Punchinello’s Chronicles

October 28, 2008

Capitalism -vs- Market Cycles

Filed under: Word of the Day — Punchinello @ 11:00 pm
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A lot of people seem to think that capitalism has been around for a long time. They believe America was founded on capitalism, we know what we’re doing, and that capitalism works mainly on greed. They think that capitalism is fundamentally about profits, and the more profits you can make, the better capitalist you are.

To balance the greed of capitalism, those same people believe there’s something to be said for socialism or communism. Someone (the government) needs to step in when capitalism gets “out of hand,” and too many greedy people make too large a profit. The unstated premise is that all economies are zero-sum equations.

What people want, what they can get, and when they’re satisfied can be charted. The levels of desire and satisfaction will naturally go up and down. The legal right to own something or buy something doesn’t go “up and down.” It simply exists or doesn’t exist.

The “piece of the pie” theory is that an economy has a finite amount of money. It just shows up, somehow, probably from a bank…or something. That money supply wanders around the country, and people siphon off whatever they’re clever enough to grab. Like water in the Colorado River, if someone upstream takes too much, people downstream go thirsty.

Capitalism hasn’t ever really been fully implemented, anywhere in the world. America has come the closest to a true capitalist morality, but with government interventions the real concepts of capitalism have always been skewed. Government “intervention” isn’t the same as government “oversight,” but lots of people think those two concepts are the same, too.

Capitalism is a Morality

At the basic philosophic level, capitalism is a morality and ethics. It arises from the core propostion that individuals shall have the legal right to own property. Ownership means the option of selling, bartering, or giving away that property. Property may be tangible or intangible (as with services and ideas).

When capitalism is put in place in a society, it functions as a system of rules in the entire process of trade and business. The theater in which all this trading takes place is loosely called the Market. A market is a general gathering of people exchanging things (tangible and intangible) of value.

One of the huge problems we’re facing today, pivotal to the 2008 election process is that many people believe that capitalism itself has cycles. Initially coming from Keynesian economic theory, most of modern society “automatically” believes that economies must grow then contract.

If an economy grows constantly, bad things will happen. If it grows too fast, bad things will happen. To keep those bad things from happening, somebody (the government) must step in and apply the brakes, slow things down, and cause recessions.

In an overly simplified way, the propostion is that if everyone is working there’s a finite supply of goods. Because everyone is working, the prices of those goods go up. To afford those higher prices, the workers demand higher salaries. The increased costs of production, in turn raise the prices again. And so we have inflation.

When prices go too high and inflation is too much, the government is supposed to slow down the economy by raising interest rates for borrowing money. With less money to borrow, businesses will stop expanding, stop hiring new people, and start laying off people. Somehow. With less money, workers will be happy with steady salaries. With an over-supply of goods, prices will come down.

Sort of lost in the shuffle is the idea that there also is a finite supply of workers, and a finite supply of businesses. The goods and services produced by workers and businesses are just…accidents.

Another thing that’s lost in the shuffle is that the prices for a limited supply of goods goes up due to competition. So here’s a conundrum: What if there’s a limit of TV sets. Everyone wants a television, but there are only a finite number available. The price goes up, workers demand higher wages, and we have inflation.

How come we don’t just make more TV sets? Nobody knows. It’s a mystery.

These ups and downs in terms of supply and demand aren’t at all a defining characteristic of captialism. Owning something is just owning something. Selling something is just trying to find a buyer. Wanting something is just part of human nature.

Government Subsidies & Interference

No, the ups and downs have everything to do with market forces. Not so long ago, everyone wanted a record player and vinyl albums. This was the way we all listened to music. Hi-fideltiy amplifiers, high-quality playback needles, and superb accoustical speakers cost a lot of money. Companies produced those record players as fast as they could. There were inexpensive, “affordable” players, and the high-end expensive ones.

At some point, every living human being would have a record player, or more than one. And at that point, it wouldn’t matter at all how many new record players were produced, nobody would buy them. The market would be saturated. So what should happen?

Pseudo-capitalism begins with the premise that the record-company manufacturers are “too important” to the national economy. The jobs they produce are “too important” to fall away. It doesn’t matter that nobody wants a record player, if the companies go out of business or take an extended shut-down, the economy would collapse. And so, the government takes tax revenues and artificially props up the company.

The government buys record players nobody wants and nobody can use, and either destroys them or stockpiles them. Since that’s insane, it’s more efficient for the government to simply pay the record player companies the money not to produce anything. The workers can come in to the business and play bridge, or stay home and listen to records. Or they can go do something else, now that they don’t have to worry about a salary.

Another thing that can happen is that new technology emerges. The compact disk player and digital music makes record players and vinyl (analog) records obsolete. Again, either the government can “allow” the old businesses to go out of business, or prop them up artificially. That’s not capitalism, it’s corporate welfare.

The third thing that can happen is that every living human being goes deaf and can’t hear music at all. At that point, the “bottom drops out” of the record player business. There’s no more demand because the product itself has no market. Yet again, the government can prop up the pointless industry, or not.

Capitalism is a morality. It’s a set of philosophic principles that determine whether or not you can own something. Are you allowed to own what you create, produce, or build? If not, who owns it? What if nobody owns anything?

Market transactions are a set of behaviors. With or without a morality, philosophy or religion, people will move about as long as they’re alive. They’ll go from here to there. They’ll want that thing and not want some other thing.

In total anarchy, goods go to the strong. With no morality, society becomes either a hunting-gathering one, or a gang of thugs. If someone wants what someone else has, they bash them over the head and take it. Otherwise, the other person builds a wall to prevent being bashed over the head. Is that the kind of society we want?

The so-called ups and downs of capitalism are in fact that results of government intervention in the markets. Trade sanctions, tariffs, protectionist policies, and subsidies have prevented the natural life cycle of many American businesses. The $1-trillion bailout of 2008 has been the most egregious interference in all of history.

Using Debt to Replace Value Exchange

Another fundamental part of markets is the morality and legality of value exchange. One of the core functions of a government is to maintain a uniform monetary system. Part of that system absolutely includes the value of the money in relation to the actual goods and services it represents.

Prior to the 1960s, money was directly valued in solid gold. If you ran out of gold, you ran out of money. If the government wanted to spend money and didn’t have any gold, politicians were forced to stop spending. To get past that, “modern” and “progressive” politician removed the link between money symbols and gold.

When money was no longer backed by anything other than someone’s say-so, that introduced a whole new concept of debt financing. Instead of a dollar being a temporary (and lighter) replacement for gold, it became a “promise” (based on nothing) that “something” would happen. What? Nobody knows. It’s a mystery.

As soon as the government began spending debt as if it were cash, the American citizens wanted in on the action. And so people started buying real things (tangible and intangible) with promises to do something at some future date. Credit cards, insurance policies, home mortgages, and all sorts of fun things entered the market place.

The “rules” kept getting more and more complex. It’s because those rules no longer applied to fair exchange of value. Instead, the rules now applied to what kind of promises could someone make, how would they be kept, and how valuable should those promises be. A “credit rating” was a new money supply, founded on who’s promise carried more weight than someone else’s.

Today’s collapse of the house of cards has nothing at all to do with capitalism. It’s entirely due to government intervention and government “definition” of the markets.

Free-market capitalism doesn’t in any way mean “do whatever you want, nobody’s gonna stop you!” It means that the market is free to decide whether to buy things. If they don’t want those things, the companies making those things should die. If people lose their jobs in those companies, they can either start their own company or work for someone else’s company.

It’s been the utterly fantastical application of mandated “compassion” that’s caused the problems of today’s economy. We as a group “feel badly” that someone is out of work. We want to stop from feeling badly, so we try to reconstruct reality. But instead of offering incentives to new, better businesses, we keep old, obsolete businesses going as inefficiently as humanly possible.

“Market” is just another word for “life.” Where there’s life, there are markets. The markets themselves have no emotion, compassion, empathy, anger, frustration or anything else. Neither does the air, the weather, the ocean tides, or the growth cycle of plants.

Those market forces of wanting things and getting things, change according to life itself. “Supply and demand” is entirely impossible to control except at the point of a gun or the end of a club. All that capitalism outlines is whether or not someone can own the supply, and whether or not someone must exchange something of value if they want to take over that ownership.

Only the government and business owners themselves can call a “promise” the same thing as a “value” during an exchange. The only value defined by capitalism is the principle value of ownership rights.

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1 Comment »

  1. This was the best post I have read in a very long time. It explained things in a clearer way than I have seen before. Would you mind if I linked it from my blog? Hope to read more from you soon,

    Best Regards,

    //hpx83 Save Capitalism

    Comment by hpx83 — October 29, 2008 @ 1:54 pm | Reply


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