All content copyright © 2010-2024 Frank Revelo, www.frankrevelo.com
(Extracts from discussions in internet forums.)
Misers are quite stable in their desire to hoard. Some heirs to previous generation of misers might not be misers themselves but other heirs will inherit the miser tendency. Under the right circumstances, a small inbred top layer of misers can come to control society. Under them will be a middle layer of managers, lawyers, propagandists (hack journalists, hack intellectuals), and police. Under this second layer will be a bottom layer of impoverished workers. Misers exert control by giving money to the second layer, who are terrified of falling to the bottom layer. Both second and bottom layers have high propensity to consume, but assuming misers and their hired managers aren't completely incompetent, easy to arrange that inflation is kept low, thus serving interests of misers. (I'm assuming modern fiat money economy, where there can be infinite money, but same situation can arise with fixed amount of gold as money. Misers end up owning it all in both cases.) Dystopias like this common in human history and very stable, absent external enemies. (External enemies requires more dynamic economy to support military.)
Shift towards miser controlled dystopia is trajectory taken by USA since about 1980 (Reagan as President, Volker as Fed chairman, "greed is good" slogan, etc). Use high interest rates to funnel money (and thus power) to miser elite, at cost of trade deficits and deindustrialization and other damage to real economy, then miser elite will cut their own taxes and social spending and make other changes to lock in their power. As wealth concentrates in hands of miser elite, government deficits and debt build up no longer causes inflation, hence many years of near zero interest rates from 2009 to 2022.
Process is still in play, and no reason it can't continue indefinitely. USA has enormous potential to reduce inflationary military spending by going isolationist. And once isolationist, USA is mostly self-sufficient, so government can focus on strengthening grip of miser elite and keeping inflation low, regardless of how this destroys real economy. Bottom layer (see above) of workers becomes impoverished but they won't revolt as long as there is food, and it would take at least a hundred years of total mismanagement to destroy USA food supply.
Of course, things don't have to go this way and this outcome probably unlikely, but it is a possibility to keep in mind: inflation is not guaranteed.
Term "inflation" is inherently misleading, mainly because there are 3 types of inflation: wage inflation, price inflation, money supply inflation. Wage inflation is what really matters. Wage inflation also only type of inflation that is easy to measure, especially median wage, which is easy to measure even in economies with chaotic record keeping. And only wage inflation actually makes sense, given substitution effects and technological changes in goods and services used to calculate price inflation and confusion about how to measure money supply.
Assuming wage inflation consistently 1% higher than price inflation, due to productivity improvements, then targeting 3% wage inflation would be correct way to target 2% price inflation.
From point of view of ordinary people, wages up 5% and prices up 10% is similar to wages down 10% and prices down 5%: both situations lead to reduced standard of living. Whereas wages up 10% and prices up 5% is similar to wages down 5% and prices down 10%: both situations lead to rising standard of living.Whereas from point of view of rentier owner of cash or nominal debt, wages up feels much different from wages down, regardless of what happens to prices, because ultimately it is position in social hierarchy, as measured by money, that matters to miser personality, not how much actual goods and services that money can buy. To a miser, being in top 10% of wealth or income of poor society typically feels better than being in bottom 10% of rich society, even if amount of goods that can be bought is higher in rich society. Which is why miser dystopia comes into existence. Namely, misers love power of money more than things money can buy. So they will preferentially organize society to give themselves maximum power, even if this means society as a whole becomes poorer.
Natural scarce resources include land, minerals under surface of land, fresh water, telecommunications spectrum, air space for flying devices. Seawater, air and granite are examples of natural abundant (non-scarce) resources.
For accounting purposes, pollution can be considered as negative natural scarce resource. Or pollution free environment can be considered as natural scarce resource and pollution makes this resource scarcer.
Artificial scarce resources include monopolies and monopsonies (natural, network-effect, and government created such as taxi medallions and other government granted exclusive rights to engage in area of economic activity), patents, copyrights, trademarks, etc. Government guaranteed streams of income also constitute artificial scarce resource since not everyone receives such a stream, otherwise streams would cancel out and be meaningless, but if only some receive, scarcity is felt by those who don't receive, since they cannot compete as prices are driven up by those who do receive. Intellectual property not protected by patents or copyrights (all of mathematics, for example) is example of non scarce artificial resource.
Physical capital includes infrastructure, buildings, factories, machinery.
Human capital is development of body and mind of individual humans so that they are more valuable economically. Human capital necessarily dies with the individual. Development which can be passed on to other individuals is intellectual rather than human capital.
Social capital measures difference in effectiveness of organization of workers (managers, engineers, technicians, line workers, support personnel, etc) who have learned to work in harmony after several years working together versus hypothetical effectiveness of same group of workers with no experience working together.
Intellectual capital is product of intellectual labor which can be reproduced at low cost and transferred between individuals or between groups of individuals, such as information in books or recorded music. Intellectual capital can sometimes be converted into scarce artificial resource via patents, copyrights or other limits on reproduction and transfer.
Financial "capital" is not real capital but rather is accounting device for lumping together various forms of real capital (physical, human, social, intellectual) together with scarce resources (natural or artificial). Lumping together these disparate categories is useful for business management purposes, but leads to confusion. Confusion benefits those who are threatened by post-industrial "euthanasia of the rentier" and seek reversion to feudalism.
Entrepreneurs in pre-industrial or feudal economies focus on scarce natural and artificial resources (land, government-granted monopolies, etc). Entrepreneurs in industrial economies focus on physical capital. Post-industrial economies have surplus of physical capital, so returns on physical capital are low. Entrepreneurs in post-industrial economies can either focus on human, social and intellectual capital as only areas with significant return on investment, or they can focus on creating artifical scarce resources, thus creating post-industrial version of feudalism (aka "rentier capitalism"). Anti-feudal economies limit returns on scarce natural resources, such as by high land taxes, and eliminate most scarce artificial resources (other than limited patent, copyright and trademark protections).
Note that entrepreneurs ("people who get enterprises going") might be government officials. During feudal period, leader of invading army was entrepreneur and enterprise consisted in killing existing ruler and his supporters, then becoming new ruler in possession of land and everything on it, including human peasants, who became subjects of new ruler (tax payers, serfs, slaves). In USSR and other 20th century so-called "socialist" economies, entrepreneurs in charge of developing physical capital were all government officials and "state capitalism" is more accurate description of these economies than "socialism". What distinguishes economies like that of USA in 2024 is not that many entrepreneurs are private individuals rather than government officials, but rather dominant role of financialism (banking, stock market, insurance, asset bubbles, debt, layer upon layer of securitization).
Imagine a post-feudal (land taxes to limits profits from natural resources) industrialized economy where all physical capital owned by private sector. Owners would constitute oligarchic elite and would tolerate a certain amount of corruption by other oligarchs (nepotism, wasteful spending on luxuries, incompetence) in exchange for tolerance extended towards themselves. But there would be no tolerance towards parasitical economic activity, like bloated healthcare system and high housing costs, because this would be seen as a threat to the other oligarchs. That is, owners of the semiconductor factories might tolerate paying 10% extra for electricity to allow the owners of the electric companies to keep mistresses and have personal jets, because the owners of the semiconductor factories also enjoy such luxuries, but they are not willing to pay 10% extra for labor to support activity that greatly increases cost of labor.
But this is similar to the situation under state capitalism. Government officials don't actually own their enterprises, but as time goes by, they tend to form an oligarchy and establish effective permanent control, including ability to pass control to a designated heir via nepotism,so that they might as well be considered owners.
What financialization does is create a new class of rentiers who are owners but not entrepreneurs and not directly connected with the enterprises they nominally own. These passive owner rentiers merely want to receive a steady stream of income and/or steady increases in asset values, and damn the consequences to the real economy. As passive owner rentiers grow in power, government responds by making it easier for businesses to protect against competition. Government sanctioned monopolies and other artifical scarce resources abound. Land taxes are reduced and natural scarce resources (land,fresh water, mineral rights, etc) become a primary focus of entrepreneurial activity, same as under feudalism.
That is, financialization allows the emergence of a class of parasite oligarchs powerful enough to challenge the oligarchy in charge of the real economy, which is concerned with creation of physical capital. These parasites eventually choke the real economy. The problem is masked, for a while, but money printing and/or inflation of asset bubbles.
"Communism" in the sense of "from each according to his ability, to each according to his need" has never and will never exist on this earth except in the minds of fools and fairytales told to dupe these fools into following some charismatic cult leader. "Man is a wolf to man, the strong do as they wish, the weak suffer what they must."
Any group of humans develops into an oligarchy within 1 minute of the group recognizing itself as such, as natural leaders speak out and attempt to grab control while natural followers listen and decide which leader they prefer, the group splits into factions led by natural leaders, further jostling for position within each faction, faction leaders then cut deals with each other, etc.
Also, never underestimate the ability of humans to believe lies if such belief is to their benefit. In matters concerning natural science and technology, society obviously cannot afford nonstop lies, especially if involved in military competition with neighboring societies which don't lie to themselves about natural science and technology. But with regards to social science, constant lying is normal because there is no disadvantage to society as a whole from such lying, lies benefit the elite, inventing and repeating lies benefits the toadies of the elite (lawyers, hack academics and journalists), those who denounce lies and speak truth are persecuted, those who listen to these truth speakers typically derive little benefit and run risk of persecution if they inadvertently repeat the truth they heard, etc. Typically, only those with some derangement of the mind insist on discovering and speaking truth. Plus some private individuals may seek out truth for their own benefit but then mostly keep their discovery to themselves.
All industrial economies are capitalist, because of entrepreneurial focus on development of physical capital, versus focus on natural resources in pre-industrial economies. Industrialization is made possible by surplus energy from fossil fuels (and hydroelectric, nuclear, solar and other energy sources later).
Any economic system can face crisis when confronted by war with society whose more advanced economic system provides greater military power. Financial capitalism can also face crisis of purely internal origin due to instability of equation for capitalizing asset prices: income divided by discount rate. As physical capital becomes more plentiful, both income and discount rate drop. As income and discount rate approach zero, even tiny changes to either quantity will cause massive changes in asset prices, so tendency towards asset price booms and busts.
Owners of physical capital react to decline in income by trying to create scarce artificial resources to replace increasingly abundant and thus cheap physical capital. That is, natural reaction by owners physical capital to crisis of capitalism is reversion to feudalism, sometimes called "rentier capitalism".
Post-industrial and anti-feudal economy would "euthanize the rentier" by government imposed limits on returns on natural and artificial scarce resources and reduction of returns on physical capital to 3% or less in real terms due to competition (hence abundance of physical capital), with asset prices anchored close to replacement cost, eliminating booms and busts in asset prices. Holders of cash would be incentived to invest at low discount rate by keeping price inflation at 2% or more (cash holder foregoes 5% real if price inflation exactly 2% and investment return exactly 3% real).
Typical emerging market trajectory from boom to bust. Optimism about prospects for economy allows borrowing in foreign currency, which creates illusion of prosperity, which results in further optimism, such leads to domestic credit and real-estate bubbles, which causes inflation, which government attempts to control via interest rate hikes, which causes currency value to soar, which increases trade deficit and debt owed in foreign currency. Something happens to destroy confidence, bubbles burst, currency collapses in value. Neither government nor private borrowers can pay back debts denominsted in foreign currencies.
USA/Canada situation of 2024 differs from emerging market at peak of bubble in that debts are in USA or Canadian dollars,respectively. Plus North America is an impregnable natural fortress because of geography, militarily powerful and resource rich, therefore a natural refuge for frightened financial capital whenever there is a crisis. Plus USA current creates world reserve currency and China can take its place unless China willing to run huge trade deficits, but China wants to run trade surpluses so as to dominate world industry even more than it currently dominates, because it sees industrial dominance as a superior way to exert control over the world than military dominance (though it is also building up its military). So USA and Canada probably won't experience typical emerging market crisis.
What really matters to North American living standards is that foreigners will eventually own so much North American real assets (real-estate, corporate equity) and debt (consumer, corporate, government) that the continent will effectively be an exploited colony of the rest of the world. However this is little different from exploitation of poor debt peons by the wealthy within the USA itself. Financial capitalism seeks naturally to break down political boundaries and turn the whole world into a plutocracy.
"Capitalism" can denote any combination of the following concepts: post-fedualism, industrialisation, economy focused on development of physical capital, surplus energy economy (surplus compared to what animal power, wood and other biomass can provide;surplus from coal and peat initially; surplus from oil and gas, hydroelectric power, nuclear, solar, wind, other sources later), private enterprise, financialization, rent-seeking.
Industrialization and development of physical capital are essentially synonyms and industrialisation always coincides with initial phase of surplus energy economy. So to the extent capitalism denotes any of these concepts, it should be replaced by industrialisation.
There is no reason industrialisation need be associated with private enterprise. State managed industrialization can be just as effective. For example, most USA highways, dams, inland waterway works, ports, fresh water supplies, bridges and other infrastructure were designed and constructed under government management.
Financialization and rent-seeking is much clearer than capitalism used as synonym for these concepts. By financialization is meant overgrowth of financial system, especially schemes whetein profits are privatized and losses socialized, as ocvurs with financial system bailouts.