If there is anything one should learn from the "Great Recession", one recession in the many recessions experienced by America and the world, is that capitalism has major structural flaws. What is capitalism exactly? Capitalism is defined as "an economic system based on a free market, open competition, profit motive and private ownership of the means of production. Capitalism encourages private investment and business, compared to a government-controlled economy. Investors in these private companies (i.e. shareholders) also own the firms and are known as capitalists." (investopedia.com)
The modern idea of capitalism can be traced back to Adam Smith's book "The Wealth of Nations" which was written in 1776. Many of the understandings of capitalism and more broadly monetary economics are based on perspectives on human behavior that are over 200 years old. While capitalism and monetary economics have changed the one thing that hasn't is the old world view that scarcity will always exist. Scarcity is the underlying premise of all monetary economics. Capitalism, Socialism, Communism, and Fascism, all include the idea of scarce resources as their starting point for the rest of their economic philosophy. These ideologies were created at a time when world globalization did not reach the extent it does today. Nations were more disconnected. Travel, communication, and the spread of ideas and goods were a lot slower in Adam Smith's time.
When one observes capitalist and monetary economic theory, the first major flaw that should be noticed is the notion of scarcity. If someone were to read the writings of Adam Smith and then walk into a Wal-mart or Sam's Club she or he might start calling into question the so called "reality" of scarcity. Scarcity as argued by Smith and later economists is the belief that the Earth's resources are limited. Basic monetary economic theory tries to tackle the social problem of allocating seemingly scarce resources among a population with seemingly unlimited wants and needs. However, in a technological world such as ours these problems are not as they seem. The idea of scarcity comes from a world in which most of the resources were static, since resources could not be duplicated or synthesized. For instance, in the early 1800s there was theoretically a set amount of coal that could be mined. Once this coal was gone, it could never be used as a resource again because it was exhausted. Even "renewable" resources like wood and leather can be theoretically exhausted in a monetary economic system. If all the trees in a forest are cut down, there is no more wood to be gained from that forest. Likewise, if the entire population of cattle is slaughtered there is no more leather. So in effect, renewable and non-renewable resources seem scarce.
While this notion is true in the less technologically developed world of Smith, it is not so in modern society. The technological development we see today allows for goods and services to be mass produced. Any company or corporation attempts to produce as many goods as are demanded by a certain population. Demand roughly speaking is the aggregate willingness and ability of individuals within a population to purchase a valued good or service. In an isolated world or system devoid of technological advancement, resource scarcity is a truer reality. However, in an open world were resources are shared and technological advancement is achieved resource abundance can be realized.
Since scarcity is related to the premise of unlimited wants and needs, I can not go any further in debunking the notion of scarcity without first addressing this factor.
Though it may seem that seem that the wants and needs of a population are limitless, it is simply not true. For one, the economic law of diminishing value is in direct contradiction with the idea of unlimited wants and needs. The law of diminishing value states that over time a person's value on a particular good or service decreases as they obtain that particular good or service. For example, if Tom has is hungry for hot dogs, each hot dog he consumes makes him less likely to want hot dogs. If the needs and wants of a population were truly unlimited as stated in basic monetary economic theory, people would buy each particular product they valued until they ran out of money. While the number of hot dogs Tom will consume in his lifetime may seem like a hard number to calculate, that number is still fixed. Tom will never want infinity hot dogs, he will only want how many he is able to consume. Therefore, it is possible to calculate how many hot dogs Tom will eat over his lifetime. Peoples' desire for goods and services is directly based upon how much they can process. A person cannot watch thirty televisions at once because she or he has only one pair of eyes, and so does not have the physical capacity to consume an unlimited amount of televisions sets. Even if one were to argue that a person could keep wanting different televisions every time she or he wanted to view television, that person would still have a fixed amount of televisions they could demand based upon human physical limits most obviously, life expectancy. Furthermore, human behavior has a tendency towards familiar attachment as people are generally not comfortable with using new technological tools each time they need to complete a certain task; so the likelihood of a person wanting a new television set each time she or he wanted to watch television is statistically nonexistent. By the law of diminishing value, each person has a limited amount of wants and needs they can physically consume over their lifetime. When extrapolated over the world population for any point in time, the entire wants and needs of of the people of Earth is theoretically a fixed calculable number.
The notion of scarcity resulting from unlimited wants and needs is also fallacious due to the fact that it does not account for human technological advancement. Resources are ultimately a means to an end of solving a human problem which is realized through want or need and the subsequent obtaining of the particular resource. While a certain resource may be scarce, the human capacity for finding an alternative solution to the problem posed by lack of that resource is exponentially greater to the point of limitlessness than the looming scarcity, as long as individuals work together to solve the problem. This factor can be seen in any of today's corporations or scientific studies where answers to problems are continually being solved. People who are educated and working towards solving a problem have a greater chance of figuring it out if they collaborate than if they simply work alone. In truth, it can be said that the entire cumulation of human knowledge and well-being is a result of one giant collaboration. In a sense,Stephen Hawking is nothing without Einstein, Einstein is nothing without Newton, and Newton is nothing without Copernicus, etc. This capacity for collaboration, if maximized can lead to endless growth and acceleration beyond resource scarcity. Resources are only scarce when there is a lack of answers on how to make them abundant or to utilize other materials to alleviate the problems posed by not having the particular resource.
Aside from the fallacy of scarcity, the most alarming and probably detrimental aspect of capitalism and monetary economics is the idea of the profit motive. Profit exists in a monetary system due to the premise of scarcity. In a monetary system, currency is the medium of exchange. Goods and services are sold to accumulate more money or purchasing power. A basic example of this would be, if Jim has a business and it costs him $3 dollars to make a product and he sells it for $8, he makes a $5 profit. The problem with the profit motive is the fact that it is not always within the best interest of profit to solve human problems. In fact, profit is often a detriment. The profit motive leads to inefficiency when addressing human wants and needs. If Jim's business produces goods that last 50 years he will not make a profit because each time he addresses a person's need and wants, less people within the population will exist who desire his goods or services. This fact drives Jim to produce goods and services that don't fully address the population's desires. He will make his products last only a couple of years in order to turn a profit. In the world of economics this is referred to as planned obsolescence. Businesses make products not necessarily to address human desires but rather to make a profit. If our friend Jim started out making pencils to address the need for better writing materials, he must find a way to produce the most quality pencils at the cheapest sustainable cost. If he produces a pencil that costs too much and therefore undercuts his competitiveness in terms of price and the ability of people to buy his pencils, he will not be able to stay in the business of pencil production, even if his pencils last long and work better than other pencils on the market.
The inefficiency from planned obsolescence is just one problem with capitalist and monetary economics resulting from the profit motive. As stated earlier, the profit motive more often than not is in direct conflict with addressing the problems underlying human wants and needs. Another area where this should be crystal clear is in the subject of poverty. Poverty is the condition of not having the economic purchasing power (money) to accommodate one's needs. People living in poverty exist in first, second, and third world countries. It the direct result of a restriction of resources based on the profit motive of monetary economics. If a resource is abundant it cannot be sold. Resources have to be either seemingly scarce or artificially made scarce in order produce monetary economic profit. For example, air cannot be sold because it is abundant and up to this point in our history cannot be made artificially scarce. On the other hand, clean drinking water though technically abundant is made artificially scarce through inaccessibility. Technology exists today to supply the entire water demands of the world. Water can be recycled as well as desalinized. The only reason it isn't is because of the inhumane tenet of monetary economics that scarcity must exist for the sake of profit. Millions upon millions of people each day go thirsty and even die from dehydration because of a lack of drinking water. However, the monetary economic value system allows people who are not dying from dehydration to go about their day without feeling any remorse because of the economic value system they uphold, even though it is artificially denying the poor of the ability to drink.
Even people who give to charities in order to end hunger and starvation don't realize that their efforts are completely futile. As long as the world upholds capitalist and monetary economic values there will always be winners and loser, "haves" and "have nots". It is impossible to end hunger and malnutrition in a monetary economic system because business and industry can't make a profit if goods and services are abundant. People somewhere will always not have food because if food were abundant it couldn't be sold. It is a system that upholds winners over losers, and without losers you can't have winners in a monetary system.
Ideally the goal of an economic system should be to maximize human well-being. However, the values upheld in capitalism and monetary economics lead directly to monopoly. Currently 1% of the entire human population holds 40% of the wealth/access to resources. That means 99% of people on our planet have to compete for access to only 70% of its resources. To use a fashion metaphor, it's like trying to fit a big person in pants that don't fit them, while the other person has enough fabric in their pants so that they can not only fit but also can make a shirt, a dress, and even a jacket from the left over fabric. From the beginning, the goal of any business is to maximize market share and therefore profit. If Jim has more people coming into his store to buy products than other stores, he does better. If Jim has everyone buying things in his store he does the best. This motive can be easily seen in the business practices of Wal-mart, where many other "mom and pop" stores have been simply out competed and put out of business. People lose access to goods and services if they are not able to compete within a capitalist system. Eventually, those able to compete build off their success and create more purchasing power for themselves while those unable to compete are dragged along with the "progress" and so are denied of basic necessities. Over the long run, the wealth gap can only increase in a monetarist system. As people get richer their methods of making money become more refined and so they strive to maintain build off their economic power.
The fact that the premise of scarcity and unlimited wants and needs do not apply in any meaningful way to our world today, along with the profit motive side-effect of poverty that exists within capitalism and monetary economics should compel any person to seek alternative resource allocation methods. Many if not all of the worlds problems today are caused by the inevitable conflict that arises when many people don't have access to goods and services while many others do. Most of our wars are fought over resources either directly or indirectly. Most of the crimes that are committed are directly or indirectly related to the neuroses that is created within the human psyche when one does not have access to resources or is forced to compete with others for resources. I think it is safe to say that with all the advancements in technology as well as psychology and cognitive neuroscience human beings can successfully create and implement a resource allocation system that truly maximizes
the well-being of all people instead of forcing them to compete for irrational profit.
Aurora
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