A history of an idea and its built-in deviations
Perhaps ever since ironmonger and Baptist lay preacher Thomas Newcomen applied his newly invented steam engine in 1712 to pump water out of a coal mine to increase profits, we were doomed to live in an economic system called capitalism.
Three hundred years later, today’s version of consumer capitalism allows many people in the so-called advanced world (roughly the 38 OECD countries plus a few others) to over-consume junk food creating a mass obesity pandemic and other health problems.
Today, we can also buy other junk – consumer electronics, for example – as Affluenza (rampant affluence, as a sickness) worsens. Best of all, we buy things we don’t really need – with money we don’t have – to impress people we don’t really like.
Yet capitalism is neither inevitable, God-given, a fact-of-life and eternal nor has capitalism always existed. Before 1712, most people suffered under feudalism. It was a system based on land, rent, soil, a king, barons, peasants, etc. Going back even further and we meet the Mesopotamian semi-mythic Uruk King of Gilgamesh living in 2,000 BCE. Gilgamesh lived in today’s Iraq, a place the USA was eager to destroy for no weapons of mass destruction not so long ago.
While the subsequent religious text of the time – the Koran – valued (and still does value) women at roughly 2/3 of a man, Gilgamesh also believed that a rich man “of many shekels” should not prey on a poor man “of one shekel”. This is an idea to which capitalism no longer subscribes to. Rather, the opposite is the case.
Roughly two centuries after Gilgamesh, a long-haired and barefooted man resented the merchants and money lenders operating in a local temple. Jesus expelled these people from the Temple of Jerusalem. Ever since, we have those with money and those without.
This two-class system continued with medieval nobles and commoners. Today, it exists in the House of Lords and the House of Commons, in army officers and ordinary soldiers, in employees and employers, in being squeezed into the economy class or travelling fist class, etc.
Writers were quick at hand to justify class division and inequality mostly by justifying property for those who have, protecting them against those who do not have – the have-nots. Yet, there were also writers like Thomas Paine (1791) advocating that people have the right to revolt against intolerable oppression. Today, capitalism continues to create many of Paine’s intolerable conditions – just the rebellion against oppression seems to have died down.
At the end of Paine’s dying feudalism and the verge of capitalism, silver became an ever more essential element in Europe. Much of the needed silver that was mined in Bohemia’s Joachimsthal. Silver eventually became money known as Joachimstahler, or simply as Thaler, which morphed into today’s dollar. Money soon became an essential element for capitalism. It could be invested in expectation of a higher returns.
Money became two things: a) a common unit of value and b) a universal medium of exchange. Interestingly, money has next to no use-value. It really is of very limited use. You cannot burn it to heat your house, you cannot write on it, and you cannot even wipe your bum with it – at least not with coins. What money has, however, is exchange-value. Money can be exchanged into virtually everything. On the opposite end of money, is air. We all need air to live. Air has a very high use-value. Yet, air is still free of charge. Unsurprisingly, money is of much greater value for capitalism than air.
Despite the free market and the anti-state ideology of neoliberalism, the rise of capitalism depended on money, notes and coins. Both kept their value and weight and had the official seal of the authority of the state. In other words, officially certified money enjoyed the authority of the state. In short, capitalism cannot function without state issued money. This remains an historical fact that the apostles of neoliberalism like to downplay.
All of this let Italian banks in the 16th century to apply Luca Pacioli’s invention of double-bookkeeping for the financial world of capitalism. Roughly three hundred years later, it did not prevent Germany’s hyper-inflation of 1921 to 1923, which wiped out middle- class’ bank savings creating “opportunities” for unscrupulous capitalists with access to hard cash. Meanwhile, capitalists who own factories remained untouched by hyper-inflation. These factories stood tall even after hyper-inflation was over.
It may be argued that, the extraction of a massive amount of wealth from Germany’s middle-class not only undermined social cohesion in pre-Nazi Germany, it also aided the rise of Fascism. At the same time, the British upper-class enjoyed the relatively high value of the pound when travelling. Meanwhile, Britain’s working class were left with high prices of imported beef from Argentina and Australia. In the UK, it led to the General Strike of 1926 while in Germany, it led to Adolf Hitler.
In both countries as in fact, in many other countries as well, wealth has been moving upwards during the last decades. It was turbo-charged by neoliberalism which became capitalism’s official ideology marked by the election of Maggie Thatcher and Ronald Reagan.
Today, the global distribution of wealth is grossly unfair, unjust and unsustainable. The global 0.1% of the world owns roughly 50% of the global wealth. This is consistent with the goals of neoliberalism, but inconsistent with neoliberalism’s prime ideology of creating an equality of opportunities. Hence, the latter is an ideology to camouflage the former.
Worse, neoliberalism and corporate media frame the state as a “headwind” while, greed and the animal spirit of free competition is framed as a “tailwind”. As so often with such ideologies, the exact opposite is the case.
In the ideal world of neoliberalism (a horrific dystopia), competition chains all of us to the eternal treadmill of capitalism creating a winner-takes-all society mirroring the aforementioned absolute power of Gilgamesh. Alternatively, it might create a new dictator in the spirit of L’état, c’est moi – I myself am the nation. Capitalism can live very well with dictators. It never really needed democracy – it can do very well without it. Most of all, it does not want democracy inside companies and corporations.
Un-democratic and unrestricted neoliberal capitalism has always been a zero-sum game. Neoliberal capitalism’s zero-sum game, is a game about money accumulation (e.g. wealth). The amount of money on the table of capitalism – during any given round of bets – is fixed by the amount of gold in reserve or by a Central Bank.
Zero-sum means that the monetary gains by a winner are matched by losses to other players. Even though in this game – the total wealth – might increase over time, capitalism’s zero-sum game assures that some win while others lose. Money is shifted either upwards or downwards.
It is the transfer of wealth from losers to winners. If you think of the game played by two players – capital and labour – neoliberal capitalism’s zero-sum game has assured that labour was and is on the losing side. Simultaneously, capital rakes it in big time.
Worse, in the real economy, it means that more and more people – labour – are pushed out of the game altogether. This means that they have next to no economic surplus at all – no savings. These are the poor and the working poor. Indeed, the proportion of people in the USA in this situation today is about 60%, writes $20bn man and corporate CEO Ray Dalio of Bridgewater Associates.
When you look at the real household income between 1970 and 2020, the top 40% made gains while the bottom 60% stagnated. Simultaneously, the number of 30-year olds who earned more than their parents declined from 90% in 1970 to about 50% in 2020.
During the same period, the income of the top 5% increased from $200,000 annually to $400,000. At the same time, the annual income of the lowest 20% of the USA population declined by -0.5% between 1970 and 2020. In short, the working poor are working hard to get less. This is capitalism in the 21st century.
Commonly, Capitalism can be seen as an economic system in which the production of goods and services is left to private companies and corporations, as well as the ever illusive free market. Neoliberal capitalism is supposed to work with minimal – or ideally, next to no – interference by regulatory authorities like states, elected parliament, governments, etc.
Except in the case of the military, police forces defend capitalism, and a legal body assuring property rights, enforces legal contracts and issues money. The state, democracy and civil society should support this system no matter how one-sided or unfair it is.
In those countries in which capitalism is faced to deal with democracy – about half of all countries – capitalism and its henchmen pay for the campaign’s finance, lobby governments, run propaganda now known as public relations (PR), influence or simply shapes laws, and so on. Most commonly, the capital side of the game support either dictatorships (e.g. German Nazism in the 1930s; Indonesia in the 1960s; Chile in the 1970s, etc.). When faced with democracy, it tends to support right-wing, right-wing populist and conservative parties.
English philosopher, political economist and MP John Stuart Mill famous for On Liberty’s The sole end for which mankind are (sic) warranted, individually or collectively, in interfering with the liberty of action of any one of their number, is self-protection, was also an avid supporter of the union movement and redistribution. He is mostly to have said,
not all conservatives are stupid,
but most stupid people are conservatives.
Born in the years after the French Revolution, Mills saw the winners of this revolution namely, the bourgeoisie and the entrepreneurs – both are French words. In the contest between the bourgeoisie and the proletariat (another French word), the bourgeoisie has been on the winning side ever since.
Globalisation has only enhanced its winnings especially when being furnished with global trade generously assisted by the likes of Lloyds in London, the frontrunner of what we today call, the City of London. Lloyds also played a major role in the slave trade – a fact conveniently ignored for decades.
Lloyds is a corporation and works for other corporations – a key institution of capitalism. Yet, the origins of the corporation dates back to feudalism when churches were corporations. Today, corporations are given the legal fiction of being like a “real person” – just with an indefinite lifetime. Corporations do not die even when their inventors (e.g. Henry Ford) are long dead.
While a corporation originally meant “a body of people”, modern capitalism has changed this significantly turning many corporations into a profit-making entity, with next to no social conscience. Just as one of the godfathers of neoliberalism once said, that the sole social responsibility of a business is to increase its profits. To hide this, business schools were quick to invent the appropriate ideologies found today in corporate social responsibility, business ethics, corporate citizenship, etc.
This also means that the corporate executives are legally required to generate profits and to take risks with the firm’s money without necessarily suffering the consequences of misjudgments or mistakes. This is not only the beauty of corporate law but, also of a system that likes to offload the negative consequences of companies and corporations and corporate capitalism onto others. This is called externalization. It means that someone else has to pay the price for global corporate environmental vandalism and the mass murder of 100 million people, as the tobacco industry did during the 20th century.
Meanwhile, an American-born physicist and economist R. U. Ayres has described the rich and the corporate CEOs in his book on Capitalism and Inequality as, those who turns profits into personal income, meets a girl, gets married, starts a family, buys a nice house with a pool and a Mercedes-Benz.
All this is flanked by ideologies like the free market, all boats are rising, competition will bring the best to the top, etc. The reality of capitalism is the exact opposite of what these ideologies tell us. $100bn-man Warren Buffett runs his business rather successfully on two simple premises: firstly, minimize investment in the real economy, the so-called bricks and mortar business.
The second is: The Moat Principle: avoid competition saying, I want a business with a moat around it and a very valuable castle in the middle. Buffett’s monopoly capitalism directive is: widen the moat. J. P. Morgan calls the same thing: avoid destructive competition. In other words, free market is for Sunday speeches, monopolies are the reality of capitalism. This is the Orwellian double-act of capitalism. There are those who are made to believe in the ideology of the free market. And, then there are those who know the reality of capitalism – Warren Buffett and J. P. Morgan – and this is the monopoly.
In other words, the former believes in the trickle-down economy, while the latter builds moats, destroys competition and makes people believe in its ideology to carry on getting even richer. As long as the majority of people can be made to believe in their ideology, all is fine in the world of capitalism until The Uninhabitable Earth will kill us all.
This article was originally published at ZNet on 16 July 2021.
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