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To Alter Or To AbolishChapter 32CapitalismWritten by Darrell Anderson. There is inherent in the capitalist system a tendency toward self-destruction. Joseph Schumpeter, Capitalism, Socialism, and Democracy As with many words, capitalism is not word describing a tangible entity existing in the real world of matter and energy. The word represents a concept. As with many concepts the idea represents a system. Systems contain boundaries, elements, and relational rules. At the core of any human system is people — individuals who share beliefs and interpretations about the universe. People produce wealth to satisfy self-interests, primarily to sustain energy flows. The distribution of wealth is nothing more than a descriptive process of converting and maintaining energy flows. Production is a process of using human energy to convert various forms of raw energy into wealth. All wealth is intended for final consumption in one manner or another and is therefore a form of stored energy. Consumption is a process of converting stored energy derived from production into usable energy to provide sustenance and satisfy happiness. The traditionally defined elements for producing wealth are land, labor, and capital. By definition, those three words are exclusive. Land represents all natural resources, including water, oceans, air, wind, minerals, plants, and animals. Labor is the process of humans converting energy into work — human diligence. The process of labor includes a sub-element — knowledge and skills. Wealth can be consumed directly, can be exchanged for other forms of wealth, or can be devoted to producing more wealth. That last form of wealth is called capital.[1] Capital is a concept and does not exist until wealth exists, and does not exist unless that wealth is actually used to produce additional wealth. Intent is controlling. A human made resource is not capital if intended for uses other than further producing wealth. Because capital is a form of wealth, capitalism is a process describing how capital is devoted and used to create additional wealth when some of that wealth is used to help continue production. Adding the suffix ism to a word implies an act, practice, result, or condition of the root word. The root word defines the ism. Capitalism is merely a process of converting and maintaining energy flows — material progress. Indeed, without some reinvestment of previously produced wealth, human material progress stops and people would be forced to live primitively in a hunter-gatherer or herder condition.[2] One does not mine coal to heat a home without a pick axe, shovel, and wheelbarrow. Land and labor are limited in usefulness without capital — the tools, equipment, and resources that make human material progress possible. This physical process of using capital — tools, equipment, and other resources — to improve material progress provides no clues about various social or political processes. As just defined the word capitalism does not imply any social or political process of exploitation or privilege. Capitalism often is defined by several features:[3]
Proponents of “capitalism” typically use the word to imply free association and voluntary exchange,[4] or to mean an economic exchange system based upon private ownership of various resources.[5] A key component in this process is a right to contract. Conversely, many people today use the word capitalism more as a political expression and within that context garners much discontent because the processes of statism are used to coercively create avenues of monopoly and political privilege. Opponents use the word to mean a social and political system of monopoly and exploitation, a process where people are denied access to the means of production, specifically, being denied access to land and capital.[6] Opponents advocate that humans are the end and are not to be used as the means, that material progress should benefit all humans and that humans are not merely the means to promote that progress, that the aim of life is to unfold all humans’ creative elements, and that the overall aim of human history is to develop a social system based upon justice and truth.[7] Considering that the word capitalism is derived from the root word capital, the symptoms of social imbalance are being described correctly but the definition is flawed. The symptoms being described are better defined as feudalism, slavery, and political privilege, not capitalism. These distortions are apparent today in several areas:
The problem is not the physical process of using capital to create new wealth. That straightforward definition of capitalism is nothing more than a desire to improve the quality of life — a natural human phenomenon. The problem never has been capitalism or “capitalists.” The problem is how capital is created in the Industrial Age. Modern capitalization is enabled through the political privileges of currency creation, controlling the issuing of credit, and land monopoly. Exploitation is difficult without the force and coercion of a political process. The problem is the coerced interference of politicians, bureaucrats, statists, and the moneyed elite to cloud the operations of free association and voluntary exchange. In other words, the problem is coercively created privilege, the politicization of capitalism — statism. The great debate and misunderstanding about capitalism is a failure to define terms, specifically, confusing the concepts of capital and currency. Capital represents wealth, currency represents debt. The former exists as a physical positive quantity, the latter an imaginary negative quantity. Wealth as capital exists in the unconditional world of physical existence. Capital as a concept exists in the conditional world of the mind. Capital is not a medium of exchange or a common circulating currency. Currencies are token symbols representing unfinished exchanges of wealth — symbols of debt. At most currency is only a potential claim on future capital. Physically existing wealth represents past labor whereas currency represents potential capital that will be produced with future labor. The reference point with respect to the time domain is different. The modern “dismal science” of economics is based primarily upon the misleading tenets of price, value, profit, and income, not with respect to wealth but with respect to a common circulating medium of exchange. Fundamentally, humans do not exchange currencies, they exchange wealth. People use currencies only as a temporary placeholder in exchanges. With respect to the exchange of wealth some excess production is necessary to further produce wealth. No energy conversion process is perfectly efficient and those losses must be replaced to sustain life, let alone material progress. Therefore, with respect to wealth, not currency, profit is merely another word for excessive production beyond that needed for immediate consumption. Capital is the storage of wealth through frugality.[8] There must be a storage of excess production beyond immediate consumption or there is nothing to exchange or use to further develop new wealth. Seed for next year’s crop must be saved and stored or there is no future crop. That seed is called capital. In the modern Industrial Age, capital initially is created not through production but through bank loans, which creates sufficient currency to obtain capital. Unlike the past where currency was seldom used, ancestors had to first physically produce capital. Producers today often need only procure a sufficient amount of currency to buy capital. However, individuals who desire to borrow through this political privilege must demonstrate a potential for excessive overproduction in order to satisfy the contractual obligations of compound interest. Thus, only a select few individuals will qualify for the massive loans necessary to secure the capital necessary for large enterprises. A majority of people always will be barred from this process and therefore denied opportunities to produce on a large scale and to capitalize their own businesses and ventures. The result is that a select few people eventually obtain the power to control numerous resources. The primary modern goal is not to use capital as a means to an end, but instead to realize an increase in currency. That is, to realize an increase of exchange power through currency. Modern capitalism is primarily defined by the pursuit of monetary profit, not material progress. Therein lies the so-called problem with modern capitalism. When used as a purely economic term, the words capitalism, free association, and voluntary exchange are compatible. When used in a political sense, as in denying access to and ownership of the means of production, capitalism is a process opposing free association and voluntary exchanges. Economic capitalism is a form of production whereas political capitalism is a form of adversarial raw acquisition. The former is cooperative competition, the latter destructive. Economic capitalism is a form of sustaining energy flows and increasing wealth, while political or state capitalism is a form of moving money to make money — virtual perpetual motion. Political capitalism is an environment of regulating property titles to create a system of political privilege and benefiting a few individuals at the expense of all others — and should be more correctly labeled feudalism or fascism. Feudalism is an economic system whereby property titles are controlled by a politically privileged few, thereby relegating everybody else to a role of serf and slave. Fascism is a philosophy supporting individual ownership of resources, including land and capital, but embracing coercive political control and regulation with how those resources might be used. Usually fascism is recognized through a dictatorship or totalitarian regulatory systems, but fascism can exist through other forms too. Both feudalism and fascism lend well to creating and establishing monopolies and various forms of privilege, which leads to various forms of artificial scarcity and exploitation. Political monopolies bypass the natural order of mutual survival and voluntary exchange in an attempt to create virtual perpetual motion through the captured labor of other people. There is a thin line separating economic capitalism from political capitalism. By definition, economic capitalism is merely a process of producing wealth, of sustaining energy flows and furthering material progress. That is, improving the quality of life. Of itself, there is nothing inherently wrong with that process or desire. However, there are natural limits to how much wealth any individual can create and accumulate. More importantly perhaps, there are natural limits to how much wealth an individual can consume or use. When an individual desires to exceed natural limits, then producing wealth transforms into a game — from a natural process of improving life to an obsession of control and power. When that happens, an individual crosses the line from economic capitalism to political capitalism, crosses the line from self-interest to greed, and begins a process of willingly usurping the property rights of other people. That can be accomplished directly through stealing or indirectly through the forces of political power. Many individuals fail to distinguish between “economic power” and “economic right.”[9] Economic power is adversarial raw acquisition used to redirect the flow of energy, both coercively and under the illusions of privilege and color of law. Economic right is merely the normal and natural desire of sustaining energy flows in the quest for survival. The former is a concept of property through political privilege, while the latter is a concept of property through natural possession and exchange. Many individuals object to all forms of capitalism despite not clearly defining terms or distinguishing this difference. Karl Marx argued that class struggles were a result of laborers clashing with capitalists. However, the difference is merely the struggle between people who choose either the economic means or political means of sustaining energy flows. That struggle is the difference between economic and political capitalism. “Labor” never has battled “capital” because the two are both necessary elements of production. The true battle is individuals embracing the philosophy of persuasion and cooperation versus those people embracing political privilege — statism. Part of the great debate about “capitalism” is caused by viewing wealth and currency as the same thing. Confusion, endless debates, and conflict are the necessary results. Using the straightforward definitions of capital and capitalism, a “capitalist” is an individual who uses capital (wealth) to further produce wealth and improve material existence. However, in the Industrial Age, a “capitalist” is an individual who, through the political privilege of modern banking, is able to instantaneously create and accumulate sufficient currency in order to obtain the capital that previously did not exist. The problem is not capital, capitalism, or “capitalists,” but people exercising the political means of sustaining energy flows through modern banking. Economic capitalism, a component of the economic means of satisfying needs and wants is not a problem. Politicized capitalism, a component of the political means of satisfying needs and wants is a problem. The latter is a process of trying to obtain something for nothing, another form of trying to create perpetual motion. Finis. Next: Chapter 33 — Socialism and Democracy Endnotes [1] George, Progress and Poverty, p. 42. [2] Sumner, What Social Classes Owe, p. 52. [3] Fromm, The Sane Society, pp. 83–84. [4] Friedman, Milton, “Capitalism and Freedom,” 1962, reprinted in Views on Capitalism, p. 44. [5] Gwartney and Stroup, Economics, Private and Public Choice, p. 716. [6] Marx, Karl, “Capital,” 1867, reprinted in Views on Capitalism, p. 267. [7] Fromm, The Sane Society, p. 233. [8] Smith, Wealth of Nations, p. 277. [9] Berman, Law and Revolution, pp. 545, 557. |
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