El Borak's Myopia

El Borak's Myopia

.

Quote of the day

Mish finds a beaut:

"Basically the gears of capitalism are pretty much grinding to a halt," said Mirko Mikelic, portfolio manager for Fifth Third Asset Management in Grand Rapids, Michigan. "What started as a little subprime problem has kind of morphed into a bigger problem for the bigger economy."

Wow, no one saw that coming, huh? But it is unfair to say that the credit problem is a problem of capitalism per se. Not to pick a nit with definitions, but credit is not capitalism, it's credit. Subsidized home ownership is not capitalism, it's social coercion. Leverage is not capitalism, it's risk. Fractional reserve banking is not capitalism, it's inflation. Central banking is not capitalism, it's a government-operated money cartel. Hedge funds and revenue bonds and tax rebates and Fed repos, well, you get the idea.

None of these things are capitalism. In fact, one could make the argument that none of these specific things are even necessary for capitalism. All that is necessary for capitalism is capital, the means of production, owned by individuals who have the freedom to use it to produce in their own interest*.

The main problem with our economy at present, and it is a problem that has been growing for decades, is that we have confused money with capital. We have believed, bottom line, that if we could just create enough money we would not have to produce anything else. We could borrow against our houses or future tax revenues forever, and no one would be the wiser.

And it worked for a long time, because we did not stop making actual things right away and still have not stopped completely. But just consider the number of people who work for government** and the number of people who work for institutions whose sole purpose is to move money around. If you subtract them out of the economy, it leaves us very few people actually making things, building products, producing wealth.

Of course those things are necessary. Government is necessary because without domestic tranquility*** there can be no capitalism. Financial services are necessary because without them business has a more difficult time accumulating enough capital to do business. We need firefighters and bank tellers and people who inspect gas pumps for fraudulent measurements. But they are not capitalism any more than roads are transportation.

The near total meltdown of the credit markets worldwide is not a problem of capitalism, but of a lack of capitalism, of production, in relation to our near-complete reliance on the manipulation of money as a substitute for that production. And when the dust settles, we will finally be forced to get back to making things, production, capitalism.

Unfortunately, so long as people continue to believe that the very government policies that have caused the problem contain its solution, the dust will not finally settle for a very long time.

* Which, not coincidentally, is also in the interest of other people who freely trade their own capital (money or labor) for its products.

** And I am one of them, so I'm not just picking on bureaucrats. In my defense, my job is to increase voluntary giving to a public institution, aka voluntary taxation, which in the long run reduces the tax burden on those people who actually do make things. I would rather see the college sell the name on its running track than tax your income. But I'll admit that I do not actually produce anything.

*** Which is where the anarchistic libertarians go completely wrong. There is no peace in society without some some final arbiter that controls a functional monopoly on force - and that arbiter is government. The great problem of governance lies in limiting its impact to where it does good, not in eliminating it altogether.

Labels: economics

Link to this post ::

Copyright 2008, El Borak, inc., makers of Lyin' Your Bass Off brand photogenic rubber game fish.
When you need a picture of 'the one that got away,' try Lyin' Your Bass Off.