In the Valley Between Libertarianism and Communism

It seems that only extreme libertarianism and extreme communism are studied and expounded. This is an error, as there are many alternatives other than these two polar extremes.

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Both libertarianism and communism have supporters and detractors, and all of these fine people have reasons for their opinions. But there does not seem to be many who think half and half of these makes a good combination. The two poles attract interest because of their implicit simplicity, and the ease with which they can be explained and justified.

Libertarianism, as we use it here, means there is minimal government interaction and individuals make agreements with one another to enable sharing of work, trade, and everything else. Communism, as we use it here, means there is maximal government interaction, and the government makes rules by which work, trade and everything else is conducted. Furthermore, libertarianism allows inequity in the extreme to exist, and communism does not allow inequity to a great degree.

Decision-making is decentralized in libertarianism, as each individual makes all the decisions involving himself. Decision-making is hierarchical in communism, as rules are made by whoever is doing governance, and then are implemented down the levels of a hierarchy. There are thousands of details in a society and this is no place to make long lists of what those details might be and how the two polar opposite social systems differ in each of them, but instead, something of a big picture needs to be obtained.

Two of the features of a socio-economic system that make a difference in its feasibility are motivation and disparity. Libertarianism tries to maximize motivation, so that each individual is responsible for his/her own future, and goes out trying to be maximally productive, thereby securing the most of society’s benefits for him/herself as possible. Communism tries to minimize disparity, so that those without much capability to fend for themselves, temporarily or permanently, are not deprived of society’s benefits. Strict libertarianism has the less capable being taken care of by the choices of the productive. Strict communism motivates the productive by training people to work hard to support the society as a whole and by exhorting individuals to be as productive as they can.

All societies from the earliest human hunter-gatherers to now have this dichotomy between self-interest and altruism, and somehow have to integrate these two impulses. All successful societies have a solution for this, and it might be a complicated one, as opposed to the simple ones included with the two polar extremes of libertarianism and communism. One solution is to have moral strictures taught to the young, with the expectation that the majority will follow them. The two categories of these moral strictures involve working hard, the motivation category, and taking care of the less capable, the compassion category. Different arrangements of these moral strictures are certainly possible and different ways of teaching them and enforcing them are possible.

One way societies enforce these moral strictures is by shaming and ostracising violators, another is by having specialists for enforcement who seek to locate those violators and pressure them or punish them. The point is not that there is only one way to have these two contrary impulses balanced in a society, but that there are many and choices can be made. There is no best way, only multiple options.

If you think of pure libertarianism and pure communism as unobtainable mountaintops, then in between these two peaks is a huge valley of possible ways of organizing a society, and all of existing and past societies are somewhere in the valley. Extremism in favor of either peak is amusing and entertaining, but doesn’t really work to solve any of a society’s problems. What needs to be done is the development of the means by which these two human impulses of self-interest, and pariochial interest, and altruism, widespread or narrowcast, can be integrated.

There is no best solution to amalgamating the two impulses, as the definition of best depends on personal preference, and that varies with the person and even with the experience of the person and even further with how the questions eliciting a preference are couched. Beyond that, the definition of best depends on what you do with the answers you get. If there is a headman, do you simply ask him/her? If there is an elite, do you simply ask them and average over the responses as much as possible. Do you ask all the adults, and define the adults as those over 30 or 40 or 50? There is simply no single answer.

Those whose thinking revolves around anecdotes can certainly find competing anecdotes to justify almost any point of view. Trying to extract some truth from anecdotes is chancy, as the anecdotes one hears is a tiny subset of possible ones, and the selection is subject to the biases of those who spread them. There is simply no simple solution to the design of a society.

Suppose you try to think of some metric to use. Perhaps persistence is a possible metric, and you want to come up with a social arrangement that will last for decades, or even centuries. You would need to consider the environment that the society lives in. Is it marginal, meaning that life-sustaining substances are in short supply, and you need to maximize the incentives for those who have the capability to obtain or produce them? Is it affluent, meaning that there is abundant life-sustaining substances, and the difficulties that arise come from the monopolization of them by those who figure out how to do that within the social arrangements that exist? You would want to find a choice nearer the peak of libertarianism for the first, marginal society, and one nearer the peak of communism for the second, affluent society. If the society drifts from marginal to affluent and back again, depending on the vicissitudes of weather, international relations, wars, external trade or what-have-you, you might need to make a flexible society.

If the society is extremely marginal, meaning there is much early death and disability due to shortages of critical substances such as food or water or shelter, the interactions of the society would have to be designed to preserve those who can obtain the most of these substances in the worst of the times, and to maintain their capability to obtain these substances both via provisioning them and by maintaining their spirits in a situation of great adversity. If the society is extremely affluent, it would be necessary to design in the moral strictures to prevent too much decadence and dissolution, which would lead to a self-limitation and social collapse. If the fluctuations were extreme, and the time scale of the fluctuations was within a human lifetime or even a fraction of it, the ability to adapt itself would have to be built in.

The design of a social arrangement can not be based in the fantasy of someone as to what they think they would like to live in. People’s specific preferences are largely conditioned by their experiences, or even what stories they were told as little children, or the preferences of those who raised them and taught them. While a person who has developed such a fantasy is not harmful, if they have the ability to influence others through persuasive writing, they could be quite misleading and if extremely persuasive, could cause social change that was not in the best interests, however that might be defined, of the society as a whole. The alternative is a careful, widely based discussion of social arrangements.

Besides persistence, living standards is often used as a metric for societies. One can define it in many ways, and many very different ways. Living standards could be the access to life-sustaining substances and activities of the majority, perhaps 90%, of the population. Living standards as a metric could be some number, denominated somehow, of the median individual or household or other living group. In defining living standards, there is a clear distinction between measuring life-sustaining substances, also known as necessities, and anything else. A society which has a huge amount of trinkets can be compared to one which has a robust inventory of food; which is the most desirable, or ‘best’, one?

Someone who is psychologically prone to altruism might seek to define living standards as the amount of life-sustaining substance received by the lowest 10% of the society, however this percentage might be defined. Someone who is psychologically prone to self-interest might seek to define living standards as the amount of trinkets, plus some measure of services if needed, of the highest 10% of the society. Neither is particularly dominating, and some middle ground can be found, but what?

People who grew up, having been deeply inculcated with some strong moral strictures, can use these moral strictures to help them define what would constitute the best possible social arrangements, and those who grew up to think of everything abstractly can continue to think of metrics and environments in which to evaluate them. This is the condition in the valley between the two extreme points of social arrangements. Once the simplicity of these unobtainable ideals is abandoned, the huge valley of options presents itself, without any clue as to where a definition of best might be found. Perhaps the first thing to do is to recognize this situation, and to realize that the deafening discussions of social arrangements can not lead to any results, as there are none. A huge number of possibilities can be utilized and comparisons are very, very difficult to find bases for.

Debt and Transparency

If one wishes to create a just deserts economic system in which benefits recieved are related to contributions made, then economic transparency is a must.

Debt is one of the many instruments that societies use to adjust the benefits that different individuals and groups receive out of the total production of the society, and it has some commonalities with the others and some differences. One of the commonalities is that it is used to transfer production benefits from one individual or group to another individual or group. Taxes, subsidies, fees, fines, wages, salaries, tolls, alternative remuneration, and many others share this trait. One can design a socio-economic system using any of them to adjust the allocation of benefits among the individuals and groups, and a change in one of them, for example, a revision of the tax rules, can be thought of having a primary purpose of taking some wealth or income from one subset of the population and delivering it to another subset. Of course there could be a three-way redistribution or a four-way, and while these are interesting, let’s just look at the simplest case.

Debt is a number on an accounting ledger. The movement of benefits occur when the magnitude of the debt is changed, or the interest on the debt, if there is any, is paid. If A owes a debt to B, if the debt is increasing, A is receiving some benefits accounted for by that, and B is losing some. If A pays interest on the debt to B, B is receiving some benefits and A is losing some. If the debt is forgiven, A is receiving some benefit and B is losing some. If the debt is paid off, B is receiving some benefits and A is losing some.

If there is some higher-order regulation going on in the society, so that, for example, the governance is seeking to have some influence on who gets benefits and who loses them, they can do so fairly directly by taxation, which is typically within the purview of a government. Taxation, positive or negative, of the payment of interest on a debt can be done, and was historically part of the US code for many years before being eliminated. It was negative during that period for the payor, and still is for mortgage interest. Taxation, like every other type of transfer of benefits, has side effects, in that individuals and groups adjust their behavior based on their total benefits, including both debt and taxation. It also, like every other type of transfer of benefits, is gamed by those involved with it to maximize their own received benefits.

Like wages and salaries, debt can be transparent or opaque. However, with wages and salaries, the side losing benefits, the payer of the wages or salaries, is likely to be obvious, except for some small fraction of the remunerated work done. The payees are also fairly obvious, but the amounts can be confidential. With debt, it is the custom that one side is transparent and one side is opaque.

When an individual takes out a debt from an institution, it is really a debt between that individual and the owners of the institution. For an individual taking out a debt for the first time, or even beginning the arrangements for an eventual debt, the individual would not be disclosing any other debts, as there would be none. However, as part of the process by which an individual demonstrates his ability to handle the terms of the debt, the individual taking out a debt is forced to reveal all his other debts, as well as economic information which might inform the potential creditors about the individual’s likelihood of repaying that debt or otherwise complying with the terms of the debt. This information is in the direction of transparency.

Despite this, there is no comparable transparency on the part of the grantors of the debt. If it is an individual, there is no block of information on this individual’s total loans or other financial information. Perhaps for the purpose of the immediate loan, this is not relevant, as if the loaning individual has the wherewithal available, then it is irrelevant to the debtor what the other financial conditions of the creditor is, unless there is something in the contract that makes it relevant, for example, allowing the loan to be called in under certain conditions.

For the purpose of a governance-wide understanding of the financial condition of the population they govern, it is relevant. Because there are multiple feedback loops which can severely distort the benefits distribution in a governed area, this type of information would provide governance and anyone else who wanted to know, for example investigative reporters, with some data to help them form their conclusions. To be more specific, if it was true than ten individuals owned almost all the debt in a large region, and this was unknown, then those in governance could not readily assess what might happen under different sorts of regulations relating to debt and its associated details. Having this level of concentration of ownership of debt would indicate that the feedback loops associated with massively unequal distribution of wealth and income had already taken hold. Specific remedies to this type of distortion of the economic landscape could not be done so easily.

What is the value that a one-sided type of transparency, in this discussion related to debt but generally applicable to all economic transactions, relationships and conditions? Is it of value to the debtor that his/her economic situation be laid open to scrutiny by anyone seeking to consider him/her as a potential recipient of a loan, and then of value to the creditor that his/her economic situation be completely concealed? Rather, both of these situations, where the informational advantage is solely on the side of the creditor, are of value to the creditor and of potential harm to the debtor. The real difference is not simply related to some individual transactions, but it is intimately related to the ability of those in governance, those who study economics, and those who are concerned about the long-term stability of the socio-economic situation to understand quantitatively and specifically, what the actual distribution of benefits within the society is, how these relationships are structured, and how they change. This information protects the status quo, as zero change is typically the default decision made or advised on in the absence of information sufficient to draw any conclusions. This, for individual transactions, a one-sided transparency or even a two-sided transparency to these particular parties damages the long-term stability of the society.

There could be objections to the concept of transparency on the grounds that many or most transactions are not between individuals, but between an individual and a group, such as a partnership, company or corporation, or between two such groups. The objection is non-substantial however, as there must be ownership rights of any such group that ultimately lead to individuals. A bank, as an example, is owned by its stockholders or partners, and by dissecting the fractional ownership of any group down to the individuals behind the group, clarity can be obtained for all types of transactions. Another objection might be to the fact that there are transactions between individuals or groups within one governance region and individuals or groups within another one. This also subsides under the condition that any transaction or contract must be with one region, either as it was stated as one of the conditions of the transaction or contract that one of the two possible regions was to be the legal home, or because, in the absence of such a stipulation, that the one in which the contract was concluded is the legal home. In the age of the internet and video communications, having the stipulation could be made mandatory for any legal transaction involving individuals or group from two distinct governance regions.

What actions might be taken by the governance region, once it was armed with all necessary information gained by such transparency conditions? First off, statements would be rephrased. Instead of: “Such and such a subset of individuals has too much debt”, the same situation would be “such and such a subset of individuals has granted too much debt and has amassed resources allowing that which are far beyond anything that could be accumulated by a just deserts socio-economic system and such and such other group has been loaned money by them in excess of what is reasonable for them to pay.” The one-sided statement lacks so much clarity that it would be hard for the governance to decide what to do in response to it.

Demands for privacy in this or some other financial areas sometimes revolve around the fact that financial information provides an advantage in negotiations. However, stated another way, it means that some parties, individuals or groups, might be deluded by their own assumptions, or mislead by another party, if there was not full financial disclosures by both parties to all transactions. To campaign for the right to delude and mislead is not the most promising course for a subset of people trying to gain favor from people involved with setting up a new socio-economic system. Neither is a cause for privacy made by the desire of some to conceal accumulations far in excess of what could be possible if earnings were made proportional or less to the amount of contributions, measured by the combination of time and talent and excluding secret information. Thus, it would seem that a socio-economic system based on just deserts principles would demand a high degree of economic transparency everywhere in the system.

Monopoly Taxes

Monopolies are ubiquitous in a socio-economic system, and should be treated from the first in designing such a system. This post discussed their variety and a means of taxing them so as to minimize the negative effects.

A monopoly is a corporation or interconnected group of corporations acting together who control a large fraction of the market share of some class of product. One could have a monopoly in a commodity, such as corn or steel or lithium, or a manufactured product, such as the works of Mark Twain or cell telephones or automobile exhaust systems, or even services, such as plumbing or visa applications or computer repair. These are examples of the class of products, or services, which could be affected by a monopoly. They could also be wide-ranging in scope, such as with a supermarket corporation which controls all imported food, not some individual food commodity, or a fossil fuel corporation, or a electrical energy corporation or many other examples.

Monopolies might be good as they could be more efficient than a myriad of other smaller companies which together met the demand for the product, or provide less expensive products, if they were able to use monopoly strength in the inverse direction, such as by demanding from non-monopolistic suppliers that they maintain low prices. They could have superior products, as if they demanded employees or subcontractors to have a high level of education and experience, as with electricians and doctors. They could have less environmental burden if they occupied less space with some centralized distribution network. Surely inventive public relations people from monopolies could come up with even more benefits.

Monopolies might be bad as they could raise prices and profits on the products they supply, as they were free from the effects of competition, or free to a sufficient extent such that their benefits outweighed their non-competitive pricing. There could easily be a time effect, with a particular monopoly using the benefits, as seen by consumers or clients, during the period of formation of the monopoly, and later a net deficit, as the profiteering from these same customers and clients became more and more dominant.

In a novel economic system, being designed to provide benefits across society, what should be the treatment of monopolies? If the government or governments in the jurisdictions being considered become involved with economics, they could well encounter monopoly situations, and may want to decide on some regulations. What to do?

There are two feedback loops involved here. One involves the growth of the monopoly. As it becomes larger, mastering a larger share of some particular product, the benefits may kick in, and its efficiency may assist in eliminating competition, simply by being more efficient or convenient for consumers and clients. The other effect that happens is that they obtain more economic power, such as saved capital, which may allow them to purchase their competition, or otherwise influence them to go out of business or merge. This can happen if monopoly effects occur in one geographic location first, allowing the amassing of capital, which is then used in another geographic location, and then another, enlarging the area where monopoly effects occur.

The second feedback loop is the typical one where the corporation begins to suborn the politicians involved in governance, so that any regulation to remedy the ill effects of a monopoly is thwarted before it is ever begun, as the corrupted politicians simply use their own public relations messages to obscure its existence or otherwise excuse their failure to take actions. Thus, two strong feedback loops serve to initiate and encourage monopolies to come into existence and grow and eventually take over the market for some product.

Infrastructure costs can assist in the formation and activity of a monopoly. If the initial costs of a transportation network, such as an airport or highway network, or a distribution pipeline, such as for water or electricity or information, or a collection system, such as waste disposal or a stock market, are very high compared to the remainder of the costs involved, no competition can afford to build a similar system, and if the infrastructure is owned by some entity that also provides services or products via the system, a monopoly is immediately in force, even without any other actions on the part of the provider. Thus there are two distinct classes of monopolies, one which is thrust into being by the necessary existence of a single network of something or other involved with a product, and another which arises without the aid of any item of infrastructure.

There may be other classes of monopolies which depend on the unique existence of some single item. For example, if there is only one known mine of a particular ore that has sufficient content of a particular commodity, and the mine is owned by one competitor, an instant monopoly exists. The same happens if the number of mines is plural, but they are all owned by one competitor, or one competitor makes covert arrangements with the owner or owners of the mines which will lead to the generation of a monopoly and the subsequent enlargement of profits for all those involved with that commodity. If patent or copyright laws disallow the use of some unique information, this is also an instant commodity.

Regulations, perhaps written by those politicians with close connections to the purveyors of a particular commodity or a service, which control the sales of it, might serve to create a monopoly. There might not even be a corporation involved in the commodity or service, just a number of individual purveyors who prefer to have entry into the group of those allowed to purvey the commodity or service limited to numbers which ensure high profits or costs to that limited number. Thus commodities can arise from limited and controlled supplies, which might be something as physical as a mine or something as intangible as regulations. This latter effect might actually be involved with improving the quality of the commodity or service, or might only be involved in giving the impression that the quality of the commodity or service is improved by the regulatory throttling of the supply. This is another effect of a monopoly that does not necessarily fall into the beneficial category or the malevolent category, but somewhere in between.

What should a socio-economic system do about such monopolies? They can only come into existence if the governance either organizes them or otherwise condones them, as with almost any other good or bad effect in the system. The socio-economic system has to work in such a way to foster monopolies for them to come into existence, and there may be multiple components of the system which have to be involved, such as finance or communication or regulation. It is necessary to go back to the goals of the socio-economic system to find out if monopolies, or a particular one, has a net benefit according to these goals. If unlimited inequality of benefits received is a goal of the system, support for monopolies would be the consequence of that choice of goal. If limitations on inequality of benefits received, distributed and consumed is a benefit, then some monopolistic arrangements might be negative in net benefit. Like everything else in a socio-economic system, the arrangements that are best are wholly dependent on the goals that are chosen. As noted elsewhere, fundamentals of the system are the allocation of benefits and their total quantity, and other goals that might be chosen, such as the ratio of manufactured products per total energy consumed, don’t have the tight connection with the population being served.

To solve the negative aspects of monopolies, government regulation can be utilized, where regulation might include both taxation and permissive or mandatory laws. Taxation is a flexible tool, as monopolies are usually involved with the provision of necessities to the population, and permissive and mandatory laws tend to interfere with it in a less gradual manner.

One form of taxation might be a simple tax based on market share. If a list of commodities can be created, and the data collection capability of the region is sufficient, market share by entity, corporation or partnership or anything else, can be calculated and a tax level on revenue or profit can be established to accomplish some aspect of the goal of both maximizing quantity of the product while ensuring its allocation is not too exclusive. Taxes on revenue is more effective as profit can be disguised very easily if management and ownership are not separated, as an individual can receive either a bounty based on fractional ownership, if that is not taxed too highly, or he could be granted a position within the entity and paid a large salary, if that is not taxed too highly. It must be remembered that human beings within a socio-economic system will incessantly game the regulations, so some ingenuity is needed to prevent the more obvious gaming tactics from being universally employed. Of course, corruption must be dealt with in this area as well as in every other area, where corruption is defined as the seeking of personal benefits by someone charged with promoting society’s benefits.

An example of a market share tax might be one on, say, the distribution of natural gas. In a region where there is only one supplier, meaning the whole region is supplied by a single corporation, there would have to be first the opening of opportunity for competition, by the ownership by governance of the means of distribution within the region and the delivery to the region. Then competitors might be taxed so that competitors with revenue under 10% of the total market share were taxed not at all, and a positive rate applied, related to higher market share. The rate would steepen as the market share approached 100%. The taxation rate curve as affected by market share would have to be chosen so as to encourage competition, in other words, to overcome the feedback effects of market share, which eventually tend to produce a monopoly and its excesses.

Any such taxation scheme would involve the definition of multiple quantities, such as the region served. And such definitions would affect the profitability of the corporations involved, and therefore would be subject to the possibility of corrupt dealing. Thus, some standards would need to be found that could be applied in default, with some requirements for special justification for deviations from the default standard. Like everything in a socio-economic system, complexity abounds.

Debt and its Administration

If there are to be public agencies involved in capital formation, they need to have some method by which corruption can be avoided. Perhaps there is only one.

In a different post, debt was debunked as an important consideration in economics. It is just one of many accounting rules that affects, along with the others, what the distribution of the products of a society is. Debt may have an interesting history, but that does not make it special in the bin of things that affect distributions. Why it is singled out for such prominence does not appear to be obvious.

Like every other transaction, debt is a two-sided one. Some access to society’s products is transferred from one individual to another when some new instance of debt is thrown into the accounting mix. In other words, some products, perhaps unspecified, are transferred from one individual to another. Since society is composed of individuals, they are the only consumers of products in the final analysis. Groups of individuals can be given many different names, and then the group can be the recipient, but the group’s allocation is transferred further to its members, according to whatever rule the group has chosen to use. The ramifications of some group’s ownership of rights to some of society’s products can be onerous to list, involving contingencies, inheritances, rights of refusal, and anything else clever people can think up. These do not need to be considered in the overview of a new economic theory. The point is simply that there are products and individuals to whom they will be distributed.

One of these groups can be a nation, meaning some geographic body of land, and all those who have rights to some products owing to the nation. Those who have rights is a group which is figured out by those who have rights to do so, and these typically are the same thing. In other words, it is a circular loop. Citizens, if we use that term to represent the individuals with claims to the products of this particular piece of land, determine in one way or another, their own membership in the group. Again, clever people can think up all types of ways to make such a membership complicated, but again, it is of no consequence to the creation of a novel economic theory. Most groups have some rules by which existing membership controls new membership, so nations or other blocks of land are not much different from other types of groups. The labels for membership are different, but the concept of membership is simply that.

Debt is a transfer of some particular formulation of product access rights from one individual to another individual, or perhaps groups of individuals on either side of the transaction. It is a curious thing that when the groups are large, like nations, or with obscured membership, like banks, there are statistical lists of the amount of debt granted. Likewise, for individuals and most groups, there are lists of debts owed that can be accessed under some conditions. The other side of the picture is not so transparent. Individuals who have granted debts to others do not have this publicly listed and available to anyone wishing to enter into a transaction with them. Thus it is hard to know what the average creditor has for debt. This means that while some statistics are available on debts owed, there are less on debts owned. Although this may be curious, it does not affect any development of an economic theory.

One aspect of debt that may differ from some other rules is the clear specification of timing of transfers. All transfers have some timing requirements, for example, taxes need to be paid by some deadline. Debt has deadlines for making some payments that can be more extended than others. This has use for some business arrangements, and for some personal situations.

An economic theory needs to cover capital formation, motivation, efficiency and productivity, and distribution arrangements. There can be no debt granted if there has not already been some capital formation. Capital formation comes from distribution arrangements. If some individual or group has not been granted an excess of society’s products, they will not have the capital to grant a debt. So, prior to the institution of debt, there has to be some arrangements for some individuals or groups to accumulate more than an equal share of society’s products, or else some individual or group has to reduce their consumption below what their allocation is, and thus save some capital. This is the heart of capital formation: some individuals or groups must consume less than they are allocated, either by them receiving an excess of their consumption rate, or by them reducing their consumption rate below the allocation rate.

Debt is granted for charitable causes, to assist some individuals or groups, or for profitable causes, so that the grantor can in the future possess even more of an excess of goods over his consumption rate. This latter situation is one of the positive feedback loops that leads to ever-increasing disparity in the distribution of society’s products. Determining how to adjust these loops so that the goals of maintaining and improving motivation and efficiency is a principal goal of any economic theory. One way, no limits at all, has been experimentally tried for a few centuries and it leads to extreme disparity which stifles both motivation and efficiency, as well as undermining the stability of whatever social arrangements were used to support this process. Another way has been tried for a few decades in a large arrangement, and in small situations for much longer, and that is to abolish it. This leads to shortage of capital formation, as well as eventual motivation disarray. So it is clear that some middle way is necessary.

Middle ways have been tried, and they can only be tried when some governance exist with the power to overrule any arrangements made between individuals and groups, so as to further efficiency, motivation, and capital formation. This typically proves to be unstable, as the governance tends to be corrupted as disparity grows, which is exactly where it should be uncorrupted and working to regulate it. This, of course, is the second famous positive feedback loop, which involves more corruption of government when disparity increases, and the corruption tends to increase disparity even more.

These obvious and well-known points indicate that economics and politics cannot be treated separately in a theory. Thus, an economic theory must be as well a political theory. Exactly what a political theory would include is not clear. One aspect is capital formation, just as the economic theory must include it. Capital formation can occur as part of the first positive feedback loop, where debt is used to increase disparity, or as part of the second positive feedback loop, where political corruption is used to increase disparity. However, it is not necessary for there to be large disparity for capital formation, if the political theory side contains some feature which will make it work. Note that capital formation is not solely the accumulation of capital, but also its use, meaning its allocation and management.

Corruption is possible on the part of whoever is in charge of capital collection and allocation within a governance agency involved with capital. Corruption means simply that some individual has two agendas, one being the agenda of his position, which is to improve the productivity of society by allocating capital under some rules for its return, in other words, debt, and the other being a personal agenda, which is to improve his own position, the position of some others that he favors, or some group that he is a part of. If a political theory is to be created, it must cover how to deal with this most common situation, of the administrator of capital with dual agendas.

Some obvious alternatives for the management of the administration of capital and debt are to have multiple individuals involved, to have watchdogs monitoring the behavior of those individuals, public scrutiny of those individuals, transparency of the personal situations of those individuals, clear and strict regulation on how such individuals are to make their choices, and others. Each of these is also subject to corruption, and it is certainly possible to conceive of a whole league of the corrupt, each aiding and abetting the others in the concealment of it. For every device that is used to prevent corruption, there is a counter to it, involving yet more corruption. Since corruption was or is rampant in most societies, historical and current, there is no clear miracle cure for it. One thing is clear, however, corruption takes time to install itself in any administrative organization. If there were regulations stating that those involved had something like term limits, or were subject to some periodic review or vote to stay in the position, then this might be another defense against corruption.

One idea might be universal term limits for anyone in a position where corruption might be an issue. Term limits are typically despised by individuals involved in some administrative position, as climbing to a high level in an administrative hierarchy takes a long time, as does becoming efficient at the position, as does finding and training good subordinates, as does many other miscellaneous tasks. However, term limits is the only solid defense against corruption, provided it is close to universal.