Markets, Authority, and the Capital Stack:
Why History Makes Sense Once You Stop Treating It as Ideology and Start Analyzing It With ChatGPT
Much of modern political and economic history looks puzzling only because we keep asking the wrong questions. We ask whether societies are “capitalist” or “socialist,” “free” or “authoritarian,” when the real question is far more technical:
Where, and at what levels, are markets actually allowed to function?
Once you frame history in terms of stacked capital goods industries, profit-driven arbitrage, and the emergent institutions of property, money, prices, and markets, a pattern appears that cuts cleanly across the 20th and 21st centuries. Systems stop looking morally mysterious and start looking mechanically predictable.
The capital stack (the part everyone skips)
A real economy is not “labor + resources.” It is a stack of capital orders:
First-order goods: food, fuel, basic consumer goods, simple services.
These are short-horizon, survival-critical, and locally knowledge-intensive.
Higher-order capital goods: tools, machine tools, logistics systems, factories, finance, engineering processes, durable infrastructure.
These are long-horizon, compounding, and productivity-multiplying.
The difference matters because the higher you go in the stack, the more coordination across time, risk, and knowledge is required.
The only mechanism ever discovered that coordinates all levels of this stack simultaneously—without omniscience—is the bundle of emergent institutions we shorthand as “the market”:
secure property (residual claim)
money (universal accounting)
prices (compressed information)
markets (continuous discovery)
profit and loss (selection pressure)
Profit is not greed. It is the error signal that tells society which arrangements work and which waste scarce resources.
Arbitrage is not parasitism. It is how misalignments are discovered and repaired.
Break that system at any level, and outcomes change immediately—and predictably.
Why first-order markets always come back
First-order goods are non-negotiable. People must eat today.
That’s why, in any system that suppresses markets entirely, black markets immediately emerge at the first order. This isn’t ideology; it’s physics.
But black markets alone do not produce prosperity. They restore survival, not multiplication. Without secure property, finance, and long horizons, they cannot climb the capital stack.
This distinction explains far more history than any political slogan.
War Communism: suppress the bottom, get collapse
Under War Communism, the Soviet state tried to administer first-order goods directly:
requisition replaces buying
quotas replace prices
punishment replaces adjustment
This destroyed both incentives and local knowledge simultaneously. The result was not inefficiency, but systemic failure and famine.
The lesson was not philosophical. It was operational: the machine would not run.
NEP: the tacit admission
The New Economic Policy was not a flirtation with liberalism. It was an admission:
Dispersed, knowledge-dependent systems cannot be administered.
Markets were restored first where failure was immediate: agriculture and petty trade. Prices returned. Incentives returned. Survival returned.
NEP proves something crucial: markets re-enter history first at the lowest capital order, because that is where suppression kills fastest.
Stalinism: why heavy industry “worked” (for a while)
Stalin abolished NEP and reasserted command—but something odd happened. Heavy industry appeared to function.
This is not a refutation of markets. It is a time-horizon illusion.
Higher-order capital goods:
can be standardized
can be coerced into existence
can run on imported templates
can hide errors for years because depreciation is slow and comparison is suppressed
This is where Albert Kahn and Fordism matter. The USSR did not generate its own industrial intelligence. It imported it—factory designs, workflows, engineering logic—then froze it inside command.
Stalinism consumed a finite stock of market-generated knowledge created elsewhere. Once that stock depreciated, stagnation set in.
China: political authority with bolt-on markets
China’s success is often misunderstood as a refutation of Hayek. It is the opposite.
China is a political authority to which markets are bolted on instrumentally.
The Party controls land, banks, energy, transport.
Markets are added where price discovery is most productive.
Export manufacturing, SEZs, consumer goods, supplier competition flourish.
Crucially, price discovery is externalized to the global market.
This is the generalized version of NEP + Kahn:
NEP restored markets at the bottom.
Kahn imported higher-order intelligence once.
China makes both permanent.
China does not solve the knowledge problem internally. It outsources it continuously.
That is why productivity multiplies—until markets begin generating autonomous power. At that point, the bolt-ons are tightened. Tech crackdowns, property crackdowns, capital controls are not contradictions; they are maintenance operations.
The United States: markets with bolt-on political authority
The US is the mirror image.
Markets are foundational:
property exists
prices exist
profit exists
But over time, political authority is bolted on:
permitting regimes
zoning
environmental review
litigation risk
administrative discretion
Risk remains private. Authority over execution becomes public and fragmented.
So price signals scream—but nothing is allowed to respond quickly.
Arbitrage is visible but blocked. Capital flees production and concentrates in assets that benefit from scarcity. Deindustrialization is not moral failure; it is rational response to procedural paralysis.
Markets still exist. They are simply prevented from working.
Cuba and Venezuela: first-order markets only
Cuba and Venezuela reveal the lower bound.
Formal markets are suppressed, but first-order black markets are tolerated because otherwise people starve.
Higher-order capital formation remains blocked:
insecure property
no collateral
no long-horizon finance
confiscation risk
The result is unmistakable:
People work extraordinarily hard, but their effort never compounds.
This is what an economy looks like when only first-order markets exist. Survival without productivity.
One framework, many histories
Seen this way, history stops being ideological and starts being mechanical:
Suppress markets at the bottom → famine.
Restore bottom markets only → survival without growth.
Import higher-order capital once → temporary growth, later stagnation.
Continuously bolt markets onto authority → long growth, with political ceilings.
Bolt authority onto markets without decisiveness → paralysis and scarcity.
The uncomfortable conclusion
The new Cold War is not capitalism versus socialism.
It is a contest between two systems that both fear market sovereignty:
China suppresses markets when they threaten power.
The US proceduralizes markets until they cannot function.
Different motives. Same erosion.
The question is not which system is morally superior.
It is which system destroys the coordinating function of markets more slowly.
That is the real contest of the 21st century—and it becomes obvious only when you stop talking about ideology and start talking about capital stacks, arbitrage, and institutions.
