Guest Post: Currency Wars, Trade And The Consuming Crisis of Capitalism

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

Currency Wars, Trade and the Consuming Crisis of Capitalism

To understand why the euro is failing and the Swiss Franc peg is a sand castle that will dissolve in a rising tide, we must start with a historical context and the crisis of global Capitalism.

The recent 40th anniversary of President Nixon withdrawing the U.S. from the gold standard triggered an avalanche of commentary mourning this introduction of the "fiat" (unbacked) dollar. But as most financial commentators have a conventional-economics perspective, they missed the key point: Nixon had no choice.

To really make sense of the past 40 years, and the current crisis of advanced global Capitalism, we must turn to everyone's favorite misunderstood economic framework, Marxism. I recently addressed several aspects of Marx's view of the inevitability of advanced Capitalism's crises in Marx, Labor's Dwindling Share of the Economy and the Crisis of Advanced Capitalism (August 31, 2011).

Here's the thing about conventional economics: it cannot make sense of our current interlocking crises because it lacks the tools and perspective to do so. Conventional economics has failed on a grand scale. Not only has its policies failed, its account of what's really going on fails to explain the underlying dynamics because it is fundamentally self-referential, parochial, mechanistic, blind to broader forces of history and soaked in the quasi-religious hubris that reductionist equations and quant models can not only explicate reality, they can predict human behavior.

The catastrophic failure of its policies result not from poor policy choices but from a tragically inadequate intellectual foundation. Hubris, indeed.

As I note in Chapter One of my new book An Unconventional Guide to Investing in Troubled Times, Like a creature born in the morning that has only seen daylight, conventional economics has never experienced night and so it has no conception of darkness.

The Marxist perspective has its own limitations, for example its weak purchase on the role of Peak Oil and resource depletion in the coming crises, but because Marxism is grounded in a historical and philosophic understanding rather than a reductionist, mechanistic, econometric one, it offers us the only comprehensive account of what's really going on with paper money, gold, trade and the crises of advanced Capitalism.

To understand the role of paper money, credit and gold in trade, we need to understand the role of trade in advanced global Capitalism. If we don't understand this, then we cannot possibly understand the current interlocking crises.

As I described in the entry noted above, Marx foresaw that mechanization/automation and the dominance of finance capital would lead to labor's share of the national income shrinking while industrial capital's factories produced ever greater quantities of goods at prices pushed down by labor-saving machinery and software (i.e. invested capital). (Marx also laid out the inevitable progression of capital to monopoly and cartel Capitalism, but that's another entry.)

This "crisis of overproduction" has several consequences. As less labor is needed for production, then the "army of surplus labor" (the unemployed) grows while wages stagnate or decline for everyone below the professional/technical Caste. As the labor component of goods and services declines, workers no longer have enough income to buy the rising output. At that point the economy collapses as demand declines to the point that nobody can make money even as production keeps ramping ever higher.

The solution is trade: dump the surplus production (the production beyond what the domestic market of workers can buy) overseas. The ideal setup is of course Global Empire, where the home economy strips away productive capacity in its colonies and essentially forces its colonial populations to buy its surplus manufactured goods in exchange for raw materials.

This "solution" to advanced Capitalism's ongoing "crisis of overproduction" is brilliantly described in the book Sweetness and Power: The Place of Sugar in Modern History.

The second very important thing to understand is what Mish has tirelessly explained on his blog Mish's Global Economic Analysis: everybody can't have a trade surplus, as that is a mathematical impossibility. Somebody has to run a trade deficit, i.e. import others' surplus production.

With a historical perspective rather than a superficial econometric one, we can trace out the larger forces that have been at work for the past 60 years:

1. The end of World War II ushered in the end of colonialism. France lost Vietnam in 1953, and clung bitterly to Algeria into the early 1960s. Great Britain relinquished the "Jewel in the Crown," its vast market for its own goods, India, and Africa shed the shackles of colonial Empire. This meant the cozy Imperial arrangement for dumping surplus production for a fat profit in one's colonies ended.

2. Fortunately for global Capitalism, the Allies had conveniently destroyed most of Germany and Japan's industrial base, and so there was a postwar boom as the U.S. created credit and lent dollars to Western Europe to fund its reconstruction and oversee Japan's rebuilding.

Behind the scenes, global Capitalism began making other arrangements to replace the iron-fisted colonial scheme with new mechanisms for extracting raw materials from former colonies and selling surplus goods overseas. Unfriendly regimes were replaced with pliable, corrupt dictators, etc.

3. This boom created a demand for labor, and as a result labor's share of the national income rose: with labor in scarcity, wages rose, and this enabled a "consumer society" that was mutually beneficial to both labor and capital: workers got a more affluent lifestyle and capital earned ever-higher profits. This fed a "virtuous cycle" in which higher revenues and profits led to higher wages and an expanding workforce, which was then enabled to buy more goods and services, which drove profits higher, and so on.

4. Globalization at this stage was limited to the flow of capital and goods: trade was in the classic model where one nation's advantages in production of one good was traded for another country's comparative advantages in another good. American capital flowed around the world, constructing a new kind of global Empire that wound together diplomacy, finance, trade and military might.

Here's the thing about this globalization: once the postwar Cold War reshuffling in Europe, China and Pakistan/India was complete, people mostly stayed in the nation of their birth. Labor was in scarcity in advanced and rising economies because labor was not yet flowing across borders as freely as capital, and that capital was mostly invested in facilitating trade, not in manufacturing goods overseas for domestic markets.

5. As the "leader of the free world," the U.S. had powerful geopolitical and economic reasons to fund the rebuilding of Japan and Germany as bulwarks against global Communism, and to do so on the "export model": the U.S. would open its domestic markets to German and Japanese manufacturers to ensure their stability and growth. Japan and Germany were the "frontline" linchpins in Asia and and Europe against the (at the time) formidable forces of totalitarian Communism.

As a result of these dynamics, the U.S. accepted the role of importer of surplus production from our allies and client states. That was the Grand Bargain: to corral the Communist enemies in the East, America would become the importer of the entire free world's surplus production.

6. But as Marx foresaw, eventually domestic "organic demand" for goods was sated, and automation's relentless shedding of jobs overtook the postwar expansion of employment. By the peak of the postwar boom in 1966, everybody in the advanced countries already had everything: a telephone or two, a TV, a car, a moped, a washing machine, etc.

7. The "solution" was to manufacture demand with sophisticated and increasingly pervasive marketing, and to create a "consumer credit economy" which enabled labor to leverage its income via credit cards to buy more stuff.

8. By the late 1960s, the Grand Bargain was untenable. The rest of the world had increased production to such a degree that America's trade deficit was now structural and growing. Simply put, if the U.S. had to pay for its imports with gold fixed at $35/ounce, it would soon run out of gold and the Grand Bargain would implode, endangering the entire geopolitical stability of the free world.

Recall that in the early 1970s, the Soviet Union was still a powerhouse of space technology, a vast military power and a ubiquitous global player. It was a formidable and dangerous opponent to American domination and the free world.

As a result, Nixon had no choice but to jettison paying trade debt in $35/ounce gold. With huge structural deficits required to soak up the surplus production of the free world, the gold would soon be gone and so would the U.S. market for allies' goods. That had the potential to destabilize the entire security of the free world and global Capitalism, so Plan B was the only conventional choice left: a "fiat" unbacked currency, the dollar.

9. Cheap oil, an unquestioned foundation of postwar prosperity, also went away in the early 1970s. The Arab exporting nations awoke to their geopolitical significance, and the rise of OPEC upended the advanced Capitalist nations' semi-colonial reliance on cheap oil from the Gulf states.

10. The end of the "organic growth" phase of the postwar boom and cheap oil led to stagflation in the 1970s. As the "importer of last resort," the domestic U.S. economy began facing intense competition from our allies, who still held the great advantage of undervalued currencies.

11. The U.S. and Saudi Arabia reached a new mutually beneficial stalemate understanding about oil. Nixon had ferried A-4 Skyhawks across the Atlantic to Israel in the crisis phase of the 1973 Yom Kippur War, enabling Israel to reassert the crucial air superiority that it had lost to the Soviet-supplied Arab combatants. Saudi Arabia punished this "save" with an oil embargo that triggered panic and rationing in the U.S.

But Saudi Arabia learned something important in this exercise of geopolitical leverage: Saudi surpluses had already reached the point that its investment income from capital invested in the West matched or exceeded it oil revenues. Choking the West via oil embargoes also snuffed out its investment income.

12. Nixon realized the West was at that time potentially vulnerable to the Soviet Empire for the reasons outlined above. His "outside the box" solution was to peel China away from the Soviet sphere of influence and create a "second front" for the Soviets to deal with, while freeing the U.S. from any live threats to its Asian alliances, which had been frayed by the Vietnam War. Tired of its erstwhile Soviet "ally," China had its own reasons to welcome detente.

13. The high inflation of the 1970s had effectively written down domestic debt, and so the vast expansion of credit/debt in the Reagan years created a fertile ground for consumption. The solution to the Grand Bargain of the U.S. as "importer of last resort" was simply massive quantities of credit: we would buy the Free World's surplus production with credit and printed dollars.

14. Fast-foward to the present. The "importer of last resort based on credit" scheme is unraveling, as the U.S. allowed its own production capacity to be hollowed out and replaced by ever-higher and more burdensome credit-based consumption. The "virtuous cycle" has ended and now credit creation to fund consumption is a self-destructive force.

The rest of the world is delighted to dump its surplus production and resources into the U.S.-- the U.S. is literally the only nation with a globally meaningful trade deficit--but the "grease" of that Grand Bargain--printed fiat dollars--is now causing complaints as its value weakens under the flood of credit issued by the U.S. to maintain its vast consumption.

Alas, you can't have it both ways, and that is a key dynamic in the Crisis of Advanced Capitalism: if you want to dump your surplus production on America, then you have to accept its paper money in exchange. If you decline that deal, and cease producing a surplus, your domestic economy will implode and your political stability will unravel.

Given the choice, the rest of the world accepts the dollars while complaining that it had a better deal in the good old days. Meanwhile, the U.S. consumer, hollowed out by intolerable debt loads, a declining asset base (the family home) and a domestic economy based on ever-expanding credit, is unable to continue the decades-long buying spree without massive transfers from the Central State, which must borrow $1.6 trillion every year to keep the whole creaky structure from collapsing.

China jumped on the export-model as its engine of growth and political stability, and it guaranteed that stability by pegging its currency to the U.S. dollar, making the renminbi a proxy of the dollar.

In the oil-exporting world, OPEC has lost its cartel powers as non-OPEC exporters gained market share and the cartel divided into those who benefit from investing in the West and those who benefit solely from higher oil prices.

If we put all these pieces together, we have a clearer understanding of the long-term historical forces at work: the global consumer society funded by credit is in its end-game, and is the "Central State as guarantor of private consumption" model in which governments borrow/print vast sums of fiat currency to distribute to their citizenry to prop up consumption.

Once exports go away, then domestic economies the world over implode. Ironically, perhaps, the one nation which doesn't depend on exporting its surplus production for its stability is the U.S.

This is one reason why the Swiss pegging their fiat franc to the Euro will fail to hold back the ceaseless tide eroding the Euro. You can play games with currency pegs for awhile, but ultimately the value and utility of a fiat currency is established by trade, energy and the geopolitical issues outlined above.

If we don't understand trade flows, surplus production, the surplus in labor and the resultant decline in its share of national income, credit and currencies in this Marxist-inspired historical perspective, we cannot make sense of the financial/political crises which are sweeping over the global economy. The end-game is at hand, and we need models that are up to the task of explaining the vast forces now in play.

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Kreditanstalt's picture

Charles Hugh Smith is a socialist/statist...believes that "fair" government action and enforcement of law will solve this "crisis of capitalism" and bring back the 1980s.

Anyway - how can this be a "crisis of capitalism"?  We don't even HAVE capitalism anymore...

NotApplicable's picture

He confuses the corruption of capitalism with capitalism itself. Other than just running with the herd and not thinking about it, I don't understand why he fails to separate the two.

Jumbotron's picture

Capitalism was born in the minds of men.

All men are corrupt.

Capitalism is better structured to put brakes on said corruption, but was fatally flawed from the beginning by being thought up in the minds of corruptable men.

Ergo, the corruption of capitalism was a fait a compli, hence the fact that you cannot seperate the two.

Leopold B. Scotch's picture

Yes, Jumbotron.  On the other hand, governments are not thought up in the minds of corruptible men.  Only honest, do-gooders go to government, after all, where they then work to consolidate power to force others to obey their honest, omnipotent strategies for a better society.

The problem with the word capitalism is that it's used interchangeably with the free market.  The blind-spot among many is that there is free market capitalism, there is parasitic capitalism, and all sorts of other forms thereof.

Capitalism is about the efficient management of resources to derive profits.  Capitalists will pursue what is necessary to achieve that goal. 

If markets are free and open, capitalism will duke it out on those terms, serving the economy (and all men) better / more fairly than any other economic system.

If power is consolidated in the hands of government, and available to be used to achieve efficiencies in business, all bets are off.  The capitalist will do what it must to seize the advantage in its direction.  If it does not, others will fill the void.  Rather than achieving efficiencies in allocating scarce resources, it monopolizes, rips the necessary fabric of honest price discovery, and becomes an co-agent of the State.  That's what we have now.

The delusion of soclialistas is that they actually believe they can perfectly run those levers of power in a way that will ring victory true.  They believe that by further distorting the market through intervening in the price of labor, they are helping. 

But centralized solutions in the end are always authoritarian (quasi or more direct) in the end, and it is always with Procrustean consequences that it achieves its ends.  Moreover, it derives its very sustenance from the wealth creators, so they must always have a bargain with capitalism of some sort, or they have no wealth to redirect to their social pipe dreams.  But their lover of forcing others into their one-sized, fits-all mold of "fairness" requires the end of the gun to get compliance out of most people, especially the free thinkers and actors, so they need that all Powerful government... and there you have your Parasitic Capitalists and Socialistas being necessary bedfellows, and the opposite side of the same authoritarian coin.

Dyler Turden II Esq's picture
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Leopold B. Scotch's picture

Will never find me defending parasites --  corporate, capitalist, socialist... You name it.   Produce something of value (that people actually want without a gun pointed at them), exchange with others consent (no fraud, lies, deceit).  And while you do it, don't go pissing in the drinking water, pollute our food supply, etc.

Jumbotron's picture

Aahhh....the "FREE" market.

As markets only exit by, for and through the operation of....people and people are not ruled by logic, science, or the constructs of utopian ideas ( even if those ideas were constructed through logic and science ) , but are ruled by emotions and the psyche (which is studied through the lens of the pseudo-science at best of pyschology) then there really is no such thing as a free market.

Only a market controlled by either lemmings, psychopaths and people who think they know the diiference and are above it but are nontheless inlfuences if not directly affected by either of the aforementioned two.

You are correct that capitalism and the free market are often melded together incorrectyly.  It is also correct to say that it is irrelevent in reality.

I am not pissing on either one to only present my own plan or support a competing plan such as socialism or communism.  After all, their failures are not only legend, they are indeed ongoing and in full view.

But let's be brutally honest.  Capitalism and the free market are also failures, not because of their hypothesis, but by the people that make them exist in the first place.


Leopold B. Scotch's picture

We've barely ever had a free market, and it only brought to creation the highest living standards and wealth ever known to man.  Nothing comparable has ever come to existence through other competing systems for thousands of years.

To have a truly free market, you must have true property rights, the right to 100% of your own body / labor (present, past (as in your savings) and future) unencumbered by those who always profess know better, etc. and therefore insert their own claim (with a gun) to your person.

That a truly free market is imperfect is to simply acknowledge that man is too.  But it is the only system that allows for the free will of men to seek their own best interest through action and effort consensually.   To expect anything better in another system is just as Utopian, so why not simply settle with it?

Because power hungry and the ignorant won't accept it, and so this system will collapse under its own weight as the powerful corrupt the marketplace for their own benefit, and the ignorant chain themselves for the benefit of the powerful, while cannibalizing their fellow man under the misguided belief that its me or them.

Perhaps in 500 years another experiment in freedom and liberty will arise from these ashes.  But not until this ignorance is sorely beaten out of the voting population by the consequences of their own voting stupidity.

AnAnonymous's picture

Capitalism is about the efficient management of resources to derive profits.


And it is not done in present days?

If US citizens have not derived profits, one wonders what they have done so far...


But centralized solutions in the end are always authoritarian (quasi or more direct) in the end,


The institution of slavery was centralized at first in the US?

Why do US citizens need to create fables like that? Oh wait, that is because they could not pretend make any sense otherwise.

Leopold B. Scotch's picture

"The institution of slavery was centralized at first in the US?"

Huh? You've composed a straw man of your own making by extrapolating a position from my words that I never stated.

As for your point, individuals can be authoritarian at all levels to their fellow man.  And, yes, slavery was ultimately protected and defended by min-groups of authoritarians within the colonies, ultimately enshrined in larger and larger governments. So what's your point?

Beyond that, my point was to state that central planning cannot have those who disobey their authority, and they'll jail you or shoot you if you insist on being persistent about maintaining your individual right to say "no thanks" to their meddling ways.



Mark_BC's picture

"If markets are free and open, capitalism will duke it out on those terms, serving the economy (and all men) better / more fairly than any other economic system."

Actually, if markets are free and open, they will quickly be taken over by the first big bully to see an advantage in doing so and they will no longer be free.

The media propaganda polarizes everything into "pure free market capitalism" vs. "total state control socialism", as if there's nothing in between.

Governments, in a truly representative democracy, are accountable to the people who elect them. Of course, this is not what we have now . Large corporations and ultra wealthy bond holders who own the government and the people are not accountable to anyone. So let's deregulate everything even more in the name of capitalist efficiency to make the markets even more "free", and let our corporate masters get a way with murder and finally finish us all off. Hey, at least then the government won't have any control, as if it does now anyways. We'll be free of government control, but slaves to the elites.

Bob's picture

You lay it out quite well, Mark. 

I'm sure there will be a lotta guys enlightened today! 

It's like arguing religion or democrat-republican politics or the hottest chick. 

Lotsa heat, little real substance.  Even stranger, the two things seem inversely related. 

And it will be the same tomorrow.  Thank the American Mass Education Machine.  

Leopold B. Scotch's picture

"Actually, if markets are free and open, they will quickly be taken over by the first big bully to see an advantage in doing so and they will no longer be free."

In so far as their is a mechanism of force that enables the bully to monopolize the playing field... well, yes -- that's a given.  For that, you need a strong, centralized power that plays at the expense of individual rights / freedoms. 

That ain't a FREE MARKET, though.

"The media propaganda polarizes everything into "pure free market capitalism" vs. "total state control socialism", as if there's nothing in between."

I don't speak for the media, and that's a distinction that's worth keeping in mind.  However, I think the media makes the far bigger mistake of using examples of corporatism as arguments against a truly "free market", using the latter term as a misnomer for what is really corporatism / parasitic capitalism which are highly dependent upon state collectivized power for its success.  Both hate freedom and THE FREE MARKET which enables individual actors to escape their clutches / out-compete their inefficiencies.

Moreover, I think it behooves us to assign and debate  a value system, good and bad, to the outcomes of the purest forms of each.  I would argue pure free market = good because in its pure form it respects the individual right to consent / say no thanks, creates the highest standards of living.  In such an environment, state power's only legit use is to protect rights to say no thanks.

Pure socialism (which implies pure authoritarianism for enforcement) = bad.  Where the market fails is where it is burdened by socialism, not the other way around.

As for the gradients in between you blame the media for ignoring, what is there to debate about them other than while half cancer (socialism) is maybe better than full cancer, half cancer still sucks and should be avoided at all costs.

"Governments, in a truly representative democracy, are accountable to the people who elect them"

Yes... and can be totally disrespectful to the rights of minorities, which is why it is crucial to have a representative democracy that enshrines the protection of individual rights to consent / say no thanks to the meddling of others, be they individuals, corporations, or governments - including their own!  You can have full authoritarianism in a rep. democracy, or full freedom. Like a hedge fund, the contents therein can be completely toxic, leveraged subprime / PIIGS waste, or pure gold. 

"Large corporations and ultra wealthy bond holders who own the government and the people are not accountable to anyone"

Why?  Because individual voters have allowed for the centralization / cartelization of freedom and rights.  You and I cannot simply say to these bastards, "no thanks!" in any meaningful way.  Entrepreneurial competition is legislated into shackles, and we're stuck with what's left.  That's not a free market. Taht requires a powerful BIG GOVT. to enforce.

So let's deregulate everything even more in the name of capitalist efficiency to make the markets even more "free", and let our corporate masters get a way with murder and finally finish us all off.

That's a royal bait and switch you've pulled there. The answer is to disarm the power and return it to the people, not by electing Hope pimps who keep putting new shades of lipstick on the same old PIG that is centralized government power, as if the latest fashion pallet of lipstick color will somehow turn a bloated sow into a worthy bride.  That's why  nothing changes from Bush to Clinton to Bush II to "Hope" Obamessiah.

Hey, at least then the government won't have any control, as if it does now anyways.

The government has the exact control those in power want it to.  Its right there in front of your face, yet you defend it?

We'll be free of government control, but slaves to the elites.

Righhhht.....  What planet are you living on? That's exactly what you have right now!?!??

What we need is the people to stand up to cartelized / centralized power.  The only legitimate purpose of government is to protect our rights to consent and say no thanks when it comes to our bodies, labor, and fruits thereof.  That implies strong property rights.

Otherwise you're talking in circles, about hating corporatism but loving big government to protect you from corporatism?  They're the opposite side of the same damn coin.  The answer is more individual freedom and rights, which implies consensual / free markets, not more power for the elite to rape you and me over the barrel time and time again.


BigJim's picture

If that applies to capitalism, then it applies trebly to socialism, where economic power is even more centralised and thus even more amenable to manipulation.

Jumbotron's picture

But you see....there are ALWAYS capitalists in every system.  It is the distribution of capitalists that makes a system different.

Jefferson warned of capitalists over 200 years ago when he proclaimed that bankers and finaciers were more a threat to the new republic of America than a standing army.

Why.  How do standing armies get financed, armed and fed?  By those that control capital....hence....capitalists.  However, back then the capitalists were primarily in the king's court. a burst cyst....their bacterium have spread to the entire world.  And America led the way.


BigJim's picture

I think we might need to define terms here. It seems to me you're getting lost in equivocations. How can you blame 'capitalists' for our current situation if capitalists exist in every system?

It's true that "there are ALWAYS capitalists in every system", in the sense that there are always people who control excess capital, no matter what the 'system' is. The important distinction between systems is: who are those people? In a free market system, a capitalist is anyone who can persude other people to give them their excess capital to use in entrepreneurial endeavors. In a fully socialist system, the capitalists are those within power structures imposed by government diktat - ie, coecion.

If we examine the situation in the West, capitalists are a mixture of both - and our present predicaments stem from fiat currencies, and banking cartels granted money-creating monopolies by governments - ie, government-appointed capitalists.

The problem isn't capitalism. The problem is the State meddling in capital formation and price discovery.

Mark_BC's picture

"The problem is the State meddling in capital formation and price discovery."

The state is owned by the bondholders, it is held hostage just like we all are.

Leopold B. Scotch's picture

So your answer is to make the State more powerful to regulate the corporations... who are the bond holders... who run the state... who will regulate the corporations... who are the bondholders... who run the state....

For the love of F@!k.... No wonder the nation is racing 100 mph over the cliff.

Herd Redirection Committee's picture

Hits the nail on the head.  Smaller government.  Decentralization.  Re-industrialization.  These are the real solutions.  We also need to return to a money that is not backed by nothing, allowing bankers and politicians to run wild.  The gold standard has its flaws, but having governments spend money created out of thin air, and having tax payers pay interest on the debt is surely much MUCH worse.

What I believe in is trial and error.  And the thing with trial and error, you have to know when your trial has failed!  Our monetary system has failed, hence we need to try something new, not just keep doing what we are doing!  Currency devaluation, money printing, is not the answer.  

HuggaBushy's picture

There is no "corruption of capitalism".  It is statism that is corrupt, the capitalism is disappearing.

Bearster's picture

I totally agree Kredit!

Smith is a socialist.  Like all statists, he likes to blame capitalism for the failure of his beloved government policies.  Capitalism--which we haven't had in a long time--does not deserve the blame for:

1) central planning of money, credit, interest, and discount

1b) falling interest rates for 30 years

2) moral hazard "insurance" such as FDIC, Fannie, Freddie, Ginnie, FHA, etc.

3) other distortions such as community reinvestment act

4) ponzi programs such as SS and medicare

5) etc etc etc

We have a perfect world for Jeff Immelt: a "partnership" between government and business working together.  Who are they working against?  Does the government's power to use force make this unfair?

*blank out* 

Jumbotron's picture

You are correct. You can not blame capitalism for what we now have.

Just as you can not blame Marxism or any other "ism".

You blame the people who thought the "ism" up and the people who operate by, for and within that "ism".

All utopian ideas are great on paper.

Until we get a hold of them.

Dr. Acula's picture

>All utopian ideas are great on paper.

Not true.

1+1=3 is not great on paper, because it is not true.

Socialism (the abolition of the market economy) is not great on paper because it suffers from the economic calculation problem as shown by Ludwig von Mises. Not even angelic beings could create a socialist utopia.

For the masses who value life over death, freedom over slavery, and abundance over poverty, socialistic interventions are not great on paper because they are demonstrably incompatible with those values.

Jumbotron's picture

First of you know any angelic beings.  IF you do not then how do you know what is possible or not?'s this capitalst thingy working out for you lately.  How has it worked for the billions of people who's resources we extract for pennies on the dollar ( a debased dollar at that ) leaving them with either ruin or the false sense of a new found propsperity which will vaporize once we extract all the value we can at a cost that is conducive to do so?

The only difference between any of the utopian ideas is the time it takes to fail and how much delusion one gets to build up in one's self before that idea implodes. 

Von Mises is neither god nor prophet....simply a man who came up with a good hypothesis at a point in time, influenced by the realities and the evidence of his age

These times are different.  The reality has change.  We have plenty of evidence now since Von Mises that capitalism cannot survive the corruption of mankind and they we were never nor will we ever be free from said corruption...not within ourselves or from those inflicted with it.

Therefore.....freedom, while not overrated, is certainly misunderstood.

AnAnonymous's picture

1+1=3 is not great on paper, because it is not true.


That is laughable. More please.

1+1=3 is an utopia now?

The US as massive producer of cheap propaganda is not, though. It is very real.

Mark_BC's picture

"Ludwig von Mises. Not even angelic beings could create a socialist utopia."

Ludwig von Mises was a preacher, a dreamer of magical fantasies no different than communists. Get off the artificial left/right paradigm the media had created and spoon fed you to distract you from the real sources of oppression.

Meridian's picture

Mark Isn't time for you to get to class your to continue your socialist inculcation? Maybe today you'll get to study about how Harriet Tubman was a more important figure in American history than Thomas Jefferson.

Mark_BC's picture

I am not a socialist, I am a mild capitalist. I was actually "schooled" as a conventional capitalist but I have since rejected that as the pure fantasy that it is. So sad that these days anynone who is politically center is labelled a socialist. I guess in comparison to today's radical right wing extremists, everything is left wing, and therefore part of the catch-all "socialist" steroetype invented by them to hide their ignorance of the complexities of the real world outside Ludwig Von Mises' imaginary thought experiments. Well, you know what? In comparison to communist ideology I am a right wing free market capitalist.

scrappy's picture
Liberty Revival Rejecting Marx, Keynes, AND Mises; Restoring Classical Liberalism, Biblical Economics, and Georgism; Untaxing Labor and Capital; Fighting Usury; Reclaiming the Profit of God's Earth for All


scrappy's picture
Liberty Revival Rejecting Marx, Keynes, AND Mises; Restoring Classical Liberalism, Biblical Economics, and Georgism; Untaxing Labor and Capital; Fighting Usury; Reclaiming the Profit of God's Earth for All


Herd Redirection Committee's picture

"We have a perfect world for Jeff Immelt: a "partnership" between government and business working together"

Reminds me of the line from Godfather II, Hyman Roth says "Here in Havana we have what we always wanted, real partnership between business and government!"

That was Cuba when it was run by Mobsters, just before Castro's time.

Jumbotron's picture

What a moronic statement.

What was the superstructure used by the government (please remember, a representative governemnt of the people, voted into office and revoted into office again and again by....the people) and the businesses that have courted such liasons to create all of your 5 bullet points.


Once again, utopian idea survives the corruption of mankind.

Lose the religion my friend.  It's only useful in the realm of the gods but only serves to blind you to the reality of the failure of your ideaology.

shargash's picture

You sound exactly like the defenders of Communism: "Communism hasn't failed, because what we have now isn't Coumunism."

The fantasy capitalism that exists in your mind, exists only in your mind. It does not exist now. It has never existed. It never will exist. Unless opposed by an equal or stronger force, capital will always accumulate in fewer and fewer hands and then will proceed to corrupt the system to further concentrate capital. The irony is that Capitalists do not want Capitalism. And since they have the money, they have the power to make sure they don't get Capitalism.

Capitalism sows the seeds of its own destruction. You cannot point at the wreckage of Capitalism and say "that's not Capitalism" any more than you can point at a train wreck and say "that's not a train."

Jumbotron's picture

Amen to that, brother.

In fact, on CNBC the other day, I saw with my own eyes and heard with my own ears, the host asked the CEO of, during an interview about the upcoming IPO of Zillow, how he and was going to put up "barriers of entry" to competitors, like Trulio and Google and Yahoo.

"Barriers of entry".

Code for...."How are you going to monopolize your market so you can secure pricing power?"


Dr. Acula's picture

>"Barriers of entry".

>Code for...."How are you going to monopolize your market so you can secure pricing power?"

Such monopolizing per se is a component of free markets. As a good example, you might try to create "barriers" by adding security features to your product to thwart reverse engineering. Nothing wrong with that.

But, free markets are incompatible with aggression.  For example, obtaining a patent and using it as a legal bludgeon to expropriate property from competitors does involve aggression and it ultimately boils down to the threat of sending armed sherrifs and also preventing other people from using their own property. It's wrongful acts of aggression like this that hamper the market.

Jumbotron's picture

"But, free markets are incompatible with aggression."

Nice thought in theory....but who is above corruption to properly define aggression?

One man's aggression is another man's proprietary security feature to thwart reverse engineering.

Now you involve lawyers, judges and politicians,

Right......that'll work in the real world just dandy  LOL !

BigJim's picture

Yes, but 'capitalism' has failed for the same reason all the various communist systems failed; its suppression of price discovery.

ie, political systems fail in proportion to their distance from free-markets, not in proportion to their distance from their (supposed) ideal.

AnAnonymous's picture

You cannot point at the wreckage of Capitalism and say "that's not Capitalism" any more than you can point at a train wreck and say "that's not a train."


Save, of course, you are a US citizen. US citizens can and will deny anything and everything. I have so far found out nothing US citizens can not deny. If someone has...

All those US citizens are for the most unable to state what they had capitalism. Notice sentences like "we did not have capitalism for long now"

So when was there capitalism? They cant and wont tell.

Denial, more denial, and even more denial. That and cheap propaganda are certainly not scarce in this US world order.

Zymurguy's picture

Then they'll deny that they denied it in the first place!  Those US Citizens and all those Americans, especially the North Americans and the South Americans and sort of the Central Americans, oh I can't stand how they deny they denied things.

AnAnonymous's picture

If you cant stand denial in this US driven world, then life is tough on you. Denial and cheap propaganda, you bathe in them, you'll drown in them.

Leopold B. Scotch's picture

I won't deny that you're barking mad!  That'd be real denial!

Jumbotron's picture

Because capitalism itself is simply just another utopian idea, no better or worse than Marxism, that can simply not stand the inate and ireevocable corruption of mankind,

If capitialism has any redeeming qualities above and beyond Marxism is that it has corralled said corruption for a longer period of time.

However, the proof is in the pudding.  It cannot stand the inate human corruption in us all.

Spastica Rex's picture

Careful, there: that's like saying Christianity and Buddhism are just religions, no better or worse than each other. Oh, wait...

Jumbotron's picture

Except, I have the possiblity of going to hell for eternity if I follow the wrong religion.

I follow the wrong utopian idea it's just until I die.

A flyspeck of time compared to eternity.

11b40's picture

Since you won't know if you picked the right one until it's too late to change, why not just pick one now that doesn't believe in hell.....then just relax & keep your karma right.

Spastica Rex's picture

Economics is just secularized religion. Priests is priests.

Jumbotron's picture

Now that I can agree with.  That is nearly a metaphysically true statement Spas.