Capitalism – a meaningless concept in which we can believe

As one surfs the economic forums of Medium and other media one often sees the word “capitalism” in the headlines but mostly I ignore these items because the word’s definitions are generally so vague the word is meaningless.  Because capitalism is such a meaningless word it is something in which we can believe while ignoring a less pleasant reality.

When we study economics we can try for an honest understanding so we can solve problems and reduce human suffering or we can seek rationalizations for things which will make us rich in spite of exploiting others, destroying the environment and overusing scarce resources.  If I were the chief executive of a large corporation or a politician I would want the second approach to economics.  Guess who pays the salaries of most economists.  This blogger makes no money out of his study of economics, so he can take the first approach.

The main feature of the economic organization with which most of us are familiar is that a lot of it is based on legislation which restricts competition.  Patents, copyright, licensing and subsidies all work to restrict competition  and/or distort prices.  These are so pervasive that we cannot say we have competitive market economy.

The problem with a perfectly competitive economy is that it does not allow for profits.  Competition reduces profits until each firm makes wages and a return on investment but no profits.  If one wants profits one needs government to pass legislation to restrict competition and most current  governments are happy to oblige.  Once upon a time this blogger used to make pottery.  I suggested that in order to make a good living we should form the Canadian Potters Association and get the government to pass legislation that all the people in Canada should eat only from dishes make by members.  Other potters laughed but lots of other occupations have that legislation: teachers, doctors, lawyers, septic tank installers, most large corporations (patents and copyright), etc.

Like lots of other people I would like to see an economy with more equality and less exploitation.  I believe the best way to get it would be to have more competition.  To get there we should repeal or at least reduce copyright, patent and licensing legislation and drop all subsidies.

This would leave many people exposed to economic adjustments which often cause suffering. A guaranteed income scheme would be a better way of coping with these problems than restricting competition.

Money difficulties

The following is my response to an article on natural money posted on Medium.

Dear Christopher

Thank you for your article about money.  I believe money is a major problem in our economy and it is urgent for us to have this discussion.  There are a couple of things I liked in your proposal, however I have some serious concerns.

My qualifications to write on this topic are that I did a degree in economics at the University of British Columbia with an informal specialization in money and banking.  I think I have a good understanding of how the financial system works and an even better understanding of some of the problems. And I have written a book about money.

My first concern is with the six properties of money.  I recognize this is conventional economic thinking and is based on the traditional use of commodity money but I prefer to define money as a tool which facilitates the exchange of goods and services.  It is important to note that tools get their values from how well the do the job.  It is unfortunate that money has a history of values as a commodity.

Another concern is with the idea there are two varieties of money – precious metals and fiat money.  A third type of money is fractional reserve money and is based on loans made by the financial system.  Believe it or not when bankers make loans they are creating money and adding to the total money supply in the economy. If you do not know how this process works there are lots of explanations on the internet and I urge you give it some priority.  It can appear complex but I think it is easy to understand if one takes it slowly.  Approximately 90 per cent of our money supply is this type.

I believe the major problems with fractional reserve banking is that the quantity is not flexible downwards when economic activity decreases and the interest charged on the loans.  If all the loans upon which our money supply is based had to be repaid on the same day there would not be enough money because of all the interest which would also need to be paid.

I am also concerned with the idea of basing money on a commodity – any commodity or even a group of commodities because this limits the total money supply.  When money was based on gold there were some severe recessions because there was not enough money for the quantity of goods and services people wanted to exchange.  Deflation can be a serious problem which limits economic activity. Please do not forget a lot of economic activity is based on services.

Your suggestion that CBC units should be destroyed when redeemed is very important as money units can keep piling up until they cause problems.  A big problem with fractional reserve money is that it does not get destroyed until we have an economic crisis and lots of people lose lots of money.

Your concept of countercyclical is also important because the money supply needs to be flexible in both directions.  If it is not flexible then we have either inflation or deflation both of which devalue people’s  saving.

There is a rather obscure concept called local exchange trading systems (LETS) (https://en.wikipedia.org/wiki/Local_exchange_trading_system) which a few groups around the world have tried.  These groups have not met with much success because they are small and do not include all the goods and services we need to live.  However, they create credits which are in effect money which avoid the problems of fractional reserve money.  If only we could establish a national exchange trading system (NETS) we would probably have fewer economic problems.

This commentator has written an ebook about money, its problems and NETS as a possible solution. You can get a free copy from Smashwords by following this link and using this code:

LE78V

Money is extremely important in our economy and causes a lot of problems.  I encourage you to keep thinking.

(FREE! The author of this comment has written an Ebook Funny Money: Adapting to a down economy. Information is on my weblog:https://economics102.wordpress.com/

Bill Gates and vested interests

The world’s richest man thinks robots that displace human labour should be taxed and the money used to fund philanthropic employment in health care and education.  This proposal would suit the interests of the one per cent but there are probably better ways to deal with problems created by the agricultural surplus.

Bill Gates deserves some credit for his philanthropy and for recognizing educational and health care needs although one has to be concerned about the economics of how he became the current chairman of the board of the world’s elite.

To evaluate proposals like this we need to look at the vested interests of the person making them.

Mr. Gates’ foremost interest has to be in maintaining copyright and patent legislation as that is the foundation of his fortune.  If our society did not have that legislation he would be just another clever computer nerd, we would all be using cheaper and better software and there would be a great deal more equality in our society.

His second greatest interest has to be promotion of the social monitoring and tracking industry. The future of his fortune probably depends upon the success of Microsoft in tracking and monitoring all people so the information can be sold to advertisers.  I fear this not so much because of the advertising but because once the information is collected it will also be available to governments and the one per cent for social control.  I switched my computer to linux minx because I figured Microsoft was getting too blatant and too untrustworthy in its collection of information.

Another major interest of this guy is full employment and the work ethic.  He needs for everyone to be working so we can all purchase his software and be subject to targeted advertising.  If that does not happen his position as the richest man on earth becomes precarious.

Another of Mr. Gates interests is the maintenance of poor people in this world.  Without them he would not get brownie points for philanthropy.

Will his proposal help to save jobs?  Probably not because the root problem is that we have used up the most easily available energy and mineral resources.  Those that are left will take so much energy to extract their value is limited.

The development of robots should be seen as part of a long-term technological development which has given us a high agricultural and material goods surplus and which allows all the benefits of modern civilization.  The challenge is to use the technology for the greatest enjoyment of human lives.  It may be the greatest benefit would come from a new emphasis on doing arts, crafts, music  and theatre rather than marketing more elaborate gadgets.

So there are two things which might interfere with Mr. Gates’ desire for full employment and his future.  First is the depletion of energy and mineral resources which will reduce our economic activity and the second is if more and more people get fed up with the marketing conspiracy and reduce their interest in contributing to economic growth.
 

The agricultural surplus and full employment

Ever since some ancient farmer realized he could produce more if he plowed with a horse and collar rather than an ox and harness civilization has been blessed with an agricultural surplus and challenged to maintain full employment.  When the definitive social history of the world is written it will probably focus on the distribution of the agricultural surplus.

ox-plough-253406_1920work-horses-207167_1920

The big question is who is to entitled to benefit from this surplus.  Should it be shared equally or should most of it go to an elite.

For most of history the elites have answered the question in favour of themselves and enforced the decision with force.  For them the challenge was to leave the workers enough food to maintain sufficient population to produce the goods and services needed by the elite.  Certainly there were times, the medieval plague being one, when a declining population allowed the workers to claim a greater share of the agricultural surplus and to escape some of the most onerous hardships.

With industrialization three things happened to change the traditional model.  The demand for labour increased so that workers could claim a greater share. The quantity of goods and services produced increased so there was more to share.  And the elite figured out psychological tactics were a more efficient and less messy way of maintaining their privileges.  The work ethic and tying the distribution of goods and services to jobs are more effective than soldiers.

Major issues with the agricultural surplus are who is to benefit and who decides how it should be used.  Clearly the ancient Egyptians had an agricultural surplus and used it to build the pyramids.  As there is no evidence they had money the decision to build the pyramids was probably made by very few and maybe even one person.

In our own civilization the decision making is at two levels.  At the lower level we as individuals decide how to spend our money and so make decisions about the use of the agricultural surplus.  As our money supply is created by the banking system making loans, bankers have an even greater say in the disposal of the agricultural surplus.  They make loans according to their interests and their values.  As most of them are business orientated they will probably make loans for oil or mining before they would for a new opera house or art gallery.

At least until recently it has been in the interests of most business people for the general population to be willing to work long hours for little money.  Thank you for the work ethic and looking down upon people who do not work and especially those on welfare.  What is in the interests of  business people is not necessarily in the best interests of the people working for them. It could be we have been conned into believing in the work ethic.

So long as we maintain this committment to the work ethic a full employment will be a major economic and political goal even if we might be happier without it. If we had a universal basic income, many people would be able to devote their lives to activities which do not make a profit.

This blogger believes the current economic crisis is long-term and based on resource depletion.  Yes, we still have lots of energy and mineral resources in the earth’s crust but we have mined those that are most accessible.  Those that are left are so difficult ands expensive to extract they have limited value.

If this is true then we are in for an extended declining economy and it will be a major challenge to adapt.  There is even a possibility the agricultural surplus will go down. Adapting will require us to get over the hang up of full employment and will require something radical such as a basic guaranteed income.

If past trends hold the long-term equilibrium is likely to be a small and rich elite supported by a small and poor worker class.  Getting there will involve a lot of human suffering and probably extensive stench.  This writer would like to see population at a sustainable level and a great deal of equality.

 

Please help promote this weblog

Please send the link to this post to your friends and social media.  Promoting a weblog can be difficult.  I get some referrals from LinkedIn.  I used to get quite a few from Reddit but I have been “shadow  banned” for linking to my own weblog.  Self promotion (and free speech?) are serious offenses on Reddit. I figure my strength is in the thinking that goes into the posts and I thank you for helping.  (r/economics   r/libertarian   r/economiccolapse  r/Degrowth )

Why your savings and pensions are at risk

The fractional reserve way of creating money means a lot of people are at risk of losing all or part of their savings and pensions.

If there is too much money supply in the economy then we have inflation and people with savings or pensions lose some of their purchasing power and those who owe money benefit because they repay their loans with less purchasing power.  Now you know why governments and the people who speak on their behalf promote mild inflation.  This is at least unauthorized taxation if not theft.

pexels-photo-2105902If you have deflation, then people who are owed money win because they are repaid with more purchasing power than they loaned.  The borrowers lose because they have to repay with more purchasing power.

To be fair to everyone we need to manage the economy so that just the right amount of money is available at all times.  At a time when the economy is on a down trend, this is very important as too much money puts us in danger of hyperinflation.

Getting this amount right has long been a challenge to central banks although the common sense answer is fairly simple.  The money supply should vary with the quantity of goods and services we want to exchange and it should be flexible up and down.

The wrench in the simplicity is the fractional reserve way of creating money.  When banks make loans they must (or should) keep a fraction of the amount on reserve for when the depositor wants his/her money returned.  As the amount is only a fraction banks are at risk of a “run” if depositors lose faith.  And because of the fractional reserve there is a multiplier effect involved.  Does not this sound like a set up for a crisis?  The mechanics of this process are a little complex although I have always found it easy to understand. To figure it out I suggest you Google “fractional reserve” or look at my free e book Funny Money: Adapting to a Down Economy or look at the essay Going to Market on this weblog.

The other end of the wrench is  that interest is charged on the loans made by the banks.  Mainstream economists have given little or no thought to the consequences of this. Because all of our money is created by the making of loans, if all the outstanding debt were to be paid off at one time there would not be enough money to repay it all because of the interest.  The charging of interest on the debt/money means there is never enough money available to repay all outstanding debt. Inflation is built into the fractional reserve way of creating money.

The system works only so long as the economy and the money supply continues to grow.  An upset in either means crisis of which we have had many.

The relationship between money supply and economic output is expressed in a formula, MV=PQ, some times known as the quantity theory of money.  Money times the velocity at which it circulates in the economy is equal to a price index times the quantity of goods and services produced.

I get ticked off because this is frequently taken to mean there is a direct, proportional relationship between the money supply and the inflation rate or price level.   Can’t people see there are four variables in this formula?  Total output is an important part of this formula.  If it should happen to go down something needs to happen to another variable.

Our society has a strong commitment to economic growth and a need to keep it growing so that people will not suffer from unemployment.   Some desperate people are trying to stimulate growth by increasing the money supply. This may increase inflation but it will not lead to growth unless we can find inexpensive energy and mineral resources to support it.  I suspect the new American president has  his eye on parks and reserve lands to encourage more economic activity.  He will probably succeed in the short term to be followed by a major economic collapse.

This blogger thinks we need some major economic reforms, not only in our financial system but in our commitment to economic growth.  We need to minimize our production and exchange of goods and services so we are using fewer energy and mineral resources.

A lot  of people operate on faith in our financial system and ignore suggestions we need reform.  I think the risk is so great that prudent people will at least give some thought to these issues.  It is your savings and your pensions and your future that is at risk.

 

 

Please help promote this weblog

Please send the link to this post to your friends and social media.  Promoting a weblog can be difficult.  I get some referrals from LinkedIn.  I used to get quite a few from Reddit but I have been “shadow  banned” for linking to my own weblog.  Self promotion (and free speech?) are serious offenses on Reddit. I figure my strength is in the thinking that goes into the posts and I thank you for helping.  (r/economics   r/libertarian   r/economiccolapse  r/Degrowth )

Speaking for or about native peoples

Joseph Boyden is an author who has written historical fiction about Canadian and American indigenous people.  He has a little native blood in him and some media people have treated him as a spokesperson on native issues.  He has been challenged in this role on the grounds that he does not have enough native heritage. (Link onelink twolink three)

This blogger has difficulty with the idea that any one person can speak on behalf of indigenous people because they are individuals and represent a wide range of viewpoints.  Who speaks for Americans?  Obama, Clinton or Trump?

However, there are some who are qualified to speak about native people with varying degrees of knowledge and a lot of caring.  Boyden is one and the author of this blog is another.  Beware of natives who claim to speak for their people.  A lot of them are what I call “professional Indians.”  These are people who make careers, if not a living, by serving white people a lot of bull manure about some aspects of native life or culture.  Boyden is qualified to speak about natives because of the research for his books and I am qualified because my wife is a minister in the United Church of Canada and for four years we lived on a British Columbia coastal Indian Reserve.  Also I have an Indian name.  When I commented that there was a lot of teasing in the giving of Indian names to white people I was told it was a great honour to be given a name by the band’s hereditary chief.

Shortly after we arrived in the village they held a nomination meeting for chief and council.  Not being familiar with the concept I decided to attend and was surprised when three or four people, community leaders, joked about nominating me for elected chief.  After being there for a while and observing band politics I could see there might be some appeal to having a chief who was an outsider.

This band had an elected chief and council and four hereditary clan chiefs who took their positions seriously even though the clan system was getting weaker. The chief of the beaver clan was considered the village chief.   We were told chief and council make most decisions but the chiefs had the right to call a meeting and overrule them. The hereditary chief complained his children did not get jobs in the village because he was sometimes critical of council.  Ten years later we returned for a one-day visit to find the village was divided because the chiefs had tried to exercise this power.  During the day we visited two of the chiefs and were seen as being on their side.  That evening there was a dinner organized by chief and council and while most of the people at the dinner gave us a hug and said “welcome home” the organizers did not acknowledge our presence.  For four years they seldom held a dinner at which my wife was not asked to say grace and I expected she would be asked again.

Us Canadians are forever struggling with division of powers between federal and provincial governments.  Back in 1992 our leaders negotiated some revisions to the balance of power and these revisions were put to the people in a referendum. Under the accord, an aboriginal right to self-government would have been enshrined in the Canadian Constitution. Moreover, the accord would have recognized aboriginal governments as a third order of government, analogous to the federal government and the provinces. In other words, aboriginal governments would have been granted their own order of government, which would have been constitutionally autonomous from the federal and provincial levels of government.

I remember the native leadership were excited about this and insisted the results the native vote be published separately from the white vote.  There are several explanations as to why Canadian natives, as well as Canadians in general,  did not support this accord.  Having since lived four years on a reserve I think native leaders do not speak for their people and Canadian natives certainly did not want more native self-government. Nepotism is found everywhere but on reserves it is blatant.

For the record I am very happy neither I nor my children were raised on an Indian reserve.  I also see natives as being and remaining a conquered people. Treaties are and were a fiction which allow us to, with a clear conscience, hold indigenous people in prison camps. Those people who take a politically  correct approach to native issues are making them into scapegoats.  Forget about the evils of residential schools.  What we are currently doing is much worse.

 

Please help promote this weblog

Please send the link to this post to your friends and social media.  Promoting a weblog can be difficult.  I get some referrals from LinkedIn.  I used to get quite a few from Reddit but I have been “shadow  banned” for linking to my own weblog.  Self promotion (and free speech?) are serious offenses on Reddit. I figure my strength is in the thinking that goes into the posts and I thank you for helping.  (r/economics   r/libertarian   r/economiccolapse  r/Degrowth )

Truth: An impossible request

Dear Santa Clause,  For Christmas this year I ask you to give all the people around the world a sense of truthfulness to themselves and all others including young children.

There are two problems in this request: People believe in different versions of the truth and many people have an interest in distorting the truth.

There are many things about ourselves and this world that we do not and can not know from rational observation.  A lot of people fill in the gaps with differing religious knowledge but it is difficult for an observer to say which version is the truth.  A person who claims to speak or write only the truth is playing god with his/her religion and values.  Who is to say there is no Santa Clause?  A philosopher could define Santa Clause as a concept and maybe make the case that he is real.

Deliberate distortions of the truth go back to the dawn of civilisation.  I have read that ancient story tellers quickly learned to make their stories show their patrons in favourable lights.

There are a lot of distortions of the truth in our own civilization including war reporting, the courts and most politically correct issues.

Distortions of the truth in war reporting were documented in 1975 by Phillip Knightly in his book The First Casualty.  War correspondents are called upon to distort the truth for the sake of their part in their country’s war effort. The first casualty of war is he truth

I would suggest this happens where ever there is conflict.

Courts put some emphasis on  “the whole truth and nothing but the truth”.  But how much injustice has resulted from prosecutors with holding  evidence which shows a person to be innocent.  The adversarial process is a strong incentive to avoid the truth.

There are also distortions in most politically correct issues.  Feminists are mistresses of the ancient art of sophistry, North American natives are a conquered people and police do not care about the color of the people they shoot.

Politicians and business people often have a vested interest in hiding the truth.  Political leaders who say the economy is on a long-term down trend are unlikely to get many votes, or at least they think that.  Every banker in the world would lie to avoid a run on his bank.

Donald Trump challenged the media with his untruths and won.  As a former journalist I was very happy not to be working the election.  If the press had not reported his distortions he probably would not even have got the nomination.  Mostly I worked on small town newspapers where most of the politicians were basically honest.

News people like good stories and when famous people say stupid or ridiculous things, it is usually a good story.   I once quoted a school trustee because I wanted to show how stupid he was.  The next day some lady phoned the local radio talk show and said,  “Did you see what Dr. P….. said at school board.  Wasn’t that great?”

What about the responsibility of the media to report the truth?  Publishers have the right to decide what goes into their publication and some specialize in fiction. There are ethical issues in claiming fiction as fact.  It is also hard for a reporter or editor to ignore a statement because he knows it is not true. Most reporters, editors and publishers do not want to upset their friends.  In general advertisers to not much  care about the editorial content so long as their advertising brings in customers.

How do we as consumers of news know if something is true?  We have to evaluate if an item makes sense and that depends upon our values, religion and knowledge base.

As I have worked on this post I have wondered a little if untruthfulness is an essential part of surviving human relationships.  That might be best left for another reincarnation.

 

Please help promote this weblog

Please send the link to this post to your friends and social media.  Promoting a weblog can be difficult.  I get some referrals from LinkedIn.  I used to get quite a few from Reddit but I have been “shadow  banned” for linking to my own weblog.  Self promotion (and free speech?) are serious offenses on Reddit. I figure my strength is in the thinking that goes into the posts and I thank you for helping.  (r/economics   r/libertarian   r/economiccolapse  r/Degrowth )

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