I was watching Prof David Harvey on hardtalk today. He was talking about how capitalism is not ideal for the masses. It was very interesting. He spoke a little about how wealth should not be hoarded by the rich but should be redistributed to the masses. But one point that he really emphasized is that 3% compound growth is impossible to sustain.
Putting money into “growth”
When America grew economically in the early 1900s, they grew in production. People invested in factories and companies that made things. After a while, the market couldn’t grow that fast anymore and couldn’t sustain that 3% compound growth. So they put money into assets like property (that didn’t produce anything or contribute anything to development!). When that couldn’t grow as fast as they wanted, they then put money into things like hedge funds and derivatives. Things that don’t even exist in the real world.
Instead of putting money into production, they then put money into “growth”. They made money from money. It’s simply nonsense.
But it got me to thinking and I had an epiphany. Where we are economically with capitalism is the same place we were legally in the wild west. Without laws. It’s every man for himself, with the strong free to trod on you.
The wild wild west of economics
It’s preposterous. It’s ridiculous. And it’s happening right now.
We wouldn’t stand for a country where everyone had to fight for himself and people with guns could do what they liked with you. And if you didn’t have a gun? Well, too bad. You’re weak and you deserve to die.
Why then do we stand for it when it happens in our economy? The rich are free to manipulate the market however they like to make themselves richer. And if you’re poor (weak)? Then too bad. You’re weak and poor and you deserve to die and rot away in poverty.
We’ve evolved our government to counteract this. From barbarians to monarchy to democracy. Why? So that the few who are strong wouldn’t oppress the weak. So that people couldn’t kill and rape and steal with impunity. So that the weak are protected even when they cannot protect themselves. ESPECIALLY when they cannot protect themselves.
Evolving our financial systems?
Why then don’t we evolve our financial systems in the same way? From bartering to trade to free market capitalism to something better?
The professor said something else interesting. He said that he’d been reading a lot of Marx. And that Marx has a lot of insights into understanding economics. That perhaps something along those lines might be better.
And that’s what Europe tried. They called it a welfare democracy and what it meant was that capitalism would run normally and taxes would be charged. Those taxes would also then be used to help the poor, sick, old and others who needed help. It was simply enough, redistribution of wealth. But even in this form it failed as we can see happening in Greece and Europe today.
We’ve seen the failure of capitalism in the free market form in America with their mortgage crisis.
So we know its an inherent problem with capitalism itself if two (TWO!!!) of its very different forms can both fail (within a few years of each other) and will “stagger along from one crisis to another”, as Prof Harvey says.
Maybe we need a financial system that allows:
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For people to own things.(not communism)
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No monopoly (because its evil)
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No hoarding of wealth (keeping billions in the bank without investing in something productive)
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Redistribution of wealth.(because the weak should be protected when they cannot protect themselves)
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A currency backed by gold (or at least something solid and real). Because fiat money is pure nonsense.
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No interest. Because interest only makes sense with fiat money and if you want to allow the rich to get richer.
Islamic Banks vs. Islamic Finance?
And so we have a growing interest in Islamic banks as a replacement for the capitalist financial system. Which doesn’t sound right. An Islamic bank is NOT a financial system. It’s just a banking system. Only part of a whole financial system. We need to adopt the whole Islamic financial system instead.
Oh well, it’s a little bit better than nothing. But not by much.
Disclaimer: I’m not a professor of economics like Prof Harvey there. So if I made a mistake, feel free to point it out.