Capitalism Post 1 – Money as a Technology

I was surfing the blog in the past few hours putting in comments where my interest struck me and there seems to be quite a few posts regarding capitalism.  Furthermore, I recall several times in class bringing up corporations and people having generally negative views towards corporations.  It is time to make a case for the merits of capitalism.  Here we go!

Let’s take a big ol’ step back to the feudal times of Europe, circa 1000 AD let’s say.  Okay, (all hypothetical) you are a member of a family that farms wheat.  Now, you work as hard as you possibly can and every year you produce some wheat.  Some years you produce lots of wheat and other years where it is drier or the soil wasn’t tilled enough, you produced less wheat.  Now, on the years where you produced more wheat, you hope to God that every single other farmer had a bad wheat yield because that way you stand to gain the most.  Assuming wheat is wheat (let’s not factor in quality and just assume it is a 100% commodity resource), and assuming that the population of people stays the same and they eat the same amount of wheat products every year, the wheat is going to have a certain value.  Let’s also assume you live in a town where there is another group of citizens that grow some other crop, that is who you sell to.  Both parties want/need what the other has.  If the town you sell the wheat in consumes X amount of wheat value every year, then you stand to make a chunk of that X every year.  The worse everyone else does while you do better, the more of that X you can get.  Okay we just assumed a lot of things right there though.  We assumed the number of people never changes, the amount that people desire wheat never changes, the access to wheat is equal to all, the wheat doesn’t require any other means to use it (like a mill or ovens), the town doesn’t get wheat from anywhere else, there will never be a superior product to wheat, and that the wheat is sold at one time once a year – just to name a few.

Your wealth depends not only on how hard you work, it depends on the value of your wheat.  If your wheat is worth any less your work is worth less, even though you work just as hard last year.  This is bad, you want to make sure you can keep providing for your family but it is so unpredictable all the time.  There are forces of supply and demand going on regarding wheat – your livelihood – but you have no way to standardize your trades.  Depending on when you arrive to the market as compared to your competitors or other factors influencing demand is going to determine how much wealth you earn.  What you need is a standard measurement of supply and demand so that the people purchasing the wheat have a supply of goods that they are exchanging for your supply of goods.  While a bartering system could maybe work, there is still the fact that their goods are going to be susceptible to the same fluctuations as yours are.  You need a currency.

If both the people you sell your wheat to and you use an object that represents the quantification of wealth, you can be sure that both parties are getting a fair deal.  Instead of the market having several different measurements of wealth where each is dependent on a multitude of factors, you have one measurement that defines all of them.  Let’s say the other group grows tomatoes and let’s simply call our currency gold.

If one farmer grows only a few tomatoes one year (he had a bad crop), he knows that the gold that he has to get him enough wheat to live.  Sometimes he has enough gold to buy extra wheat to make cakes with, but not this year, and that is okay with him.  Since the tomato farmer is going to get less gold for trading his tomatoes, the gold he gets is more valuable.  This means that less gold is injected back into the economy of the town from the tomato farmer than usual because he is buying less wheat.  The value of wheat collectively goes down since the price of the wheat being higher is dependent on there being more demand from the tomato farmer than there is this year.  The price that people get for their tomatoes or wheat is the price that the market dictates.  They as goods are sold at the value they are worth in gold, a universal measure that links the two goods.

The same dollars you use to measure how much that candy bar is worth is going to be of the same scale (since your using the same units) as Bill Gates might measure spending 10,000,000 of them on a new home.  The dollars are worth the same.  The technology of money allows for stable and consistent prices across the economy so that trading occurs fairly among different actors.

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6 Comments

  1. While I agree that capitalism is a good thing, I detest the associated corporate greed. I mentioned GM’s car fires in calss, and how it would only have taken something like 27 cents per vehicle to replace the faulty ignition switch, and nobody would have lost their life. It just shows that many people will take a mile if you give them that first inch. They cut corners to increase their own profit margin.

  2. Well, the main problem about Capitalism is because of an Hierarchy system within itself and outwards.

    As inwards is because within the system, people will be trapped within its “Corporate World”, where they are separated from the realistic events. (Later i will mention) And all the focus is about ripping and sustaining their hierarchy system.

    Outwards is mainly they are gaining the benefit of making people to work extra hard and even harder (even within their company) as time goes by. The reason is so wrong is because the same amount of money they have can be manipulated by giving lesser to the labor. Thus, this makes their supply grows higher. Of course when they gain a high supply but control output of the supply into demand and with the same investment when time goes by, they are the main reason inflation happens.

    So when a society could’nt keep up with the current inflation, the only way to make them survive is to keep working harder and harder for the rest of their lives. It leads back to the ethics of earning Freedom and Equality.

    Lastly, Gold is a mineral with limited resources, but Money is only an invention and can be allowed to printed out in any amount. (infinite) The equilibrium is imbalance, the society will topple.

    • @lwoeicherng
      You’re right, gold is bounded as a mineral with limited resources, my next post about capitalism is going to talk about the merits of a currency that doesn’t have a gold standard (like the current US dollar is structured). Inflation is also a good thing, it is a way of making sure that there is enough money present in the economy. If there is population growth occurring in a country the demand is going to go up naturally (people need money), so that the value of an individual dollar does not increase as demand increases, supply must be increased. I might do a post about corporations, but corporations are merely a collective of individuals (or sometimes just one) pulling their money together for investment. Deflation is much more terrifying than inflation.

      The first corporations were the trading companies of Europe in the 16th century. The Dutch East India company is an example of this. See there are many people who want to sail, there are many people who want to trade goods, there are many people who want to build ships, and there are many people who want to explore. Unfortunately, the price of building ships is expensive so if a ship is lost at sea, you would lose a considerable amount of equity. The Dutch East India company protected against loss of equity by investors sharing ownership. This meant that if the Company maintained a fleet of 100 ships, the ships wouldn’t belong to one person alone (who would be hit with severe financial loss) but instead the company as a collective would only suffer a minor loss because they all share their ownership – they own a share.

  3. @lwoeicherng I’ll include writing about it in my next blog (might be tomorrow when I put it up) but thanks, and I thought your posts were good. I like gaining perspective on something that I think is generally good but I think it is fair to say you see it as the opposite. As any human system, it is subject to flaw from individuals that hold power, and sure it is flawed.

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