start to get angry because the freeloaders are just taking advantage of those who work, and the message that's being spread is n't, "Hey, work really hard so others can live off your labor and talents." And like: "Hey, come and take it all ." It's very easy.

All this is free. And so the message is spreading that it's free and easy, which I hope sounds very familiar to people who follow the socialist movement . You promise all these easy things, but forget that all of this will rest on the shoulders of solving the organization's problem . Everything will depend on people, who must be truly efficient, so that through organization, over-productivity, or most likely both , they can create this surplus, which can then be distributed to others. And very quickly you get a reproduction of a society where there are people with right-wing views who don't like being taken advantage of , and there are those who have been taken advantage of who start organizing against the former, forcing them to continue working.

Otherwise, it will all fall apart. And that's exactly what happened. By the way, they were not the only ones. There have been several other examples of such utopian societies emerging, and they all failed for the same reasons. That's why, from a mechanistic perspective, you have to understand the idea of ​​" useful velocity," why and how exactly we create a surplus that is greater than what we have to pay to an individual. This does not mean that the person is being exploited, it means that they are part of a system that needs something more than just doing their job.

Yes, you see, what is obvious to me today is that if this is what people mean when they talk about socialism—a real society run from the top down. That's not what the Nordic countries are at all. Sweden, Norway, Finland—these are free markets. Prices are set by store owners . The government collects large taxes from everyone, not just the rich. Businesses can hire and fire employees at their own discretion. Their capitalism is no different from capitalism in countries like the United States. But there is a huge social protection system there, financed by taxes.

If you implemented this in the US, where the average income is around $70,000. So, in Denmark, if you earn 1.5 times the average, you pay about 54% of total taxes. That is, here it would be an income of approximately $105,000. Everyone is taxed . But the means of production definitely do not belong to the state or the people. In fact, the Scandinavian countries deliberately chose this model. They watched the events of the beginning of the Russian Revolution and decided, "No, we're not going to do this ." So we have never seen a true socialist system that truly embodies Marx's ideas.

We have seen very real and committed attempts to do this, but they all came to roughly the same result. So why didn't it work? Stalin—29 years old. Mao Zedong—27 years old. Fidel Castro—49 years old. The average term of office of leaders of socialist systems is over 15 years, or even longer if we consider those who ruled for a long time but died in office, like Hugo Chavez. You can blame individuals—yes, these people were not good— but no truer words were spoken than these . Turn on the clip.

The basic rule of incentive is simple: you get what you are rewarded for. The center that decides where everything goes. This is the highest position of power a person can hold, directing the flow of calories, electricity, and medicine. Enormous power emanating from one point changes the motivation of everyone in the system. The manager of a grocery store in East Berlin has no reason to care about what customers actually want. If the store runs out of milk at 10:00, the manager doesn't lose a penny. In reality, fewer buyers means less work.

Croissants take an incredibly long time to make: layer by layer, everything has to be done correctly, otherwise they won't be fluffy. It is much more profitable for bakeries to bake dense, thick loaves of bread, which require five times less time, allowing them to fulfill their plan faster. They don't have another bakery to compete with for customers, so there are no consequences. And a truck driver transports weight, not loaves of bread. Gravel , nails, bricks, or equipment will be transported faster than bread, because the faster the plan is implemented, the sooner the driver is free.

Why work longer than necessary if the planning commission has already determined your salary? The best job is just extra work without any reward. And the 3,000 people on the planning commission just want to hear that the quotas they set have been met. The last thing the commission chairman wants is to tell the Politburo that they made a mistake. These are solid disadvantages. If you get fired, what other planning commission can you go work for? And people at the very top really don't want to hear that the area they are responsible for is n't working in any way.

So much power is concentrated at the top, and you can only get there if someone appoints you to the position, so weakness in your area is someone else's political ammunition for your removal. So, a very, very small group of people run the system, and they run it blindly because no one brings them problems, because why would they? Unless this person is trying to advance in the system, in which case they are a threat to those who occupy one of the few places on the mountain. So, we should probably get rid of this person so that they don't make a fuss, and put someone in charge who will say that everything is going well.

So, the leader doesn't hear bad news and would be skeptical if he did. He is paranoid because for years people have been trying to get to the center of power to change the system in their favor, because tweaking the system for themselves or seizing someone else's power is the only way to get more. You can't start a business, you can't get elected, the pie is limited. Therefore, if one person is doing better, he takes it away from the other. The result was that one man and a small group of trusted advisors consolidated control over two things: the army and the means of production .

Monopoly on violence and monopoly on production. Human nature is simply not adapted to that much power. It's so tempting to ensure that you stay in power, to tip the scales. There is an old saying: power corrupts, and absolute power corrupts absolutely. Maybe that could change. One thing that could change that is a huge amount of wealth. If there is no shortage, socialism and even communism seem quite likely. There would be no need for markets, prices, or government structures. Everything is simply available. There is enough for everyone, there is no need to fight over who gets what.

Perhaps the flaws of our human nature are being smoothed out . But we're not there yet. We still live on a planet with 71% water, 29% land, and limited resources. Because of this, the question of who owns what will not go away. Both systems we have examined today are, at their core, humanity's attempts to solve the same problem: how to manage this deficit. One system trusts the chaotic decisions of millions, the other trusts a collective planned vision. Perhaps the ideal system is not the one we have already tried.

Or perhaps, until we reach a world of absolute abundance , we are destined to constantly oscillate between collective security and individual freedom . But whatever the future holds, it will still depend on the same basic, purely human question: who owns what and who has the right to decide? Really. Okay, that was, uh, that was great. I haven't, I have n't seen this guy before . Um, what's his name? Let's definitely remember him. Phil Andrews, and his channel is called Macsenomics. OK. Uh, make sure we add a link in the description, but that was awesome, man.

Really great video. Definitely the one I'll be subscribing to now. Uh, you guys should do the same. It was really great. Um, that was wild, man. I do n't know if this is going to be one of the defining issues of our time, and I haven't heard many people who are able to really explain well what's really going on. Uh, and this will definitely be an ideological battle that will last for quite some time. Um, yes. There were people in the chat saying, "Yeah, that's true.

The Politburo didn't do a very good job of central planning, but if we let AI do that, they could probably solve this problem for us. Which is quite possibly true, and all of that may become irrelevant when AI comes along. I still think people need to be honest about whether there's something in us that yearns to breathe freely? Is there something where I don't want to be told, even if you're going to make my life better, I want to choose whether to listen to you or not.

So I want to be able to do my own thing. Now, if I can do my own thing, great. But if I can't do my own thing, and you're forcing me to listen to AI, even if it's going to make my life better and longer, I just have a fundamental aversion to that. I think that's really inherent in the human spirit, and I think we need to find a way to allow people to to use AI, not to force them to obey it. But when you start thinking about things like, " Well, you can't drive your own car, it's too dangerous." So AI cars are gathering in groups, communicating with each other, and they can drive perfectly fast, in perfect harmony, in perfect synchrony.

Their accident rate, you know, is negligible compared to human drivers. So now we're not going to let you drive the car. And then you think, " Okay, for this other thing, we need AI too." So we need cameras everywhere to monitor everything, right? "And this is going to be another discussion about what we're willing to sacrifice for security. I think people are going to sacrifice a lot , to my great regret. If you enjoyed this conversation, watch this episode to learn more. Now, everyone is comparing the current AI stock boom to the '99 dot-com bubble, but the sharpest minds on Wall Street have a different view.

One of those people is Warren Buffett. Warren Buffett , I know he's no longer at Berkshire Hathaway. I mean, he's the chairman, but he's not running the operations.

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