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Please begin with an informative title:

It is taken for granted that we live under an economic system called capitalism, but what is it?  What is capital?   What makes an individual a capitalist?  How does the operation of this system affect society as a whole?  


You must enter an Intro for your Diary Entry between 300 and 1150 characters long (that's approximately 50-175 words without any html or formatting markup).

Quoted from Wikipedia:

          There is general agreement that capitalism is an economic system that
          includes private ownership of the means of production, creation of
          goods or services for profit or income, the accumulation of capital,
          competitive markets, voluntary exchange, and wage labor.

Such a description might satisfy a professional economist or anyone with a "top down" perspective, but most of us truly live under this system, and so less abstract definitions may serve us better.  In the few paragraphs below I will offer a perspective of capitalism which may serve to illuminate many of the economic forces at work today.  This perspective will probably dismay a number of readers, especially trained economists, but it is not meant for them, but rather the general public.

First, we need to examine the term "capital," and this has two meanings.  The first is more properly "capital equipment" or "capital goods" and describes the physical hardware necessary to produce products for sale.  Warehouses, factory machinery, rail lines, and the like fall under this definition.  The other use of the term, which I will employ here, refers simply to money and its equivalents.  Some individuals have accumulated large amounts of these.

From a functional perspective, a capitalist is an individual who has enough money to live off his investments and who does not have to labor for wages.  There happens to be a perfect example running for high office these days in Mitt Romney.  If they choose, such folks can have very ample lifestyles, and when the return from investments is more than their living costs, each year they have more capital to invest.  Such people have overseen and sponsored the growth of this country from a bunch of struggling farmers on the East coast to the most powerful nation on the earth.

It is well established that such capitalists have two overarching desires which determine much of their political and economic actions.  The first is to increase the return on current investments, and the second is to find new investments for their surplus capital.  These twin intents can explain much of what has been happening over the last thirty years or so.

To support extracting more return from investments, capitalists have been "philosophy shopping", that is, sniffing out a respectable justification for their prejudices.  Several economic theorists have been happy to oblige, offering the humbug that "the overall economy is benefited when the cost for labor is reduced."  Where needed, this has been used as the excuse for offshoring of jobs and crushing unions.   The examples of this type of action are too numerous to mention.  Here we must bear in mind what they mean by "the economy".  It is strictly from the capitalists' narrow perspective, and the fact that seventy percent of the national economy is consumer spending is neglected.  Clearly, decreasing the average wage impairs the buying power of a giant segment of the economy with severe national effect, but this fact is ignored.

By way of more immediate example:  Over the last twenty years, health insurance companies have increased their profit margins from five to twenty percent and they have accomplished this by charging the maximum and paying out the minimum.  Their ruthlessness attracted some attention and Obama's "Affordable Care Act" was one result.  The movement to overturn it is strong and well funded, as well as totally predictable.  Having successfully satisfied the first intent of all capitalists, to raise the profit margin, they are most reluctant to give back any of it, or the means to secure more.

The second great intent of capitalists, to seek new investments, has more subtle effects, but these are readily seen after knowing where to look.  The push for privatization is one of the main results of this intent.

One hundred years ago when the country was still expanding, where to invest surplus capital was not a problem.  There were railroads to build, towns to raise up, markets to establish.  The possibilities seemed endless, so the fact that the government owned large portions of many Western states and ran quasi businesses like the Postal Service didn't ruffle too many feathers.  Now, with much of the country well developed and some of it in decay, the opportunities to place a few extra billion are not so obvious.  Hungry eyes have turned to government resources.  If only they were privately owned, a profit could be squeezed from them.

Yellowstone park was established in 1872 and is a national treasure.  During the Reagan administration, calls were heard to privatize the park, to sell it to a private firm for operation.  The trial balloon deflated, but from time to time murmurings are still heard.  What could they have been thinking?  

Once again the capitalists had been philosophy shopping.  Their intent was to seize a potentially money making entity and work it for a profit, but they hid their intent behind a duplicitous utterance.  "Private enterprise can operate any business more efficiently than the government can."  They were only trying to save us money, right?  This is a lie for two reasons.  Private companies have two sources of inefficiency which government agencies generally don't have.  The owners of companies expect a return on their investment, the cream they plan to skim off, and the more the better.  This is not true in government.  The second inefficiency has become greatly exaggerated in recent years, executive compensation.  It is now customary in private enterprise to reward the top executives very handsomely.  The head of a government agency can never expect such largess.

Another plum someone would like to pick is the Postal Service, made all the more succulent by the necessity of fully funding the pension plan to cover claims for the next seventy-five years.  This giant extraction of cash was mandated by congress to be accomplished in a mere three years, and this has put a severe strain on the service which is being used to make it seem corrupt and inefficient.  The prospective buyers are jostling for position.  If the Postal Service were sold to a private company, the results would not be hard to predict.  The pension fund would vanish, small, non-profit yielding offices would be closed, lots of people would be fired -- sound familiar?  In the end if the Postal Service still existed, the cost would be high and the service deficient.  The point to examine here is the difference between the operational philosophy of government agencies and private companies.  The former provide a service at the lowest cost possible to the greatest number of people.  The latter charge the highest cost possible, and if the customer base shrinks too much, they close the business, and the service is no longer available.

At this point you may be thinking, "This guy must really hate capitalists!"  I don't.  I fully acknowledge that such individuals have contributed to or created outright most of the best things about this country.  Their willingness to invest has made money available for countless great enterprises, and I am the beneficiary of many of them.  However,  these same folks have heedlessly created great misery and destruction, and I see it around me now.  The question I am raising is how do we maximize the former and minimize the latter?  I would like to think that self-imposed restraint from on top would do the trick, but my experience is that "restraint" is not in the vocabulary of those who are piling up money with a long handled rake.  With my back against the wall, it seems to me that only prudent government regulations and oversight can fill the bill, but are we talking about unending log jams in Washington?  Is there light at the end of this tunnel?

The sword of capital is a blade with two edges, one like the surgeons scalpel, the other like the headsman's ax.  We must accept both of them, but how do we balance them so that the general welfare is best served?

Extended (Optional)

Originally posted to TCG on Thu Mar 29, 2012 at 07:15 PM PDT.

Also republished by The Royal Manticoran Rangers and Community Spotlight.

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