Capitalism’s Obituary: “The formerly rich and ever poor have now found common ground.”

The rich were shocked to find that their claims were based on debt rather than actual wealth.  Perhaps, had they been in the same room with debtors, they would have known that Capitalism was on debt life support. Now with their claims reduced to zero, the formerly rich have rediscovered their common fate with those they once disdained as lower than themselves.  They both know now that they share a common fate on the same common ground – beautiful Planet Earth.

“It is a well provisioned ship on which we sail through space.”  Henry George, 1898.

“From up there, the world looked too small for all those divisions.”  William A. Anders, 1968, commenting on his view of earth from halfway to the moon.

And a merchant said, Speak to us of Buying and Selling.
And he answered and said:
To you the earth yields her fruit and you shall not want if you but know
how to fill your hands.
It is exchanging the gifts of the earth that you shall find abundance and
be satisfied.
Yet unless the exchange be in love and kindly justice, it will but lead some
to greed and others to hunger (Khalil Gibran, The Prophet.1923).

Capitalism’s Obituary: “Trillions in claims to debt known as wealth were wiped out.”

Claims to debt were thought to be claims to actual wealth rather than claims to debtors’ future incomes.  When debtors could no longer pay, the claims became worthless.

The Federal Reserve Bank of Chicago in 1963 explained the complete identity between claims to wealth and debt as the two faces of debt.

“While debt is a claim on the assets and earnings of those in debt, it is simultaneously a part of the wealth, or assets, of their creditors. Just as for every buyer there must be a seller, so for every debt incurred by any person or institution, someone acquires a financial asset of equal amount” (The Two Faces of Debt, Federal Reserve Bank of Chicago, 1963, p. 6).

When debtors could no longer pay, the claims became worthless.

Capitalism’s Obituary: “… an autopsy failed to find any sign of a heart.”

Does it make money, that’s the only question that Capitalism cared about.  Not, does it help or hurt people?  Is it good for the environment?  Is it sustainable?

Capitalism asks, Is GDP growing fast enough?  Is the Stock Market going up?  It does not ask, What is in GDP?  Is it good or bad?  What does it mean for the well-being of people when the Stock Market goes up?

Here is an example from a very successful economics textbook.  The author, Paul Samuelson, used this example in the many editions of his textbook from 1949 to 1980 and “educated” millions of students with it.

“Goods go where there are the most votes or dollars.  A rich man’s dog may receive the milk that a poor child needs to avoid rickets.  Why? Because supply and demand are working badly? No. Because auction markets are doing what they are designed to do – putting goods in the hands of those who can pay the most, who have the most money votes.  Defenders and critics of the price mechanism should recognize this fact” (Economics, 1964, page 42).

With sentiments like, “Crippled children?  Oh. Too bad.  They just didn’t have enough money.”  is why an autopsy of Capitalism failed to find any sign of a heart.

Capitalism’s Obituary: “… commodity saturation caused circulatory clots…

Capitalism theory knows only growth.  It is silent on when enough is enough.  It has no brakes, no way to stop requiring more growth.  So it produced commodity saturation, more stuff than people could reasonably want or use.  Mountains of trash, misnamed “landfills,” mushroomed.  Storage units abounded – so much so that we had people bidding to buy what’s in them because the owners left them behind.  People’s homes were jammed with stuff including rooms, closets and garages.  People gave away valuable stuff at yard sales and flea markets just to make room for more stuff.  Still, we were expected to keep shopping.  Many people could no longer buy, buy, buy. 

So the capitalist economy suffered multiple and worsening circulatory clots.  Money could no longer flow in many places.  That is what we saw in capitalism’s last days.

Capitalism’s Obituary: “Debt saturation …”

The United States economy was put on debt life-support almost immediately.  During the Revolutionary War and under the Articles of Confederation, the Continental Congress issued paper money.  However, the British counterfeited huge amounts of that currency as an act of war, causing inflation and leading to the expression, “not worth a Continental.”  Some people opposed ratification of the Constitution because it did not give Congress the power to issue paper money, only coin. 

Why bother with having the government issue money, then go through the Capitalist process of unequal exchange to absorb that money when the First Congress had the votes to go straight to debt as the way to “fund” the economy.  So they passed the Funding Act on August 4, 1790 to base the money supply entirely on borrowed money, which it has been since then except for greenbacks issued by President Lincoln to fund the Union army for the Civil War.  Greenbacks are still legal currency but they have been taken out of circulation because they support equal exchange which goes against Capitalist unequal exchange.

Since 1790 when the Federal debt was $70 million, total public and private debt has grown at about six percent per year because of interest until now, 2011, to about $70 trillion.  That’s 70 million times $70 million.  Every year it grows by ever more.  When it doesn’t grow enough, we have slumps, by one count about 50, variously called slumps, recessions, depressions, and Panics.  As recently as 1976, total debt, not just Federal debt, was $3,800 billion, just under $4 trillion.  In the 45 years since, it has grown to $70 trillion.  Debt life-support, because of interest, requires ever more and larger new debt.

We passed the point of debt saturation, debt to the limit of our ability to pay it, long ago.  But the debt life-support infusion continues as you read this.  Federal debt alone has just surpassed $15 trillion.  That’s 15 million million dollars.  Debt in the rest of the economy is more than $55 trillion.  New debt must be taken on at multiple trillions of dollars this year and more next year, yet the focus at the moment is Federal debt – which is debt of the fire department.  Republicans think they can put out the debt fire by cutting the fire department.  What are they thinking!  They are blaming the fire department for the fire!!!

Someone said that it is very difficult for a person to understand something when their paycheck depends on their not understanding it. 

Capitalism’s Obituary: “Repeated resuscitations left it brain dead.”

Capitalism’s brain is the theory you will find in any standard economics textbook.  Like any theory, it tells the body what to do.  That theory says, “There is never enough.  Let every person compete for what there is.  Supply and demand will set prices and everything will work out for the best for everyone (at least for everyone who deserves it).”

Resuscitations are interventions from the outside when the system breaks down.  For Capitalism, there have been many.  To mention a few: anti-trust laws to break up corporations whose large size is reducing competition; progressive income taxes to restore money circulation to parts where it has been drained away; deficit government spending to restart a stalled economy; massive new spending for war; tax cuts for the wealthy as incentives to invest in new products; free trade agreements to remove tariffs and any other obstacles to the freely competitive international flows of money, material, labor, and finished products; neoliberal austerity programs including cuts in education, health care, and public services generally to reduce government interference with the free market; the sale of government owned land, water, forests, and airways to pay interest on debts; bank and corporate bail outs; bankruptcies and lower interest rates; and more and faster growth.

We know that Capitalism’s brain is dead because these resuscitations have helped only temporarily if at all and the theory is silent, no more brain activity, on what to try next.

Capitalism’s Obituary: “Close relatives remain in denial.”

When someone hears of a person’s death, the first reaction is usually denial. “No, that can’t be.”  Then a turn to the past for hope.  “I just saw them the other day and they were fine.”  “I knew they were sick, but I heard they were getting better.”  Similar things are being said about Capitalism.

“Capitalism dead? That’s absurd.  It’s just a slump, a recession.”  “This has happened before.”  “It’s the business cycle.” “We have always recovered.”  “We just need to kick start the economy.”  “We just need to bail out the banks to get credit flowing again.”  “The Stock Market has been going up.  Oh, you say it just went down. That’s temporary.  Wait until tomorrow, or next week, or a year or two. It will go back up.”  “There will be pain and suffering for a while, but if we just tighten our belts, things will get better.” “Austerity will lead to prosperity.”

“Government is the problem.  If we just get government out of the way, capitalism will recover.”  “We just need to cut taxes and entitlements and regulations.”  “Balance the government’s budget and Capitalism will recover.”

The clearest sign of denial is the call for more growth.  “We need to grow the economy more.” “The rate of growth is too slow.”  “People need to spend more.”  “There is not enough demand.” “We can grow our way out of this slump.”