Lately I've been pointing out that what we have in America today is not capitalism but, rather, neo-feudalism, with corporate owners in the place of the lords of the manor of old and the majority of Americans as serfs dependent upon their overlords for their every need. There are trappings of capitalism, sure. There are still markets, there are still a few small businesses bravely struggling along as chain stores and big box stores take over everything thanks to regulatory capture and monopolization of capital markets, there are still a few people who manage to create new and innovative businesses that make it. But by and large, this is feudalism, not capitalism.
Capitalism, fundamentally, is not markets. Markets can exist in the absence of capitalism, indeed, even in the absence of money, though money tends to be invented relatively rapidly because barter is such an inefficient way of handling trade. Rather, capitalism is, fundamentally, a method of time travel.
Wait wait, I hear you say. Time travel? Yes. Time travel. In pre-capitalist economies, businesses adapt to consumer needs very slowly. If Acme Widgets is selling Wurtzingers and the tastes of the general public changes towards demanding Furblacknitzes, Acme Widgets in a pre-capitalist economy must slowly accumulate the income to buy the equipment and hire the people necessary to produce Furblacknitzes. So pre-capitalist economies respond very slowly to changes in consumer tastes or desires. But in a capitalist economy, the money supply of the entire nation resides in banks as deposits (i.e., as loans to banks that banks then pool and loan out to businesses and individuals), and Acme Widgets gets a loan from the bank then pays that loan back at some future time using the money earned from selling Furblacknitzes. In short, Acme Widgets has TIME TRAVELED -- they slowly accumulated the money needed to tool up for Furblacknitzes *today* to satisfy the demand for Furblacknitzes *today*, but they did this in the future and the money traveled back in time to when they needed it!
Note that this requires a functioning financial system -- banks that provide loans to deserving businesses that need money for expansion, financial markets that sell bonds and partial ownership in businesses to similarly provide money for expansion, and so forth. And that's what we're lacking today. Banks aren't performing their job of risk aggregation -- that is, pooling the excess income of the nation and splitting it between millions of borrowers so that any one borrower failing does not cause a loss of any one depositor's entire funds. They lent out money to borrowers who they *knew* could not afford to repay the loans, and now aren't loaning out money at all. And capital markets have turned into just a giant ponzi scheme where stockholders and bondholders compete to scam each other into buying each other's overpriced stocks and bonds. If you are a small business wanting to respond to changing consumer needs today, you literally can't get money. Which is impossible in a capitalist economy, but we don't have a capitalist economy, because a capitalist economy requires there to be access to capital -- and unless you're one of the Fortune 500, that just isn't true in America today, at least not at any interest rate short of ursory.
-- Badtux the Capitalist Penguin
Just read a story on Yahoo News about the big banks. Geez, even Wells Fargo is a bunch of crooks.
ReplyDeleteIn July, Wells agreed to pay (without denying or admitting guilt) $85 million to settle charges filed by the Federal Reserve that it pushed borrowers into high-interest subprime loans, even though they qualified for lower-rate loans, and for falsifying documents.
Bet the customers got stuck with that $85 million tab.
Bankers learned their trade from car salesmen? Hell, bankers and car salesmen make loan sharks look like saints, at least loan sharks are up front about things.
Interesting outside the (chronosynchrastic) box thinking, Tux. I like it. Another thing capitalism is - an engine to redistribute wealth into the hands of capitalists. This is not totally bad. Healthy capitalism leads to a growing economy. So - though the capitalists slice is increasing, the pie is getting bigger. So far so good.
ReplyDeleteBut greed is deeply ingrained in the human psyche. A successful capitalist wants a bigger market share, and ultimately a monopoly.
One of the fundamental characteristics of capitalism is competition, and monopoly wipes it out. This is the real impetus for M&A's.
As competition goes away, capitalism vanishes. capitalism and big box stores are close to antithetical.
WASF,
JzB
Capitalism, fundamentally, is not markets. Markets can exist in the absence of capitalism, indeed, even in the absence of money, though money tends to be invented relatively rapidly because barter is such an inefficient way of handling trade.
ReplyDeleteMarkets cannot exist without money. No example of a market without money is known, nor of any barter economy ever.
You're on the right road about defining capitalism - best characterized as - see e.g. Schumpeter - modern banking. The capitalist is the professional debtor - unique to modern times. But "deposits as .. loans to banks that banks then pool and loan out to businesses and individuals" - that is more a description of pre-modern banking. Not modern banking.
And you make a very insightful point that if that by such definitions of capitalism - what it has evolved into is not really capitalism at all.
No example of a market without money is known
ReplyDeleteUhm... no longer operative. Though I do agree with you that even in economies that lack any functional currency (such as Russia immediately after the collapse of the Soviet Union), something fairly swiftly gets annointed as money because barter is simply too inefficient for the operation of a reasonable market. In the case of Russia, that was turnips. No, I'm not joking. Things were bought and sold in markets in the currency of turnips in large parts of Russia.
Regarding the operation of banks, I go into further detail elsewhere about how banks theoretically operate that clarifies my comment about your "deposit" in a bank actually being a loan of your excess capital to the bank, which the bank then aggregates with other capital "deposited" in the bank and loans out. Banks are fundamentally a risk aggregation mechanism when operating in that fashion. That is, I could loan my money to Joe Schmuck to buy a new car, and get paid by Joe Schmuck every month. But what if Joe manages to run the car off a cliff and decides to not pay me anymore? I just lost my whole nut! Whereas if Joe Schmuck does this to the bank I "deposited" my money into, I lose only the tiny sliver of my money that was loaned to Joe (amongst all the other slivers of money from all the other depositors), which will be manifested as a lower interest rate paid to me in the future.
In short, by putting my money into the bank at .9% interest rather than loaning it directly to Joe Schmuck at 2.75% interest, I'm giving up a lot of potential interest income in exchange for reducing my risk significantly. Banks nowadays offer other services to attract capital into banks, but that's the fundamental service that makes capitalism possible.
Not that what we have in America today is capitalism, since banks are now apparently gambling casinos making their money on risky speculative investments rather than making their money on the spread between what they pay for deposits and what they're paid for money when they loan it...
-- Badtux the Capitalist Penguin
your "deposit" in a bank actually being a loan of your excess capital to the bank, which the bank then aggregates with other capital "deposited" in the bank and loans out. My point was that this describes pre-modern banking, not modern banking. Deposits are not loaned out. Banks don't need deposits, and some banks in France & elsewhere don't take them. A bank loan creates new bank money.
ReplyDelete