Saturday, February 28, 2015
We like to think of capitalism as an economic system different in kind, and not just degree. It does seem to be the most efficient system to exploit its environment ever designed. And we can conclude this because capitalism has driven its less efficient competitors out of business.
But what is capitalism’s environment? Capitalism’s environment is two fold: First is the physical environment. Capitalism’s original reason was to more efficiently, and at greater scale, harvest and exploit the resources society needed from the physical environment, and provide them to society, and in a greater abundance and at a lower cost than ever before. And this it did.
But the rest of capitalism’s environment is that same society and economy for which it provided, and still provides, and processes, resources. However, it is becoming more difficult to extract resources from nature, and produce real goods for society. The costs are higher. The increase in costs is greater than the increase in society’s ability to pay, with its current infrastructure. This means it is increasingly more difficult to extract profits.
But clearly, the capitalist will seek to go to where the profit is greatest. When the profit is greatest exploiting the environment, by providing things society needs or wants, that is where the capitalist will go
But if the capitalist can gain a greater profit, the capitalist can be expected to do what is necessary to do so, if society is not effective in preventing him from doing this. For instance, if the capitalist can effectively reduce his costs by damaging the rest of society, he must be expected to do so. Under these circumstances, we must expect him to damage society, because the sole duty of the capitalist is to enhance and maximize his own profits. (We address Milton Freidman’s discussion of this for corporations at: http://anamecon.blogspot.com/2012/06/milton-friedman-social-responsibility.html
The human motivating force for capitalism is not so often discussed: It is acting according to a narrowly defined self-interest, one that excludes the interests of any larger society.) The first is by externalizing some of the cost of producing real benefits, real goods or services, to society. For instance, one way is by discharging pollution from the production of goods or services into the environment, and not cleaning up this pollution for society, or compensating society for the damage this pollution inflicts upon it. Also, the capitalist may manipulate government to subsidize his production, so more is produced at greater cost and at greater profit to him than is beneficial to society. The capitalist, should either opportunity arise, must also be expected to enhance his profits through monopoly or monopsony, at the expense of the larger society.
When, however, the profit is greatest exploiting society directly, that is what the capitalist can be expected to do. Since in the process of exploiting society directly, nothing is actually produced, these methods are all aimed at manipulating demand, with the goal of maximizing one’s own share of demand, and minimizing the share of others.
Obviously the activity of thieves does not benefit society. They transfer demand from others, others who are often productive individuals, to themselves, who are not productive individuals, and often to the extent of damaging the productivity of the individuals they steal from. Where theft is made legal, as through allowing and even encouraging manipulative finance, it must be expected to proceed and grow apace. Consider the selling of credit default swaps, capital appreciation bonds to municipalities, leveraged buy-outs, and other malfeasances of Wall Street and the banking sector.
Resources are expended in this process, and indeed destroyed. This is a consequence of the nature of debt, which can only, in real terms, be repaid by productive individuals and companies. It is thus, in the net, the laying of debt on the productive sectors of an economy. This hampers them, reduces their profitability, and discourages investment in them, and in consequence encouraging ‘investment,’ that is the transferring of demand, to the non-productive sectors of the economy.
Clearly, this process is destructive of the economy. As real production is increasingly replaced by fictitious ‘production,’ we should expect the economy to be less and less capable of maintaining itself. This would first be compensated for by importing increasing quantities of goods and material factors of production. However, we should expect increasing poverty, decreasing investment in the real economy and infrastructure, decreasing market for real production, and eventual economic collapse.