General01 Apr 2009 02:08 pm

If we break capitalism down to a single transaction we are oversimplifying it. Yet, it does allow us to get a look at its basic dynamics and shortcomings.

Profit and the amassing of capital are both the goal and the driver of capitalism. This means that in every transaction the seller of objects and services goal is to make a profit off of the consumer. If the businessman were to lose money on the bulk of his transactions his business would be non-profitable and fail.

It is, therefore, not surprising that a higher percentage of money has been going to a smaller percentage of people almost the entire life of modern capitalism.What this means  is that a growing majority of people in the US and the industrialized world are becoming relatively poorer every passing day.

Succinctly put, this means that capitalism is generally a competitive system in which win/win situations are rare and generally undesirable. The goal is to raise capital, to capitalize on each transaction by maximizing profit or ensuring future profit.

Economies are generally close systems in which wealth is measured by the percentage of money an individual has in comparision to all money available. It’s kind of like playing a board game in which all money available is represented by the bank. When playing the game your wealth is assessed by what percentage of money available you possess along with comparing your assets versus the others playing the game.

How much money you have, therefore, is measured against two variables. The comparative wealth of others in the society and the amount available to all. A society which regularly prints money is constantly raising the bar to wealth.

For simplicity sake let’s say I lived in a society of 100 people. Let’s also say that there are 100,000 dollars in print. This would mean that I would have to have 1000 dollars to be right at the average. Let’s go on to say that instead of owning one percent of the wealth, which would be the norm for 100 people, I instead owned 5% of total wealth. My 5000 dollars would make me 5 times as wealthy as the norm, and most likely tens of times wealthier than the poorer people.

If the state were to add to the money supply by printing an additional 100,000 dollars, than my 5000 dollars would fall from 5% of total wealth down to 2.5% and my relative wealth would have been cut in half. In the real world we call this process of adding to the money supply inflation. In such circumstances while the number of dollars in a person’s pocket may be increasing their relative and functional wealth may be decreasing. When the rate of inflation is quicker than growth in wages the relative wealth of a person shrinks as does the purchasing power of his money.

Somehow we’ve been successfully brainwashed to believe that this system which lives by the adage that the rich get richer and the poor get poorer, is making all of us wealthy and improving our standard of living. Though it is true that the US experienced a few decades of great growth in the standard of living and the quality of life, it is deceptive to make capitalism solely responsible for these positives.

Much of the illusion of wealth came from inflation while an overwhelming 90% or so of citizens experienced a relative decrease of wealth. Improvements in the standard of living and quality of life had more to do with improvements in medicine/health care, science/technology, transportation/communication and infrastructure/agriculture. When you consider these and the fact that the US and its cohorts used other cultures resources and labor while borrowing from future generations and you can see how we made capitalism look like the golden calf.

So, how much did capitalism play a part in the growth of science and technology and in the inventions which most positively impacted our improvements in quality of life. One could easily show ways in which capitalism fostered and encouraged meaningful invention, yet one could also show many instances in which functional capitalism impeded or even prohibited progress in areas of invention impacting quality of life. Likewise, one can show ways in which capitalism fostered practices and industries which harmed the quality of life and individuals health.

I think it is important to note that many of the US’s finest contributions to improvements in the quality of life were accomplished and introduced into society by state run projects and non-profit entities. These socialistic contributions are often demonized by the most vocal proponents of so called free market capitalism.

Most people who work in industrialized nations are not their own boss which means their pay is just one factor in the businesses profit picture. The labor of the workforce is a component of overhead. Overhead is an obstacle to making a profit. Therefore, if a business is to be profitable, labor cannot be profitable. Labor is a process in which one’s relative wealth must decrease compared to the owners and management of the business. When this is not the case a business will not only not flourish, but have trouble surviving.

I know there are exceptions to every rule, but it is fool hearty to try to make exceptions into rules. A system based on profit will never make the majority wealthy or be efficient. Inequality and wastefulness are as integral to capitalism as the idea  of winning is inherent to competition.

In many ways capitalism is power’s way of saying, “April Fools”.

Jim Guido

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