If you listen to how European leftist intellectuals (as well as some intellectuals in the Americas) discuss capitalism, you would be struck by the laughable caricature that they portray. This caricature has been handed down by previous leftist intellectuals, who were themselves told how to think about capitalism by their former professors (and so on through generations), buttressed by films that portray rich people as being evil, irrational, etc. This caricature is treasured and never, ever, questioned or examined critically. The idea is simply that a businessman is routinely breaking the law while doing business, while also exploiting his workers at starvation wages.
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Leftists also have zero concept of even the most basic economics, so they believe that if a person has, say, a million dollars, then it means that the rest of the population has less money. In other words, the wealth was not created, but a million dollars was taken from other people — that is, from one side of the population to another side. In their minds, the amount of wealth remains the same; the only difference is who has how much.
And they also have the caricature of rich people being in a roomful of money, usually caressing gold coins, or, like Scrooge McDuck, diving into a pool full of money.
Leftists have no inkling as to just how stupid they are in relishing this caricature.
I am not an economist, but I do understand capitalism.
In modern society, money can be seen as the lifeblood. As with blood, the money has to circulate. Should an important part of the body politic collapse, as was the case with Lehman Brothers, Enron, and the 1929 stock market crash, then the whole system goes into shock; “patient zero” is not the only area that collapses. Money ceases to slow. Sometimes, the collapse is at the heart of the body politic, as was the case with the Greek crisis, Zimbabwe, and any time that a government creates inflation by overprinting money. When that happens, the whole economic system collapses — i.e., the blood stops pumping, stops circulating.
Let’s say person A is worth (i.e., has earned) $50 million from having created a product. Does he have $50 million at home in a piggy bank? No. Does that bank have the $50 million in cash that he can take out tomorrow? Yes and no.
Let’s say he has to take $10 million to either expand or upgrade his business or branch out into other areas of business. The $10 million is not physically handed over to him; rather, he uses checks or money transfers to carry out the transactions.
That leaves $40 million in the bank. Is that money just sitting there? No. Most banks do not have that much money lying around.
The bank now lends at interest — say, $15 million of that $40 million — to hundreds of persons who take out loans so they can buy cars or homes. That spent money is paid to real estate companies or dealerships, or individuals selling cars and homes. Those businesses, in turn, build more homes or buy more cars from Detroit. They also pay their employees. They also buy supplies from other companies to build more homes and cars and pay their employees. Those second companies, in turn, use the money that they got from the first company to pay their employees and buy materials from other sources (third companies or individuals), and so on, ad infinitum. The employees, in the meantime, use their money to buy groceries, pay their mortgage, pay the dentist, pay their credit cards, buy clothes or a television, go on vacation or a restaurant, join a gym, and so on, ad infinitum. The money/blood continues to flow.
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Incidentally, one of the problems that America had in the first few decades after formation is that there was a critical lack of specie (coinage). There was wealth in property and in agricultural products but little money. The economy to a large degree depended on barter for transactions. This was a tremendous brake on the economy of the new country, which really did not improve until the silver and gold rushes of the 1800s.
Here is another aspect to consider. As everyone knows, a home, or a business office in New York, Tokyo, Frankfurt, Singapore, or London, is ridiculously expensive, whereas the same property is much cheaper in a much smaller city or town. If one were to magically sell all the property of New York City for cash, it would be impossible. There is not enough money. Yes, they are worth in total, say, $900,000,000,000,000,000,000,000,000,000, but that much money does not exist. There is simply not enough money in existence, since the money supply is strictly controlled in order to avoid inflation. Now, duplicate that massive sale at the same time in Chicago, Los Angeles, Miami, London, Singapore, Frankfurt, Tokyo, Buenos Aires, and Houston, and the number of stars in all the galaxies are not equal to the number of dollars imagined.
This really means, if we borrow a page from junior high physics, that person A’s money — and the worth of the property in New York, or London, or even Wichita and Omaha — can be imagined as being potential energy, just as money being physically used can be imagined as kinetic energy. If a property in New York is sold, that money then becomes kinetic energy because the money is being put into motion.
Here two other things to consider. First, the worth of an object depends on how scarce it is. Gold is expensive because it is scarce, not because it is pretty; it is prettier than silver, which is also scarce, though not as scarce. (At present, an ounce of gold sells for $4,000+, whereas an ounce of silver sells for $63+, and copper for $6+). Amethyst crystals are prettier than diamonds, but diamonds are artificially scarce because DeBeers controls the supply. A painting by Rembrandt is valuable because it is beautiful and scarce, whereas a modern painting is worth considerably less.
Second, an object’s value also depends on whether people want it, or can pay for it, or recognize its worth (like certain antiques). A house in a crime-ridden neighborhood or a strip joint is worth less than the same house in a beautiful neighborhood with good security. A neighbor of mine creates decorations that I don’t like and, on top of that, asks quite a bit for them, but I will not buy them. At the same time, I cannot buy a painting I have seen and covet, because I don’t have enough money. Near the end of WWII, and shortly afterward, middle- and upper-class people, who had had no food in days, were known to have exchanged valuable paintings and silverware for food from farmers. Food was what was important — nay, paramount.
One other point. Capitalism is bizarrely blamed because around 1900, people were crowded in cities (photographs are usually shown of crowded, dismal dwellings). The fact is that citizens, and foreigners, went to the cities en masse for better paying jobs than agriculture, and the infrastructure was lacking. Nobody forced them to go there, and capitalists did not build dismal buildings on purpose to make the workers’ lives miserable. The structures were already there.
Armando Simón is a retired psychologist and historian, and the author of When Evolution Stops and The Transgender Cult: Psychology, Politics, Religion and the Media.
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Image via Picryl.