Self-collapsing capitalism

Capitalism isn’t sustainable. It’s going to collapse.

I might even go so far as  to say capitalism itself verges on immorality, in that the system is predicated on forcing people to buy more than they need.

Let’s start small. Joe is a shoemaker and lives in a village of 100 people. He’s able to provide shoes for everyone, and he earns a comfortable living selling and repairing shoes.

Bob sees that Joe is making a good living making shoes, and he decides to make shoes too. Now, a village of 100 people only requires a certain number of shoes, and with twice the number of shoemakers, each one is now making half the amount of shoes (and money) he was before. 

Since both men want a living wage, they need to take steps (pun intended) to increase sales of shoes. They could try charging more, but then shoeless people would go to the other shoemaker, so that isn’t any good. So instead, they’ll try to sell extra shoes.

Most people in the village only need a certain number of shoes, and they own them already. Replacing the worn-out shoes can’t sustain the two shoemakers, so instead they begin making different kinds of shoes. “These are going-to-church shoes.” “These are going-to-dinner shoes.” 

In other words, in order to make a living, they need to create a need that isn’t there in the first place.

Over time, as you get more and more shoemakers, they’ll have to inflate more and more artificial need for every one of them to sell enough shoes to live comfortably.

Add in the inevitable advances in production, and you see the necessity of creating more inflated artificial need.

(Witness the laughable phenomenon of magazines with the object of teaching people how to buy less. You can get subscriptions to these things! It’s as if they’re saying, “Buy less! If you buy this magazine, we’ll tell you how!”)

In the autobiography of Teresa of Avila, she writes about a noblewoman who, trying to cheer her up, showed her a small collection of jewels. Teresa of Avila laughed and said to herself, it helped to put into perspective that those jewels meant nothing in light of the kingdom of Heaven. But to me, it was even more ludicrous because if I go over to the closest mall (ten miles away) there are seven jewelry stores! How much jewelry can Angelborough possibly require? 

As our artificial, inflated needs increase, so do our unmet “needs.” Because we can’t possibly fulfill every “need” that every producer wants us to have. And the more our unmet needs, the greater our unhappiness.

Which we then seek to fulfill by meeting our “needs.”

It’s insupportable. In the long run, capitalism survives only by keeping its little capitalists unhappy. 

I’m caught between wondering whether the current economic crisis is an evil we ought to avoid, or simply the justified swing-back as we balance the scales and God helps us root out the immorality in the system.

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About philangelus

Mom, freelance writer, novelist, angelphile, Catholic, know-it-all.
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18 Responses to Self-collapsing capitalism

  1. Jason Block says:

    So, by that logic, whatever you have saved for your kids college, whatever money you have in the bank, whatever money your husband makes every week should be turned over to the government immediately…since you dont need it.

    I say not only is capitalism not immoral, it’s the best system we got. The economic collapse is not because of capitalism, but in SPITE of it.

    The reason why we got into this mess is because of the Community Reinvestment Act of 1977. That basically put a gun to the banks heads and the government basically forced banks to give loans to people who a) couldn’t afford to pay them back and b) were people of color in the name of affirmative action.

    The Fannie Mae/Freddie Mac disaster was two fold. The first part was the fact that the government was giving out NINJA(No Income, No Job At All) Loans to people who couldn’t pay their mortgages. Secondly, the government was selling and reselling bad paper to cover their own rear ends.

    People like Bernie Madoff(who I know you were going to mention) are the exception, not the rule. With all due respect, your opinion is incredibly dangerous and short sighted.

    You do remember when I won $125,000 on “Who Wants to Be a Millionaire?” When I paid taxes…my rate with everything was 50%….how much do you think I “deserved” to keep…10%? 20%? 0%?

    I am telling you this…I am for profit and more of it. If that makes me evil and immoral, so be it. I am willing to be called immoral and evil for the sake of making as much money as I can and keeping the most I can.

  2. philangelus says:

    This may be the best system we have, but it’s deeply flawed because it’s predicated on unending consumption of more than we need to consume.

    I’m not saying we’re immoral people for existing within the system. But the dependency on making other people unhappy in order to survive is not a good thing over the long haul.

  3. Cricket says:

    Another part of the problem with the low-downpayment mortgages (which thankfully were never as popular in Canada) is that they’re a form of printing money.

    Going from a 1986 high school class, so no claims on current accuracy, but in Canada, a bank’s charter allows it to loan out money it doesn’t have. It creates money, not out of trees or hard work in ingeneuity, but out of a signature.

    I now realize, it wasn’t creating money, it was borrowing it from the future. We see it on a small scale with credit cards. We buy now, and earn it over the next year. (Well, not this household, but many.) The low rate mortgages encouraged more people to do it. There’s this whole bubble of time-travelling money, and we all know the hazards and paradoxes of time travel, and the complexities of prophecizing.

    Fortunately for us, Canada is more conservative about creating money than the US is, so our bubble isn’t as big or fragile. We’ll be hit by ripples as others collapse, but we don’t have entire subdivisions of mortgage foreclosures.

    The Wealthy Barber era is also to blame. Millions of people who don’t understand the stock market were encouraged to invest, which created an artificial demand and artificially high stock prices. The stock market is, in many ways, a pyramid scheme. My husband’s company was growing on investors rather than product for a few years, and it was scary. The core of the company is solid, but the stock is rock bottom. I still don’t see the benefit of taking it public.

    Jane’s aboslutely right about the dangers of capitalism gone too far. One of FlyLady’s recommendations is to stop buying, especially cheap things. The use up money and build clutter, but they don’t fill your heart. Save your time and money for things that will bring you joy.

    Analog had a good editorial this month. (The March 2009 issue arrived last week.) Bypassing the chaos of getting there, he suggests that there really isn’t enough work available to keep everyone working full weeks. Maybe we should distribute available hours more equallly, so everyone has a chance to work enough to buy what they need, rather than some having lots of work and buying a lot, and the rest barely having any. It’s worth thinking about, but it’s still cheaper to pay overtime or part-time than a standard work week.

    Capitalism isn’t perfect — it’s a human invention, run by humans. Socialism has the same defects, only they’re intentionally condensed into fewer hands. I’d like to see more investment in things that will pay off, like medicine and education. Those are worth borrowing from the future for, since they will pay off in the future.

  4. philangelus says:

    Y’all will notice that at no point in my post did I talk about credit. My fictional scenario involved only cash on the barrel. In order to generate more cash, these two shoemakers needed to figure out how to sell (together) double the number of shoes that needed to be sold.

    Throwing credit into the mix makes it easier for consumers to buy things they don’t need. But the system will collapse without it too (only slower.)

  5. Ivy says:

    Here’s the trick, we have such a large, efficient, society that were were to buy only what we absolutely needed (food, clothing, medicine, shelter) and perhaps a few luxury items (books, movie tickets, Internet access) we’d have rampant unemployment. Too few people can meet the needs of too many. That’s true under any system you can name. A cobbler under a communist regime can make as many shoes as he can under capitalism, socialism, mercantilism, you name it. Shoe-making doesn’t change depending on how the shoes are paid for. So society realigned itself to increase demand, which in turn increases jobs, increases overall wealth, increases family stability.

    Your choice then, is to have people experience the shallow dissatisfaction of not having the latest gizmo or gadget, or the deep despair of not having a roof over their heads or food for their children.

  6. philangelus says:

    That’s a good point. So given that, what system isn’t going to collapse on itself? Or is inefficiency itself a good thing for society?

  7. whiskers says:

    The point of capitalism is not to have two shoemakers in a village which cannot sustain them. The point is that the villagers may now have a choice of which shoes to buy, regardless of who makes them. If the original shoemaker cobbles badly, and his shoes give people bunions, then the newcomer shoemaker has the right to try to steal the original’s market share by making and promoting better, more comfortable shoes.

    While I agree there are flaws in the system, the beauty of the system is that everyone has the choice. The villagers can choose who to patronize, the shoemakers can choose the quality and price of their own product and there is no “government” which is telling the newcomer, “sorry bub, this town already has enough shoes, (even though the people now all need a podiatrist), if you want to set up business here, you have to do something we don’t already have.”

    Freedom, choice, and the fact that the market eventually evens itself out if used correctly: that’s the beauty of capitalism.

  8. Ivy says:

    Inefficiency carries other problems. The most obvious is the failure to compete in the global market.

    Inefficiency drives up prices, which leads to people working longer hours, which means parents aren’t home as much with their children, which leads to still other issues.

    In the pre-industrial world we had a much smaller portion of our population involved in things like research or entertainment. Oh, there were some to be sure, but when it takes thirty cobblers to shod a town of 3,000 people, that’s a higher toll in terms of manpower than it is when you only need good equipment and 2 cobblers. The other 28 can do other things. Even if 25 of them are making jewelry for iPods, and ice cream scoops that can announce the flavor you’re scooping, 3 will be involved in life-saving medical research, or bringing meals to the home-bound elderly.

    Looking at all systems in use over the last 5,000 years, since Narmer first unified Egypt, I can’t find one that is impervious to collapse.

  9. Mariana says:

    Seriously, you are missing the crucial point called division of labor and market saturation. If Joe makes enough shoes for everyone, a smart businessman won’t make shoes as well. He’d make dresses, or shirts, or thingamabobs.

    Capitalism can work when people are greedy, but it can also work when people are not. Actually, things are going poorly in ways *predicted* by free market capitalists *because* people aren’t following sound economic principles. Having the government control inflation, print money out of nothing, set arbitrary interest rates to encourage debt, prop up an economy that imports goods and exports nothing but paper money… those things are not capitalism — debt is not capital. A system based on debt is not capitalism. They are symptoms of avarice, usury and pride.

    Capitalism is a description of how things operate when ordinary citizens control the means of production, and prices are set based on supply and demand of goods and services. *That* is all it is. Take the example of the average monastic institution — They are a voluntary association, they make a unique product, like rare alcohols, cheeses, altar linens or breads, sell it based on the needs of the community, and use it to buy the things they don’t make themselves. They survive when the society around them gives them the freedom to set their own prices, be free from excessive taxation, and doesn’t demand what they must produce, and allows them control of their land and their machinery.

    Moreover, Capitalism isn’t a social system — in the sense Socialism is a socio-economic system. Capitalism only describes economic conditions, not how the government and civil society operate.

    What we are seeing might be the collapse of the Dollar system established at Bretton Woods. Very different story.

  10. Kate says:

    I think capitalism would be a less awful system if we just did away with advertising. Entirely. Make everyone reliant on word of mouth. Maybe that would even things out a little, make it less about manufacturing needs, more about filling them. Because advertising puts the lie to the capitalism-defending claim that competition is good for everyone.

  11. Ivy says:

    Kate,do you really want to pay a substantially higher price for magazines? Television? Radio? Do you have mass transit where you are, and if so, would you like to see the rates hiked way up to make up for the lost revenue that would otherwise be generated by posters? For New York, that’s close to $110 million. Would you like to pay to view what are now ad-supported websites? I like the ads, and what they give us, just fine, thanks.

  12. Cricket says:

    Advertisers see a need and fill it, and get paid for it, without (to my knowledge) an artificial subsidy. I try to shop by word of mouth (or electronic equivalent) because I trust it more than paid advertisements, and I don’t appreciate them killing trees. That lowers the value of the ads, so they either squeeze more in (which lowers the value of the publication), or find another way to sell to me. (Although I admit to reading the weekly Canadian Tire flyer — some great deals.)

  13. Ivy says:

    Cricket, looking just at magazines, the ad revenue accounts for the bulk of their profits. Scientific American pulls in $10 million a year in advertising to a base market of about half a million subscribers. If they cut out ads, they would have no choice but to charge an additional $20 a month, just to break even.

    It’s not that the advertisers are subsidized. It’s that, were they gone, the companies that rely on them for income would need to make up the money somewhere else.

  14. Similar Situation says:

    Keep in mind, if there was no Bob the shoemaker, Joe can make the one type of shoe however we wants (poor quality, charges alot, have to be replaced often, takes his time making the shoes). Assuming the people won’t go barefoot, they will order the shoes from him (he can even ask for the money upfront).

    Why? because the people have no one else to go to?

    When Bob comes along, the quality of the shoes are better, the price goes down and you’ll get them on the spot.)

    If Bob or Joe are making church shoes, that’s because someone wanted them. The supply is only as good as the demand.

    Does Joe’s quality of life go down? Not necessarily, because his other purchases will be cheaper as well if there is competition in those markets.

    To describe today’s problem in Joe’s world would be if a client promised to buy 30 shoes and pay for them when he finishes them in 60 days. He uses that money (that he doesn’t have yet) to place an huge order of leather. In 60 days, the buyer never shows. Joe now cannot pay for the leather order. He doesn’t even have enough of his own money to pay for the order.

    Now imagine 10 of Joe’s clients doing the same thing at the same time. Joe didn’t check any of his clients to ensure that they were good for the money and yet he still placed that huge order.

    Now imagine how Joe’s apprentice feels when Joe tells him he can’t pay him.

  15. Memphis Aggie says:

    Capitalism is a system based on trust and personal responsibility so it fails when people act immorally (fraud or force) or irrationally ( current loans). It works better and responds better than a top down approach because it’s distributed and flexible and rewards merit and hard work in an egalitarian way: any one anywhere might have that great new idea. It fails whenever there no competition (monopolies) or fraud, just like governments do. When it works it’s just, all exchanges are free and fair to those who can participate. It’s merciless however in that it formally provides nothing for those who do not participate. Yet because capitalism provides strong incentives to produce, when it works, it produces in excess and makes charity more possible. It’s got major problems because of fallen human nature, not because of it’s structure. When the laws contain the worst aspects of human nature (like fraud) by pursuing transparency laws and through vigorous enforcement, but free the best ones (innovation and wide open opportunity) everyone benefits. In a truly realized Christian context where honesty and compassion are widespread capitalism works really well. Any authoritarian scheme suffers from human nature in that the temptation to abuse of power is too great. People regularly complain about greed and forget about the abuse of power. Capitalism distributes power to the broadest base, provided monopolies are prevented. When it works its about self determination and respect. Any Authoritarian scheme treats adults as children and diminishes freedom by definition. If your stuck with a human run system, and you are, you need one that is flexible and responsive and insulated from the errors of a few powerful elites.

  16. illya says:

    I agree with the weblog. We find it very hard to distinguish “need” from “want”. So, people say things like “I have to have air conditioning when I sleep” No, you don’t HAVE to have air conditioning when you sleep. If that were so, millions, indeed, billions of people would be dead if they could not sleep above a temp f 85 without the benefit of air conditioning. What we should say is “I want to have air conditioning”. Once needs and wants are confused, finances become a jumble of wants competing with true needs. Since true needs (housing, heat, food, etc) are things we do not really crave, wants often compete and win over true needs.

  17. Cricket says:

    Ivy, we see the same points, just different ways. If the balance that keeps the magazine I like in business includes ads, then I’m okay with it, except for the dead trees. When technology or the economy changes, they need to change with it. (Just finished reading the teenage version of “Who Moved My Cheese”. I hope my son will read it.)

    My comment on subsidy was because when things get subsidized, then capitalism isn’t allowed to find its own balance. I’m not saying that we should stop all subsidies, but many benefit inefficient and outdated systems and remove incentive for change. Subsidies should be for innovation and people, not existing factories.

  18. Pingback: unmet needs « Seven angels, four kids, one family

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