ADSactly Education: On Capitalism
America's abundance was created not by public sacrifices to the common good, but by the productive genius of free men who pursued their own personal interests and the making of their own private fortunes. They did not starve the people to pay for America's industrialization. They gave the people better jobs, higher wages, and cheaper goods with every new machine they invented, with every scientific discovery or technological advance -- and thus the whole country was moving forward and profiting, not suffering, every step of the way.
Ayn Rand Capitalism: the Unknown Ideal 1966
Capitalism is, by definition, an economic system that puts ownership of all assets in private hands. How it does this and how well it does so is subject to much debate. I will try to explore some of this here.
History of Capitalism
Capitalism’s roots go back many centuries to the rise of the merchants in civilization. They had the products to sell and made the profit from them which led to hiring workers. Capitalism as a concept dates to the Renaissance when capital was available to the merchants before selling. Capital was used to finance ventures for the merchants and the ‘capital holders’ also shared in the rewards.
Capitalism really started to flourish with the Dutch East India Company and the British East India Company. Little more than state owned capitalism, investors could buy shares of the companies and be rewarded with a percentage of the profits. Both examples relied on the state to expand the markets through colonial expansion. At the time, the prevailing economic theory held that the world’s capital was fixed and only new markets and producers could change the rate of return.
That would change with the Industrial Revolution. Capital funded the machines and raw materials needed, the state provided the roads and places to market, and the population provided a labor pool. Capitalism was born.
Capitalism rose to prominence in the 19th century with the vast expansion of the United States and Canada along with European Colonialism. Markets expanded rapidly, labor pools expanded rapidly and resources were exploited with ruthless precision. It could be argued that the American Civil War marked the watershed for emerging Capitalism. Both armies needed supplies at an astounding rate, American industry (North) and agriculture (South) were taxed beyond their capacities so Europe answered the call. Westward expansion continued in the US and Canada in the search for more resources and farm land. Colonization may have slowed, but the exploitation of the Colonies continued for over 100 years.
The 20th Century dawned with Capitalism in full bloom, and it became the primary economic force on the planet. Even the carnage of WWI served only to expand markets and resources. The first labor shortages due to the size and scope of the armies was mostly alleviated by the importation of workers from the colonies. Only one thing could slow the growth of Capitalism through the first half of the 20th century: The world wide depression of the ‘30s. WWII completely cured that impediment and Capitalism would utterly flourish in the second half of the 20th century. Even the might and depth of the Soviet system fell before the relentless march.
21st Century Capitalism
To date in the 21st Century Capitalism is the uncontested winner and still champion of the economic systems on earth.
There are three components necessary to Capitalism: Capital, Labor and Markets. Capital (money) is necessary to fund any business. A ready labor pool and dedicated workers to make the products or provide the services. A market with money to buy the goods and services.
The State Of Capital (Wealth)
Capital, measured as money, is thriving. Return on investment in the 21st Century is staggering. The money available for investment seems to be near unlimited. How can this be?
The answer is in the condensation of wealth. 5% of the Earth’s population controls 98% of the world’s money. The number of truly wealthy individuals is growing but no where near so fast as the population in general or the growth money. Truly, the rich get richer which leads to more capital to invest in ever more profitable ways.
Much of the truly wealthy Capitalist class of people has so much money to invest that they can diversify their risks and nearly assure growth of their net. They can afford to have losses on a percentage of investment as long as the rest turns a healthy profit.
There is an ever increasing subset of the Capitalist class, the Money people. These are individuals who have no direct input on any form of production, their only path to wealth production is through money manipulation. Some, but not all, Brokers, Traders and Speculators fall into this class. Derivatives traders and Fund Managers are often part of this.
Can Capitalism survive this class? The original definition as quoted at the start of this says that Capital is in control of production and as such provides one third of the requirements of Capitalism. Is Capital as manipulation of money still part of the paradigm? Only time can answer that question.
The State Of Labor
Labor is the second of three legs needed for Capitalism to stand. Depending on who you listen to the labor pool is in good shape or in bad shape. Which is it?
The face and scope of labor in the First World is changing drastically. Automation of manufacturing jobs, while good for the bottom line, costs workers in time, money and prestige. Labor Unions are a mere shadow of their former selves and have seen a drastic decline in membership and political clout. Politicians are much more concerned with monetary clout than having the support of Labor Unions.
Labor today is increasingly part of the service industry. Typically, hourly wage is much lower than manufacturing which leads to a lower standard of living and a higher number of hours worked per worker than before. Competition for the necessarily scare ‘good jobs’ is ferocious and most are forced to live at a lower standard than their parents. It is a vicious cycle developing.
Labor in the developing world is a free for all. There are always way more people in need of employment than there are jobs in the market. Typically that leads to very low wages, no benefits, no protection and no job security. Very good conditions for Capital, not so good for Labor.
Labor as a class of Capitalism is easier to manipulate by the Capitalist class today that it has ever been since the Industrial Revolution. Can Labor as we know it survive? Again, only time will tell.
The State Of The Markets
The third leg of Capitalism is the market for goods and services. By definition, in order for Capitalism to grow the Market needs to expand. That metric is also in flux in today’s world.
The first world is more intensely consumer driven than ever before. Everybody is bombarded with the message that they need more and newer stuff. All day, every day. That compulsive consumerism keeps the market clicking along. The actual number of people in the market might not expand much, but the need for more and better at higher prices at least keeps the capital in the markets expanding.
The developing nations are full of people that want to look and smell and eat like the first world nations. That market is huge and steadily expanding as more and more people have at least some money to spend. That market is fed by Capital in the form of jobs in manufacturing and resource procurement. The more they make, the more they spend. It is that easy.
The service industry provides a huge amount of the increasing markets necessary to Capitalism. Amazon alone takes in one billion dollars for it’s Prime membership without selling a single product. The fast food industry employs millions to go with the billions served. Throw in the delivery industry and Wal-Mart and you get an idea of the raw size and potential of this market.
This article has asked more questions than it provided answers. The next installment will deal with some specific causes and conditions.
What are your thoughts on the condition of Capitalism? Healthy? Robust? Struggling?
Words and ideas are mine. I used this Wikipedia Page for historical perspective and accuracy.
Authored by: @bigtom13
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