This page has been archived and commenting is disabled.

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.


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 09/06/2011 - 11:43 | 1638427 Kreditanstalt
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...

Tue, 09/06/2011 - 11:47 | 1638439 NotApplicable
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.

Tue, 09/06/2011 - 12:22 | 1638561 Jumbotron
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.

Tue, 09/06/2011 - 12:55 | 1638650 Leopold B. Scotch
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.

Tue, 09/06/2011 - 12:57 | 1638680 Dyler Turden II Esq
Dyler Turden II Esq's picture
Mutualist Blog: Free Market Anti-Capitalism
Mutualist.Org: Free Market Anti-Capitalism
Corporate Capitalism As a State-Guaranteed System of Privilege
by Kevin A. Carson
Center for a Stateless Society
building awareness of the market anarchist alternative

Tue, 09/06/2011 - 13:06 | 1638700 Leopold B. Scotch
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.

Tue, 09/06/2011 - 13:22 | 1638748 Jumbotron
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.


Tue, 09/06/2011 - 16:34 | 1639440 Leopold B. Scotch
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.

Tue, 09/06/2011 - 13:41 | 1638786 AnAnonymous
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.

Tue, 09/06/2011 - 17:42 | 1639663 Leopold B. Scotch
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.



Tue, 09/06/2011 - 13:53 | 1638822 Mark_BC
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.

Tue, 09/06/2011 - 16:48 | 1639312 Bob
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.  

Tue, 09/06/2011 - 18:19 | 1639769 Leopold B. Scotch
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.


Tue, 09/06/2011 - 12:56 | 1638676 BigJim
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.

Tue, 09/06/2011 - 13:28 | 1638760 Jumbotron
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.


Tue, 09/06/2011 - 13:50 | 1638813 BigJim
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.

Tue, 09/06/2011 - 14:08 | 1638884 Mark_BC
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.

Tue, 09/06/2011 - 18:26 | 1639809 Leopold B. Scotch
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.

Tue, 09/06/2011 - 19:39 | 1640062 Herd Redirectio...
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.  

Tue, 09/06/2011 - 12:59 | 1638690 HuggaBushy
HuggaBushy's picture

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

Tue, 09/06/2011 - 16:36 | 1639443 scrappy
Tue, 09/06/2011 - 11:51 | 1638449 Bearster
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* 

Tue, 09/06/2011 - 12:25 | 1638572 Jumbotron
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.

Tue, 09/06/2011 - 13:07 | 1638683 Dr. Acula
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.

Tue, 09/06/2011 - 13:38 | 1638780 Jumbotron
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.

Tue, 09/06/2011 - 13:44 | 1638800 AnAnonymous
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.

Tue, 09/06/2011 - 14:19 | 1638945 Mark_BC
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.

Tue, 09/06/2011 - 15:28 | 1639226 Meridian
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.

Tue, 09/06/2011 - 16:15 | 1639377 Mark_BC
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.

Tue, 09/06/2011 - 16:51 | 1639503 scrappy
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


Tue, 09/06/2011 - 16:51 | 1639505 scrappy
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


Tue, 09/06/2011 - 19:11 | 1639971 Herd Redirectio...
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.

Tue, 09/06/2011 - 12:35 | 1638602 Jumbotron
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.

Tue, 09/06/2011 - 12:40 | 1638619 shargash
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."

Tue, 09/06/2011 - 12:50 | 1638660 Jumbotron
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?"


Tue, 09/06/2011 - 13:25 | 1638751 Dr. Acula
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.

Tue, 09/06/2011 - 13:46 | 1638807 AnAnonymous
AnAnonymous's picture

And more semantics...

Tue, 09/06/2011 - 13:48 | 1638810 Jumbotron
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 !

Tue, 09/06/2011 - 13:05 | 1638696 BigJim
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.

Tue, 09/06/2011 - 13:35 | 1638772 AnAnonymous
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.

Tue, 09/06/2011 - 13:49 | 1638811 Zymurguy
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.

Tue, 09/06/2011 - 14:25 | 1638967 AnAnonymous
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.

Tue, 09/06/2011 - 18:31 | 1639842 Leopold B. Scotch
Leopold B. Scotch's picture

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

Tue, 09/06/2011 - 12:19 | 1638550 Jumbotron
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.

Tue, 09/06/2011 - 12:27 | 1638576 Spastica Rex
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...

Tue, 09/06/2011 - 12:45 | 1638614 Jumbotron
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.

Tue, 09/06/2011 - 13:15 | 1638729 11b40
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.

Tue, 09/06/2011 - 13:42 | 1638792 Spastica Rex
Spastica Rex's picture

Economics is just secularized religion. Priests is priests.

Tue, 09/06/2011 - 13:51 | 1638814 Jumbotron
Jumbotron's picture

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

Tue, 09/06/2011 - 13:41 | 1638788 Spastica Rex
Spastica Rex's picture

I'm watching, too. Wait.

Tue, 09/06/2011 - 14:46 | 1639041 Use of Weapons
Use of Weapons's picture

Going to put you into the sin bin for a technicality here:

Christianity has an omniscient being at the top of the food chain, and some propaganda on how he likes business to be run, so your immortal soul gets a ticket to the good times at the end times. Humanity loved the earlier version of universal brother/sisterhood so much, they sent one of the tripartite pieces back to heaven. Via wood, nails and a bit of suffocation. God responded by instituting the less loving version in Organised Christianity, which was big on torture, politics and money - unless you happen to be a small boy in a dress. when the love flows freely.


Buddhism has sartori & small wizened men hitting you on painful spots like your elbows and ordering you to sweep a lot. Big on sweeping. There's lots of sitting around meditating as well. Doing well on the whole politics, money and torture side because (APART FROM THOSE DAMN STICKS) they just don't do it. Oh, and they don't believe in 'God' although they might over-deify Buddha himself sometimes. Luckily Buddhism was never put on film by George Lucas, as he'd have gone back and re-edited the old men as CGI green things, and making Buddha an angsty teenager who killed younglings.... OH WAIT.  NOOOOOOOOOOOO1


In management terms, its top down vrs bottom up. One seems to be more pleasant than the other, but get less stuff done in the torturing and money areas of life.

  • 1. Times infinity
Tue, 09/06/2011 - 12:35 | 1638601 serf86
serf86's picture

You are right on Jumbotron.  When one reduces all of these discussions and comments to their essence, no system will succeed for any substantial period of time, because of human nature.  The world has never been nor ever will be ruled by logic alone, because logic does not exist in a vacuum.  Even the technocrats fall victim to this arrogance.  Perhaps Jefferson called it correctly when he said something like, frequent revolutions may cleanse the government before it has time to rot too much.

Tue, 09/06/2011 - 12:44 | 1638630 Jumbotron
Jumbotron's picture

Which is precisely why the American experiment will fail.  We failed to listen and heed Jefferson's warnings about the banking and financier class as being a more pernicious enemy than any standing army.

Plus we still cling to the notion that we can affect change with the ballot and not the bullet.

I am not advocating armed revolution.  But in all of human history how many occurances have their been when bloodshed has not been needed to secure freedom and to quell corruption and tyranny.  And look how much we have now in our own country.

Jefferson thought that every 20 years or so you needed a little bloodshed.

According to the people who participated in the Whiskey Rebellion and Shay's took a lot less.

Tue, 09/06/2011 - 13:06 | 1638701 See in the pink
See in the pink's picture

I thought it was every 75 years...

Tue, 09/06/2011 - 13:52 | 1638821 Zymurguy
Zymurguy's picture

Ding!  We have a winner!

Central banking systems managing the currency of and backing the central government while in control of interest rates using fiat currency and fractional reserve lending IS the problem.

Tue, 09/06/2011 - 13:32 | 1638765 stirners_ghost
stirners_ghost's picture

Capitalism isn't utopian. Utopia implies a perfection of law and order; Capitalism is economic anarchy--come what may.

Capitalism is not a system. It requires no implementation or management. It requires nothing at all from you--contrast that with Marxism and other "isms".

In fact, capitalism is impossible as "public policy". It's incompatible with policy, period. Capitalism is the substrate of negotiation, and policy precludes negotiation. Policy trades negotiation for expedience--how many times has your argument with your bank over a fee been stopped dead by "Sorry sir, it's our policy". Policy is the negotiation-stopper.

Note, however, that your masters engage freely in capitalism with other sovereigns--and your sweat is the currency. This market of human livestock is the largest and most unfettered one in existence.

Tue, 09/06/2011 - 13:52 | 1638817 AnAnonymous
AnAnonymous's picture

Policy trades negotiation for expedience--how many times has your argument with your bank over a fee been stopped dead by "Sorry sir, it's our policy". Policy is the negotiation-stopper.
Ah, interesting.

In the case of banks, policy means the contract that defines the terms and conditions on which both sides have aggreed on.

If capitalism rejects this meaning of policy, does it mean that it rejects the notion of contract?

That would be interesting to know.

Tue, 09/06/2011 - 18:39 | 1639869 Leopold B. Scotch
Leopold B. Scotch's picture

In the case of the bank fees, I can fire my bank and walk away if I don't like them and go to a competitor. 

Except in a heavily regulated statist system that prohibits / hampers competing banking, so when you fire your bank get another that is, apart from the logo and flag, more or less the same damn thing.   Why?  Because the banking elite have created laws that bestow massive advantages on their preferred method of looting, and if everyone else does it differently, they are in no way sufficiently profitable to compete.

Wild Catters learned this the hard way.

So to did modern bankers.  You know, when the musics a playin', you's gots ta keep dancin'!

Tue, 09/06/2011 - 12:44 | 1638629 mrkolice
mrkolice's picture

Charles Hugh Smith is a libertarian, and a very moderate one. It's not about socialist/capitalist, he is using Marx just as a tool to make a diagnosis. And if you ask me it's a damn good diagnosis.

Tue, 09/06/2011 - 12:52 | 1638669 Jumbotron
Jumbotron's picture

Absolutely spot on.

He only ruffles the feathers who worship capitalism as a religion.

Tue, 09/06/2011 - 15:36 | 1639250 Meridian
Meridian's picture

No worship as a religion, you're putting that spin on those defending Capitalism because you have no successes to point to in any other system. The obvious glaring failure of your Ivory Tower inexperienced world view is that only Capitalism has produced anything worth a fuck and lifted people out of the muck. To paraphrase PJ O'Rourke: yes Capitalism is mightily flawed but it is immeasurably superior to every other system.

Tue, 09/06/2011 - 13:06 | 1638702 Ghordius
Ghordius's picture

Now you got me confused.

Socialist, libertarian, good writer (I think so, at least half the time), what?

Put it more simply for me: if he would be asked what is the "fair" share of government in GDP, what would his answer be? 10%? 50%? 100%? This is something I would understand...

Oh, sorry, this kind of question is not allowed in the American political discourse - I'll slither away in shame...

Tue, 09/06/2011 - 13:19 | 1638737 mrkolice
mrkolice's picture

-isms aside, nice one on percenteges. i guess it's all about public finances. and with different countries or cultures one should get different results on this. but the questions are the same everywhere: how much should a country invest in military? how much to fight the poverty? these a tricky questions and i repeat, the answer might be different here or there...

Tue, 09/06/2011 - 13:21 | 1638746 Construct
Construct's picture

Very good point. It matters not if you are a socialist or a fascist. All that matter is how big you want to make the size of the government.

Tue, 09/06/2011 - 13:55 | 1638828 AnAnonymous
AnAnonymous's picture

Put it more simply for me: if he would be asked what is the "fair" share of government in GDP, what would his answer be? 10%? 50%? 100%? This is something I would understand...


Is it not something to be determined through the action of governing, an issue that has not definite answer and is then the topic of renewed discussion?

Oh, sorry, that is for people seeking to govern their life. In this US driven world, more and more, the trend is to relinquish the capacity to govern in order to refer to protocols, procedures and all, like the golden rule...

It is rather funny to see that people who made so much fuss about governing are now about to remove from themselves by themselves that capacity.

Such is the US world order...

Tue, 09/06/2011 - 13:18 | 1638736 DCFusor
DCFusor's picture

Much as I love Capitalism, I think he's right on, and have been thinking about the basic issue for a number of years now, sadly without usable result.

At some point, just about every bit of "stuff" we all can consume can be produced without human labor at all.  If the only or main way people can get "paid" is via exchanging their labor for it, and there's no need for labor -- what do we do?  I think we've been bumping up against this limit for a decade at least now.  And where's the equilibrium mechanism in capitalism that will fix this?  If there's no labor required, but no way to pay for products, then why build that robotic factory?  Here, we have a loop that cannot work.  If we don't build the efficient factories, then people are employed and start buying.  Then we build the more profitable factories, and throw them all out of work -- because return on capital demands that in the short term.

How many people does facebook employ again?  Or even a manufacturer.  How many people have jobs making inkjet printers?  Not many, because machines do it all.

One can invent all sorts of Utopian systems that "should work" - that is, until you take human nature into account.  I don't think the star trek universe will happen, even if we get unlimited free energy and replicators.  How will you pay (or reward) the few required to maintain it all, when no one is getting paid anything and there's no profit in the free energy or the results of the replicators?

We don't have angels to work with here, just humans.  It's a genuinely difficult problem to solve, even in fantasy land or on paper.  Ad hominem attacks on this author over pointing it out are just showing that the statement is true.  You can't refute him fair and square, so you "go negative".  I don't find that very intelectually impressive to say the least.  How about addressing this problem head on, maybe define it better first, and frigging solve it instead?  It's real and I've been watching it develop for almost 6 decades now.  IT's not caused by the inevitable corruption, though that doesn't help - it's a for-real actual structural problem that came up, as he says, when the model that made it work -- the ability for a few countries to trade manufactured goods for raw materials from other countries that couldn't manufacture, disappeared -- and guess what, short of major war, it's never coming back.  We have just this one rock in space to work it out on, since we've also failed to invest in growth beyond it effectively and it's a little late to start now, in terms of that being a solution.




Tue, 09/06/2011 - 13:57 | 1638835 maximin thrax
maximin thrax's picture

Agriculture is the foundation of any economy and will always be labor intensive. Increased productivity that leads to decreases labor across the board should simply provide more labor for growing things and making life's necessities. Fewer white-collar job opportunities will deflate income from those jobs, even if the number of qualified remains flat. That leads to agrarian jobs gaining in value in relation to the rest of the economy, even though it's the white-collar jobs deflating towards agrarian pay.

The only things keeping us from devolving to a simpler, more agrarian and more self-sufficient existence is a) our crushing debts and their service and b) government's insatiable appetite for money generated by today's and tomorrow's economic activity. If we simply defaulted on our $14 Trillion we'd usher in massive deflation. When the government can't borrow as a result of default, people will have to produce for themselves, their labor being the needed capital. We have the people, knowledge and resources in this country to produce what we need. An economy that stops trying to grow to the size needed to pay off its debts, and pay people who don't produce, will shrink towards equilibrium with our domestic oil supply. Government will then have to shrink to the size of its tax receipts.

Tue, 09/06/2011 - 16:34 | 1639438 Charles Eisenstein
Charles Eisenstein's picture

Thanks for raising the tenor of these comments. It is not only Marxists that have realized the crisis of overproduction. Classical economists did too, and the various ways of absorbing it, such as colonialism, needs creation, etc. are running out. One solution that preserves capitalism is to find some other way to distribute money to people whose labor is no longer needed. State handouts are one way to do this, and there is a long-standing thread of economic discourse about a "social dividend". But could there be a more organic way to accomplish this that doesn't depend on central government? I won't go on -- probably no one will read this so deeply buried in the comments section. My book Sacred Economics (North Atlantic Books, 2011) explains it in depth.

Tue, 09/06/2011 - 17:16 | 1639585 scrappy
scrappy's picture

Great comment.

Perhaps we are measuring wrong.  GDP for example vs. quality of life and intangibles that exist but are wholely unaccounted for today.

I have been coming to the conclusion that to address "the end of work" we need a new way forward because there is plenty of work to be done, just it is not incented in our current system.

Perhaps a new kind of money that takes into account human "time" and valuing people as part of the monetary "standard" as much as a basket of commodities, or PMs.

Combining the needs you cited, perhaps we could combine this new measure of GDP with demurrage currency to address our current prediciment.

Demurrage-charged local currency was successfully tested in the Austrian town of Wörgl between 1932 and 1934, until the Austrian central bank stopped the experiment.

The inventor of demurrage currency, Silvio Gesell founded his economic thoughts on the self-interest of people as a natural, healthy motive to act, which allows the individual to follow the satisfaction of his/her needs and to be productive. The economic system must do justice to this pre-condition, otherwise this system would undoubtedly fail. This is why Gesell called his proposed economic system "natural". This stance put him in clear opposition to Karl Marx, who called for a change in social conditions.

Taking selfishness into account, Gesell called for free, fair business competition with equal chances for all. This included the removal of all legal and inherited privileges. Everyone should rely only on his personal abilities in order to make a living. In the "natural economic order" which he aimed for, the most talented people would have the highest income, without distortion by interest and rent charges. The economic status of the less talented would also improve, because they would not be forced to pay interest and rent charges. According to Gesell, this would lead to an equalization between the poor and the rich. Further, there would be more means available to help the poor because the higher average income would mean that everyone would have enough money to spare what was necessary to help.

A Zero Note approach could also be a good tool in a pinch.






Tue, 09/06/2011 - 23:34 | 1640747 StychoKiller
StychoKiller's picture


We have just this one rock in space to work it out on, since we've also failed to invest in growth beyond it effectively and it's a little late to start now, in terms of that being a solution.


Buried in that statement is the SOLUTION to a majority of our economic problems:  "The surface of a planet is NOT the correct place for an expanding, technological civilization!" -- R.A. Wilson

Tue, 09/06/2011 - 15:51 | 1639276 Pay Day Today
Pay Day Today's picture

All that has been pointed out here is that good old fashioned fair and square capitalism is likely to degenerate into crony and cartel capitalism.

Don't cry for the loss of 'proper' capitalism, it was always only going to be a temporary developmental stage leading into what Marx considered was its likely corruption.

And he has been proven right.

Also I love how all these critiques of this piece have focussed on the militaristic nature of old statist communist regimes.

I mean what do you think the US is now? It's a socialist regime, just not for everyone, just for the top 1%.

Tue, 09/06/2011 - 16:02 | 1639316 Ex Poker Stars
Ex Poker Stars's picture

All I heard fom Smith is how it has become. For suggestions on what to do, let cast our brainwashed gaze upon Obama.

Tue, 09/06/2011 - 16:31 | 1639423 Pay Day Today
Pay Day Today's picture

What to do? Implement policies which favour Main St and labor, not Wall St and bankers.

Reduce expectations for luxury consumption and increase expectations for community and civil supports.

Move capital away from big corporations and into small and medium enterprises (say 100 workers or less).

Provide financing to allow ordinary workers own and run the enterprises they work in and own and keep the economic value that their labor generates.

Tue, 09/06/2011 - 18:49 | 1639911 Leopold B. Scotch
Leopold B. Scotch's picture

Methods are what's at stake here.  So its not so much as policies we "implement" as much as what we "remove" and "restore" in terms of the role of government.

When bankers / the corporate elite no longer have the power to fleece / legally counterfeit, the Hamptons / Naples will be short new yachts, homes, diamonds, and other luxury goods because the wealth that enabled their acquisition will remain with those who created and nurtured it in the local communities, not heisted off to Wall Street and D.C.

Capital will move from big corporations to small if you remove the privileged they have via  Big Govt, which they will always own so long as such consolidation of power exists / is for sale.

Financing comes available to those with the ability and experience to create and run enterprises they work in and own.  I used to be one of those until I threw in the towel after THE MAN kept changing rules and revolutions to make it not worth my time.  Big Govt ain't about sharing the power / wealth, its about fleecing it.



Tue, 09/06/2011 - 11:44 | 1638428 Kreditanstalt
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...

Tue, 09/06/2011 - 11:48 | 1638442 kito
kito's picture

after reading enough of his articles, hard to say what he is. i dont even think he knows......

Tue, 09/06/2011 - 12:00 | 1638491 topcallingtroll
topcallingtroll's picture

He is a Pat Buchanan populist without the moral condemnation of gays, etc.

He believes in tariffs and import controls.

Tue, 09/06/2011 - 12:10 | 1638522 falak pema
falak pema's picture

go bang your other half, although I doubt if you will  be more convincing, as per your previous post.

Tue, 09/06/2011 - 12:46 | 1638640 topcallingtroll
topcallingtroll's picture

What do u think he is then?

My other half will have to wait her turn!

Tue, 09/06/2011 - 12:47 | 1638644 falak pema
falak pema's picture

read my post below...go slow on the scotch. 

Tue, 09/06/2011 - 13:00 | 1638691 Rodent Freikorps
Rodent Freikorps's picture

Ain't Top a shrink?

Better living through chemicals, baby.

Tue, 09/06/2011 - 12:08 | 1638518 falak pema
falak pema's picture

CSH is a political analysist with an historical bend who understands economics. Why shoot the messenger who happens to quote a great economist and philosopher, the first of his kind in the industrial age, who got the analysis of capitalism right, as the current times have proved, but got the solution to the problem wrong as the past has amply proved. 

Tue, 09/06/2011 - 12:29 | 1638583 Jumbotron
Jumbotron's picture

Amen to that.

Just because he doesn't fit neatly in some people's pseudo-religeous idealogical box, he's a socialist, marxist, supporter of cats on dogs love.


Tue, 09/06/2011 - 12:27 | 1638579 FalseConsciousness
FalseConsciousness's picture

Please name a time when there was capitalism.  

Tue, 09/06/2011 - 13:13 | 1638725 See in the pink
See in the pink's picture

The pre-Roman age of Europe? Good times, baby, good times... :p

Tue, 09/06/2011 - 12:43 | 1638627 LongBallsShortBrains
LongBallsShortBrains's picture

Capitalism corrupted by government.

Legal tender laws and taxes due in dollars force Americans into fiat. This corrupts capitalism and is designed to extract capital away from citizens and into the. " government "

No such thing as fair government.

The fairest is the smallest.

Tue, 09/06/2011 - 12:44 | 1638632 reader2010
reader2010's picture

CHS has been brainwashed enough to believe there are bipolar worlds.

Tue, 09/06/2011 - 11:46 | 1638436 EL INDIO
EL INDIO's picture

There might be a USD squeeze/rush starting.

Everybody mind your liquidity, it could get rough.

EURO <= 200 MA

GBP < 200 MA

USD index attacking 200 MA !

Tue, 09/06/2011 - 11:54 | 1638460 traditionalfunds
traditionalfunds's picture

Think gold is sensing a higher dollar and that is why it is not even higher. Dollar rise could send gold to 1625 and S&P to 975 range.



Tue, 09/06/2011 - 12:05 | 1638504 EL INDIO
EL INDIO's picture

Paper Gold buyers took the price to $1920 and paper Gold sellers might bring it back $1600.

That would be so good for PHYZ buyers.

Tue, 09/06/2011 - 12:06 | 1638508 LawsofPhysics
LawsofPhysics's picture

Both a requirement for additional QE by the way.

Tue, 09/06/2011 - 12:06 | 1638509 kito
kito's picture

gold doesnt give a crap about short term moves in the dollar. its only concern is the end of the dollar. as per zerohedge tweet, gold down on rumors of margin hike

Tue, 09/06/2011 - 13:16 | 1638733 DosZap
DosZap's picture

traditionalfunds ,

Think gold is sensing a higher dollar and that is why it is not even higher. Dollar rise could send gold to 1625 and S&P to 975 range.


 Think you are correct, I would love to see it at $1625.00 one more time.Before the Asain version onCME comes online, then I expect a massive paradigm shift in WHO get's the $$$$$$$.

CME/LMBA are grinding their teeth over this new fund.(as well they should), no more of these papaer games.........folks will flock to it.

Tue, 09/06/2011 - 23:39 | 1640754 StychoKiller
StychoKiller's picture

A rising dollar (actually, FRNs!) is precisely what The Bernank does NOT want.  Let's see what happens...

Tue, 09/06/2011 - 11:47 | 1638437 SWRichmond
SWRichmond's picture

Yes, well, except that free-market economics isn't a zero-sum game.

Tue, 09/06/2011 - 11:54 | 1638457 SilverRhino
SilverRhino's picture

Unfortunately it's not exact a FREE market we're operating under, just the illusion of one.

Tue, 09/06/2011 - 12:07 | 1638511 MichaelG
MichaelG's picture

It's not a very beguiling illusion.

Tue, 09/06/2011 - 12:26 | 1638575 SWRichmond
SWRichmond's picture

True...but it could be.  And let's be on the alert for those who start blaming "capitalism."

Tue, 09/06/2011 - 14:12 | 1638907 Shell Game
Shell Game's picture

Agreed.  And let's be on alert for those who blame unions, or who blame the tea party, or who blame libertarians or who blame China.  A whole lot of smoke screens hiding the monetary centrists manning the strings..

Tue, 09/06/2011 - 13:58 | 1638838 AnAnonymous
AnAnonymous's picture

Yes, well, except that free-market economics isn't a zero-sum game.

Oh, not a zero sum game? And we dont have a non zero sum game by now of course.

I wont ask for an explanation because it is a blatant non sense.

And who cares about blatant non sense in this US world order?

Tue, 09/06/2011 - 23:43 | 1640763 StychoKiller
StychoKiller's picture

When the Wright Bros developed the airplane (despite their attempts to monopolize their idea(s)!), did everyone lose something?  Or, perhaps mankind was then able to take advantage of faster transportation -- sounds like a positive contribution to me.

Wed, 09/07/2011 - 10:46 | 1642044 tip e. canoe
tip e. canoe's picture

very true, but it has not come without its costs, i.e. the astronomical increase of hydrocarbons pumped from the center of the Earth and into the upper atmosphere to come raining back down onto the surface.    it is only when a true realization of those costs are uncovered that a true accounting can be made, yes?  

that said, i give the Wright boys mad respect for giving me the opportunity to explore lands & peoples i may have never been able to do otherwise.   'tis a pity many of our 'merIkan brothers and sisters only saw the parts that were reflections of themselves, but maybe somewhere in the center of the beings something else resonated.   we'll see...

Tue, 09/06/2011 - 11:50 | 1638447 Gringo Viejo
Gringo Viejo's picture

COMEX PM shorts currently engaged in furious, do or die game of whackamole. Imperative that PPT close the propped up corpse above 11,000 lest CONfidence up and vanish like a fart in the wind. This is more fun than watching midget wrestling.

Tue, 09/06/2011 - 11:51 | 1638450 scatterbrains
scatterbrains's picture

Who's buying SPG into this free fall ?  Is that you John Paulson ? lmao!!

Tue, 09/06/2011 - 11:51 | 1638451 LawsofPhysics
LawsofPhysics's picture

"The end-game is at hand, and we need models that are up to the task of explaining the vast forces now in play."


Crawl back into your ivory tower and die already.  The world needs to have an honest conversation about sustainable energy and population numbers.  More fucking "models" are useless and they only increase black market participation as more and more of the population seeks to better their standard of living by any means necessary.  Fuck these academic fucks.  We haven't had any sort of true capitalism for over a hundred years.

Tue, 09/06/2011 - 11:55 | 1638462 Global Hunter
Global Hunter's picture

Whenever somebody says "models" it reminds me of 99% of Investment Banker's models I've seen in presentations, they go something like this: this year burn rate of 100 million dollars, next year break even, 2 years out profit of 200 million dollars.  Repeat the same process for revenue, earnings per share, margins etc.

One can make a model say anything one wants it to.

Tue, 09/06/2011 - 12:18 | 1638549 Oh regional Indian
Oh regional Indian's picture

Well GH, that would include all business plans on which so much money is raised and wasted, ne?

And the real trouble began when you were allowed to legally mark to model. 

Now we are dealing with the first stages of mark to reality. Which clearly hurts. Like truth!


Tue, 09/06/2011 - 12:33 | 1638586 Clampit
Clampit's picture

Kurt Gödel explained why we will never be able to accurately model the human race - because we are the human race. No closed system can describe itself. As communication improves and models become widely disseminated, people acting on those models will ensure their demise.

Tue, 09/06/2011 - 14:52 | 1639082 Use of Weapons
Use of Weapons's picture

We're technically an open system - or rather, the biosphere is, of which we're a part [a rather.. destructive and cancerous part, but a part none-the-less].

Godel was describing the issues with logic / math, which is fair enough.



I'm happy to get into this, its been a while since I did any Godel.

Tue, 09/06/2011 - 16:12 | 1639364 Clampit
Clampit's picture

As a physicist I tend to avoid math at all costs, so I'll humbly decline your offer. Suffice to say, predicting that which acts on your predictions is a fools errand.

Tue, 09/06/2011 - 16:48 | 1639491 Use of Weapons
Use of Weapons's picture

+100 for that snark


What's your feelings on Chaos (or when math and physics got back in bed with each other)?

Tue, 09/06/2011 - 23:51 | 1640779 StychoKiller
StychoKiller's picture

The Higgs boson is running out of energy states to hide in, sez CERN and the LHSC.

Tue, 09/13/2011 - 00:39 | 1662625 Clampit
Clampit's picture

There must be a better way to track replies, or my comments, or I guess I need to be more careful and watchful as I spout my mouth off here...

What impresses me the most about chaos, is how little it takes to achieve it. An ideal pendulum can in theory be perfectly described. Add one more pivot point to the middle of the shaft and you give birth to chaos. Those who claim to understand economic interaction, or more to the point those who follow them, would be wise to take this to heart.

Tue, 09/06/2011 - 11:52 | 1638452 ItsDanger
ItsDanger's picture

I believe the capitalist system isnt even present today at all.  More like a bunch of oligopolies where the consumer subsidizes a) the losses of other divisions and b) the bonuses/exec pay/inv returns of employess/mgmt/investors.  Refer to insurance for a clear example of this.

Tue, 09/06/2011 - 11:57 | 1638476 espirit
espirit's picture

Forget peak oil, now it's past peak consumerism.

No jobs, no buyee iCrap.

Tue, 09/06/2011 - 12:08 | 1638515 LawsofPhysics
LawsofPhysics's picture

Yeah, everyone wants to be the producer and banker, no one wants to be the consumer and debtor.  Real resources will sort this all out as possession is already nine tenths of the law.

Tue, 09/06/2011 - 13:33 | 1638767 Astrolabe
Astrolabe's picture

"I believe the capitalist system isnt even present today at all.  More like a bunch of oligopolies where the consumer subsidizes a) the losses of other divisions and b) the bonuses/exec pay/inv returns of employess/mgmt/investors."

yes, which happens to be the inevitable result of capitalism.


Tue, 09/06/2011 - 11:54 | 1638454 Mugatu
Mugatu's picture

In the end the only choices we will have are deflation or inflation.  3000 years of human civilization has shown that people will always choose inflation over deflation.  

Only way to reboot the system to gear up for more endless consumption is to print money and spur inflation.  This will effectively reduce everyone's debt and we can try and bring back the insanity of endless consumption.

Just like in the 70's, they will allow inflation to run wild then they will try and tame it years later with high interest rates.  Get ready for stagflation bitchez!

Tue, 09/06/2011 - 12:56 | 1638678 Smiddywesson
Smiddywesson's picture

Higher interest rates would destroy most of the Western nations because of their debt loads.  We are not going to inflate our way out of this one.  They are going to have to change the measuring stick by which all fiat currencies are valued, and that explains why they are buying gold.  

Tue, 09/06/2011 - 13:40 | 1638784 Mugatu
Mugatu's picture

Debt levels were high in the 70's and we still inflated.  The whole point is it is easier to pay back old debts with cheaper inflated currencies.  You must have missed that one in econ 101.  

You will be able to pay your $5000 per month mortgage payment easily in a few years because inflation will increase the income of everyone.  Imagine your unemployment benefits being over $50,000 a month because inflation has been running hyper - its not hard to make that 5k mortgage payment then! 

Tue, 09/06/2011 - 14:11 | 1638898 Smiddywesson
Smiddywesson's picture

If you think that the central banks are going to hyperinflate and let you out of your mortgage for the price of a cup of coffee, you must have TAUGHT Econ 101. 

Only Econ majors think the banksters can't change the rules.  The central banks control everything.  They don't care about anything but retaining their power.  They will not sit idly by while we are crushed by deflation or slip into hyperinflation.  That's why I don't allow myself to get into those arguments, they are merely academic. 

TPTB are walking a tightrope, kicking the can and acquiring gold.  They will pull the plug long before cash is king due to deflation or the USD is printed to oblivion.  We are going to some sort of a gold standard, which means they will change the way money is valued.  They always win. 

"Debt levels were high in the 70's, and we still inflated" 

The situation has changed.  We are in the grip of deflation.  The middle class has been wiped out.  Our tax revenue has collapsed.  There are 1 million in uniform, 2 million in jail, we have no remaining manufacturing base, there are 10k baby boomers retiring each day, unfunded entitlements are looming, the government IS the mortagage business, the Fed's balance sheet is destroyed, and the USG is the biggest component of our economy so we can't cut without the economy collapsing.  The state and local governments are in the same boat.  Also, don't forget, our national debt wasn't all in short term interest paper back in the 70's.  Interest rates are stuck at zero for a reason.

So I don't see us inflating our way out of this, certainly not with a major segment of America on food stamps and the situation overseas just as bad, or worse.  This isn't the 70's, and we don't have as much manuevering room.  They tried to bail out the banks and get the economy going, but it didn't work.  Then all the central banks, all over the world, began to buy gold at the same time.  Probably a coincidence.  The game is probably just to hyperinflate and all our problems will go away, right? 

I constantly read how the Fed is stupid, but I think all their actions make sense when you accept  that the current system is being abandoned, so they will spend whatever they have to spend to kick the can and buy gold to set up a new system.  No hyperinflation by the ECB or the Fed.  It's not going to happen.

Tue, 09/06/2011 - 14:38 | 1639020 Seer
Seer's picture

"Only Econ majors think the banksters can't change the rules.  The central banks control everything.  They don't care about anything but retaining their power."

No, banksters control ONLY the BOOKS!  Sure, they only care about maintaining power, this is pretty much human nature.  But... Nature ultimately dictates ALL; and Mother Nature bats last!

Tue, 09/06/2011 - 22:04 | 1640521 Mugatu
Mugatu's picture


You are a fool if you think the governments will not print until they run out of paper.  Do you think they will defend the free world against inflation while we sink into Depression?  

Its real simple, so maybe even an idiot can understand this: "When you create a lot of anything (excess), it becomes cheaper".  They will print on every available piece of paper to keep the economy from entering a depression.  More printing, more money out there - thus it becomes cheaper.  After all, they have 80 years of printing experience on their side.  They will defend this to the end.   You cannot print money indefinitely without consequences.  Inflation is nature's way of bringing you the bill after the dinner. 


Stick to NASCAR.


P.S. I doubt you were out of grade school in the 70's, so you have no idea what it was like.  

Tue, 09/06/2011 - 23:55 | 1640794 StychoKiller
StychoKiller's picture

Not only that, but his/her argument pre-supposes that wages will actually increase, how likely is that with over 10% unemployment?  Working stiffs are painted into a corner!

Tue, 09/06/2011 - 11:53 | 1638456 DefiantSurf
DefiantSurf's picture

Once again, academia to the rescue! But aren't these the same jackwagons that got us here in the first place?

Tue, 09/06/2011 - 11:57 | 1638473 Global Hunter
Global Hunter's picture

was Jackwagon even a word before that GEICO commercial with the guy from Full Metal Jacket?  Still a great word either way

Tue, 09/06/2011 - 11:57 | 1638480 falak pema
falak pema's picture

the world is run by POWER players, they use academia to provide the icing, the salad dressing, the spiel, the monday morning quarter backing to justify victory or defeat. Don't confuse the Oligarchs with their paid shills OR those who have INDEPENDENT minds...from Academia.

Tue, 09/06/2011 - 12:03 | 1638498 DefiantSurf
DefiantSurf's picture

The problem I have is 90% of the Academics that spout policy and whom legislators and even Oligarchy rely on are experimentors, playing with historical data applied to current (uncharted waters) variables, which may or may not be the answer but they all take glee in watching their experiments come to life.

Tue, 09/06/2011 - 14:56 | 1639102 Seer
Seer's picture

There goes that trite labeling again...

And, no, I'm not, and never have been, in academia (nor do I, in anyway that I'm aware of, directly profit from it).

I can go down the road and get screwed by non-academics, but I don't lash out at such people and condemn an entire "group."

I hear similar disjointed lashings from anti-evolutionists, that "science" is bunk.  Science is about PROCESS.  Academia is supposed to be likewise about PROCESS.

Have a beef about abuses of PROCESS, not about attempts at PROCESS.  Process, if transparent, is a good thing: beats NO process, and, especially, no transparency coupled with no process!

Tue, 09/06/2011 - 11:55 | 1638463 falak pema
falak pema's picture

Magnificent overview that must be read, ingurgitated, then analysed. I am still reading it...I'm like Gerald Ford...can't drink and read at the same time!

Tue, 09/06/2011 - 11:56 | 1638472 DefiantSurf
DefiantSurf's picture

priorities my friend, drink first read later....

Tue, 09/06/2011 - 12:20 | 1638558 kito
kito's picture

like your avatar

Tue, 09/06/2011 - 12:33 | 1638596 DefiantSurf
DefiantSurf's picture

Thanks, I just made it today as I did have the Gieco caveman but found somebody (longer member) already had it so I decided to make one that nobody has

Tue, 09/06/2011 - 12:48 | 1638646 LongBallsShortBrains
LongBallsShortBrains's picture

You misspelled ganja

Tue, 09/06/2011 - 11:56 | 1638467 topcallingtroll
topcallingtroll's picture

Some people have yet to realize the usa has been playing a far more sophisticated game than mercantilists dependent on exports, and subsidizing them for our benefit.

It is very likely that the usa will be the hegemon for a long time and come out of this mess better off than most of the world.

So far america's free lunch shows no signs of ending soon. We probably could run trillion dollar deficits forever, and have the rest of the world subsidize us, because mercantilists would rather pay us partially hidden tribute for the privilege of using our currency and buying our bonds rather than endure the pain of balancing their own economies.

Hehe! So who is really dependent on whom here!7

Tue, 09/06/2011 - 12:11 | 1638528 LawsofPhysics
LawsofPhysics's picture

Yep.  By the way, the tribute is fully hidden in the mecantilist countries because of their tight hold on what information their sheep have to information.

Tue, 09/06/2011 - 14:56 | 1639105 Use of Weapons
Use of Weapons's picture

That'd be swell if you were all Aryan supermen.

50% are fatties though.



Nature does not favour the fatties. Apart from as convenient sources of energy.

Tue, 09/06/2011 - 15:02 | 1639128 Seer
Seer's picture

I agree that there are such forces at play, but I don't believe that the peoples of the (rest of the) world will be so willing to allow themselves to be further exploited, especially considering all the hype bestowed the BRICS, those people will be looking for "theirs," and when it doesn't happen it'll get a bit ugly: either direct lashing out at the US or at their own govts, which then makes it tough for those other govts to hold open the spigots on their end of things. Translation/summation: increasing internal demands in other countries will override the US's ability to control the world's economic climate (which is suited to hold up the US above all others).

Wed, 09/07/2011 - 10:28 | 1641993 tip e. canoe
tip e. canoe's picture

as well as providing for their own security.   does the World need a Supercop or not?

Tue, 09/06/2011 - 11:56 | 1638471 lynnybee
lynnybee's picture

 we don't have capitalism, haven't had it for many many years; what we do have is LOOTING of the U.S. TREASURY  &  the infiltration of governments by Wall St. & the City of London & the prosecution of wars thru our military .

Tue, 09/06/2011 - 11:57 | 1638474 Temporalist
Temporalist's picture

Am I seeing things or does the gold chart have Vampir Fangs today?

Tue, 09/06/2011 - 11:58 | 1638481 reader2010
reader2010's picture

IMHO the elite have envisioned and planned another global fiat similar to IMF's SDR to replace USD for the game to keep going on for a few more decades. Crucially important this time around is to have capital surplus countries, such as China, plalying more important role in this new global fiat scheme. What we are witnessing in Euroland is the prelude to what needs to be done in Europea first. 

Tue, 09/06/2011 - 11:58 | 1638482 MrSteve
MrSteve's picture

The oldest rule in rule-making is he who has the gold makes the rules. That's why Central Banks have been buying gold in supersize deals. Whenever fiat has imploded, new currencies or revaluations have happened.

Crafting a theory or model explaning what has gone on and will happen next is probably best approached by reading Edward Gibbon, Adam Smith and Sidney J. Homer. Start with Homer, here:

Tue, 09/06/2011 - 11:59 | 1638484 RobotTrader
RobotTrader's picture

UUP on a huge run today

Tue, 09/06/2011 - 12:01 | 1638493 wang (not verified)
wang's picture

where is George Washington?

Tue, 09/06/2011 - 12:07 | 1638512 Robot Traders Mom
Robot Traders Mom's picture

Call your mother sometime when you aren't getting arrested for exposing yourself in public parks.

Tue, 09/06/2011 - 12:49 | 1638652 topcallingtroll
topcallingtroll's picture

That was robo? OMG!

Tue, 09/06/2011 - 12:20 | 1638557 Oxytan
Oxytan's picture

Thanks Robo, but no one here was surprised.  The 'stars' had UUP reversal nailed:

Do NOT follow this link or you will be banned from the site!