The term capital means money. In a root sense, money is an analogue of work and goods. In the best case, monetary policy develops a value-based connection between work, industrial productivity and monetary rewards; between industry and goods for sale. However, money is weak analogue of value and monetary policy has become increasingly abstract as countries grow larger and richer. Now, you would be challenged to demonstrate a valid connection between money and real value.
Money has become numbers stored in computer databases. The numbers are not connected to real things in the real world. If everyone with numbers demanded real goods for their numbers, the cost of real goods would skyrocket and the stores would be empty. The "economy" is an abstract number machine with inputs and outputs and prolific, complicated transactions that require fast, global computational networks to proceed at a frantic pace that defies understanding.
Idealist versions of capitalism still persist among people who are both wealthy and content and among people who have aspirations but little understanding of the realities of capitalist economies. A capitalist might argue that every newborn has the opportunity to become rich, even if his or her parents are poor. The trick is to master the techniques of using money to make money, leaving behind any quaint notions of trading time, effort and skill for money. One basic strategy is to buy for less and sell for more. Another is to purchase property and services that others will rent or consume on a continuing basis, so that you make money while you sleep. Another strategy is to use some money or capital assets as leverage to borrow and invest more money, increasing your net worth.
Borrowing money or credit is perhaps the greatest strength and the greatness weakness of capitalism. Credit promotes spending, construction and expansion. Individuals enjoy assets such as a cars and homes that they do not own. Corporations buy supplies and build new factories on credit. The credit aspect of capitalism only works if the borrower can earn money and payback the lender.
In the US, Adam Smith declared the virtues of capitalism in the “The Wealth of Nations,” which established a new economic theory in 1776. Sloan suggested: “Smith’s treatise was as transformational as the American Revolution and established the intellectual foundation of capitalism, free markets and individual choice. Smith’s thesis is that setting people free to pursue their own self-interest produces a collective result far superior to what you get if you try to impose political or religious dictates: “Free people allowed to make free choices in free markets will satisfy their needs (and society’s) far better than any government can. Smith believed passionately in free trade, both within countries and between them. He felt that allowing people and countries to specialize and to trade freely would produce enormous wealth, because freeing people and nations to do what they do best will produce vastly more wealth than if everyone strives for self-sufficiency.”
Smith’s vision is idealistic and, if you consider the US as an experiment in his theory of free markets, then you have all a lot of data to disprove his thesis. To advocate capitalism, you have to believe in the regulatory magic of a “free market.” Supply and demand determine the price of goods and services. Consumers become the regulators of corporate behavior by rewarding companies that provide good service and good products at a reasonable price. It does sound reasonable, but in practice there are complications.
You could argue that capitalism is a good system if you are rich and a bad system if you are poor. Capitalism is really about, making and hoarding money. It is about investing money to make more money without working. Capitalism is about controlling resources including the human resources needed to make and sell goods so that capitalists have more money to make more money and grow wealthy. Problems in a “free market” economy include risky credit, gambling, reckless pollution of the environment, exploitation of natural resources and exploitation of workers. Regulation by government is necessary to constrain reckless and sometime criminal behavior of individuals, corporations and government agencies.
In capitalist countries, free markets hardly exist. If there is an ongoing argument, it is not about what kind of economy you favor, but how much government regulation you support. Economy Watch stated: “The US government makes full use of economic tools such as money supply, tax rates, and credit control, among other things, to adjust the rate of economic growth. The US Federal Government also regulates the operations of private business to prevent monopolies. The government renders a number of direct services in the form of providing support for national defense, monetary aid for research and development programs, and funds for highway construction, and infrastructure in general. In 2008, the US federal debt stood at $9.2 trillion, 67% of GDP. Each taxpayer owed $79,000 of government debt that must be added to personal debt to get a reasonable idea of the problem. American consumers typically also have a crushing burden of personal debt.”
The US government debt continues to grow and will likely increase for many years, even with disciplined fiscal restraint. If you are an optimist, you will argue that with low interest rates the burden of debt is manageable; with economic recovery and growth in GDP, government incomes will rise and deficits will eventually be eliminated.
The economics of capitalism became ideologically attached to democracy, although the connection is neither inevitable, nor even workable. I write from a perspective of a comfortable, safe citizen of a country (Canada) that combines capitalism and socialism with relatively good results. While Canada is not perfect, it is a country that looks viable in the long term, given stability of its neighbor, the USA. The US, in contrast, fell into deep recession in 2008 with a failing infrastructure and out of control government spending on futile wars in Iraq and Afghanistan - all based on paranoia, lies and promises that could not be realized.
The benefits and vices of a “capitalist” economy are most clearly manifest in the USA. Prior to the great collapse, the Economist reported that eight out of ten Americans thought their country was heading in the wrong direction (they were right): “The hapless George Bush is partly to blame for this, but many are concerned not so much about a failed president as about a flailing nation. One source of angst is the sorry state of American capitalism. American house prices are falling faster than during the Depression, petrol is more expensive than in the 1970s, banks are collapsing, credit is scarce, recession and inflation both threaten the economy and consumer confidence is an oxymoron. Many Americans feel as if they missed the boom. Between 2002 and 2006 the incomes of 99% rose by an average of 1% a year in real terms, while those of the top 1% rose by 11% a year; three-quarters of the economic gains during Bush’s presidency went to that top 1%. The rich appear in Barack Obama’s speeches not as entrepreneurial role models but as modern versions of the “malefactors of great wealth” denounced by Teddy Roosevelt a century ago: this lot, rather than building trusts, avoid taxes and ship jobs to Mexico. Free trade is less popular in the United States than in any other developed country, and a nation built by immigrants is building a fence to keep them out. “
By the end of 2010, economic recovery appeared to be a wish, a fantasy, a delusion more that a realizable goal. Economist Krugman summarized the plight of the US: "We are no longer the nation that used to amaze the world with its visionary projects. We have become, instead, a nation whose politicians seem to compete over who can show the least vision, the least concern about the future and the greatest willingness to pander to short-term, narrow-minded selfishness."
From Surviving Human Nature by Stephen Gislason
Money has become numbers stored in computer databases. The numbers are not connected to real things in the real world. If everyone with numbers demanded real goods for their numbers, the cost of real goods would skyrocket and the stores would be empty. The "economy" is an abstract number machine with inputs and outputs and prolific, complicated transactions that require fast, global computational networks to proceed at a frantic pace that defies understanding.
Idealist versions of capitalism still persist among people who are both wealthy and content and among people who have aspirations but little understanding of the realities of capitalist economies. A capitalist might argue that every newborn has the opportunity to become rich, even if his or her parents are poor. The trick is to master the techniques of using money to make money, leaving behind any quaint notions of trading time, effort and skill for money. One basic strategy is to buy for less and sell for more. Another is to purchase property and services that others will rent or consume on a continuing basis, so that you make money while you sleep. Another strategy is to use some money or capital assets as leverage to borrow and invest more money, increasing your net worth.
Borrowing money or credit is perhaps the greatest strength and the greatness weakness of capitalism. Credit promotes spending, construction and expansion. Individuals enjoy assets such as a cars and homes that they do not own. Corporations buy supplies and build new factories on credit. The credit aspect of capitalism only works if the borrower can earn money and payback the lender.
In the US, Adam Smith declared the virtues of capitalism in the “The Wealth of Nations,” which established a new economic theory in 1776. Sloan suggested: “Smith’s treatise was as transformational as the American Revolution and established the intellectual foundation of capitalism, free markets and individual choice. Smith’s thesis is that setting people free to pursue their own self-interest produces a collective result far superior to what you get if you try to impose political or religious dictates: “Free people allowed to make free choices in free markets will satisfy their needs (and society’s) far better than any government can. Smith believed passionately in free trade, both within countries and between them. He felt that allowing people and countries to specialize and to trade freely would produce enormous wealth, because freeing people and nations to do what they do best will produce vastly more wealth than if everyone strives for self-sufficiency.”
Smith’s vision is idealistic and, if you consider the US as an experiment in his theory of free markets, then you have all a lot of data to disprove his thesis. To advocate capitalism, you have to believe in the regulatory magic of a “free market.” Supply and demand determine the price of goods and services. Consumers become the regulators of corporate behavior by rewarding companies that provide good service and good products at a reasonable price. It does sound reasonable, but in practice there are complications.
You could argue that capitalism is a good system if you are rich and a bad system if you are poor. Capitalism is really about, making and hoarding money. It is about investing money to make more money without working. Capitalism is about controlling resources including the human resources needed to make and sell goods so that capitalists have more money to make more money and grow wealthy. Problems in a “free market” economy include risky credit, gambling, reckless pollution of the environment, exploitation of natural resources and exploitation of workers. Regulation by government is necessary to constrain reckless and sometime criminal behavior of individuals, corporations and government agencies.
In capitalist countries, free markets hardly exist. If there is an ongoing argument, it is not about what kind of economy you favor, but how much government regulation you support. Economy Watch stated: “The US government makes full use of economic tools such as money supply, tax rates, and credit control, among other things, to adjust the rate of economic growth. The US Federal Government also regulates the operations of private business to prevent monopolies. The government renders a number of direct services in the form of providing support for national defense, monetary aid for research and development programs, and funds for highway construction, and infrastructure in general. In 2008, the US federal debt stood at $9.2 trillion, 67% of GDP. Each taxpayer owed $79,000 of government debt that must be added to personal debt to get a reasonable idea of the problem. American consumers typically also have a crushing burden of personal debt.”
The US government debt continues to grow and will likely increase for many years, even with disciplined fiscal restraint. If you are an optimist, you will argue that with low interest rates the burden of debt is manageable; with economic recovery and growth in GDP, government incomes will rise and deficits will eventually be eliminated.
The economics of capitalism became ideologically attached to democracy, although the connection is neither inevitable, nor even workable. I write from a perspective of a comfortable, safe citizen of a country (Canada) that combines capitalism and socialism with relatively good results. While Canada is not perfect, it is a country that looks viable in the long term, given stability of its neighbor, the USA. The US, in contrast, fell into deep recession in 2008 with a failing infrastructure and out of control government spending on futile wars in Iraq and Afghanistan - all based on paranoia, lies and promises that could not be realized.
The benefits and vices of a “capitalist” economy are most clearly manifest in the USA. Prior to the great collapse, the Economist reported that eight out of ten Americans thought their country was heading in the wrong direction (they were right): “The hapless George Bush is partly to blame for this, but many are concerned not so much about a failed president as about a flailing nation. One source of angst is the sorry state of American capitalism. American house prices are falling faster than during the Depression, petrol is more expensive than in the 1970s, banks are collapsing, credit is scarce, recession and inflation both threaten the economy and consumer confidence is an oxymoron. Many Americans feel as if they missed the boom. Between 2002 and 2006 the incomes of 99% rose by an average of 1% a year in real terms, while those of the top 1% rose by 11% a year; three-quarters of the economic gains during Bush’s presidency went to that top 1%. The rich appear in Barack Obama’s speeches not as entrepreneurial role models but as modern versions of the “malefactors of great wealth” denounced by Teddy Roosevelt a century ago: this lot, rather than building trusts, avoid taxes and ship jobs to Mexico. Free trade is less popular in the United States than in any other developed country, and a nation built by immigrants is building a fence to keep them out. “
By the end of 2010, economic recovery appeared to be a wish, a fantasy, a delusion more that a realizable goal. Economist Krugman summarized the plight of the US: "We are no longer the nation that used to amaze the world with its visionary projects. We have become, instead, a nation whose politicians seem to compete over who can show the least vision, the least concern about the future and the greatest willingness to pander to short-term, narrow-minded selfishness."
From Surviving Human Nature by Stephen Gislason