The popular wisdom is to blame our reckless credit and borrowing habits for the current economic crisis. If we indeed fall into an extended period of economic decline and contraction it will be attributed to our economy drowning in a sea of debt and credit. Already it is common to talk about the current economic hardships as being a direct result of our country living beyond our means. This does not just apply to the US, but to the entire global economy.
I deem the views expresssed in the previous two paragraphs as being narrow and one sided. Though it is true that the great ocean of debt and living beyond our means has led to our economic reckoning, it is also true that those very practices created the very boon which preceded the bust.
The business cycle of boom and bust was long ago identified, but its reality is forever ignored. In my eyes capitalism receives too much credit for our boom times and far too little blame for the bad.
Throughout history there have been many wealthy societies, nations and empires. Though the last few have been capitalistic in nature, the majority have not. Empires, almost by definition, are extremely wealthy and powerful social entities. Rather than a specific economic format such as capitalism wealthy societies seem to share a few basic characteristics. The following is a general list.
1) Cutting edge and well developed infrastructure.
2) A ample food supply
3) A wealth of natural resources
4) A large inexpensive labor pool
5) Technological, artistic and scientific advancement
6) The use of other people’s food, resources, money, labor, and talent
Like all other empires the US’s ascendancy had more to do with the above list than the fact that it had a capitalistic economic system. The US had land, incredible resource wealth that matched the inventions and discoveries of the time, slave labor and arable land. As opposed to other powers of the time period it had 50 united states that made up a huge land area with no language or legal barriers. Being able to pool together the resources of such diverse land areas was an incredible advantage over most other nations.
The US also had the advantage of being geographically distant from most competing international power houses.
When all these factors are considered almost any sophisticated economic system would have done. Capitalism was more of a beneficiary than a cause of US power and wealth.
For every way I could name a way in which capitalism fostered economic growth and technological development I could also identify a manner in which it impeded or hampered economic growth and development. Likewise for every way in which capitalism increased efficiency one could name at least one in which it generated waste and inefficiency.
In previous blogs I’ve gone into detail in how a capitalistic system is inherently wasteful and inefficient. In fact, I would go so far as to say it is one of the most inefficient and wasteful systems available.
Returning to the original theme of this post I want to point out that our abuse and misuse of money, resources and credit gave rise to our initial wealth in the first place. Our wealth and progress was based on our ability to expand and develop. Our economic expansion was based on the exploitation of domestic and global resources as well as slave and third world labor. The policy of borrowing increasing amounts and percentages of money was all but necessary in our competitive system of free enterprise.
A business who instead of borrowing waited to expand until they had stockpiled profits to pay for expansion would be at a severe disadvantage to those companies that borrowed. The most leveraged companies had greatest ability to expand and quickly increase market share.
Likewise, if the American consumer only bought according to need a huge percentages of businesses would never have been in existence. Our social wealth was a product of our living beyond our needs and in the long run living beyond our means.
Much of our wealth was a fabrication build on stealing from the future. We came to a land in which its inhabitants lived in harmony with nature. The people had more of a desire to adapt to nature than to exploit it. This meant that many of our resources were virgins, unused and exploited. While other nations had been using and depleting their resources for generations the America’s were brimming over in resource wealth. This allowed us to use resources at a pace and manner unforeseen by our ancestors.
One could make an argument that in the span of a few generations we’ve used the resources that should have been spread out over a few centuries. Likewise, we’ve borrowed money from the future. By some accounts we’ve borrowed money well into the future. Almost anyone can live and appear wealthy if they spend a life time of money in few short years.
Imagine that at the age of 20 you were given all the money you would earn over your entire life time. Then imagine being able to double that amount by borrowing against it. Now, how wealthy could one appear if that spent all that money in ten years or less. This is essentially what modern capitalism has done.
As a nation we never were as wealthy as we thought we were. We’ve been borrowing and stealing from others around the globe for years. We’ve used their talent, resources and labor. We’ve borrowed from our future and theirs. Yet, now that are borrowing is coming due, we are forgetting that are wealth was mortgaged. We never completely owned the wealth we lived.
Capitalism is not a system structured in the present. It is competitive progress oriented system in which winners take from others and the future to have relative wealth.
Does the system work? Yes, it does.
Could we devise a better system? I believe so.
Will we? Not if we continue to believe our nation’s wealth was created by capitalism.
Jim Guido
[...] Originally posted here: Beyond Our Means [...]