Time to get this out of the way: What is Capitalism?

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Time to get this out of the way: What is Capitalism?

There are an alarming number of posts and threads on this
site questioning the merits of and often damning the supposed results of
Capitalism.

 

I write this in the hope of explaining what Capitalism is
and what it is not, and extinguishing the notion that capitalism is a) somehow
mutually exclusive with a resource-scarce or resource-barren world, b) that
capitalism has failed, c) that we need a “new” system to replace capitalism and
d) that capitalism has anything to do with inflation or fiat money.

 

Let’s start with a few things that Capitalism is not:  First of all, Capitalism is not the blueprint
for the US
constitution.  The word doesn’t even
appear once in the U.S. Constitution, its Bill of Rights, or the Declaration of
Independence. 

 

That is because Capitalism is a by-product of a more
important system, a system based on the notion that individuals hold freedom necessary
to decide how to direct their energies to exploit natural resources and trade
goods derived from the exploitation of natural resources.  The energies they direct are either their own
labor, or the energy saved from previously expended excess labor – i.e.,
capital.   

 

Now before any environmentalists lambast this with
counter-arguments contending that we do not have to “exploit natural
resources”, let’s get this out of the way: 
any human decision that results in survival rests on the exploitation of
natural resources.  If you do not believe
that, then you must have taken your own life already or will soon do so,
because the only way it is possible for you to survive from this moment and on
into next week is for you to breathe some air, drink some water, and eat some
food, preferably within some sort of structure called “shelter”.  Those are all natural resources or their
by-products, and anytime man utilizes them to advance his needs, he is, by
definition, exploiting them.

 

OK, back to work: 
capitalism requires individual freedom. 
Individual freedom allows individuals to decide how, when, and whether
to expend their efforts (labor) in exchange for results leading to the
fulfillment of happiness (from basics such as food and shelter, all the way to luxurious
leisurely endeavors such as books, theater, sports, TV, and vacations).  Note that this labor does not necessarily
need to be expended on behalf of someone else, as is the case in a job.  Labor could be used in one’s own farm or
garden, producing crops and livestock that allow one to eat and survive.  Labor in this sense is only defined as the expense
of human energy directed towards modifying natural resources (land, water,
seeds, other) for their use as a means of survival and or enjoyment.  It is important to note that property rights
would be a necessary part of this system, but more on that in another post (or
refer to the system capitalism is contingent upon, i.e., US Constitution and
Declaration of Independence).

 

Freedom to exploit natural resources is one requirement for
capitalism, but it is not enough.  The
other requirement is for individuals to use not today’s labor, but previously expended labor, in exchange
for goods and services (another term for exploited natural resources).  Previously expended labor is excess labor or
put another way, excess production.  That
is, it is labor that produced more than was necessary at the time.  It is the savings that result from production
– consumption > 0.  If it were not
possible to store excess production in some way, there would never be any
reason to produce anymore than was absolutely necessary to produce one’s daily
bread.  Excess production, stored in some
way or other, is termed “capital”.  It
could be stored as excess grain in a silo; as a machine purchased in exchange
for labor that has the ability to produce work; or as anything else that has
value. 

 

While many things have been used throughout history to store
the value resulting from excess production, the method used today is
“money”. 

 

The reason I went through all this to come up with a concept
that I know everyone on this site already understands, is because while some
people know what the purpose of money is, they do not understand why.  I’ve seen people lauding inflation or not
understanding why it’s bad, and I’ve seen people lambasting capitalism because
of inflation when the two concepts couldn’t be further apart.

 

If money is used to store excess production, which is the
result of our own labor, which we expend thinking we may use it later, money must
be able to store that excess production faithfully, i.e., without losing value.

 

The very essence of capitalism is the ability for
individuals to store capital (excess work). Storing capital faithfully cannot
be accomplished if the medium used to store it loses value every day (fiat
money).  Therefore, any complaints against
fiat money, which are 100% well-grounded in my opinion, are just that –
complaints against fiat money.  Fiat
money has nothing to do with capitalism. 
In fact, it’s capitalisms mortal enemy. 
Blame the Fed, blame ignorant politicians for not recognizing fiat
money’s ills, but don’t blame capitalism. 
The very concept of capitalism is dependent on the ability to store
excess production in a medium.  Fiat
money is anything but that medium.

 

The opposite of capitalism is a society whereby individuals
do not hold the freedom to decide how to direct their energies.  These decisions are made by a central
government.  In this system, individuals
can only expend labor, as all capital is owned by the state, even any capital
they produce as a by-product of their labor.

 

In the capitalistic system, it is entirely possible for an
individual who spends less than he produces, to accumulate capital.  Eventually, he or she can deploy (invest)
this capital in a productive venture.  If
successful, the venture will produce revenue for the individual, and possibly
eventually free him/her from ever having to expend labor in exchange for goods
and services again.

 

In any system absent of capitalism, such a concept is
inconceivable.  Therefore, even though in
a capitalistic system there are two options for expending energy: labor or
capital, it is the formation of capital that makes capitalism unique and that’s
why, I think, “capital” is the root word for the system, and not “laborism”
(which I think would make a much better term for socialism or communism).

 

Unfortunately, our politicians, influenced by special
interests, have imbued themselves with the power to spend more than the
government takes in through taxes.  To
fix this little problem, they made a cozy arrangement with bankers to devise a
system that produces money that was never worked for.  The government wins by funding projects and
services demanded of them by special interests but beyond the means of tax
revenues, and the bankers win by participating in a system that lends fake money
to real workers that pay real interest on it. 
The producers (all workers and tax payers) lose by having previously
produced wealth (capital) devalued, and by having their children make up for
the difference.  All of this is a
perversion of the concept of capitalism and it is this that should be the
target and subject of much of the recrimination I see on this site mistakenly
directed against capitalism.

 

Capitalism and Scarce
Resources

 

Several people have purported that capitalism is
incompatible with a world that has scarce natural resources, as if natural
resources were ever anything but scarce.

 

Let’s define “scarcity”. 
In my book, a “scarce” resource is anything that is not ever-present and cannot be enjoyed without exerting
energy to acquire and/or use it.   Under
present circumstances, the only non-scarce resource I can think of is air.  If we lived in less populated times, or in
the US shortly after the Louisiana Purchase, land would be a close second, but
even with land so cheap (it was free for a brief period to anyone that could claim
it, hence the term, “stake your claim”), considerable energy and sacrifice had
to be expended to claim it and survive on it. 

 

In my book, capitalism is precisely the best, most efficient
system available for the prodigious use of resources, especially the most
scarce ones!  

 

This is because freedom-based societies upon which
capitalism is based on, hold that individuals are in the best possible position
to make decisions regarding their own well being.  Since they are “closest to the action” of
their own circumstances, it is difficult to argue against that concept.  Since the cumulative societal consumption of
resources is nothing but the sum of each one of the society’s individual
members’ decisions, the most efficient way for a society to harness its natural
resources is to let each one of its individuals decide what is most efficient
for their own particular set of circumstances. 

 

Capitalism does not need oil, coal, nuclear energy, or any
other natural resource to exist. 
Capitalism is simply a system whereby individuals make their own
decisions about how to exert their own energies towards the adaption of
whatever natural resources there are, for the purpose of furthering their own
well-being.

 

If you have an island-based society whereby the only
resources are fish, coconuts, palm tree leaves, and volcanic rocks, those
circumstances do not preclude capitalism. 
They only preclude the production of goods based on resources that don’t
exist on the island.  If that island
exists in a world with other societies that have other resources, so be
it.  They won’t be able to trade much in
exchange for other goods, but it does not mean they cannot exercise capitalism
or survive.  Would any other system make
this island anymore successful?  I think
not.

 

Has Capitalism Failed?

 

Capitalism, as defined above, requires a medium that allows
for the storage of excess production. 
Excess production that is saved for a future date is capital.  A medium used to store capital that is
unfaithful (devalues) is almost as opposite to capitalism as communism is.  This is because in communist societies, the
only choice individuals have is whether to exert labor or not to exert
labor.  The choice to produce excess
labor that can be saved as capital is not an option, because the State owns all
the capital.  Therefore, the choice to
someday deploy capital as a means of producing revenues is not an option, and
labor is the only choice, for the lifetime of the individual.  A so-called capitalistic system that does not
employ sound money is in effect the same as a communist system to the extent
that the medium of money devalues over time, and to the extent that the
individual is not allowed to save excess production for future deployment due
to the devaluing nature of the medium used as money.

 

So, before you blame capitalism, look at how one of the two
basic requirements of capitalism has been perverted into an unrecognizable
version of itself.

 

What new system
should replace Capitalism?

 

Go back and read everything else in this post.  Capitalism hasn’t failed, it’s been
abandoned.  The new system we need is
Capitalism that is protected from the profligacy of government; that is held as
sacred as the right to life and liberty, for that is what capital is:  it is excess production by individuals.  Excess production comes from the decision of
an individual, the rightful owner of his/her own body and mind, to produce more
than daily necessities and store excess production for future use.  Capital produced is capital owned as
rightfully as one’s own body and mind and therefore should be protected equally
and not subject to rights or policies of government that devalue it at the
stroke of a pen.  Imagine if the
government could devalue your life with the stroke of a pen, either by
decreasing your life expectancy or by enslaving you for a period of time each
day – that’s the SAME thing as DEVALUING CAPITAL because capital is a natural
extension of your body and mind produced only by a decision of your mind and
the exertion of your body!

 

Fiat Money and
Inflation

 

It should be crystal clear by now that capital will only be
produced if there is a means to store it and later deploy it.  Otherwise, why should any of us produce more
than we absolutely need every day?  From
this, it should be easy to conclude that whatever we use as money, be something
that cannot be produced without an exertion of energy – either labor or capital
itself.  Therefore, all fiat money
systems are the mortal enemy of capitalism. In fact, they are communism in
sheep’s clothing, for they rob from us the sweat of our brow. 

 

So, if you want to attack fiat money, the Fed, the US
Treasury, laws that allow for the creation of non-worked-for money, please by
all means do so.  But please do not
confuse such foolish, perverted concepts with Capitalism or I will not be able
to sleep at night.

 

Thank you and sorry for the long post.

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Re: Time to get this out of the way: What is Capitalism?

Patrick,

Surprised Whoa. Thanks for taking the time to put this down as you have.  You've brought clarity and definition to some otherwise hard (for me) to peg relationships.  It is very much appreciated and it is a great resource for additional research on my part.

-Brandon

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Re: Time to get this out of the way: What is Capitalism?
Brandon wrote:

Patrick,

Surprised
Whoa. Thanks for taking the time to put this down as you have.  You've
brought clarity and definition to some otherwise hard (for me) to peg
relationships.  It is very much appreciated and it is a great resource
for additional research on my part.

-Brandon

You're welcome!  I surprised it didn't lull you into a deep sleep.  Cheers!

Patrick

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Re: Time to get this out of the way: What is Capitalism?

Wow - all my gratitude.
Well written, well-thought out and encouraging.
I hope some of our socialist advocates read this and take the time to reflect deeply on your words.

Cheers!

Aaron

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Re: Time to get this out of the way: What is Capitalism?

That means something coming from you, Aaron!  Cheers,

Patrick

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Re: Time to get this out of the way: What is Capitalism?

Aaron, I'm not a socialist.

I think Patrick's description of Capitalism would make Capitalism good, if it were true.  I believe it's stretching reality quite a bit, and if THAT is Capitalism, then I don't think it's ever been practised anywhere.  Good Capitalism like the above is simply too prone to being hijacked by greedy people.

Mike 

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Re: Time to get this out of the way: What is Capitalism?

I write this in the hope of explaining what a ponzi-scheme is and what it is not, and with the expectation of extinguishing the notion that a ponzi-scheme is:

1) mutually exclusive with a resource-scarce or resource-barren world (it needs you and all your worth);

2) a failed scheme (witness your poverty);

3) a system that needs a replacement (doth the docile cow dare stop producing during the milking?);

4) the source of inflation or fiat money (Ask not what you can do for your government, but what...).

Nice speech. Hitler had a nice uniform...

Nonzeroone

P.S. "You've got mail": [email protected]

P.P.S. Damnthematrix, Have I mentioned lately how much I appreciate you?

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Re: Time to get this out of the way: What is Capitalism?

Thank You Patrick.

I agree with everything you have said.

I would also like to mention that when Capitalism is implemented properly, without government tariffs or cartel's to create a government enforced monopoly, this system ensures that natural resources are exploited to their maximum efficiency and are used for maximum benefit.  When something such as copper is mined it can be used for products such as copper pipe for a plumbing, electrical wiring for your house or for car radiators.  Its application will be used where it is most efficient and profitable to do so.  It is the capitalist entrepreneur who determines the cost-price structure of the investment and he/she makes the choices based on expected profitability.  Copper's demand and application will be set by the price which people are willing to bid it to while still using it in a profitable fashion.  The application where it is used will be that where it is needed most.   If it is more profitable and efficient to use copper in pipes and people who make car radiators can make due with cheaper aluminum - to do the same job - then that is what the free market capitalist will decide.  On the other hand, a Socialist economy where the Gov't ownes all the copper and aluminum and cannot determine the cost/price difference in using either one for an application ensures that it these materials are not used efficiently.

This is an important fact considering our depleting natural resources and our need for conservation. 

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Re: Time to get this out of the way: What is Capitalism?

On another thread, it was estimated (and I checked!) that all the gold extracted so far is worth a total of 4.8 trillion dollars.

SO, there isn't enough gold to cover all the wealth/debts on the planet.

Solution please?

Mike

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Re: Time to get this out of the way: What is Capitalism?

Patrick

Congratulatons.

Thank you for the clear / concise description, I doubt von Mises could have done better.

I agree with you that it is an "ism" that is being unfairly blamed for much of our current ills. Unfairly  because it has not been allowed to flourish by even the most pro liberterian society, the US.

Stan

 

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Re: Time to get this out of the way: What is Capitalism?

This is an anthropocentric view of capitalism. It is a comment on the idealism behind capitalism without going into how it has been misused by many at the expense of the masses. But I will concentrate on the misunderstanding it encourages  by looking a t one side of the coin only. All the operations of civilization entail using up limited natural capital.That is the stark reality, even if most people do not understand that. Consequently, most people are really parasites. Capitalism is a means of giving freedom to people to be more parasitic.

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Re: Time to get this out of the way: What is Capitalism?

All the gold extracted so far is worth a total of 4.8 trillion dollars?  Who defines what a dollar is worth, and, therefore, what gold is, intrinsically, worth?  I'm not denying your argument, per se, but merely pointing out what, I think, is a circular argument.  You need a better starting point, Matrix.  

"Money", as Chris has stated, is basically a commodity of labor, or energy.  It is difficult to value apart from that, and therefore equally difficult to value because of that.  If one is to question the value of a "fiat" money system (and, I do, in essence), it is impossible to question that same "fiat" money system by referencing back to it.

No offense intended; this is simply too much of my logistics training in college!

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Re: Time to get this out of the way: What is Capitalism?

I think what Patrick Brown was trying to write was the definition of Capitalism.  Most of us would like to make value judgements about the affects of capitalism (and its causality), but I think a clear definition was all he was attempting to do.  I thought it was a good job.

It is really hard for most people to segregate the definition, of the term, with its affects and effects. 

An argument in defense of or opposing it is completely different from the definition (aka its nature).

I think all of you should keep that in mind when someone is writing about any system.  Find out if they are defending/opposing it or if they are just attempting to define it.

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Re: Time to get this out of the way: What is Capitalism?

Mike,

The solution is that, while there has been more money created/printed than there is available gold, the gold in the economy has to be revalued to the new volume of money.  This is what Pres. Roosevelt did in 1933 where he devalued the US dollar by 40% because the quantity of US gold would no longer cover the increased volume of US dollars.  For example, while free market for gold is now around $900 usd/oz if there were demand to monetize gold to make it money it would create additional demand for it.  Also, there are other factors to consider when monetizing a commodity such as gold to become money again.  You must ensure it is valued at the correct exchange rate with the countries currency that plans to use it for money.  Otherwise it won't work, like it didn't for England Pound Sterling back in the 1920's.  The result is other currencies have to inflate in order for the gold standard to be sustainable for that country which plans to use it.  Because of this pitfall, gold could be revalued at say $2000 usd/oz or even more if it were to be monetized.  Again, there are ways to go about getting the market to determine the new exchange rate between dollars and gold money.  There are other potential issues as well such as holders of gold getting to receive windfall profits - this is why Roosevelt confiscated the citizens gold before revaluing it.  This could be a whole thread in itself. 

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Re: Time to get this out of the way: What is Capitalism?

While I appreciate Patricks clear definition of capitalism, it cannot be left entirely to the unconstrained efforts of individuals to determine the extent to which resources will be exploited to produce capital. Finite consumable resources may be most  efficiently exploited by individuals of some particular generation without regard for people of the future. It is a legitimate function of governments to protect the collective interests of both present and future peoples. In the process they may legitimately constrain your exploitation of something that you would otherwise use to expand your accumulated capital.

Fiat money is merely a proxy for everyone's capital. It is neither good nor bad in its own right and it is certainly not capitalism's mortal enemy, however the world's present corrupt fiat money system comes close. Much as everyone loves gold, it is not edible, has relatively few practical uses and is valuable only because everyone thinks that it is. It is, in addition, hard to counterfeit or expand the supply. It is possible that a carbon fibre material could be developed in the future and used for printing a stable cash supply that would satisfy all of the demands of durability and difficulty to counterfeit. But to avoid the ills of the present fiat money system, the actual production of cash would have to be fiercely regulated. In addition, to let modern computer based commerce proceed with any banks at all (central bank or not), there would have to be stringent capitalization requirements that would preclude money simply being loaned into existence. Such an economic system has never to my knowledge existed, but one ought to be possible in principle.

Stan

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Re: Time to get this out of the way: What is Capitalism?
stanrobertson wrote:

While I appreciate Patricks clear definition of capitalism, it cannot
be left entirely to the unconstrained efforts of individuals to
determine the extent to which resources will be exploited to produce
capital. Finite consumable resources may be most  efficiently exploited
by individuals of some particular generation without regard for people
of the future. It is a legitimate function of governments to protect
the collective interests of both present and future peoples. In the
process they may legitimately constrain your exploitation of something
that you would otherwise use to expand your accumulated capital.

Fiat money is merely a proxy for everyone's capital. It is neither
good nor bad in its own right and it is certainly not capitalism's
mortal enemy, however the world's present corrupt fiat money system
comes close. Much as everyone loves gold, it is not edible, has
relatively few practical uses and is valuable only because everyone
thinks that it is. It is, in addition, hard to counterfeit or expand
the supply. It is possible that a carbon fibre material could be
developed in the future and used for printing a stable cash supply that
would satisfy all of the demands of durability and difficulty to
counterfeit. But to avoid the ills of the present fiat money system,
the actual production of cash would have to be fiercely regulated. In
addition, to let modern computer based commerce proceed with any banks
at all (central bank or not), there would have to be stringent
capitalization requirements that would preclude money simply being
loaned into existence. Such an economic system has never to my
knowledge existed, but one ought to be possible in principle.

Stan

Stan,

While it may seem that government could serve a useful purpose by rationing scarce resources so that one generation could consume them out of existence at the expense of a future generation, in practice it does not work for two basic reasons:

I'll start with the weaker argument first.  Giving the government the power to decide which resources need to be protected and by how much is akin to giving the government control over all resources.  Bascially, that puts us back into communism.  I know some will argue that is preposterous and that there would be nothing wrong with rationing oil, or some other resource.  The problem is that once control of any kind is handed over to the government, in a few years someone will come up with an excuse (perhaps well-meaning and sincere) to ration something else, or the same thing by more.  On top of that, this opens the door for special interests to influence what government rations and what it doesn't.  As a coal producer, for example, I would love nothing more than for the government to ration silicon (those pesky solar panels are becoming annoyingly difficult to compete with); a few years later, maybe I could get them to put a lid on natural gas as well.  For the benefit of future generations and the overall good, of course.

The second reason this concept is fraught with pitfalls is that anytime you make something illegal, even if just by a little bit, it instantly creates a black market.  Black markets, besides subverting the very thing you are trying to do, are shadow markets and therefore do not produce the tax revenues the government would otherwise receive if they did not try to ration something to begin with.  They also tend to be a breeding ground for crime and a foundation from which to enter other criminal enterprises.

A great example that of all this is Prohibition in the 1920's.

As for intergenerational resource depletion, while I do not agree with your solution, I also do not disagree that intergenerational resource depletion is real.  I think future mines are going to be located on top of old landfills, where previously mined and then thrown-away items will be dug up to extract what little they have in the form of copper, gold, etc.  Now that's not my solution!  Just a side-note.  

In the past, technological advances or changes in lifestyle have allowed us to survive.  I do not claim to know for sure if this will save us again, but I also know that it's also possible to live much less ostentatiously than we do today as a civilization, and if resources become so scarce that we have to downsize considerably, then we will do so.  That's what people have always done when their economies have been ravaged by resource depletion of another kind - the kind that comes from wars, collapsed currencies, drought, famine, etc.   

 

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Re: Time to get this out of the way: What is Capitalism?

quote[damnthematrix]

On another thread, it was estimated (and I checked!) that all the gold
extracted so far is worth a total of 4.8 trillion dollars.

SO, there isn't enough gold to cover all the wealth/debts on the planet.

Solution please?

Mike

Mike,

I am not sure if that figure makes any sense.  What I would like to know is how much physical gold there is in existence (as in tons, pounds, ounces).  

According to this, http://www.financialsense.com/fsu/editorials/dollardaze/2009/0126.html   the total gold ever mined is 165,147 tonnes, which is equivalent to 5.32 billion ounces.  The same article claims to estimate the world's total money supply, but it only counts certain kinds of money.

What I would like to know is the total global money supply, printed or electronic.  Whatever that amount is divided by the amount of gold, is what gold should be allowed to be worth.  Once we've got that figured out, all currencies could be based on gold, but only if the central banks that issue those currencies have physical gold in their possession, and only if fractional-reserve banking is left in the ash-heap of history.  

It doesn't really matter how much gold is in existence for a gold-based system to work.  Just because an ounce is worth say, $2,500 doesn't mean we cannot have an effective currency.  Coins can always be minted that have 0.01 ozs of gold in them (the rest can be bronze or something) i.e., a $25 coin.  Demand deposits (what paper money used to be) can be printed in any amounts deemed useful.

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Re: Time to get this out of the way: What is Capitalism?
denisaf wrote:
Re: Time to get this out of the way: What is Capitalism?

This
is an anthropocentric view of capitalism. It is a comment on the
idealism behind capitalism without going into how it has been misused
by many at the expense of the masses. But I will concentrate on the
misunderstanding it encourages  by looking a t one side of the coin
only. All the operations of civilization entail using up limited
natural capital.That is the stark reality, even if most people do not
understand that. Consequently, most people are really parasites.
Capitalism is a means of giving freedom to people to be more parasitic.

 

I do not know what other view of capitalism there could be other than anthropocentric.  It is a man-made concept, although it mimics ecosystems in the natural world.  

Parasites are organisms that live on or from the exertions of other organisms.  I guess what you mean is that we are parasites in the sense that we live off the resources of the planet, as if the planet itself, in the absence of all living things, were an organism.  

I'd be interested in knowing what alternative system you propose, because it is very difficult for me to imagine how we could live at all without being "parasites".

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Re: Time to get this out of the way: What is Capitalism?

It was worked out thus:  158,000 tonnes (from memory) @ $1000/oz.

Now just think about what all the 'stuff' we have built/made/accumulated over the last 100 years is worth.   one thousand trillion?  Ten?  One thousand?  I'd hate to hazard a guess really....

158,000 tonnes is ~ 5 billion ounces.

If the wealth of civilisation was, for argument's sake 1000 Trillion ($,1000,000,000,000,000), then gold would have to be valued at $200,000/oz

If I had to guess, I'd say Civilisation's wealth would have to be one or two orders of maginitude higher....  which would make gold then be also worth one or two orders more...  like $2 to 20 million/oz. 

Whatever the truth......  hang onto that gold Dude!

Mike 

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Re: Time to get this out of the way: What is Capitalism?

You see bearing, you again assume that anyone opposed to capitalism is automatically a socialist or a communist.....

You say Capitalism should be allowed to operate without intervention from governments.  OK fine, so how do you ensure it doesn't deviate from Patrick's ideal version without interference? 

It's all very well to define an idealistic version of Capitalism, but the fact remains it didn't turn out that way, and it evolved into a monster.....

Mike 

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Re: Time to get this out of the way: What is Capitalism?

<GOTO> Post #7

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Re: Time to get this out of the way: What is Capitalism?
Damnthematrix wrote:

You see bearing, you again assume that anyone opposed to capitalism is automatically a socialist or a communist.....

You say Capitalism should be allowed to operate without intervention from governments.  OK fine, so how do you ensure it doesn't deviate from Patrick's ideal version without interference? 

It's all very well to define an idealistic version of Capitalism, but
the fact remains it didn't turn out that way, and it evolved into a
monster.....

Mike

Mike,

It is government interference itself that has destroyed capitalism through the creation of fiat money.  As I explained, capitalism cannot exist without the ability to store capital for future use.  The medium used to store it has to be faithful.

What we need is government protection of free-markets and a faithful currency.  "Protection" is not the same as "interference".  Protection outlaws certain practices (such as murder, theft,and fraud) and government gets its power to enforce the prosecution of such practices through the use of a police force that is granted to it by the people.   Interference does not outlaw practices, it only regulates them or cartelizes them for the benefit of whoever the special interests are that encourage them.    Fiat money and our cartel banking system are a perfect example of this, and so far the most destructive.   The ability to enforce interference comes from the same power we grant government in the first case, a police force.

As for how this could be acomplished, that is the $700 billion question.  I think it would be impossible to do so unless people understand first of all what is so terribly wrong with our current fiat money system, which is why I support Chris and the CC 100%.  It is a tall order, as so many millions - no, billions of people have lived their entire lives under fiat money systems.  The failure to understand what really ails us could lead to decsions that make everything even worse, which is why it is critically important that these concepts be understood.

 

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Re: Time to get this out of the way: What is Capitalism?

Patrick Brown,

I'm impressed, what you wrote is a Crash Course in Capitalism, I've read a great deal about capitalism but what you wrote is the best summation ever, thank you.

Something I've been thinking about lately is the problem with setting a dollar value to a monetary metal. The reason we went off the gold standard in 1971 was that the market price of gold was higher than our set value. Why not price products in ounces instead of dollars and let whatever monetary metal we use float in the open market?This would prevent a run on our money because it would always be at the market price.

Greg

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Re: Time to get this out of the way: What is Capitalism?

Mike,
You said:

Quote:

On another thread, it was estimated (and I checked!) that all the gold extracted so far is worth a total of 4.8 trillion dollars.

SO, there isn't enough gold to cover all the wealth/debts on the planet.

Solution please?

Another thing to keep in mind that the "value" of "money" is artificial, and therefore can have no "real" influence on the "value" of "gold".

Compliments of Nixon, the Gold standard died, and the fiat currency that replaced it has been pretending to be valuable.

When you buy gold or silver with your fiat currency, you're exchanging a note of debt with a precious metal that will have value long after the government that backs the fiat is gone. I know you understand this, but applying that logic to your above question nullifies the "debt to gold" discussion, because the debt is backed by a temporal system that looks ever-closer to collapse, while Gold is going to have a "stable" value for the forseeable future.

Plainly said, I think the solution is letting this system die, learning from our mistakes and moving forward wiser.
If by some stroke of luck we narrowly avert catastrophe this time, it'll only serve to embolden our myopic leadership into creating more problems.

Cheers!

Aaron

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Re: Time to get this out of the way: What is Capitalism?
gregroberts wrote:

Patrick Brown,

I'm impressed, what you wrote is a Crash Course in Capitalism, I've
read a great deal about capitalism but what you wrote is the best
summation ever, thank you.

Something I've been thinking about lately is the problem with
setting a dollar value to a monetary metal. The reason we went off the
gold standard in 1971 was that the market price of gold was higher than
our set value. Why not price products in ounces instead of dollars and
let whatever monetary metal we use float in the open market?This would
prevent a run on our money because it would always be at the market
price.

Greg

Wow, thanks!  I'm not sure my explanation comes close to the level of the CC, but I'll take the compliment.

I've been thinking about the challenge of reverting to a gold standard also.  It has been proposed (I think it was by Ron Paul), that all the gold in possession of the US Treasury be added up, and that amount divided by all the dollars in circulation.  Henceforth, that would be the value of the dollar, and the artificial printing of additional dollars without a proportional amount of gold to back it up, would be outlawed.  Fractional-reserve banking would also have to be outlawed for the fraud that it is.  That sounds reasonable to me.  I would love to know what CM's opinion on that idea is.

Another solution would be to create a new currency that is backed by gold, but allow dollars and other currencies to continue to circulate freely.  Eventually, because other currencies are fiat, they would be dumped in favor of the new currency.  This seems like a more gradual and less volatile way of doing it than the first way, I think.

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Re: Time to get this out of the way: What is Capitalism?

The biggest power of the gold standard is the redeemable nature of the paper and the lack of laws imposing the acceptance of paper dollars as payment. If we cannot redeem our paper freely for gold, where is the check on the system? Likewise, if we are forced by law to accept dollars, how can we be free to reject them if they are mismanaged. I am a strong supporter of the gold standard, but when it is managed at a macro level, there are still plenty of possibilities for the goverbanksters to line their pockets at our expense.

Full redeemability and lack of laws forcing paper acceptance (even if the paper is supposedly backed by gold) are necessary for monetary liberty.

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Re: Time to get this out of the way: What is Capitalism?

Mike.

Here ia a link to an artile that may interest you and answer your question:

http://www.gold-eagle.com/editorials_05/hultberg020105.html

The Future of Gold As Money
An Analysis of Antal Fekete's Plan for a Parallel Gold-Coin Standard
Nelson Hultberg                          

Here is a small excerpt from article.  

"The Fekete plan is not a pure 100 percent gold standard that would restrict credit issuance to a banker's capital accounts and cash. Yet neither is it a return to the 19th century "fractional reserve" approach in which banks were allowed special privileges such as loaning out demand deposits and suspension of specie redemption, which led to the cardinal sin of borrowing short to loan long. The Fekete plan employs none of the fraudulent credit instruments and practices that plague us in America today."     

                   

Here's another excerpt outlining the Fekete Plan.  (The article is long, but worth the read as well as the links contained within it).

 

Outline of the Fekete Plan  

What follows is a brief outline of the proposed Gold-Coin Standard that Professor Fekete has published. I have paraphrased the basics of the plan from the complete version that appears in my book, Breaking the Demopublican Monopoly. 8The plan's most important purpose is to eliminate the monopoly that the Federal Government and its central bank have over what constitutes money in our economy. It will do this by repealing the "legal tender laws" that mandate our acceptance of Federal Reserve paper dollars for business transactions and purchases. The plan establishes a parallel monetary system to operate alongside our present Federal Reserve System, and thus it allows the people to reject the Fed's paper money if they wish. It does this by:

1. Opening the U.S. Mint to all citizens, miners, jewelers, processors, etc. to bring whatever gold and silver they wish to be minted into standardized gold and silver coins to circulate as money.

2. Putting all the gold that the Federal Government and its various agencies presently possess (gold that they stole from the American people in 1933) into a Rehabilitation Fund that will then be minted into gold eagle coins and apportioned out to state chartered Credit Unions according to the capital of their various subscribers.

3. The gold coins will then form the basis of the new parallel monetary system. With this gold as their reserves, the Credit Unions will then issue paper certificates to be used as money in society by their subscribers. The certificates will be REDEEMABLE at any time in gold and/or silver to whoever presents them to the Credit Union.

4. The Credit Unions shall have reserves of gold for no less than forty percent of their note and deposit liabilities. The remainder shall be covered by reserves in the form of gold-based short-term commercial credit, i.e., self-liquidating bills of exchange that mature in 91 days or less. Paper instruments such as Treasury bonds, notes and bills will not be eligible.

5. The Credit Unions' primary function will be to supply gold and silver redeemable currency for the payment of salaries and wages to employees and workers who choose (through collective bargaining agreements) to be paid in gold backed currency instead of irredeemable Federal Reserve notes.

6. These three factors (opening the U.S. Mint for all gold and silver to be minted into standardized coins, the chartering of Credit Unions to issue currency redeemable in gold and silver, and the revival of "bills of exchange" to provide the necessary elasticity of credit) will effectively establish a parallel monetary system to the present one we have now. No longer will the Federal Government and its central bank cartel be able to dictate that we only deal in its paper money that is relentlessly being debased every year by inflation.

7. The Federal Reserve's fiat paper money will now have to compete with legitimate redeemable gold and silver backed currency of the Credit Unions. Gradually over the years, gold and silver as money will become used more and more, and the various Federal Reserve banks will either have to convert to its usage or go out of business.

8. The greatest beneficiaries of the plan will be those workers and employees who opt to be paid in Credit Union currency rather than Federal Reserve notes. This can be done through union-negotiated contracts. Their wages and salaries will then hold their value. One's savings will not be worth 25% less ten years down the road, and then 50% less ten years later. 9. The plan is meant to get American citizens acclimated to using and saving gold and silver as money again. It will start out small, but should grow into a viable circulating money throughout society. But even if it remains small in its use, it will be immense in its effect because it will act as a competing form of money to the Federal Reserve's money. This will break the government's mega-bank monopoly, which will force the Federal Reserve to stop debasing the dollar.

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Re: Time to get this out of the way: What is Capitalism?

I put Patrick's theory of what constitutes Capitalism past my Running on Empty Yahoogroup.  I particularly liked this retort:

 

No, the essence of capitalism is the workers (who don't have any capital) do all the work,
while the factory-owners (who do have capital and don't work)
pay them the minimum to keep them alive
while keeping all the capital produced for themselves.
 
When workers and bosses meet in the "free market place for labour",
they do not come with equal empowerment.
The bosses can play the prospective workers off against each other
( including Chinese workers either here or in China )
to get the lowest wages possible.
The bosses can , and do, simply close down operations when it suits them,
regardless of the social consequences.
 
The workers only have the right to strike in some countries,
wherever it can, Capitalism gets the laws changed to make striking illegal.
 
So the two parties don't come to the labour marketplace with equal power.
So they don't agree to a fair deal for both parties,
and the rich get richer, while the poor get poorer.
 
If you redefine Capitalism to be something else,
you can "prove" anything.
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Re: Time to get this out of the way: What is Capitalism?

"
Plainly said, I think the solution is letting this system die, learning from our mistakes and moving forward wiser." 

NO argument here....  But how do you then value gold?  Would it not still need to be worth 'the wealth' of civilisation, which, whichever way you look at it is a shitload of wealth...?

Mike 

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Re: Time to get this out of the way: What is Capitalism?

Hey Mike,

It'll re-emerge as a medium of exchange as it has for millenia.
The fortunate thing of precious metals is they're:
1. Rare
2. Extremely sturdy in most cases (do not decompose quickly)
3. Universally recognized as valuable.

I don't suggest stocking up on gold, because it's not useful. It's a good idea to keep it in mind as an investment, but I think in a "short term" collapse, silver will be more useful because it's a smaller denomination, and Gold would generally require large transaction based on it's high value.

Cheers!
Aaron

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Re: Time to get this out of the way: What is Capitalism?

And another.....

 

Certainly very apologetic of capitalism but he tries to defend it by
the same way many religious people defend their god. He reduces it and
redefines it as something less, like a theologian speaking of a god as
being a vague force or proving the existence of miracles by pointing
to the sunset. He blames "fiat" for problems arising from the system
which is really the "no true Scotsman" fallacy.

But his assumptions are mistaken to start with. The first that
government is the only agency producing money. Where do junk bonds,
CDOs and all the other financial instruments come from? Wall Street.
Every time a loan is made money is created and interest is money from
nothing. At that point the value of existing capital is reduced unless
some production increase equalises the money created. If not, someone
is left carrying the can for debt. In a growth economy debt is not a
problem and interest leads to growth. In an economic environment where
growth is not possible capitalism morphs into feudalism. Thus the
injunctions against usury in the bible and the koran. He does not even
talk about the fractional reserve system.

He talks about "stored value" being capital. If your capital was water
in a dry region your water would be valued highly, unless a tsunami
should swamp your area. Private individuals and institutions can also
create their own tsunamis.

He makes his biggest blunder by saying that

> Capitalism does not need oil, coal, nuclear energy, or any other
> natural resource to exist.

This is simply rubbish. Capitalism arose because increasing energy and
raw material supplies made economic growth possible. It started with
European colonial expansion into the new world, followed by the
industrial revolution using coal, and latter other fossil fuels.
Feudal Europe dissolved at that point.

For the current crisis the best response is for those clowns on Wall
Street to wear their own stupidity, for those "assets" to be purchased
by the government at rock bottom prices and the mortgages associated
with those securities to be renegotiated at lower principles. Any
response that tries to save the big investment houses will only lead
to bonded citizens in an era where resource limits do not allow
growth, AKA feudalism.

Peter
Adelaide

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