Where Does Capitalism Lead?

I’ve established (many times) that I am not psychic. So I won’t spend a few paragraphs guessing where the world economy (or the American economy) is heading. I don’t know. I don’t think anyone knows. We are in uncharted waters. There are a lot of misconceptions about what capitalism is and what it isn’t. One … Continue reading “Where Does Capitalism Lead?”

I’ve established (many times) that I am not psychic. So I won’t spend a few paragraphs guessing where the world economy (or the American economy) is heading. I don’t know. I don’t think anyone knows. We are in uncharted waters.

There are a lot of misconceptions about what capitalism is and what it isn’t. One thing I’ve heard frequently is that the Chinese economy has moved towards capitalism – that is not true. First of all, let’s get a definition of capitalism out of the way. Websters offers the following:

an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market

There are three key concepts here – private or corporate ownership and control rather than state (although I think corporate ownership is something altogether different), the use of investments for control, and competition in a free marketplace.

Ownership and Control of the Means of Production
In reality there are four types of economies. Primitive, Command, Market, and Mixed. In a primitive economy the means of production belong to the producer. A command economy gives control of the means of production to the state. A market economy gives control to the market itself and a mixed economy combines aspects of command and market economies – for example – the government controls education and the post office in the USA.

So, capitalism itself in a pure form would be a pure market economy with no government intervention or control. Essentially, capitalism leads to big fish swallowing small fish and small fish trying to get big enough to swallow smaller fish and eventually to swallow big fish. Capitalism may start with a level playing field (in an idealized world) but eventually it leads to Disney owning Marvel, Pixar, ABC, and every other entertainment company while Google swallows every new technology company, Facebook eats all the social fish, and JP Morgan eats all the other banks. In the meantime, the capital itself is consolidated into not just top corporate hands, but also into top tier individual hands – the 1% of the 1%. Capitalism is not about making a profit from your work – all economies are built around that. Capitalism is about mergers and acquisitions of the means of production, distribution, and disposal. It’s fish eat fish until there is only one fish that has nothing to eat and then we have a ‘Too Big to Fail’ situation where government steps in and saves the big fish – at which point, we are no longer talking about capitalism and free markets – we are talking about a command economy with the illusion of capitalism.

This is where capitalism leads. As I said at the outset, I’m not psychic. I can say for certain that capitalism leads here because it is where we are. As the World Bank and IMF sail into the bizarre waters of Quantitative Easing on the winds of salable debt and free spinning currency production – we have left the market economy behind though we still cling to the idea that a free market is running. In truth, the US economy has been a mixed economy for a long long time. We are closer to a command economy now than we have ever been. And part of the reason this has been allowed to happen is because people have this crazy idea that capitalism means making a profit. China is not capitalist. And yet, they make huge profits and have more entrepreneurs than any country in the world. China is a command economy. The US is a command economy with bizarre monetary leftovers of a market economy.

And that leaves everyone who is not in the top 1% vulnerable. The means of production and the power to overcome regulations to production, distribution and disposal exists only at the top of the pyramid. Capitalism leads to vast inequality first and then to an increasingly command economy ruled by corporate or private interests that are dependent on expansion and growth of market share. At a certain point, that expansion and growth can only be achieved by opening new markets through politics and war. And the gross inequality leads to either an altruistic super-state or to genocide of those unable or unwilling to produce for the corporate controlled government.

So where should we be heading? I’m not sure it matters. My personal preference would be a sort of socialist syndicalism market economy. That is, the government controlling certain essential industries (agriculture, medicine, housing, education, security) and worker/user owned syndicates or co-ops competing in a free market for everything else. But the question is moot. We can go nowhere until we see where our current monstrosity takes us.

What I’m Reading: The Ascent of Money by Niall Ferguson

My quest to understand the world we live in continues to focus on capital and finance with The Ascent of Money by Niall Ferguson, like another book I recently read and reviewed, Money – this was written on the eve of a major financial catastrophe – though Ferguson, to his credit, is much more aware of the systemic instability he is writing in than Robertson was. And, unlike the Great Depression, the onset of the Great Recession had already begun at the time of Ferguson’s writing and by the time he wrote the revised conclusion of the paperback version – the major effects had already been felt and dealt with and the recovery efforts were well underway.

This was a good book and offered a wealth of information about the transition of money from hard currency to fancifully re-packaged imaginary money based on money that was loaned but which never actually existed and then even to the most chimeric form of capital yet – the hedge fund. Ferguson’s telling of the birth of banks, stock companies, paper currency, debt markets, and derivatives was both entertaining and informative. I’d recommend this book to anyone who wants to understand capitalism and money.

That being said, Ferguson is a cheerleader of capitalism and an enthusiastic supporter of the positive benefits of money. For Ferguson, there seems to be no possibility of imagining a world in which unfettered capitalism, collecting interest, and central governmental oversight of monetary instruments could possibly exist. There is a palpable admiration present in his tales of swindlers, con-men, and thieves enriching themselves at the expense of honest workers and virtually no empathy present as he ignores the human toll that the financial escapades of men and governments wreak upon five centuries of humanity. He is a gifted storyteller and a talented teacher of economic principles and history – but ultimately, it is clear that he is a capitalist and not a humanitarian.

Still, the book is a must-read as these several notable passages illustrate:

..there were few mourners when the last meaningful vestige of it {the gold standard} were removed on August 15, 1971, the day that President Nixon closed the so called ‘gold window’ through which, under certain restricted circumstances, dollars could still be exchanged for gold. From that day onward, the centuries old link between money and precious metal was broken.

In his chapter about financial bubbles, Ferguson tells the colorful tale of John Law, a murderer fleeing justice in his native Scotland, who managed to take complete control of the French Royal Bank and essentially destroyed the treasury of France (and her citizens) through selling shares in the Mississippi company which was responsible for leaving France bankrupt and in need of the capital that selling the Louisiana Purchase to the fledgling United States brought. According to Ferguson, Law was single-handedly responsible for the founding of New Orleans and the ascent of Britain over France. I would love to see a movie about Law, but I’m glad to have not been one of his direct victims.

And finally, this quote struck me as incredibly powerful. It’s worth holding onto and thinking about deeply.

Longer life is good news for individuals, but it is bad news for the welfare state and the politicians who have to persuade voters to reform it.

And that, is perhaps the most powerful, though unintended message of this book – what is good for the individual is not necessarily good for the capitalist or the capitalist state. Buyer beware indeed.

Schools are not safe in the USA – Nowhere in the USA is, actually

Another child murdered in a school today in the USA. 8 years old – doing nothing but going to school. I keep thinking of someone telling me it is irresponsible to travel overseas with my child – too dangerous – yes, but not as dangerous as staying home and sending my child to school. I blame this on capitalism – pure and simple. Guns are a business, government is a business, education is a business, crime is a business – people are the raw materials. Capitalism has turned us into resources- anyone ever asked you what you are worth? How do you answer? In cash. We sell our time, we sell our energy, we sell our health, we sell our safety – and the buyers are the masters of capital. We could have a society where people are safe, taken care of, fulfilled – but instead we have a society where some people own other people and we are measured (like it or not) by how much credit we have. Shylock’s Good Man wasn’t good in deed, but good for a debt – and that is how we are judged. It’s no wonder that people lose track of their intrinsic self worth and the intrinsic self worth of others. It’s no wonder that madmen are stealing guns from stores called Armageddon and sending manifestos of revolution to billionaire presidents. How long before someone lights themselves on fire in a way that starts the fire that burns this society down? Not sustainable. Capitalism is not sustainable.