Capitalism Is Not Central Banking

Capitalism doesn't require infinite growth. I saw a comment earlier that made me sad that people think capitalism demands constant growth. Do not mistake capitalism with central banking. Capitalism only refers to private individuals and companies owning capital goods, which are used to produce goods and services based on market demand. There is no requirement in capitalism to do any more than what is needed. Investopedia has more about capitalism.

For example, a toaster is a capital good. The toaster is perfectly happy to toast bread for you as you demand it. It won't go about producing more toast than you want because it feels compelled to produce more and more toast. You as the owner of the toaster do not want the toaster to produce more toast than necessary. It would be wasteful. Even if you were using the toaster to sell toast, you would only want to produce the exact amount of toast demanded. This is where capitalism ends. And, this is where the owner of the toaster steps in.

Socialism, on the other hand, is where the government owns the toaster and tells you how much toast you'll produce. Again, this is where the owner of the toaster steps in.

A capitalist business or private individual could continue to produce enough money to pay expenses and workers without the need to grow. They can do this indefinitely, getting by for decades. This type of business is just as capitalist as a business that has constant annual growth.

Central banks and governments, often one and the same, rely on inflation and economic growth based on the assumption that deflation is bad. The issue is mostly a matter of accounting. You can't tax deflation. If you produce a toaster for $5 and then the market value goes down to $4, it's a paper loss. But, you can't exactly tax something that "lost" value.

On the other hand, you can tax capital gains brought about by inflation. If I buy the toaster for $5 and a few weeks later find it for $10 because of inflation, the government gets more taxes out of it even though it's the same toaster it was weeks earlier. In real terms, it takes just as much labor and metal to make a toaster at $5 and at $10. What changes is the nominal value. In other words, what changes is the accounting value.

With all that said, it's individuals who use capitalism to generate profit. Many individuals aren't content to produce only what is needed. They feel compelled produce more to generate more profit. It is individuals who choose to constantly grow their business. They'll even resort to lobbying the government to tilt things in their favor to make even more money. But, there are also many people who are content to earn enough to live without aspiring to build big businesses with unbridled growth, such as you would see at a family restaurant.

The same holds true for socialism. You can blame socialism for it's perfect record of destroying economies. But, socialism should work, in theory. The problem is socialists. They aren't immune to the desire for power and money. They aren't immune to the vanity of thinking they know the solution to all human problems.

This is the same problem with capitalism. It's the capitalists. If this were religion, you could say that the problem with Christianity is the Christians (or other religion of your choice).

One could argue that capitalism could work well without inflation. But, we don't know as it is impossible to test that. Economies are always in natural states of inflation or deflation. It's unnatural to have constant inflation. Economies can continue to work in deflation. The only difference is that it screws with the bookkeeping as bookkeeping only accounts for nominal values rather than real values. Otherwise, people still go about their business whether the economy is inflating or deflating.

For example, my hunger is satisfied with a cheeseburger. If the cheeseburger goes up or down in price, my hunger still requires the one cheeseburger to satisfy it. The real value is hunger satisfaction. But, the accounting value is the price on the menu.

If you trace that back to the cow, it won't eat more or less grass to match the market price. It eats just enough to satisfy its hunger. The farmer who grew the wheat for the flour to make buns won't be adding extra labor or less. He's going to plant his same acres and roughly get the same harvest, then sell at whatever the market price is. The real value is how much flour was produced to come up with a given number of hamburger buns. The price will fluctuate. But, with government and central banks in the mix, the fluctuation will be an upward trend thanks to inflation.

It is the malcontents in society that ruin capitalism and socialism. Their quest for more profit and more power is what drives them to create an economic system that relies on inflation. You don't see China going crazy to bring on deflation. The public cannot be trusted to increase productivity and income on our own. Most of us simply want to get by. So, to ensure that we can be taxed more and ensure that banks grow their holdings, we need inflation to make it seem like we're earning more to force us to pay more in taxes, even though we're barely keeping up.

It's also the malcontents who dream up ways to convince us to buy things we don't need so that they can drive up profits. This is the same whether the product is a car or a car loan. You can buy a car without a loan. But, loans allow us to have the car now rather than after we have saved up the cash. You don't NEED a car loan. But, you're sold one. If car loans didn't exist, cars would still sell.

Capitalism and socialism get bad reputations as a result of the people who employ both economic systems leveraging them for their own advantage. People often point out that capitalism has failed or that socialism has failed when the matter is that the people in charge have failed. If your life is in ruins, it makes little difference if it is because of capitalist or socialist economies. You're still suffering either way.

The root cause of your trouble is that there are those who think they know how you should live your life. They sell you on the idea that you should put them in charge. Nobody has the skill to calculate the trillions of variables that will make an economy tick. Yet, somehow, economies worked long before there were economists. Most of our ills are the result of central authorities, in capitalist or socialist economies. These are people who think that they know what is best for the entire population.

This is what saddens me about younger people who blame capitalism for the ills of society. They have been sold a bag of horseshit by intellectuals who hope that they'll be put in charge in a socialist system. I was going to say that the intellectuals are just as bad as used car salesmen. However, used car salesmen, in retrospect, are selling you something you actually need. You don't really need socialism. What you NEED is to be left alone so that you can find your place in society without constantly having to fend off inflation, taxes, and regulations. Or, if you were in a socialist society, you'd be fending off hunger, informants, and depression. Either way, your problem is other people, particularly the "geniuses" in charge, not the economic system.

All that capitalism does is describe you owning the productive asset. Socialism is about the government owning the productive asset. Neither of these is immune to poor decision-making, self-interest, greed, and plain incompetence. Your frustration should not be towards capitalism. Your frustration should be towards those in charge. What they sell is not what they deliver.

Some of the trouble is our own fault as well. We fail to discern what can truly be delivered by the people doing the selling. We are often wary of offers that sound too good to be true. However, central banks and governments do this all day, every day. And we buy it. But, it's a free market. If you want to buy horseshit, it's all yours.

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