Myths of Capitalism


Capital is well-defined

  • The capitalist faithful contend that the concept of capital is well-defined and a trusted signifier in societal construction.
  • Under mathematical scrutiny, the Cambridge capital controversy showed there is no simple (monotonic) relationship between the profit/interest rate and the “capital intensity” of production, either at the macro- or the microeconomic level of aggregation.
  • Therefore economics is not a science, there are only predictive models, not causative.

Barter Myth

  • Capitalist mythology concocts the belief that barter existed before capitalism.
  • This is likely an Ibn Khaldun story stolen by Adam Smith and then used religiously by capitalist followers.
  • This myth lures people who see history as a linear and continuous process, where there is no regression and ceaseless progress on to something ‘better’ than before.
  • There are no records of barter being the primary exchange mechanism of any society, just some instances when groups of strangers interact.
  • Over 5,000 years of history is ignored by the capitalist faith to construct a story that has never been true (as far as we know).

Monetary System

  • Money is used as circulating capital in the capitalist system.
  • It has been used throughout history well before capitalism developed, fulfilling many functions of trade and debt nullification.
  • Currency has been in existence as commodity, representative and fiat form.
  • Since the Bretton Woods arrangement collapsed, the world has only known fiat currency.
  • In a fiat system, taxes are not needed to fund Government spending.
  • There is also no fractional reserve commitment for private banks in most of the world.
  • In the modern day, money creation is mainly done by private banks creating loans.
  • Cryptocurrencies are a possible alternative.

The Wonderous Free Market

  • Often people think capitalism is that is it a mode of production outside of governmental control and will emerge naturally without it; is sustainable and doesn’t need state oversight to be profitable.
  • Some think that the capitalist system is the sole instigator and producer of wealth and that market forces (people buying and selling goods/services) will regulate itself without outside force.

Part 1: No state intervention in formation

  • Feudalism and manorialism were the systems in place before capitalism took hold.
  • Mercantile and agricultural capitalism developed the mechanisms, like banking, for capitalism to emerge.
  • The Enclosure Acts of the UK was a key process in which the aristocracy abolished feudal tenure rights of copy-holders and enclosed common land.
  • Governments/states throughout this period enacted laws to control the large number of agriculturists dispossessed from the Enclosure Acts.
  • One example is the Combination Act which banned collected bargaining/unions.
  • Hence the industrial revolution came about with an asymmetric bargaining power of displaced peasants and the masters, backed by the state.

Part 2: Hand-in-hand with the state for the disciples

  • The notion was widespread that any disadvantages to uncontrolled competition in the production of goods would somehow be eliminated by natural operations of economic forces, such as laws of supply and demand.
  • Early capitalist/liberal writers make it abundantly clear that they thought the working class (former peasants) were lazy and should be kept poor to be industrious. [Arthur Young, wrote in 1771: “everyone but an idiot knows that the lower classes must be kept poor, or they will never be industrious.”]
  • Capitalism was set up to enrich the merchant classes on the back of the labour of the poor and slaves.
  • Merchant capitalist companies were given monopoly trading rights to specific areas of the world (e.g. East India Company).
  • These companies became de-facto states in the regions they oversaw, which sucked in nation states to oversee their running once the inevitable bailouts were needed.
  • This entanglement of states and capitalist enterprises is embedded in the market economy.

Part 3: Neoliberal free-market fundamentalism

  • Neoliberalism has usurped other capitalist ideas over the last 50 years.
  • Via Hayek’s Mont Pelerin society and devotees such as Lewis Powell and Margaret Thatcher, the state has pursued the neoliberal ideal – that market forces should drive society.
  • Pinochet’s Chile was the first nation to take on-board this ideology (ironic since Hayek was trying to formulate a system free of tyrants).
  • Neoliberal policies -deregulation, austerity etc. – have led to various governments bailing out and subsidising private companies at an amazing rate.
  • $29 trillion just by the FED alone during the 2007-08 financial crises.
  • The world spent $4.7 trillion – or 6.3 percent of global GDP – in 2015 to subsidize fossil fuel use, a figure it estimated rose to $5.2 trillion in 2017.
  • Again, ironically the IMF and the Cato institute (neoliberal organisations) are the main sources for these subsidy figures.
  • Ideologues that think that to build a free society rests on no state intervention in economic systems, tend to conveniently forget the continued backing of government for the system to carry on.

Part 4 : The Invisible Hand

  • Classical economic liberals put forth the idea that capitalism could provide for the wants and needs of individual people via the market.
  • This ‘market’ of wants and desires would generate a synthesis of society’s ideas and yield an equilibrium solution that provides material goods and services where they are needed.
  • A competitive, self-regulating market is never entirely the spontaneous and organic organisation that some people believe.
  • Many economic ideas centres around economic equilibrium – the idea that the economy will reach equilibrium points in an idealised perfectly competitive market.
  • This idealisation relies on agents knowing the equilibrium price vector and being rational agents (see Rational Actors).
  • Marx set forth the determining factor of capitalism is not simply the existence of commodities but rather the commodification of labour. This defines the system’s specific mode of exploitation, the way the ruling class appropriates the surplus product created by the producers. The fact that capitalist economy inevitably diverges from its rational pretences reflects what Marx called the contradictions of the form of value.
  • Capitalist competition – expand or die – inevitably leads to crisis. These contradictions cannot be done away with within the bounds of the capitalist system. They occur independently, outside the will and control of the capitalists themselves.
  • People with more money have more say in the organisation of societies and what constitutes ‘the market’. The role that money plays in politics is a strong one, with companies lobbying for more favourable laws to be enacted.
  • The wealth distribution of the world follows the power law of the Pareto distribution.
  • This distribution arises in general due to the income gained by individuals in the power tail comes primarily from income gained from capital such as interest payments, dividends, rent or ownership of small businesses. Meanwhile the income for the 90% of people in the main body of the distribution is primarily derived from wages.
  • Mathematically it can be shown that a group of absolutely identical agents, acting in absolutely identical manners, when operating under the standard capitalist system, of interest paid on wealth owned, end up owning dramatically different amounts of wealth.
  • It can also be shown that the power-law of capitalist income can be accounted for due to a power-law in the network structure of the wage-capital relation.
  • The accumulation of capital and the tendency towards monopolization in this way leads to an illusion of choice within the marketplace.
  • This control of the media, which encompasses advertising and mass media also ensures that one of the fundamental premises of capitalism is skewed: wants and desires are largely manufactured.
  • The media serve, and propagandise on behalf of, the powerful societal interests that control and finance them.
  • Governments and corporate sponsors/collaborators have continually used disinformation and propagated bogus claims to divert or engage public attention for their benefit, during both peace time and wartime.
  • From the bombardment from cradle to grave of consumer pressures, one could argue that there is no longer any distinction between reality and its representation; there is only the simulacrum.
  • The current structure of the capitalist economy relies heavily on patents, copyrights, trade secrets and compartmentalisation of tasks to ensure that competition is blunted and information is guarded.
  • Patents suppress innovation as much as they encourage it.
  • In capitalist society, the state maintains and governs what constitutes market relations and enforces contracts.
  • Government regulation can serve not the ‘public interest’ professed by reformers, but the narrower interests of the regulated businesses themselves — in effect pricing out smaller operations that cannot comply with regulation.
  • Within the framework of capitalism, the relation between the real industrial production of commodities and interest-yielding money capital ensures structural limits of the accumulation process. Hence bailouts and subsidies are increasingly needed to ensure capitalism survives.
  • Karl Polanyi questioned whether a spontaneously ordered market can exist, completely free of ‘distortions’ of political policy.
  • The earth’s interlocking resources – the global system of nature in which we all live – probably cannot support present rates of economic and population growth much beyond the year 2100, if that long, even with advanced technology.
  • Humans thoroughly dominate the land biosphere making up 32% of all terrestrial biomass followed by around 65% in domesticated animals, leaving less than 3% of vertebrate wildlife. This is due to continuous expansion into natural habitats by humans to farm and extract resources, without care for the environment.
  • Green capitalism functions as a way to deflect questions over the role of capitalism in creating the problems in the first place, or its capacity to deal with them.

Rational Actors

  • A theme throughout economic theory is that humans act like an “economic man” or “administrative man”, fundamentally making decisions with an economic and therefore rational mindset.
  • Rational expectations theory and rational choice theory underpin a lot of economic thought, whereby people are believed to be rational actors, making decisions for their own self-interest and being able to make choices using computational skills to evaluate all alternatives.
  • Logic describes in meticulous detail patterns of inference that are rational.
  • A logical fallacy is a mistake in an argument, that is, a mistake in an instance of reasoning formulated in language. As the term is used in logic, an “argument” is a group of statements one of which is called “the conclusion” and the rest are called “premisses”.
  • You may be tempted to think of yourself as rational, while other beings are more irrational and their introspective reasoning is unreliable. Research into reasoning suggests that people use more stringent criteria when they evaluate others’ arguments than when they produce arguments themselves.
  • Given new evidence, people invested in a given perspective shall – when confronted with contrary evidence – expend great effort to justify retaining the challenged perspective (cognitive dissonance).
  • Memory recall within people is also highly flexible, so information within the brain cannot be relied upon without aides to be accurate.
  • People are bad at conceiving and thinking about non-linear systems. We apply simple linear solutions to complex, interdependent systems and this results in predictable failure modes.
  • Heuristics are simple decision algorithms that ignore information, that are deployed by most beings.
  • In some cases, less-is-more in terms of the internal model produced avoiding over-fitting of the known data, if data is sparse. Though if full-information models are used with appropriate caution placed on the training set inductive bias, then these outperform heuristics.
  • Due to the capitalist paradigm, research will often not be published in journals if a result is not statistically significant and hence funding reduced. A research finding is less likely to be true when the studies conducted in a field are smaller; when effect sizes are smaller; when there is a greater number and lesser preselection of tested relationships; where there is greater flexibility in designs, definitions, outcomes, and analytical modes; when there is greater financial and other interest and prejudice; and when more teams are involved in a scientific field in chase of statistical significance.
  • In summary, people can be viewed as rationalising entities, not rational agents.

Private Property

  • Capitalists tend to hold private property rights above all others and proclaim its sanctity in economic thought.
  • The liberal conception of private property likely comes from the old Roman-based legal system terms – usus, fructus and abusus.
  • Bourgeoisie ideas formed from the burghers (town people/merchants) of medieval times and subsequently the commonalty, whereby specific humans recognised like-minded individuals as the people in occupancy of these property rights.
  • The Enclosure Acts stole land that was deemed private property (from copyholders and usufruct of communal property, where peasants could graze their cattle and provide themselves with wood, turf, etc… for heating) in the feudal set up.
  • Economic liberals utilised state powers to mould society into what they wanted.
  • When a group of economic liberals have enough power, they happily steal, murder and enforce enclosure laws – e.g. USA imperialism.
  • Large companies will try to make legal cases as expensive as possible for smaller companies, with the notion that the smaller company might be forced into bankruptcy rather than fight for the registration of a trademark/copyright.
  • A host of companies do not adhere to the private property regulations and regularly try to steal information and ideas that may benefit them, knowing there are little repercussions if found.
  • Wage theft is considered a civil matter, even though it dwarfs every other type of (property) larceny in existence – making up to 75% of all theft.
  • Proudhon’s ‘What is property? Is a good book using jurisprudence and mathematics to analyse rights and in particular property (in opposition to individual possessions).
  • Observation. — Thus, the amount of increase is proportional both to the thing increased, and the time during which it increases; in other words, usury grows like a cancer [infinite growth].
  • The sanctity of private property in a population can lead to landlordism, where unproductive members of society can claim rent on pieces of land and houses from the productive members of society, as tenants.
  • Capitalists have a tendency to be focused on the accumulation of property and profits, then disregard externalities to the production system, that will have to be paid one way or another – unpriced natural capital.
  • A recent analysis estimates the total societal cost for air pollution in the US in 2011 to have been $131 billion (down from $175 billion in 2002) .
  • At its heart, property is exclusion – of beings from resources, once just land then encompassing all tools and means of production. Exclusion enforced by violence and coercive laws.

No Alternative

  • The capitalist faithful often try to convince people that there is no alternative to the current system, even though it is a relatively new development in human history and itself has been modified since its inception.
  • ‘…capital is thus the unproductive surface on which the production of labor is recorded or on which it is coded. We might say that in this case the recording or coding means that the value of labor/production is determined on capital. Everything seems objectively to be produced by capital as quasi cause. As Marx observes, in the beginning capitalists are necessarily conscious of the opposition between capital and labor, and of the use of capital as a means of extorting surplus labor.’
  • Cooperatives
  • Mutualism
  • Anarcho-syndicalism
  • Anarcho-communism
  • Myth of the Tragedy of the Commons
  • Elinor Ostrom 8 principles in managing the commons
  • Municipalism
  • Libertarian municipalism
  • Rojava
  • Murray Bookchin
  • The Institute for Social Ecology
  • Symbiosis
  • Fridays for Future
  • International Indigenous Youth Council
  • Movement for Black Lives
  • Well-Being Economy Alliance
  • P2P Models
  • Happonomy
  • Blockchain – Bitcoin, Regen Registry, FairCoin
  • A Finer Future: Creating an Economy in Service to Life; Doughnut Economics; Bullshit Jobs: A Theory
  • Non-profit organisations
  • Circular economy
  • Catabolic capitalism
  • Fascism
  • Temporary Autonomous Zones
  • Zapatistas

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