October 13, 2008
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The End of Capitalism?
This week Socrates_Cafe is discussing the amount of government regulation our Capitalistic economy should have.
Capitalism is an interesting concept. In its most basic form it simply refers to private ownership of the means of production (anything from a farm to a multinational bank).
In trying to explain and integrate economics and history, Karl Marx - an interesting social philosopher- saw it as the main driving force in society and history. He, being a poor man, an exile, and upset over the very repressive government actions toward people trying to organize more democratic governments and labor organizations, tended to see Capitalism as an evil and blame the world's troubles on capitalists.
While Marx and the communist governments and organizations he engendered are now mostly discredited and gone, the idea that somehow capitalism is a bad thing remains. This idea is exacerbated by the actions of some who take advantage of the relative inequality between bosses and workers, sellers and buyers, borrowers and lenders, etc.
When you add the competition we have seen between competing capitalists and the extremes they will go to part us from our share of wealth, you can see why most governments who feel responsible for their citizens make some effort to level the playing field by requiring certain restraints on economic activity. Sometimes this is to protect the capitalists from themselves as well as controlling their unrestricted activities which impact the whole society.
Unfortunately, since about 1980 in the U.S., the idea of government restrictions on economic activity has been seen as undesirable and many sensible restrictions, such as capitalization requirements (A Bank should not lend out more money than it holds for its depositors, for example) have been weakened or discarded. In addition capitalists have been generally favored over their employees and government competition with private banks - such as Social Security - has been discouraged.
Too little regulation and supervision led to world-wide excesses and "Kiting (using owed debt as capital and borrowing against borrowed funds - thus turning one dollar into two, three, or ten, hoping that no one will ever demand payment - at least until you can sell the debt to some other poor sucker)
This probably some of the thinking behind the borrowing (and lending) of mortgages the borrower had no hope of ever repaying - he hoped to sell the house before his debt came due.
Since Capitalism is the name for a central part of every society's economy, it will certainly not fade away anytime soon - the alternatives such as communism and fascism have proved self-destructive.
I think most debt in America is currently credit card debt which has been allowed to build beyond belief. The collapse of that tower of cards is probably imminent, but I don't think you will hear any politicians talking about it. telling the voters they will have to give up their VISA card will not get you elected.
Comments (6)
Surprisingly enough, I totally agree with you - and I've linked you
I don't think that communism and fascism did ever self-destroyed. Instead they were destroyed by capitalism. Actually capitalism is the strongest system ever invented in the economy of last century, because if you are selling something you cannot avoid to compete. Other systems like fascism and communism loose not because they don't produce, but because in a competition, if you refuse to compete, you loose.
).
Moreover, speaking of that i believe that communism and fascism are the political application of one economical system, which is socialism. But yes, that's only a matter of definitions (and you know how pedantic i can be about definitions
Speaking anyway about economy, as i said, capitalism, among all the economical systems i ever know about, is the winner in a society organized like the world during last century.
Unfortunately last century is finished and now we are in this century.
One thing is changed, that supporters of capitalism usually tend to forget: globalization.
Now, as you know, i don't like capitalism, and i don't like globalization as it is wanted by economical strong powers in the world. But the fact that i don't like them is not an issue.
The problem is that capitalism is not compatible with globalization. And who is trying to say the opposite is kind of tricking poor people favouring rich ones (actually those ones are the rich people, as one can guess).
Everybody who knows how capitalism works knows that it is based on one simple concept, which is enlargement of the markets. I'll try to explain my point for those ones that don't agree with this point.
If a closed society ("closed" because there is no import and no export") produce some goods, say 100, just to give a number, being that it is closed, the same society consume 100. It cannot consume 101 because there is not enough, it cannot consume 99 otherwise there will be a 1 wasted. So, n people produce 100 and they have a certain salary each for that production, and that total salary (the sum of all the salaries of all the people) is equal to the money the members of that society pay to buy the same products. So, everybody will spend the whole salary to maintain the same production and to consume the whole produced goods.
Being that all the wealth is used just to support this system, there is no way that anybody can reinvest extra wealth to enlarge the production, or to produce new goods, or to support progress. Simply because there is no extra wealth.
Last century capitalism worked fine because the extra wealth was given by the inport/export system, which helps a state to enrich given other states that get poor.
Now, that's why i believe capitalism is immoral: because it makes some peoples rich and some other peoples poor. But that's not what i am speaking about.
Anyway, if one agrees that capitalism can live only thanks to import/export systems, i hope it would be obvious to everybody that if it can be applied to one state (say USA, Italy, Europe, Canada or Trinidad and Tobago...), it cannot be applied to the world.
Because while USA can trade to Italy, Canada to Trinidad and Tobago, the world cannot trade with Mars, Mercury cannot trade with Neptune. Unless they kind of discover other inhabitated planets which population can be submitted like slaves as we did, in the past century, with the third world.
Globally, in the western world, we have more wealth than what we pay for, and that wealth is given by the wrong value we use to give to the production. Actually we produce more goods than what we can consume, and the extra wealth given by the extra production is payed by who, outside the borders of our societies, consume those goods. And that cause us being more and more rich, and others being more and more poor.
That is immoral, but mainly that can work only if there is "us" and "others", because if there are not those two categories, capitalism cannot work.
In capitalism who is subject to the rules of that society system enrich. Into the state it is not fair anyway, because the rich gets very rich, while the poor gets only a little less poor... But (and this is the thesis usually supported by capitalism supporters) being less poor is better than being just as poor as.
But, that is possible only if the total amount of wealth increase. Obviously in a completely globalized system the total amount of wealth cannot increase, because there is no "outside" where wealth can decrease. So, in a capitalism "restricted" to a non-expansion, if rich people get more rich, poor people get more poor.
That is immoral to me, but the point is still: do you agree to get poor in order to let rich people be more rich? Personally i don't.
This actual financial crisis is, in my opinion, one effect of this progressive fall of capitalism.
As you say, Dick, you cannot produce money with money. And "bad" finance is doing this in the highest way.
But also "honest" capitalism is doing the same, although in a lower grade. The problem is intrinsecal to the economical system.
Dario, as usual has pointed out one of the elephants in the room: The world-wide leveling effect of a global economy. Capitalism is by its very nature competitive and Dario is right when he says that Communism and Fascism are basically anticompetitive by their nature. they are both have politically controlled economic systems which do very poorly when compared to modern capitalism.
Most of the successful rising nations have pretty much laissez faire capitalism as their economic base and little regard for the effects on the laboring class; however, their workers are benefiting with rising living standards - the difference capitalism has made for workers in Russia and China is remarkable. I visited both those countries twenty years ago and the living condition changes are very great. Come to think of it I visited Korea fifty years ago and can personally attest the rise of a modern industrial economy from a mud hut village base (which North Korea pretty much remains).
The redistribution of wealth Globalization will bring about must be a concern for the working classes of the Western Nations who struggled very hard to get where they are and are reluctant to share the wealth. This manifests itself in many different ways from isolationism, anti-immigrant riots, laws to protectionist tariff,s and rejection of any government controls they see as brought about by agreements to encourage the rising nations.
Economic change - especially when the system you are used to isn't doing too well, brings out the worst in us.
I'm not too sanguine about our immediate future.
Dick,
As usual i have a hateable provocatory style, but i thought the question in my message could rise between the lines. I'll try in a more directed way.
We lived in ha rental apartment with a normal fridge in the kitchen (small, compared to huge american ones).
My wife used to tell me something about "when we go to the new house i want a big american style fridge", because that small one was always too full and it was a problem when we made a bigger than the usual shopping.
When we went to the new house we had a bigger fridge.
Few moths later my wife said that with a big fridge she used to make a bigger shopping, which makes it more convenient. But the problem is that, with a bigger shopping, the fridge is still too full, so if we want by chance to make an even bigger shpping we cannot fit the food. My wife already asked me to have an extra freezer with the door on the top to put downstairs. I agree with that idea (not that my agreement does make any difference!!!), but i am sure that when we buy that freezer it won't be enough.
Because the rule is that you buy as much food as your fridge(s) can contain, and not as much as you really need.
By the way you also consume as much food as your fridge(s) contain, and not what you really need to live.
Mmmmh... my story is kind of strange, isn't it? But consider it as a metaphore of capitalism. The rule is that you don't produce the much you need to use, as one could think it should work. The rule is that you produce as much as your fridge (economy) can support, and, since you produce that much, you have to consume an amount so that economy keeps working.
After a while the fridge is too full, and you have to export. But obviously not for free. You export giving goods to somebody that gives you back a value, in change.
So, the questions are these:
1) do you agree that capitalism is based on the fact that society produces more than the much it consumes?
2) do you agree that the extra produced goods are exported?
3) do you agree that countries that import those goods get poor because they have to give back a value?
4) do you agree that, answering yes to point 1, 2, 3, the conclusion is that the only way for capitalism to work is to keep expanding (producing more and more, so that exporting more and more, to more and more countries)?
5) do you agree that when a capitalistic system, expanding, reach the point to invade the world, it wouldn't have anymore space to expand?
6) what does it happens when capitalism, which is based on expansion, cannot expand anymore?
...
...and the last question...
Being that point 1...6 are obviously my opinion, if it is also your opinion, how would you change the rules of capitalism to make so that economy won't die?
...oops... the very last one...
Being that, by definition, capitalism is the natural winner among economical systems, how would you impose with strength to the economical actors of the world the change to a less profitable system?
I think those are the question that have to be answered if we don't want to destroy the world forever.
Dario: You are I think, talking about what the Marxian economists used to call "Surplus Value", how it is developed and its effects.
In the U.S., for example there has been a pretty constant increase in productivity for many years. Since the US population has risen during this time it may be supposed that part of that increase was to supply the growing consumer needs of the population.
As part of capitalistic competition, needs were also encouraged to grow at a faster rate than the population growth - through advertizing and other encouragements. The growth of a global market has encouraged spreading this "super need" idea around the world.
How much do we need? Obviously that depends on several factors - the capitalist competition mostly concentraits on the psychological growth of needs which they encourage all around the world. One thing that happens is that satisfaction of these psychological needs speeds up the economic growth of the entire world and while wealth flows toward the primary capitalist, he has to keep changing his product to keep up with the changing perceived needs so the "Surplus Value" keeps changing its flow pattern. Two hundred years ago predictions that the US would dominate the world's economy would have had Englishmen ROTFLTAO
I think the real question here is: Is there any limit to perceived needs? Apparently we are willing to foul our own nest to fill these demands.
Back in the 1972, Meadows & Meadows wrote the book The Limits to Growth(subtitled : A report for THE CLUB OF ROME'S project on the predicament of Mankind). They applied primtive computer science to worldwide economic growth and were properly horrified at the results they got - the book makes interesting reading and I am sure you can find the Italian version at any good university library - It was the first of several reports on the subject.
This was one of the opening shots in the current war on pollution and concern about climate change and using up basic minerals.
Howdy! This post could not be written any better! Reading through this post reminds me of my old room mate! He always kept talking about this. I will forward this article to him. Fairly certain he will have a good read. Thanks for sharing!