posted on 03 April 2019

Written by Frank Li

In 2011, I published the first article on my Loop Theory (Loop Theory - Capitalism vs. Socialism), which clearly spells out the relationship between capitalism and socialism by enhancing Karl Marx's model of societal development.

It's time to update the theory and better explain it to my fellow Americans with the addition of two notions: monarchy and republic, with which Americans are more familiar than with Karl Marx's works.

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1. Karl Marx's model of societal development

The image below highlights Marx's model of societal development: a sequence of evolutions or revolutions from some early societies (e.g. slavery) to feudalism, to capitalism, to socialism, and finally to communism.

At a very high level, this model is correct.

Two "communists", Lenin and Mao, capitalized on this model more than anybody else. Both eventually failed for the same reason: They jumped from feudalism to socialism via a violent revolution that destroyed capitalism, albeit very primitive in their respective countries. As a result, the USSR was a total disaster, so was China under Mao (1949-1976)!

It's time for the capitalistic West to accept this model as well, with a twist in details.

2. The Loop Theory

The image below highlights my Loop Theory. It simply extends and truncates Marx's model as follows:

Capitalism and socialism are in a loop, requiring balancing from time to time. Socialism, if poorly managed, may set us back to feudalism. Capitalism and feudalism are also in a loop, requiring balancing from time to time. Communism is so far away that it should be ignored as irrelevant.

Let me highlight the Loop Theory as follows:

What is feudalism? What is capitalism? What is socialism? The advancement from feudalism to capitalism. The advancement from capitalism to socialism. The relationship between socialism and capitalism.

2.1 What is feudalism?

For a full definition of feudalism, read: Wikipedia - Feudalism.

Here is my simple definition of feudalism:

With a monarch sitting on the top, power is inherited via blood or marriage. A few lords control the economy as well as national politics.

2.2 What is capitalism?

For a full definition of capitalism, read: Wikipedia - Capitalism.

Capitalism is the best thing ever happened to mankind. Capitalism has not only been feeding more and more people on earth, but also created unprecedented prosperity around the globe. For example, it was capitalism that propelled the West ahead of China some 200 years ago (What is China, Anyway?), and it is state capitalism that has enabled China to lift more than 600 million people out of abject poverty over the past four decades, with a burgeoning middle class. For more. Read: What is China's State Capitalism, Anyway?

Capitalism, however, has many endemic problems, not the least of which are its business cycles and the recklessness in pursuit of profits by many, if not most, capitalists, exactly as Marx observed in his time - The nature of capitalism remains unchanged over time!

Two grand examples of disasters of laissez faire capitalism:

However, capitalism must not be simply replaced by socialism, as Marx argued. Rather, it should be counter-balanced with socialism, and vice versa.

2.3 What is socialism?

For a full definition of socialism, read: Wikipedia - Socialism.

Simply put, socialism is a chief responsibility of a government.

A government conducts socialism in three major ways:

Owning or controlling the means of production, as Marx argued. A contemporary example: the GM bailout. For more, read: GM vs. America? Taxation, which has become far more prevalent nowadays than throughout Marx's era. Regulations: Theodore Roosevelt started it big time in America one century ago.

2.4 The advancement from feudalism to capitalism

Different countries took different paths, but typically a revolution was necessary. Two prominent examples: France (French Revolution) and Russia (Russian Revolution) - Both overthrew the monarchy via a violent revolution.

2.5 The advancement from capitalism to socialism

Marx called for a "proletarian" revolution (or "forcible overthrow of all existing social conditions") to advance from capitalism to socialism, which has proven to be deadly as Lenin and Mao amply proved. Specifically, history since then has shown that

Such a revolution is often unnecessary. For example, many western countries (e.g. France, Sweden, and the U.S.) have become more and more socialistic over the past 100 years, without a contemporary revolution. A failed socialist country may adopt capitalism without a revolution. The most prominent example: China!

2.6 The relationship between socialism and capitalism

Socialism without capitalism first has all but failed. Two prominent examples: the USSR and China under Mao (1949-1976).

Capitalism and socialism should co-exist, with the government balancing between them. For example, while capitalism creates extra-ordinary wealth for the able and lucky folks, socialism provides the less fortunate with a safety net, thus creating and maintaining a "harmonious" society. Note that harmony is a good term long-endured throughout Chinese history and culture.

Bottom line: The challenge is to have a government balancing between capitalism and socialism, not arguing about just having one without the other, like many Americans do!

3. The Loop Theory enhanced

Since most Americans are unfamiliar with Marx's works, let me enhance the Loop Theory by inserting two notions: monarchy and republic, as shown below.

Most American are familiar with these two notions, since America was created as a republic, in defiance of the British monarchy.

4. Where is everybody in societal development?

Let's examine four representative countries (or regions): Mideast and North Africa, Europe, China, and America, one by one.

4.1 Mideast and North Africa

Most of the countries in that region are stuck in feudalism, confused with a new western concept called "democracy".

They are in feudalism both in form and in content. In form, aside from some real kings (e.g. Saudi Arabia and Jordan), a dictator with a family member in succession is essentially a king. In content, the #1 problem is abject poverty, due to the lack of a significant boost from capitalism, which is the only way to achieve prosperity in modern times.

They are confused with democracy, thanks to the relentless export from the West!

Democracy without capitalism first has proven to be a total disaster (e.g. Iraq and Egypt).

The best example for the region, as well as all the other third-world countries, to follow? China!

4.2 China

Mao was China's last de facto Emperor. After his death in 1976, China adopted capitalism big time, lifting more than 600 million out of abject poverty since then. Today, China, with many endemic problems, has perhaps the best balance between socialism and capitalism in the world.

For more, read: What is China's State Capitalism, Anyway?

4.3 Europe

Europe has had a good run over the past few hundred years. But it has so overspent its future for the present and gone so deeply into socialism now that Europe, as a whole, is deeply in trouble, both politically (e.g. Brexit) and economically (France's Yellow Vest Protests: The Movement That has Put Paris on Edge - See image below).

How to get out?

No [easy] way!

For more, read: History 2.0.

4.4 America

America is very different from the three countries or regions discussed above, especially in the way it was founded (What is The American Revolution, Anyway?). It is largely for this reason that Karl Marx's model does not fit very well for America. For example, America was founded as a capitalistic republic with slavery. The addition of two notions (i.e. monarchy and republic) to the Loop Theory helps a little bit, but not fundamentally.

On top of that, America is a very confused country (What Is the U.S. Constitution, Anyway?) and Americans are a very confused people (American Political Taxonomy Simplified). The confusion includes some basic notions in the Loop Theory.

First off, to many Americans, socialism and communism are synonyms.

They are not!

Communism, as many Americans know it, such as China under Mao (1949-1976), is terrible - Been there, escaped from it (My American Dream Has Come True!).

Socialism, on the other hand, is a counter-force against capitalism, which alone is disastrously flawed, as discussed in Section 2.2 above.

Two extreme American attitudes towards socialism:

On the [far] right: Whenever the word "socialism" appears, the right points to Venezuela, Cuba, or even the USSR as the examples of failure, without daring to mention China, "a socialist country with its characteristics", as an overwhelming example of success. On the [far] left: Bernie Sanders, an openly self-proclaimed socialist, has been hugely popular, especially among the young and the poor.

Secondly, America is, first and foremost, a capitalist country, with extreme pros (e.g. productivity) and cons (e.g. inequality), largely as Marx identified some 150 years ago!

So, in order to thoroughly understand capitalism, study Karl Marx, even ahead of Adam Smith! For more, read: Adam Smith vs. Karl Marx.

Thirdly, beyond capitalism and socialism, Marx was also correct about democracy - its natural progression, at least!

Finally, America may be falling back to feudalism. Any doubt? Look at the image below! For more, read: Is America Still a Republic?

For the most accurate diagnosis of America, as well as the best solution, read my last book: American Democracy - Why is it failing & how to fix it?

5. Closing

It's time for my fellow Americans to truly understand socialism, capitalism, and feudalism, in order to better understand America! The Loop Theory has helped a little bit, hopefully.

Now, please sit back and enjoy the long video below.

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