Economics 101

Today, the people of the world face numerous seemingly unsolvable problems.  There is widespread poverty, destruction of the environment as well as war and discrimination. 

Many people have opinions as to the causes of these problems.  Some argue that greedy people are the cause of many of the problems we face.  Clearly, when we look at the gross disparity of wealth in the world, greed clearly plays a factor.

There are two basic problems with this point of view.  First, some would argue that, if only the people who have power were less greedy, we would be better off.  Then, they argue that greed is a part of the human condition and this means that the problems of the world are inevitable.

A more realistic explanation to the cause of the problems we face comes from the political economic system known as capitalism.  We will not find this point of view in the pro-capitalist news media or on the university campuses.  This is because corporations fund news media as well as universities and they do not hold kindly to criticism.

So, this column will look at the history of capitalism to show how the natural functioning of this system created the enormous problems we face today.  Understanding this history will enable us to point to an alternative to capitalist property relations.

The history of capitalism

Before capitalism existed, there were feudal kingdoms.  During these times, serfs lived on manors and farmed the land.  The serf lived their entire life on the manor and wasn’t allowed to leave. 

Artisans produced the items the royal families wanted.  This was small-scale production that didn’t attempt to fulfill the needs of society as a whole.

Out of this atmosphere a new capitalist class emerged.  Doctors, journalists, bankers, and small business owners gradually came into conflict with the royal families.  Eventually, revolutions erupted and the capitalist class came to power.

The new rulers forced the serfs off the land and they moved to the cities.  In these cities the former serfs became workers where they toiled under horrendous conditions.  Under these conditions, a new working class emerged that demanded improved working conditions.  This new class will learn that working people produce all of the wealth of the world. 

As capitalism developed, the small companies competed with one another and used machinery in a way to cut costs.  This machinery allowed the capitalists to eliminate jobs.  However, in order to pay for the machinery and produce a profit the capitalist needed to be obsessed with cutting costs.  This process meant that only a few large corporations would dominate the economy of entire nations.

Here we see one of the fundamental problems with capitalism.  As the capitalist hires fewer and fewer production workers their percent of profit on investment declines.  This means that corporations will always be obsessed with cutting costs.  Corporations will also need to grow in order to obtain a smaller and smaller percent of profit.

Because corporations have become so large they have relied more and more on banks for their funding.  Today banks and other investment companies dominate capitalist economies.  Whenever we hear a corporation claim that it isn’t making money, we need to ask the question: How much money is that corporation paying in interest to a bank?  Corporations view payments to banks as “expenses” but these so-called expenses are part of the surplus value derived from human labor.

Because of the need for corporations to continually grow, capitalists from all over the world compete with each other for domination of the world markets.  The first and second world wars decided that the United States would be the world’s superpower.

However, even with the economic domination of the world in the hands of just a few capitalist corporations, the decline in the rate of profit continues to be the cause of economic crisis. 

Investment capitalists used a scheme called “junk bonds” in an attempt to stabilize the market.  These junk bonds were regulated and when the bond traders violated these regulations, some went to prison. 

Then, investors invented a new scheme called “derivates.”  These derivatives have no government regulation and traders can sell them with little fear of going to prison.  The inventors of these derivatives funds received Nobel Prizes for their efforts.  Today there is about one thousand trillion dollars, or one quadrillion dollars invested in derivatives.  These funds are merely extremely complicated bets on how the market will perform in the future.  We might consider that while all this money is sitting in these useless funds, about forty percent of the world’s population lives on two dollars per day or less.           

What are small businesses?

Many supporters of capitalism argue that one way of “getting ahead” is to start a small business.  However, when we think of all the commodities we purchase, most of those commodities come from large corporations.  Our food comes from supermarkets.  Transportation usually comes from the auto companies.  Clothing comes from department stores.  Occasionally we might eat out, and the restaurant might, or might not, be a small business.

The government claims to regulate these corporations.  However, these so-called government regulations merely allow the large companies to continue to dominate the economy.  Corporations, as we have seen, are extremely skilled at deflecting any meaningful government regulations.

What is the alternative to capitalism?

Today, there is only one conclusion to this history.  While there were some progressive aspects to the emergence of capitalism, this system no longer represents anything progressive.  In fact, capitalism even in its earliest days, was a system of brutal repression.

The goal of the capitalist is to have economic stability.  In the long term, history has shown that this is virtually an impossible dream.  Since the earliest days of capitalism, the decline in the rate of profit has caused one crisis after another.  During the depression of the 1930’s the banks simply closed their doors and millions of working people lost all their savings.  Capitalists, on the other hand, managed to stay in business and received indispensable government support.  

I wrote about this history to say that there is an alternative to capitalism.  Working people produce all wealth in the world, yet we have no control over this wealth.  Capitalists use this wealth to continue to profit, while being obsessed with cutting costs.

A workers government would use the wealth we produce to guarantee that everyone would have the food, clothing, housing, education, and health care we all need to live.  Working people could work fewer hours with a much higher standard of living.

Instead of sitting in traffic jams after a long day’s work, we could ride on trains going 200 miles per hour while reading a news paper.  With the extra time on our hands we would be able to figure out the answers to the real problems we face.  These being the depletion of natural resources, the destruction of the environment, the cures for disease, and the best way to free humanity from ignorance and alienation.

When we listen to news annalists talk endlessly about the problem we face, we might consider that there is an elephant in the room that these annalists are determined not to see.  This elephant is the fact that the natural workings of the capitalist system, that they all support, is the root cause of our problems.  Working people have been organizing in unions to support our interests since the first years of capitalism.  When we see that we can control the wealth we produce, then, the world can begin to be constructed on completely new foundations.