Does capitalism work?

[nirakar]

My definitions as follows.

* Communism: The state both owns & controls everything.

* Socialism: The state controls everything, but individuals are alleged to be able to own property & some means of production.

* Capitalism: Government of by and for the people with the most capital. Typically in a Capitalist system middle class tax payers are forced to do thing like bail out AIG to benefit Goldman Sachs. Capitalism can be a democracy if the people vote for their choice of the tweedle dum and tweedle dee candidates put forward by the capitalists but if the people choose somebody who the capitalists feel is unacceptable the capitalists will organize an assassination or military coup .

* Pure libertarian almost anarchistic truly free market economy: This idea of little to no government has never been tried and would devolve into government by roving gangs of armed hoodlums if it was tried but some people like Norsefire have thought that extreme minimalist government is the ideal to be strived towards.

* My choice, Democratic, lightly government managed semi-free market economics with a touch of socialism and vigorous anti-trust enforcement: The point of this type of political/economic system is to maximize prosperity and happiness by maximizing efficiency via maximizing competitiveness via maximizing each baby's potential to grow up to become somebody who's intelligence can be used to give society what society wants. Science created this wealth. Scientists create the science. Education + inborn creativity + absence of overwhelming poverty creates the scientists. Venture capitalism empowers the scientists but only after the scientist has already been created by the government producing the correct atmosphere for the creation of scientists.

A light touch of socialism is necessary to offset the ability of capitalists to accumulate all the wealth leaving the majority poor simply by buying low and selling high and taking advantage of the majorities weaknesses that lead the majority to buy high and sell low. We don't want Mom and Dad's and the grand parents pattern of buying high and selling low to leave them so poor that their child can not grow up to become a scientist because it is scientists and not capitalists who make prosperity possible. Publicly funded schools was a brilliant idea and paid off big time.

Unchecked Capitalism becomes feudalism and drives nations into poverty.

Huge corporations are only sightly more nimble and wiser than communist governments. Huge corporations become too big to be allowed to fail and become the regulators of governments rather than being regulated by governments. Corporations should not be allowed to get to be more than one 10th the size of General Electric. Huge corporations should be broken up before they are big enough to rig markets and rig governments and become to big to fail without that failure being devastating to the economy.

 

[joepistole]

I think you guys are mixing economics and systems of government. The biggest problem with government is corruption. And societies like The United States do not have a lock on corruption.

Corruption is the ulimate empire killer and is now running unabated in Washington, DC.

 

[deicider]

There is a difference between ideologies and the practical use of them.
No country managed to apply their political ideas to work as the claimed(unless if they claimed to do whatever they wanted
At this moment there is no right system...from the already used systems capitalism is the best choice for a country.
As an idea has somewhat the same function of natural selection,which is actually good,survive of the fittest.
Communism was an idea for the weak or feeling fear that u can't handle bigger things and support it so everyone stays same and dont left behind.
But the ideal system would be one that gives equal chances for everyone, use big corporations with some limitation but still not cast out "weak" people(like in socialism).
From his nature human(and other life forms) is a capitalistic creature
but the current cap system could be much better than it already is.
imho as always.

 

[nietzschefan]

I think you guys are mixing economics and systems of government. The biggest problem with government is corruption. And societies like The United States do not have a lock on corruption.

Corruption is the ulimate empire killer and is now running unabated in Washington, DC.

Yea...so aren't you good citizens suppose to take up arms and put down the government? What's taking you so long? I suppose 90% of people have to be enslaved first...oh wait...

 

[Billy T]

Welcome deicider.

...from the already used systems capitalism is the best choice for a country. ...

I disagree.

{post 847}... As far as an economic system is concerned, I think the best yet developed is the one evolving in China (only the last 30 years, not the prior 30) State management of investments in infrastructure and market demand deciding what consumer goods get produced. For example, both US and China need nuclear power, but only the Chinese (or the French) are installing it via central planning of their infrastructure and it is much safer than letting business men design the control rooms (The experts who arrived to take charge of the Three mile Island accident did not understand the control room gauges - the French control rooms are all identical and safety comes before profit. Three Mile Island plant was put on line on 31 December to get included in the rate base of the PSC for next year without many of the safety pumps yet installed. etc. Profit often dominates safety when there are shareholders to answer to. Same is why there are "toxic assets" and a collapsed banking system for tax payers to bail out. ...

Capitalism also suffers from three serious problems, two of which the Chinese system avoids and is working hard and fast to reduce the third as fast as they can and yet rapidly grow their GDP.

Problem (1) has been discusses for several hundred years as it standard name ("tragedy of the commons") would indicate. Centuries ago, when most land belonged to the king and few others, there were "common fields" where simple folks could pasture their cow. As it was to everyone’s individual benefit to add a cow to the commons it was badly over grazed by skinny cows. Today the most serious example of this problem of capitalism is the over fishing of the oceans.

Problem (2) is well known for at least a 100 years. In economic jargon it is called "EXTERNALITES." They are all the costs to a society of producing a product that are not charged to the producer of that product. For example Ohio based AEP burnt a lot of coal and the acid rain killed fish in Adirondack lakes that once had a much larger value as tourist resorts (and even specific tree types in forests). Old tires are just discarded at no cost to the maker. Rivers are polluted (especially at night) with illegal discharges. In general any cost of making the product that can be avoided by making it an "externalities" increases the profit when product is sold. - That is what capitalism is all about, its goal.

Problem (3) is the short time horizon of Capitalism - If the "break even" pay back is significantly more than a decade, private capital will not invest. (Examples in footnote of link at end.)

No society has yet avoided externalities, although via environmental laws, some have been greatly reduced. China is currently much worse than the US in this regard, but cleaning up its act about 10 times faster than the US did when the US was at the same stage of economic development that China is now. For example Pittsburg was once the steel center of the world and on windless days one could not see a cross a wide street. Every paper plant just dumped H2SO4 in the river; Strip mines left the land raw and did not control the leaching of toxins into the river etc. but that was 100 years ago, when US was where China is today in economic development.

China is very aware of the total cost of production, but has this decades old legacy to correct. - Why they are the world leader now in installing wind machines, solar energy, nuclear power, super critical coal power plants, Hydro electric power, energy efficient buildings, public transport** etc. BUT still not the leader in many of these areas in already installed facilities.

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*http://www.sciforums.com/showpost.php?p=2377655&postcount=853
Note photo there too as example of "efficient buildings" vs. "suburban sprawl"

** In the next few years China will build more miles of high speed (>200 km/hr) rail than all the rest of the world now has! China has the world's only magnetic levitation rail line (short to the Shangi airport) in routine commercial operation for several years.

 

[nirakar]

I think you guys are mixing economics and systems of government.

You are correct but It may be too late to change this now. The tradition of mixing up systems of government with economic systems has been in place at least since the 1950s/McCarthy era and maybe longer than that.

The biggest problem with government is corruption. And societies like The United States do not have a lock on corruption.

Corruption is the ulimate empire killer and is now running unabated in Washington, DC.

I think corruption is also the best predictor of whether a nation will be rich or poor.
The USA has traditional been significantly corrupt but not nearly as corrupt as other nations unless you happened to be of the wrong race in which case the USA was every bit as corrupt as other nations.

Unfortunately corruption in the USA is increasing. As manufacturing no longer is as viable a way to earn wealth (do to the problem of what an overvalued dollar combined with free trade does) people are increasing turning to scamming and business and marketing tricks that rely upon taking advantage of other peoples weaknesses. The proliferation of MBAs and lawyers reflects that the opportunities for amassing wealth have shifted to the short term extracting every possible advantage from each transaction rather than from trying to produce useful goods and services for sale. Damn the MBAs and lawyers, they are spreading an amoral mindset in America.

The health insurance industry is a perfect example of financial game playing replacing production of goods and services as the focus of business.

As an American who lived in India in the for a bit in the 1980s it seemed odd to me that Indians seemed to think it was a virtue and sign of intelligence and good business if they could scam somebody or get somebody to pay too much during haggling over the price some product they were selling. This mindset was present in the USA but to a much lessor degree. Since the 1980s the USA has been becoming increasingly like India was in it's attitude that it is a virtue (strength and intelligence) to take advantage of other people weaknesses rather than seeing taking advantage of other people's as being a sign of immorality and untrustworthiness. India on the other hand seems to be moving towards the less deceptive old American way of operating in business.

The other great predictors of the wealth of nations are education levels and whether other nations are conquering and looting the nation in question.

 

[thinking]

it is the stupidity of the powers that be , banks/credit card issuers that are destroying the capitalist philosophy

its a shame really , because capitalism , gives the greatest freedom to the individual

 

[Billy T]

it is the stupidity of the powers that be , banks/credit card issuers that are destroying the capitalist philosophy
...

And what might that be (bold words)? If banks, etc. trying to make more profit by lending at higher rates than paying depositors is not central to capitalism, then please tell how you are defining "capitalism"

 

[Syzygys]

Since this government's bailing out the "too big to fail" companies be it insurance provider, bank or automaker can not be called capitalism anymore, we have to conclude that the capitalism experience has failed.

I am not sure what we could call this anymore, but where the profits are capitalized but the losses are socialized that is not capitalism.

In a true capitalist society bad businesses go down, good businesses survive.

 

[Billy T]

Since this government's bailing out the "too big to fail" companies be it insurance provider, bank or automaker can not be called capitalism anymore, we have to conclude that the capitalism experience has failed.
I am not sure what we could call this anymore, but where the profits are capitalized but the losses are socialized that is not capitalism. ...

The US is pragmatically drifting towards the high performance Chinese system, where the major industries, especially the banks, and basic infrastructure are controlled by the government.

The Chinese system works, but in may not transplant well into a two party system which cannot see beyond the next election.
China operates on a 50 year plan (ten "5 year" plans).

China was pragmatic too - they saw the failure of the USSR's economic system, which tried to direct the production of consumer goods. So they adopted the invisible hand of Adam Smith in the market place to determine what consumer goods and services were produced. For 30 years, China’s GDP growth has average just under 10% (9.8% if memory serves me correctly) More than three times better than the US has in the same period.

 

[joepistole]

The US is pragmatically drifting towards the high performance Chinese system, where the major industries, especially the banks, and basic infrastructure are controlled by the government.

The Chinese system works, but in may not transplant well into a two party system which cannot see beyond the next election.
China operates on a 50 year plan (ten "5 year" plans).

China was pragmatic too - they saw the failure of the USSR's economic system, which tried to direct the production of consumer goods. So they adopted the invisible hand of Adam Smith in the market place to determine what consumer goods and services were produced. For 30 years, China’s GDP growth has average just under 10% (9.8% if memory serves me correctly) More than three times better than the US has in the same period.

A very astute observation Bill T. Capitalism is system of production that needs constraints in order to achieve maximum productivity. Without restraint and nuturing, it will yield to inefficiency and economic collapse.

 

[kmguru]

Capitalism is about Production. No production, no capitalism.

 

[Billy T]

In answer to thread's question: How should I know? - No country is trying it; but here is what most are doing now:

“… Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades. … Steven Englander, a former Federal Reserve researcher who is now the chief U.S. currency strategist at Barclays in New York said: “It looks like they are really backing away from the dollar.”

The dollar {now has only} a 37 percent share of NEW reserves, down from about a 63 percent average since 1999. Englander concluded in a report that the trend “accelerated” in the third quarter. He said in an interview that “for the next couple of months, the forces are still in place” for continued diversification.

Developing countries have likely sold about 30 billion dollars for euros, yen and other currencies each month since March, according to strategists at Bank of America-Merrill Lynch.

“The diversification out of the dollar will accelerate,” said Fabrizio Fiorini, a money manager who helps oversee $12 billion at Aletti Gestielle SGR SpA in Milan. “People are buying the euro not because they want that currency, but because they want to get rid of the dollar. In the long run, the U.S. will not be the same powerful country that it once was.” ..."

FROM: http://www.bloomberg.com/apps/news?pid=20601087&sid=aA6_py_71g_o

Billy T comment:
Not yet the “run on the dollar” I predicted several years ago would occur before Halloween 2014, but if I were to change that prediction it would be to make end date Halloween 2013. The contracted spending by Joe American is not being fully compensated by the stimulus plan and they are adding to the debt more than Joe is saving, so “weak dollar problem” is just getting worse, despite the recent flood of government WORDS to the contrary.

Here is how Brazilian Real has done since the start of 2009 (Not including fact that after inflation gain of bank deposit is ~5% also):
34.42% gain on Dollar*
35.93% gain on Russian Ruble
49.39% gain on Argentine Peso
33.73% gain on Japanese Yen
29.39% gain on Mexican Peso
29.10% gain on Euro
22.36% gain on English Pound

In contrast in 2009, the dollar has, I believe, gained only against the no longer even issued Zimbabwe currency. (Even the 100 million note costs more to print than it is worth.) What a joke that the US has AAA rating and Brazil is barely “investment grade,” despite being a net creditor nation with positive trade balance, very large reserves relative to GDP or population and great natural resources, including the largest new oil field recently discovered! But these rating agencies are the same that slapped AAA on what is now called “toxic trash.” – Shows how little they know (or how strongly they are controlled by conflicts of interest, political pressure, etc.)

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*This despite Brazil’s Central Bank buying up ~25 billion dollar in 2009 in an effort to support dollar and Brazilian exporters. (~5 billion were purchased in the last two banking days to partially offset the dollars buying the IPO of Spanish owned Santander Bank in Brazil. Like the others discussed in the article above, Brazil is increasing the percentage of its reserve holding in non-dollar currencies, bonds etc. Brazil’s reserves are now 230 billion dollars making Brazil behind only China, Japan and UK as largest holders of US Treasury paper.

 

[Ganymede]

I say we adopt the Star Trek economic model. Where all necessities are provided, and your only job is to expand human knowledge. That will be our economic system within 200 years. Capitalism isn't perfect, but until something better comes along it's the best we have for now.

 

[Ganymede]

One more thing for the pro capitalists. How can socialist countries have a stronger currency then a capitalist country? Like China, EU for example.

 

[joepistole]

I say we adopt the Star Trek economic model. Where all necessities are provided, and your only job is to expand human knowledge. That will be our economic system within 200 years. Capitalism isn't perfect, but until something better comes along it's the best we have for now.

The irony here Ganymede is that while I am a proponent of Capitalism, I agree with you. As production becomes cheaper and as we continue to evolve, I think capitalism will become out moded. But we are not ready for that yet. Ultimately, when we are reduced to bits on a super computer, capitalism will no longer have a purpose.

 

[nirakar]

I am not sure what we could call this anymore, but where the profits are capitalized but the losses are socialized that is not capitalism.

I am not sure that socializing the losses is not part of Capitalism. When wealth is used to accumulate more wealth isn't that capitalism? Isn't using wealth by giving campaign contributions in exchange for government grants of the taxpayers wealth a long established feature of capitalism dating back to when kings rewarded feudal lords for the use of the feudal lords armies by making land grants and grants of slaves to the feudal lords?

I recent times "capitalism" is sort of synonymous with free Market Economics with term "capitalism" having the advantage of having less syllables. Capitalism is probably only still used in English because Marx and Engels used the word. Capitalism came to mean the opposite of whatever Marx supported. After that Capitalism replaced the older more syllabled ways of of "saying free market economics".

I don't like the use the word capitalism as a synonym for free market economics because capital means "wealth" or "a type of wealth used to accumulate more wealth". "Wealthism" is certainly not a synonym for free market economics.

I would defer to Mark and Engels for my definition of Capitalism since they are responsible for the word capitalism's popularity and common usage but I don't know what Capitalism meant to Marx and Engels.

From the free online compact Oxford English Dictionary:
capitalism

• noun an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state.

There have never been any pure free market economies or any pure capitalisms or any pure communisms. Even at Mao's peak I believe their was significant private ownership of things if not real estate and some free market activity in China.

Etymology and early usage

Capital evolved from Capitale, a late Latin word based on proto-Indo-European kaput, meaning "head"—also the origin of chattel and cattle in the sense of movable property (only much later to refer only to livestock). Capitale emerged in the 12th to 13th centuries in the sense of funds, stock of merchandise, sum of money, or money carrying interest.[5][20][21] By 1283 it was used in the sense of the capital assets of a trading firm. It was frequently interchanged with a number of other words—wealth, money, funds, goods, principal, assets, property, patrimony.[5]

The term capitalist refers to an owner of capital rather than an economic system, but shows earlier recorded use than the term capitalism, dating back to the mid-seventeenth century. The Hollandische Mercurius uses it in 1633 and 1654 to refer to owners of capital.[5] Arthur Young was one of first to use capitalist in his work Travels in France (1792).[21][22] David Ricardo, in his Principles of Political Economy and Taxation (1817), referred to "the capitalist" many times.[23] Samuel Taylor Coleridge, an English poet, used capitalist in his work Table Talk (1823).[24] Pierre-Joseph Proudhon used the term capitalist in his first work, What is Property? (1840) to refer to the owners of capital. Benjamin Disraeli used the term capitalist in his 1845 work Sybil.[21] Karl Marx and Friedrich Engels used the term capitalist (Kapitalist) in The Communist Manifesto (1848) to refer to a private owner of capital.

The term capitalism appeared in 1753 in the Encyclopédia, with the narrow meaning of "The state of one who is rich".[5] However, according to the Oxford English Dictionary (OED), the term capitalism was first used by novelist William Makepeace Thackeray in 1854, by which he meant having ownership of capital.[21] Also according to the OED, Carl Adolph Douai, a German-American socialist and abolitionist, used the term private capitalism in 1863.

The initial usage of the term capitalism in its modern sense has been attributed to Louis Blanc in 1850 and Pierre-Joseph Proudhon in 1861.[25] Marx and Engels referred to the capitalistic system (kapitalistisches System)[26][27] and to the capitalist mode of production (kapitalistische Produktionsform) in Das Kapital (1867).[28] The use of the word "capitalism" in reference to an economic system appears twice in Volume I of Das Kapital, p. 124 (German edition), and in Theories of Surplus Value, tome II, p. 493 (German edition). Marx did not extensively use the term.

Marx's notion of the capitalist mode of production is characterised as a system of primarily private ownership of the means of production in a mainly market economy, with a legal framework on commerce and a physical infrastructure provided by the state.[29] Engels made more frequent use of the term capitalism; volumes II and III of Das Kapital, both edited by Engels after Marx's death, contain the word "capitalism" four and three times, respectively. The three combined volumes of Das Kapital (1867, 1885, 1894) contain the word capitalist more than 2,600 times.

An 1877 work entitled Better Times by Hugh Gabutt and an 1884 article in the Pall Mall Gazette also used the term capitalism.[21] A later use of the term capitalism to describe the production system was by the German economist Werner Sombart, in his 1902 book The Jews and Modern Capitalism (Die Juden und das Wirtschaftsleben). Sombart's close friend and colleague, Max Weber, also used capitalism in his 1904 book The Protestant Ethic and the Spirit of Capitalism (Die protestantische Ethik und der Geist des Kapitalismus).

 

[Billy T]

Go here to see three informative bloomberg graphs. (if you know how to copy and post please do so)

http://www.bloomberg.com/apps/news?pid=20601109&sid=aaIrWeN0neZw

1st is bars of total reservers vs time, with each bar color coded to show dollar vs Euro parts.

2nd is US personnal saving rate bars (positive above the zero line) & US debt (negative below the zero line)

3d is dollars one Euro buys, all three from ~1999 to present.

 

[Billy T]

...I would defer to Mark and Engels for my definition ... but I don't know what Capitalism meant to Marx and Engels. ...

I know what Marx said in Das Kapital at least to describe a "Capitalist" as years ago I read most of it in German (with an English translation helping at times.) Marx's description of a Capitalist is one of only two* things I clearly remember now. He said (in my English translation):

"A capitalist is a man who will sell you the rope to hang him with."

I thought of this first when learning how Japan bought up most of the US's scrap steel during the years just prior to WWII and at other times. For example, in the last few decades, technical education at the best universities has been sold to the foreigners (for tuition or given away via scholarships) who are now designing better products. Etc. Marx knew what he was talking about!

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*His other statement I remember is: "Capitalism has within it the seeds of its own destruction." - Now, that seems to be true also.

 

[Cowboy]

One more thing for the pro capitalists. How can socialist countries have a stronger currency then a capitalist country? Like China, EU for example.

Which capitalist country?