The pre-industrial economic systems, from traditional markets to feudalism, were simple in comparison to the economic systems of today. Yet, there were advantages to the economics of those days. There were shortages then, but the shortages tended to be real shortages caused by factors such as war and drought. In the economy of today, there are not only real shortages but also artificial shortages caused by glitches in the more-complex economics.
When the Industrial Revolution came along, and humans acquired the ability to manufacture and mass-produce goods, the economics had to change. The new economic reality was actually much more difficult to handle. The truth is that, to this day, the economics have never really caught up with our ability to mass-produce goods. The most difficult aspect of industrialization and mass production is settling on the economics necessary to handle it.
My theory here is that the economy to handle mass production must be considered as part of the manufacturing process. The trouble is losing sight of, or not being fully aware of, the complex big-picture economics that industrialization has made necessary. The incredible truth is that, several centuries after the Industrial Revolution, economics still has not reached a new equilibrium.
Mass production means that most of what is produced cannot be sold locally, and so must be sold "over the horizon". The result is all of the controversy and competition between different economic systems, such as Capitalism, Socialism and, Communism. All of this is the result of industrialization and the ongoing effort to find the best economic system to manage it.
The most obvious peril that came with industrialization is the pollution and environmental degradation. But it also vastly increased the potential for wealth disparity. As material and technical progress increased, we eventually got to the point where we can change the world faster than we can adapt to the changes that we have made in the world, a facet of what I have termed "The Commoner Syndrome".
But one of the most important perils of industrial era economics is the addition of artificial shortages because the economics is not working well. Artificial shortages are those that do not really need to happen, except for the inefficiency of the economics. The classic example is a family struggling to keep and old car going, when they really need a new one. Meanwhile, the new car dealership down the road is letting go of the staff because few people can afford to buy new cars.
The best that we can do with the complex new economics is to find a comfortable balance between the conflicting forces. Capitalism suffers from that precarious balance between production and consumption that crashes or goes into recession on a regular basis, while Communism does not provide enough incentive and has issues with corruption. Many who have lived in Communist countries can say that the way to be sure of getting what you need is to be related to the one of the local party officials.
Capitalism provides incentive, but at the same time allows those with the advantages to set the system up to suit themselves. If workers are paid too much money, it gets inflation started, if they are not paid enough it brings about cutbacks in production and gets a recessionary spiral started.
There is an unfortunate tendency for people to believe that either the buyer or the seller in an economic transaction is somehow more important than the other. The economic right could be called the seller or "supply-side" believers, while the left is the "demand side". One thing that seems certain, at this point, is that economic extremes do not work and a mature economy is one that I define as having gone through a reaction in both directions, left and right, so that it positions near the center.
The thing that must be realized when considering post-industrial economic systems is that the workers must ultimately be able to buy the goods that they are working to produce. In a Capitalist economy, if workers are not being paid enough, a cutback in overall production will be necessary because some goods will remain unsold. This is because the cutbacks will mean that some workers will be let go, meaning that workers will have even less buying power. This brings about an artificial shortage, because there would not have needed to the any cutback in production except that the economics brought it about. It was not a real shortage caused by war or drought.
As I have explained on a number of occasions, this is what happened in 1929. The techniques of assembly line mass production had been perfected, and a plethora of new products rolled out of factories from cars to radios. But workers were not being paid enough to be able to afford the products that they were producing, and the goods were just piling up in warehouses. Factories began cutting back on production, meaning that workers had even less money, and it spiralled into a devastating crash.
Any cutback in production threatens to get such a spiral started in a capitalist economy, such as when the economy grows too fast. In the old pre-industrial economy, if supply increased or demand decreased, goods would still be sold but at a lower price, or a craftsman would switch to making something else. A factory, in contrast, cannot just go to making something else and is slow to react to the market, except by the unfortunate cutbacks in production that can get a destructive spiral started.
On the other hand, an inflationary spiral will get underway in a capitalist economy if workers are being paid too much relative to production. Nothing could be more economically destructive than giving all workers a pay raise, without a corresponding increase in production. Inflation can bring about a recession, which is one of our artificial shortages in the post-industrial economy, because it erodes buying power.
The real trouble is, of course, that in a large-scale post-industrial economy there is not the continuous price adjustment by haggling. The adjustment to an imbalance must come from another direction-the cutbacks in production that get the recessionary spiral started. Yet another economic peril is the large-scale credit that mass production has brought about. When too many people cannot pay back loans, it starts a destructive domino effect as with mortgages in 2008.
The theory of credit is simple enough. If you just go out and buy what you need on credit, the companies that made or grew what you bought will earn more money because of what you spent. The workers in those companies will then have more money to go out and buy what they need so that the workers in the companies that made those goods will then have more money to go out and buy things. Ultimately, it will get back to the company that you work for so that you will end up getting back the money that you spent, and will be able to pay your credit bill.
The trouble is that the glitches of economics get in the way of this otherwise sound credit theory. The trouble with economics ultimately lies with human beings. The wealth structures of various economic systems are vastly different and there are clashing vested interests. Communism works wonders for ants and bees but humans, at least outside of small dedicated groups, find it very difficult to always put forth their best effort unless they will directly benefit from it, as opposed to the economy as a whole.
The Industrial Revolution centered on machines, but that required the supporting economy to also function as well as a machine to get the most efficiency. When building a machine, we can put the parts together and can quickly see whether it works and can readily see ways to improve it. The economics must be part of the mechanism too, it is more nebulous so that it takes much longer to sort out what works the best.
Here then is The Complexity Theory Of Production And Economics: The economy supporting produced goods must be equal in complexity to the processes producing those goods, and is indeed part of the process. This is because the more complex the processes of production, the more it can be varied in order to produce a wide variety of goods. This wider variety of goods then brings about the need for a more complex economy to distribute those goods. But this makes it much more difficult to set up the required economics with the same efficiency as the machines because economics is much less tangible and more prone to conflicting opinions.
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