Bemeficent Society, Chpt 2 (rev)

CHAPTER 2

MEETING OF THE ECONOMIC COMMITTEE

 

June 15, 2015

 

CAPITALISM VS SOCIALISM

 

Sean thanked his volunteers for their willingness to get together just five days after the Society’s general meeting.

“Ours is an ambitious undertaking,” he said, “and the sooner we get to work on it, the better.  We have been given the task of reforming our economic system, so where do we begin?

“With capitalism.  The reason is simple.  It’s the one economic system whose basic functions are in accord with nature’s own processes.  At its heart is a voluntary win-win trading mechanism that mirrors nature’s own life forms’ give-and-take.  Every human participant endeavoring to optimize its transactions; every cell bargaining like mad to fulfill its needs.  Consequently capitalism employs a number of nature’s own tools such as innovation, competition, quantitative decision-making, and responsive feedback.

“Think for a moment what this simple, dependable mechanism—repeated billions of times a day in billions of places–has accomplished.  Worldwide, it has created businesses churning out goods and services that have bettered the living standards of tens of millions of people.  It has built transportation, communication, and computer systems that have opened our horizons.  And it has funded governmenatal effors to improve peoples’ health, education, and welfare.

“Unfortunately, the benefits that the capitalist system creates in such abundance do not flow directly to the mass of people.  Instead they have been mediated by self-interested human beings who have done an uneven job of distributing them.  As a result, the overall process has left in its wake hordes of poorly paid, understandably disgruntled workers.

“The plight of such workers is all the more exacerbated by the generous incomes capitalism’s agents ladle out to their executive class—generally hundreds of times their employees’ average wages.  Whatever rationale is used to explain the wage differential, it is likely to fall on deaf ears of a worker struggling to make ends meet while his bosses  maintain ostentatious living styles.

Another manifestation of the mismanagement of capitalism’s output are the repeated boom-and-bust economic cycles.  Pools of money left in the hands of speculators periodically goes go irresponsibly sloshing around with devastating economic effect.  Businesses go bankrupt, workers lose their jobs, households are impoverished, foreclosures soar, markets are disrupted, and bank doors slammed shut.  Currencies that represented value one day becomes worthless the next.  Credible commercial paper turns out to have been printed in invisible ink.  Reputable financial houses are reduced in worth to childrens’ doll houses.  Once secure, self-respecting citizens lapse into desolute vagrants.

“More ominously, economic disruptions generally spill over into the political-social arena bringing on one or more of the following: civil unrest, street violence, mob vandalism, scapegoating, rabble-rousing, speechifying, and, not to be overlooked, government overthrow

“Finally, capitalism’s stewards have been callous in their treatment of the environment.  Their factories have polluted their environs; their industrialized agriculture has contaminated farmland; their commercial shipping has fouled our oceans; their mining operations poisoned streams; and so on.”

Sean paused to clear his throat, sip a bit of water, and give his group a moment to absorb his brief survey of capitalism before introducing its alternatives.

“It is understandable that many conflate the unseen, underlying mechanism of capitalism with the flagrant actions of its handlers and advocate rejecting both out of hand.  In their place, these critics propose a government-controlled system such as socialism.  That is a hugely misguided choice.  Unlike capitalism’s voluntary engine, socialism depends upon artificial, top-down direction enforced by a police state.  It stifles competition, resists evolutionary change, prohibits free speech, and gives lip service to egality while cynically posturing as a champion of scientific progress.

“We don’t have to depend on analytical reasons to reject governmental controlled systems.  History provides all the evidence needed.  One nation after another has been plunged into decades of dismal economic performance, physical hardship, loss of civil liberties, and, ultimately, political collapse.  One wishes that, before anyone was allowed to join a leftist cause, he be forced to spend a year reading modern history at an approved institution of higher learning or better yet a year living in a socialist country.

“If one pictures a horizontal axis with its left pole planted in some form of command economy and its right pole anchored in capitalism, politicians in the past have assumed that, at some point, along  the axis, there had to be a compromise position combining the virtues of both extremes.  But they were mistaken.  No such position exists.  Movement away from capitalism only dilutes its benefits while gaining nothing but Bolshevik illusions in return.

“What we need, obviously, is to democratize  the distribution of capitalism’s benefits—that is to say, mimic the way nature conducts its transactions.  In other words, we must  identify those elements in our present system that appear to operate naturally, but, in fact, distort its behavior.  Reason enough to suspect the modus operandi of bad memes—those dastardly spirits whose preoccupation it is to regularly inject their deadly venom into our mentalities from afar without so much as leaving even a hint on our heads.  Time, that is, to enlist the services of a bad meme exorcist.

My good friend, Martin, who was one of the founders of our organization.  Actually it would be more accurate to call Martin the founder of the Society, for it was his idea to start such a group in the first place.  Martin, tell the committee what you’ve found.”

 

MARTIN’S FIVE PERNICIOUS MEMES

 “Thank you.  When Sean and I talked over the challenges we faced in putting together reports on our respective institutions in just the allotted six months, he reminded me—not altogether jocularly, I must say—that I had two additional months time to work out mine while he and Todd made their presentations.  In defense, I muttered something about ‘the luck of the draw,’ but it was clear my lightheadtedness failed to placate him.  As much as he appreciated my wit, he said, he would be even more appreciative of my help.  So, to make a long story short, I more or less volunteered to spend some time on behalf of his assignment to track down some of the bad memes that he suspected were hovering over our economic system.  To do so, I tried to distinguish between what were the operations of capitalism itself and those of its hangers  on—in other words, to overlook the commonly observed effects of capitalism and focus instead on what were their possible causes.

“Sean had requested that I put together five memes in the economic area that struck me as the most significant.  After meeting his request and reviewing my selections, it occurred to me they had a common parentage—i.e., that in every case the meme-makers created measures that perpetuated their social class.  I don’t believe this had been some  nefarious conspiracy but rather as an expression of assumptions regarded as gospel—an unconscious—dare I say, innocent—application of the ‘golden rule’ to the effect that he who owns the gold makes the rules.  I doubt that it would ever have occurred to the originators of these memes that a member of the lower class would have proffered a somewhat different list.

Bad Meme One: An Economic System Can Operate Satisfactorily Even If Its Currency Cannot Be Precisely Defined:

 The field of economics has not settled on a commonly-held definition of money—that is to say, what it is and precisely how it is supposed to behave.  And since money is the unit by which all transactions, all monetary policies, and all economic theories are measured, its validity is no small matter.

 Paradoxically, the one characteristic of money upon which economists agree—that is to say, money is both a store of value and a medium of exchange at the same time and in the same place—is, in my opinion, simply illogical and the source of much ongoing mischief.

 There is no question but that money, as a medium of exchange, is one of mankind’s most propitious inventions on a par, let’s say, with the discovery of fire and the wheel.  Its role in today’s commerce is so ubiquitous as to preclude argument.  As further reassurance for those of us who habitually look to nature for analogous phenomenon, the performance of money in this mode can be compared to the ability of catalysts to expedite chemical reactions.  Just as in the commercial world transactions leave the net amount of money unchanged, so it is in the chemical world where the quantity of catalysts likewise remains unchanged.

 It is harder, however, to legitimize virtual (or paper) money’s second role as a store of value.  What makes it suspect is that an officially-sanctioned issuing authority can create more of the stuff out of thin air.  Although this magical feat of spontaneous generation is accomplished these days by computer clicks in the Federal Reserve, it can be more easily visualized as a procedure in which stacks of paper are fed into a printer and emerge as newly minted currency exchangeable for real goods and services.  One might think that such a wondrous transformation would call, at the very least, for a clergyman’s benediction.  But all that is needed is the confidence of the end user—a shaky proposition, one might think, on which to base an entire economic system.

An interesting observation, in this regard, is that money’s two principle characteristics conflict.  Money as a medium of exchange must be dynamic—dollars merrily skipping from one transaction to another.  On the other hand, money as a store of value is expected to behave in just the opposite fashion: stasis—dollars idly sulking on a shelf somewhere.

 One might imagine an economic system in which money assumed one of its properties in one mode and another property in a different mode.  What is less implausible is that it could assume both states simultaneously.

 Bad Meme Two: A Stable Economic System Can Be Built On An Unstable Platform:

 Niceties aside, the reality is that advanced countries in the Western World are structured along class lines: a propertied class and a working class.  Granted that the dividing lines between the two are somewhat permeable enabling a limited number of individuals to migrate between the two, these are the exceptions.  The great majority find themselves sequestered in one or the other situation.

The contrast in living conditions between the classes, was most starkly drawn in the days of slavery.  One can picture an unshaven plantation owner superintending his estate from his portico whilst slouched in his rocking chair, mint julip in hand.  No such unflatering portrait can be imagined of a representative member of today’s upper class.  One pictures, instead, a well-groomed investor seated staunchly erect in front of his computer screen clutching nothing more reprehensible than a nonalcoholic computer mouse.  Nevertheless, optics aside, the occupations of the two gentlemen share a common feature—that is to say, the boon of being able to profit from the labor of others without so much as lifting a finger of his own.

 The investor might protest that all he had done was risk his hard-earned money in stock certificates that he promptly buried in his safe deposit box.  Thereafter, he had no part whatsoever in the flow of dividends, interest, and/or appreciation that occurred; those inadvertent benefits came about from initiatives taken by the certificates alone.  All true, but an impartial observer might note that the plantation owner might have made exactly the same case by contending that, after he had brought home his newly purchased slave and turned him over to the foreman, he had nothing to do with anything that later transpired.  Both at their heart, are (or were) officially sanctioned transfer of monetized human labor from the lower classes to those more fortunate.

 Bad Meme Three: Governments Must Ameliorate Capitalism’s Deficiencies:

 In a simple farmers’ market, it can be assumed that buyers and sellers are on equal terms—the buyer always able to walk away from what she considers an overpriced offer and the seller never forced to lower his price below what he considers a fair amount.  Obviously, in such cases government intervention is  uncalled for.

 But such is not the case in today’s management-labor negotiations.  Absent outside intervention of some sort, such affairs would be massively one-sided.  Management backed up by substantial financial reserves could always outlast and out-bargain labor with the result in minimal wages and terms that would be expected.  And, indeed, this was much the case at the beginning of the industrial revolution.  It took unionization (or threat of it) backed by labor-friendly legislation to restore a better balance between the two sides and a better deal for workers.

 But government intervention always comes with a substantial price.  It is incapable of letting well enough alone.  Over time cosy relations between government officials and labor leaders have come to distort normal democratic processes, invite corruption, and result in political ramifications inimical not only  to the public at large but to individual workers the govenmental intervention was originally meant to help.

 I cite this as but one example of the trend away from “natural” economic arrangements, such as the farmer’s market, toward “unnatural” arrangements in which an outside force—i.e., government—plays an ever increasing part.  Thus big banking, big communication companies, big pharma, big manufacturers,  big retail, etc. all fall under the guiding influence of governmental savants with not always propitious results.

 Bad Meme Four: Individuals Are Helped By Personal Credit:

 The extension of credit in the commercial world plays a constructive, indeed vital, role in conducting the flow of money where and when it is most needed.  Companies can thus be assured of sufficient funding to complete their expansion plans, to pursue promising but expensive research, to enlarge their inventories to meet expected sales, to innovate and promote new products, and so on.

However, the same cannot be said of consumer financing.  Assuming an average term of personal indebtedness overall—car loans, home mortgages, credit card balances, personal loans, etc.—borrowers perhaps enjoy about a five-year head start to begin satisfying their wants.  But, in exchange for this boon, they incur debt that may extend well past whatever pleasures their purchases may have originally afforded.  Moreover, borrowers often succumb to the temptation to overextend themselves and end up uncomfortably weighted down by payments, late charges, repossessions, and even bankruptcies—all headaches that could have been avoided had greater thrift and shrewder financial decisions been exercised.

Aside from these individual calamities, an overleveraged population can aggravate the length and severity of a recession with its multiple social ills.

In short, totaling up the pluses and minuses of consumer finance, the scales tilt heavily on the latter.  At present the economy is dependent on the availability of cheap credit, but whether this is a matter of fundamental necessity or akin to an illegal drug dependency is a matter, in my opinion said Sean, worth a second look.

There is, in addition, a moral question involved.  Isn’t being poor bad enough without being penalized for it in the form of exacted interest payments augmented by late charges and fines for insufficient funds?

Bad Meme Five: The business of banking is an unalloyed good:

When all goes well, banks offer their well-off owners the opportunity to leverage their wealth by lending out, and collecting interest upon, other peoples’ money.  And even when things go very badly and banks are forced to close, our government conveniently steps in to indemnify the depositors as well as, in most cases, salvaging owners’ equity.

In particularly onerous situation the bank suffers losses that can’t be sustained, it is taken over or closes altogether, and its original equity is wiped out.  But even in these circumstances, the losses fall disproportiatly on others.  There is no question then that the banking system, as presently constructed, favors bank owners.

In sum then, banking for insiders is a win-win situation.  Bankers can place big bets on the table and collect from the house when the dice rolls their way and collect from taxpayers when it doesn’t.  The question is, does society get its money’s worth in terms of the financial services banks render the economy.  The answer is “yes” if no other entities could perform the same economic function.  However, if other, fully-financed, creditors were on hand to offer similar services without entailing governmental backup, taxpayers would surely benefilt.  My guess, said Martin, is that if banks disappeared, there would indeed be other lenders to take their place albeit at higher costs to debtors and at more conservative terms.  The tradeoff would be a slower growth, but surely safer, economy.  Possibly a win-win game for the consumer for a change.

Sean, those are the five I’ve selected.  There were lots of others, but these struck me as the best for your committee to consider.  I hope they help.

 

SEAN’S CONCLUDING REMARKS

 Thanks, Martin.  Those were exactly the kind of issues I was looking for.  Solving the problems they present won’t automatically create a perfect society, but it would bring us a good deal closer to nature’s.

Urlich was good enough to prepare a set of hard copies of Martin’s memes.  I’ve laid these out on the back table and ask that each of you pick one to ponder over and begin to think how to bring it closer to a natural solution.  In that connection, it might help to imagine yourselves transported to an imaginary place—let’s call it Newcapia, to give it an identity—unhindered by this world’s preconceptions.  A place where mankind’s rules no longer apply and nature is calling the shots.

In three weeks the Society will hold its next general meeting, so let’s adjourn until then.  We’ll go over the ideas you’ve come up with—I’ve got a few of my own, you know—and decide on how often it would be useful to meet from then on.   Thanks for your attention, my friends, and may Gad be with you.

 

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