The folk-wisdom is that human beings are far too selfish to be able to live in a communist system that 'works in theory'. When power is concentrated in the hands of the state and that state is not subjected to frequent review by citizens of a nation, then power will be abused. This held to be true in every nation where the communist experiment took place (it should be noted that there never actually was a 'dictatorship of the proletariat' in any meaningful sense of the term, in any communist nation). The argument, of course, is that no nation that underwent a change to communism (from either 'liberal capitalism' or out-and-out 'fuedalism') actually changed into anything that approached Marxism's ideal. Its an argument that should be had, and my own personal view is that the experiments at a national level of communism were not fully realised or correctly carried out. But, its also true that every attempt at a rigorously planned state-run economy has either failed or fallen drastically behind the economies of western capitalist nations.

But what about capitalism? No doubt, standing atop the tank in Moscow, the recently departed Boris Yeltsin believed that Russia's change to capitalism would bring prosperity, a competative economy and an end to state-imposed poverty for the Russian people. Undoubtedly, economists watching the Berlin wall being torn down felt some kind of conclusion to their psuedo-scientific endevour for the absolute truth of how-money-works. Historian and Political Scientist Francis Fukiama certainly believed that 1989/90 saw the end of all political opposition to liberal capitalism, enough to write a paper proclaiming the 'end of history'. The idea was that liberal capitalist democracy would be the end-point of human development. Its an idea that has carried over into the neo-conservative ideology held by the Bush Administration and had led to the (so far) dismally unsuccessful democratisation experiment in Iraq. 

Is it really possible that economists have found the final answer to life, the, universe and everything in capitalism and liberal democracy? No, it isn't. And this 'oil shock', that could be the beggining of something very serious and very horrible, might find us all coming to the end of the book of capitalism and finding the note "Sorry for any inconvenience".

The oil shock, as we seem to be calling it, highlights something very important about capitalism - that is is a doctrine that is both 'amoral' and 'unscientific'. Capitalism is (and I'm heavily simplifying here) at its base governed by the laws of supply and demand. A demand for a product or service is judged to exist and that product or service is supplied to meet the demand. Supply/demand is an incredibly useful tool for regulating prices and quality of goods and services - a producer or service provider will be forced to offer the best quality product it can, for the lowest price it can set and still maintain a profit. 

An example: a producer offers a product called 'Box X'. There is a strong demand for a product like Box X in the community. It costs $1 for the producer to make Box X so the producer makes the product and sells it for $2. However Box X seems to fall apart relatively quickly causing demand for the product to dip. Consequently the producer increases the quality of the product so that it costs $4 to make. The producer decides that because the production cost has increased 4 times, it will increase the price 4 times and change $8 for the product. Consumers are annoyed at paying the $8, but Box X is the only product on the market that meets their demand so they have to accept it. All of a sudden, a new producer comes along that makes Box Y, a product of identical quality as Box X that costs the same amount ($4) to make. The producers of Box Y see their chance and charge only $6 for their product. Consumers quickly turn to Box Y and demand falls sharply for Box X. The producers of Box X are faced with a choice - keep making a $4 product and lower the price to that of Box Y OR through research and development find a way to make a product of Box Y's quality but for a lower production cost and still maintain their profit while charging at or near Box Y's price.

Obviously this is a great simplification and capitalist economics is a massively complex system spanning global markets and involving trading in primary, secondary and tertiary products and services as well as in the share market. But the basic underpinning doesn't really change significantly. The idea is that a market system will create an equilibrium between producers/service providers and consumers so that producers/service providers can maintain a profit and consumers are able to obtain the goods and services that they need and want. Its a system that has proved to be wildly sucessful, so successful that its pressure has forced other economies (such as Communist Russia's) out of business. 

Yet, like communism, capitalism rests on some pretty large theoretical assumptions. Where communism assumes that an equality in property and political power regulated by a strong state with ensure prosperity, capitalism assumes that allowing corporations and businesses to compete with each other to meet demand with supply will result in efficiency and wealth. Communism rests on the assumption that equality automatically begets equality and capitalism rests on the assumption that infinite supply can meet infinite demand and create infinite profit. But what if producers can't meet the demand for their product because they cannot effectively maintain supply? What happens when demand remains infinite, but supply proves to be seriously and disturbingly finite? The simple answer: catastrophe.

The oil shock is the first major incident to highlight just how finite supplies can become. A massive reduction in the supply of oil without any change in demand means that the price of oil will skyrocket and effects will be felt across all levels of the economy. The next time I write I'll explore this idea more deeply. 

But for now, in the immortal words of Douglas Adams - Don't Panic!