Capitalism - the Gift That Keeps on Taking: Part II

Part two of a four-part series in which Michael guarantees he will never work for a Fortune 500 company.

From Part One:

Most Americans are not capitalists. They might want to be capitalists, but no matter how much you, or that hardworking barista, that well-paid techno-nerd, small farmer, or gangsta rapping bank teller may want to be capitalists, you are not capitalists. You are workers.

Now that we know who is and who is not a capitalist, let's look at why this steaming sack of profit-driven demonology is antithetical to common sense, human values, kindness, puppies, Mom, and apple pie..."

Part Two:

Let's start with that barista, shall we? The wannabe/thinks she is a/capitalist, smiling while she serves up hot joe to a morning rush of caffeine-craving tension bombs. There she is, sweating over extra cinnamon froth, hurriedly steaming free range milk, and doing it all for minimum wage. Think about that: Minimum wage. Until recently many of our wealthiest publicly-traded corporations boasted about the begamajillions they showered on their CEOs, while simultaneously paying many of their hardest-working employees the government-mandated, rock-bottom amount they legally could get away with. Now, in the spotlight, some of these companies have cut back on their more obscene compensation packages, but if you think that money got shifted to those hard-working folks who actually need it, think again. And why would America's favorite high-value, low-price, supermarket to the world, we bring good things to light, 40 billion burgers sold, every corner coffee companies pay as little as they can without breaking the law? Because capitalism dictates that Labor costs be kept as low as possible so the greatest possible profit can be returned to the Investors. The workers do all of the work, and the money people get all of the profit. And profit only comes from raising prices and/or lowering wages. Corporations are legally mandated to return dividends, not pay reasonable wages to the people who do the actual work. So when that Barista can't make rent, get a winter coat, or buy school supplies for her kid it isn't because she isn't working hard enough, or that there isn't enough money. She's working plenty hard, but the extra money the corporation makes from her hard work is going to the capital investors, not her -- though a little is spent on her for propaganda to keep her believing that Capitalism works for her.

Myth: Capitalism Creates Wealth

No. Labor creates wealth. Capitalism simply profits from the labor.

Here's a test: A guy with no money on the beach. With his bare hands he builds a sand castle that is so beautiful people pay him to take their picture in front of it. All he invested was his labor, and he will have more money than he started with.
Labor = Money.

Another guy. Same beach, $100 in his pocket.

And that's it. Unless he does something. or pays someone to do something, that $100 is not going to increase. "Oh, he could invest it." Hold on, there, Sparky. Wherever the guy would invest his $100 his return would rely on someone's labor to turn it into profit. Starbucks is a profitable corporation, but if a laborer didn't pick the coffee beans, roast the coffee beans, grind the coffee beans, or add hot water to make overpriced, hot bean juice, Starbucks investors would never make a profit. Labor is the essential ingredient to profit. So why aren't we all proud Laborists, rather than wannabe Capitalists? Propaganda. And what kind of economy do you get when a nation convinces itself that money breeds money, investment alone creates wealth, and that labor is irrelevant? Look out the window.

Myth: Capitalism Is Self-Regulating

This is the statement made each time the market crashes -- that the real problem is that there are regulations at all, and that if left alone the market will fix itself. If your car ran like Capitalism -- some days humming along great, other days needing a government tow truck to get it to a shop where the mechanic can only promise more booms and breakdowns after it's "fixed" -- you wouldn't call your car "self-regulating." You'd call it junk. You'd give it away on Craigslist for parts and start looking for something that worked. But the mechanics of Wall Street -- the same mental minnows who two years ago insisted the economic engine was just warming up when in fact the damn car was on fire -- when these sleazy, used car-selling felons tell us this is how the car of capitalism is supposed to run, we consistently fail to trade it in for a better model.

Myth: Capitalism Fosters Competition

Okay, that's just insane. The object of any corporation is to dominate its market, not joyfully share it. It's not about building a better mousetrap, it's about lowering labor costs so the competition's price can be undercut, while building enough investor capital so that all the competing, and perhaps better, mousetrap companies can simply be bought. And anyone who says something different is trying to sell you on tossing out some anti-monopoly regulation. The goal of capitalism is profit. Market dominance equals greater profit. Monopoly insures dominance. The enemy of monopoly is competition. Capitalism always tends toward monopoly.

Myth: Capitalism Works Best with Fewer or No Restrictions

Really? Remember the Recession of 1981? Most serious economic slump since the Great Depression? And what preceded it? The Depository Institutions Deregulations and Monetary Control Act of 1980, which ended many of the regulations on how banks invest your money. Regulations gone, and so they played in the stock market, speculated in Real Estate, lost our dough, and the Federal Government had to spend $870 million to bail them out. Is this sounding familiar? And that was when $870 million could really buy something! And how did these cash-sucking colon worms follow that? With the Garn-St. Germain Depository Institutions Act of 1982, which further deregulated banks, and also the...wait for it...Savings and Loans! By 1983 the FDIC listed 540 banks on the verge of failure, and then the S&L crisis popped. Who didn't see that coming? Another $160 billion! All this during the Reagan "Recovery."

And what legislative Crap-o-rama landed in 1999, right before the latest daylight robbery of our future? The Graham-Leach-Bliley Act, overturning the bank regulating Glass-Steagall Act of 1933, which had separated commercial and investment banking. Result? Again, look outside! Go! Now! Look! Every bust is proceeded by a natural disaster, a war, some investment bubble, or the loosening of some regulations. History shows that capitalists, like wars, earthquakes, and floods, will always wreck our country -- the only difference being natural disasters don't also rob us in the process.

Part Three

Comments

[juggernaut1729]

Capitalism indeed fosters competition.

Take a look at the 30 companies whose stock prices made up the Dow Jones Industrial average in the year 1900 and the 30 that made up the index in 1950 and the 30 in 2000.

Clearly, very few companies are able to build up a durable competitive advantage that can last even a decade or two.

It is true that every company wants to establish a monopoly in its business, but the fact is that very few are able to. That is because "capitalism" is not a system controlled by capitalists. It is controlled by consumers.

[Michael Gene Sullivan - Huffpost Blogger]

Hey, did you know that the San Francisco Bay Bridge was built for trains and cars? That's right! Worked great...un­til the automobile companies bought the train company, ripped up the rails "temporarily," forgot to put them back, and made room for more cars. Same thing that happened all over America - consumers wanted rail service, so car companies bought and wrecked the competition. Controlled by consumers? Not in the real world.

And I'm guessing that you're postulating that because the same companies haven't dominated the Dow since 1900 there is, therefore, competition. There are lost of reasons companies are no longer listed other than someone else built a better mousetrap - though that does sometimes happen.

Standard Oil lost market share because the government decided it was a monopoly and broke it up.

Another reason is acqiusition. Microsoft is a good example. What Microsoft excels at is buying companies that have invented something useful. They don't compete with them, they buy them. Opera, Powerset, Razorfish, SAP, HotMail, DevBiz, Screen Tonic... they've bought a shitload of companies. Microsoft is an aggregate of acquired business, bought rather than out fought, and bundled together. Some of those companies had a pretty good market profile.

And what did Wells Fargo do with it's Bailout money? Buy Wachovia. This has become the norm, not the exception.

If it's all about competition why don't these companies just rely on the consumer to make the right choice?

[juggernaut1729]

How did the car companies have enough money to buy the train company ? Clearly, because the people bought their cars.

The consumers voted for cars with their dollars.

The single most important reason the companies in the Dow keep on changing is because of losing market share to the competition, not the reasons that you have given. It's not a postulate. It is a fact that can be verified very easily.

It is very rare for large companies to be acquired and extremely rare for the Government to intervene and break up a company.

It is very very hard to find a company with a durable competitive advantage that lasts for decades. It is the dream of every investor to find one and put money in it early on.

[juggernaut1729]

No capitalism indeed creates wealth, labor, especially unskilled labor doesn't.

Fact 1: Capital is what makes it possible to increase the productivity of labor. A man stranded on a deserted island who catches fish with his bare hands catches less than another who spends some time to build a fishing net. The fishing net in this case is capital which increases the efficiency of labor (catching fish).

Fact 2: Countries where profit-seeking individuals make capital allocation decisions do far better than countries where a bureaucrat makes them.

There was no difference between the workers in the Soviet Union and the United States, but in one country, capital allocation decisions were made by entrepreneurs and greedy capitalists while in the other, they were made by bureaucrats.

Clearly, the different outcomes were due to capitalists (i.e the people controlling the capital) and not due to labor.

[givesflack]

The most troubling thing is that we do not have any elected officials who are trying to protect us the greed of the monopolies.
We went straight from repeal of Glass-Steagall straight into Operation Iraqi Freedom with out even hitting a speed bump.
Meanwhile Democrats caved, I suppose, into every GOP legislative desire, and although we demonstrated aplenty (much more attending than the tea bagger) we were relegated to special interest status, the same small interest group that voted in Obama.
And now OHB is bailing out the bankers who created this disaster over and over again ala Reagan.
One thing I learned from this article- that the teabaggers are defending capitalism that created this disaster because their leaders are afraid of losing this system of privilege and greed.
The propaganda by the privileged who run this system provoked a culture of wealth worship over the years and distrust in their fellow citizens which is how they have been able to continue to influence the public and get middle class people to demonstrate against Obama.
We know that things really have to change and that t-baggers are a small in comparison to the rest of a
justifiably angry populace.

[Jannsmoor]

Michael Sullivan is engaged in fuzzy thinking. How could a society possibly go wrong which is built upon bedrock economic principles such as:
1) accumulate as much personal wealth as possible without regard to society as a whole and especially without regard to what we leave future generations
2) eschew regulation because it inhibits the accumulation of personal wealth
3) make government (i.e. the only power the working class has over capitalists) small enough to drown in a bathtub
4) divert voters by turning elections into a debates about gay rights, the right to carry AK-47's, abstinence only birth control, and the rights of religious fanatics to control school teachings
5) turn over all public endeavors to the private sector - it always outperforms the public sector, even with the hefty profits that float to the top, because only the promise of huge profits can motivate people to do anything.
Sorry Michael, the fact capitalism has continuously failed to deliver on its promises since its inception does not trump the importance of believing in capitalism. Capitalism is the means. Where it leads us to is immaterial.

[Michael Gene Sullivan - Huffpost Blogger]

How could I have been so foolish!

[RandVictims]

Sorry for the spelling..­..

[RandVictims]

When are the mainstream media and the acedemic elite going to come clean on the obvious and denounce Reaganomics for the catastrophic farce it really was?

[SingingGuy]

Great piece, Michael! The piece of the puzzle that continues to be forgotten by those who would have us all work for minimum wage is this: If we keep all of our workers on subsistence wages those goods and services that the capitalist is having his low wage workers produce will be unattainable for more and more of the population. Fewer and fewer people will be able to buy what is produced thereby making Mr. Capitalist less wealthy. Henry Ford said it best, " I must pay my workers who build my cars a decent enough wage so that they will be able to purchase my cars."

Can anyone venture a guess as to why a single bread winner could pretty much support his family in a comfortable middle class lifestyle in the 1950's?

[Michael Gene Sullivan - Huffpost Blogger]

That's in Part Three! Thanks for reading.

[dsws]

"Can anyone venture a guess as to why a single bread winner could pretty much support his family in a comfortable middle class lifestyle in the 1950's?"

There are a number of factors. Unions meant that capital and management didn't get to take the whole pie and leave labor with subsistence wages. Our industrial output had a comparative advantage because Europe had been devastated by WWII and the rest of the world had been forcibly underdeveloped by colonialism. Medical care was cheap because they couldn't do any of the expensive stuff yet. Housing was relatively cheap because it hadn't started to bubble and because there were still some ancient forests yet to be cut. Education of the required level was provided by the government. Expectations were lower for a lot of consumer goods.

And this single breadwinner was white and benefited from the subsistence-wage labor of everyone else.

[dsws]

"Another guy. Same beach, $100 in his pocket."

Money isn't real capital. Capital is what you get from labor expended earlier to make value later via some intermediate like tools.

So - same beach, a guy with a pail and shovel, some funnels to pour the sand through, a screen to sift out the pebbles, a pocketknife to cut sticks to length for architectural highlights, and so on. He makes a much more beautiful castle than even the most innately talented builder could do with his bare hands and not even a pail to keep the sand moist until it's shaped. Then there's the skill he's developed by prior practice. That's intangible capital. Intangible capital is real.

"Labor creates wealth. Capitalism simply profits from the labor."

Natural resources, labor, capital, and initiative together create wealth. Capitalism is when capital gets a bigger slice of the pie than it would in an ideal market, and uses that wealth to secure political power to keep getting an unfair share of the wealth.

Actually, that list of factors of production wasn't complete. For example, there's government. Not a lot of wealth gets created if there's no real infrastructure, or if raiders come along and pillage it regularly. Capitalism contributes there, by being a stable system that merely strangles productivity instead of suffocating it outright.

[kellygrrrl]

for the longest time I've stayed out of the argument as to whether Capitalism is Good or Evil
I'm sure it's a bit of both -- just like everything is, from religion to plastic surgery.
however
I draw the line at these Capitalists receiving welfare and wiping the sh!+ off their shoes (result of their stupid decisions to step in sh!+) on the backs of the rest of US.

[dynwitch]

And yet those "sand castle makers" (i.e., average taxpayers) are the ones who are now propping up the mighty capitalists with the pitiful wages that they earn from making pitiful sand castles.

[SantaFeConservative]

If those darned capitalists didn't risktheir own money into businesses, there would be no work for the laborers. There are only so many sand castle makers that will be able to survive off of their craft.

[dynwitch]

And yet those "sand castle makers" (i.e., average taxpayers) are the ones who are now propping up the mighty capitalists with the pitiful wages that they earn from making pitiful sand castles.

[Michael Gene Sullivan - Huffpost Blogger]

That's an important point - which I talk about in Part Four.