3 Bad Capitalism Albania
Albania shows what happens to a free market when there is no legal, political, or traditional framework to define freedoms or protect marketplaces. Of course there’s lots of violence—as you’d expect in a situation where the shopkeepers and the shoplifters have the same status under law. And, of course, there’s lots of poverty. Theft is the opposite of creating wealth. Instead of moving assets from lower- to higher-valued uses, theft moves assets from higher-valued uses to a fence who pays ten cents on the dollar for them. But capitalism conducted in a condition of anarchy also produces some less-predictable phenomena. Albania has the distinction of being the only country ever destroyed by a chain letter—a nation devastated by a Ponzi racket, a land ruined by the pyramid scheme. A pyramid is any financial deal in which investors make their money not from investing but from money put into the deal by other investors, and those investors make money from the investors after that, and so on. It’s the old “send five dollars to the name at the top of the list, put your own name at the bottom of the list, and mail copies to future ex-friends.” If I want to make fifty dollars from my five dollars, ten new dupes must be recruited. If each of them hopes to make fifty dollars, a hundred suckers will be needed, then a thousand, and hence the “pyramid” name. If a pyramid scheme grows in a simple exponential manner— 10 1 , 10 2 , 10 3 , etc.—it takes only ten layers of that pyramid to include nearly twice the population of the earth. And 9,999,999,999 of these people are going to get screwed because the guy who started the pyramid has run away with all the five-dollar bills.
When communist rule ended in Albania, in 1992, the nation was broke and was kept from starving only by foreign aid and remittances from Albanians in Italy,
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