Economics and Social Issues04 Dec 2010 09:31 pm

I feel that Capitalism is often given too much credit for causing the growth in the standard of living and quality of life that many in the industrialized world have experienced over the last century or so. Though admittedly it has at times played a significant role in these areas, it has also been an impediment to progress as often as has been a cause of improvement in the quality of life.

One mistake often made is to equate capitalism with the industrial revolution, where in truth the industrial revolution made modern capitalism possible. I would be more comfortable saying that capitalism has been a beneficiary of the industrial revolution rather than a cause of it.

The following excerpt by a blog written by Richard K. Moore will emphasize the relationship and distinction between capitalism and the industrial revolution.

“A new way of creating fortunes had been born. Instead of slowly amassing wealth over a lifetime, or risking a voyage in search of treasure, there was now a systematic way to amass wealth relatively quickly.  A person with money to invest could seek out the latest leading-edge inventions, develop a still-more efficient factory – and steal market share from his now-outdated rivals.  A way had been found to use money to transform initiative & innovation into wealth. Out with the old methods, in with the new methods – and behind it always the investor – driving the process while amassing a fortune. This method of amassing wealth was eventually given the name capitalism.  A capitalist is someone who invests money in an enterprise with the objective of receiving more in return than was invested.”

A capitalist was originally one who invests money in the technology of the industrial revolution in order to make more than he invested (ie: make a profit). What this is essentially stating is that a person becomes a capitalist by first acquiring capital by savings, inheritance or borrowing and then by investing that capital into new ventures promising additional profits.

A capitalist is one who has or acquires surplus money to fund an enterprise. Once beginning the business he uses advanced technology (mass production, automation, etc.) and human labor to under price and outperform his competitors, gaining in increased market share and additional capital to invest in more ventures. The cheaper the human labor employed, the greater the opportunity for increased profit margins available to him.

So to recap in capitalism those who have an inherent economic advantage over someone else can use capital to increase their economic success through increasing the disparity between themselves and their competitors. Likewise they will gain an increasing economic disparity between themselves and anyone they employ.

The entire process of capitalism is fueled by and dependent on a process of increased disparity with a greater percentage of wealth going to fewer and fewer people. Capitalism is inherently a very competitive system with each transaction involving a relative winner and loser.

Seen from above you could track capitalism like a sports tournament whereby each participant who wins advances to the next round where the loser either goes home or plays in a consolation contest in the losers bracket. Even though a person who loses today may win tomorrow, over time a general trend emerges whereby every sector is dominated by one or two winners. Losers either become lesser pawns in another’s business or tries their luck in another emerging sector or new technology.

Yet, let’s be very clear here the advances in overall social wealth and standard of living are not caused by successful capitalist or their companies but rather by the inventions and technology they employ in their business. Many of the best inventors, innovators and influential minds have never been capitalists or even wealthy.

Though capitalism may be the mechanism by which many beneficial practices, medicines, inventions and technologies have been introduced into society they have rarely been the cause. Many past societies and eras saw great technological progress and improvements in the quality of life without capitalism. We recognize Egypt, Ancient China, the Greek and Roman Empires, the Ottoman Empire and the Italian Renaissance, (to name a few) for their positive technological and practical impact on the life of men.

Even Capitalism as a system has had its own share of times and events which have made the life of almost everyone more difficult and painful. The US often has a tendency to refer to itself as the beacon of capitalism and its positive effects on the standard of living of a majority of its citizens. Yet, the economic progress and improvement in the American standard of living has been anything but linear.

Almost the entire US history has been capitalistic and a product of the industrial revolution. Until recently the US economy has been dominated by the so called business cycle, where over a four year period the economy would have a boom followed by a bust. Now some would say that the majority of these recessions were minor blips on the road to progress, yet that would minimize the suffering many people endured. Yet, no one can deny the fact that economic depressions have long term consequences which can destroy lives for generations. The US had depressions in 1807, 1837, 1873, 1893 and 1929-1939.

I would like to backtrack a little and talk about the ways in which capitalism in the US in particular benefited from inventions and resources which may highly exaggerate capitalism’s ability to generate wealth and a higher standard of living for its citizens. A new virgin land held many benefits for a capitalistic system.
There was a seemingly endless supply of land which was viewed as instant capital. At that point in history land ownership was equated with wealth and position and owning land gave you opportunities others did not have. In the early US, only land owners could vote and therefore, only land owners were citizens and fully protected by the law.

Much of this land was rich in one way or another. A good portion of the land was far more fertile than Europe or the East. Farmers were able to acquire fertile cheap land and almost free labor (slaves). Much of the land was covered with rich forest land which could be used for fuel, construction and materials. The land was also rich in minerals which came in handy for the burgeoning technology of the industrial revolution. The varied and plentiful wildlife made fur trading and fishing important industries.

All in all from a resource point of view the US was a veritable Garden of Eden. Any industrialized economy would have flourished in these circumstances. Yet, despite all these riches the US still suffered through economic hard times and depressions. Not only that, but capitalism helped made sure that a relatively few people amassed the bulk of these natural riches and their benefits.

We all have heard stories about the Wild West, but one seldom reflects on the fact that almost every part of the US was a wild west at one time. Pioneers were always pushing further west, and each new thrust revealed a new wilderness to harness and exploit. Without much organization to towns their was little organized law or governance. The ambitious and ruthless had the inside track at becoming successful capitalist while the meek, weak, careful and kind were destined to a hard life where whatever they acquired or earned could be taken from them with little or no recourse. The term “robber barons” was not created in admiration for these early capitalists.

The ruthless could claim land that wasn’t theirs, harm or kill workers that objected to their terms and harm, kill or steal from competitors that didn’t have their stomach for immoral greed. The resources were there for all, but capitalism and a lack of regulations ended up giving mastery of it to but a few. One would be hard pressed to present a case that capitalism improved the standard of living for most pioneers during the first century of American life.

The true birth of the American middle class and the glorious rise in the standard of living for the masses began in the late 19th and early 20th centuries. Inventions in farm machinery and agriculture did make farm labor more tolerable, yet at the same time put many people out of work. This forced many to the slums of the cities to find work in the emerging factories of mass produced goods. Yet, even these people experienced some of the benefits of electricity and coal in protecting them from harm and the harshest elements.

As the industrial revolution progressed capitalists began to need a consumer class to purchase all the goods and products being mass produced. Business leaders such as Henry Ford realized he had to pay his workers enough so they could afford to purchase the cars he was manufacturing. Quickly American capitalist learned that they could make two pennies for every penny they paid their worker, and make even more when their workers showed corporate loyalty by buying the products of the company they worked for.

Yet, the dramatic growth in the middle class came during and following the war years. The US was the major lender during the war years and reaped the benefits of this investment after the war. While other nations borrowed, lost civilian and military lives, and endured severe destruction to their homes and land, the US sat relatively isolated from the skirmishes and gained far more than it lost.

The US emerged from the war as the last man standing, and in relatively good financial position. The next few years saw the US take over the baton of empire from its European brothers. Russia, though suffering more damage and casualties than any other nation during the wars, became the US’s foil during its empire building years, due mainly to the fact that it offered communism as a challenge to capitalism.

The American middle class soon mushroomed out of capitalism’s growing need for a consumer class. The factories for war planes and munitions soon gave way to factories for washing machines, refrigerators and a host of conveniences whose profits stuffed the wallets of America’s new capitalist heroes.

As the US emerged as the empire it gained access to, if not control of, almost all of the world’s resources treating every nation’s assets as its own. The US populace which initially was opposed to involvement in both world wars was not excited about getting into the additional conflicts needed by an empire wanting to maintain and expand its influence.

One has to wonder how much of the rise in the standard of living of the American middle class was used as an incentive and bribe to gain their allegiance and support for the US’s empire building military actions. The USSR whether by design or good fortune was the perfect dupe to help galvanize the support for both capitalism and US empire aspirations.

Yet, even before the fall of the USSR the needs of capitalism began to outgrow the spoils of empire. Even with the entire globe’s resources and wealth at our disposal capitalism began to sputter threatening both the existence of the American middle class along with the continued fiscal expansion of our wealthiest capitalists.

Despite all the world’s resources and an endless stream of new technologies capitalism needed more fuel to sustain its momentum. So, in the 1980’s the US economy need for borrowing money to insure enough capital for further expansion increased. Over the last three decades the need for capitalists and governments to borrow and print money in order to keep the entire capitalistic system afloat has skyrocketed. Now, it takes something like $10 of borrowed cash to generate one dollar of profit. Obviously, not a good ratio.

Not only have the disparities inherent in the very mechanics of capitalism reached ridiculous levels where owners make thousands more per hour than workers, but the standard of living of the American middle class is tumbling. Yet, the multinational corporations are no longer dependent of a wealthy American middle class to sell their wares to, now they have 6 billion potential customers instead of 350 million.

In fact a sharp decline in the wages and standard of living of the American and European middle class will only help quicken the dream of a global economy. In the global economy which George Bush 1 more aptly called it “the new world order” you will have the ultimate capitalistic system whereby a few own almost everything and all workers earn about the same.

The majority of American’s will most likely tolerate and even support this logical unfolding of capitalism as long as they continue to falsely credit capitalism with our previous improvement in the quality of life and standard of living. The future of automation, artificial intelligence and nanotechnology considerably call into question the need for most workers, and if everything is owned and hoarded by a few trillionaires than what need will we then have for consumers.

I contend that increased disparity is inherent in modern capitalism, and the logical conclusion of increased disparity is a world of a few power lords and a planet full of subsistence living serfs. I’m not predicting this, I’m only pointing out that this is the logical outcome if we were to play out the path we are currently on.

Jim Guido

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