I have very much enjoyed CBI's blogging of late because he is good at starting a debate and holds differing views to many bloggers (including myself). He is a great addition to Blogpower.
This article below though really got to me and so deserves a good fisk.
"Ed has challenged me to explain what he calls my dislike of Capitalism.
So I shall.
Actually it's not a dislike at all, it serves me well. I live in a rich country. I live very comfortably.
I make hay while the sun shines."
Well a nice start, although this piece, suggesting that capitalism needs perpetual war and that Hitler was encouraged for this purpose is a little suggestive of a deeper view.
But I look ahead in alarm.
As does anyone in a position of power who is staring with alarm at the inevitable.
Trust me, this is what the Bilderburg Group REALLY discuss.
They discuss what to do, when they just can't control the demon anymore.
And they arm themselves against the riots. That's why they want a Police State now.
The Bilderberger group, again. Any rational argument that starts by saying there is a global conspiracy out to get us all loses much credibility immediately. It is all very well to say that world leaders discuss powerful things and would like to think they are in control of all events; quite another to prove any of it true. Show me the evidence that Bilderberger actually DOES anything. As for a Police State; where all over the world? A single world totalitarian government?
Have you seen the world lately, it is not as if the people in it get on enough to actually put up with this. Many people in Europe can't even stand the EU, a Pygmy by comparison with this idea of a world government.
It's us they fear.
All the Rich people I know fear very little. They can afford to flee to Monaco or St Kitts if the going gets tough. How many rich people are left in Zimbabwe?
If the debt was all called in, the world would be in the red.
That day is doomsday.
Because then, the whole global economy sits on a house of cards.
But that day must come.
Really? let use a basic example. In the UK people have mortgages, normally these are at 80% or less of the value of the property. plus people have credit card debt too, but this is typically under £10,000. Much less than the average 20% buffer in the mortgage. So how much do people generally really have..not a lot; however, it IS greater than zero.
Of course with companies and leveraged finance things can get a little stretched if you borrow too much, as the current credit crunch demonstrates. But will everyone go under? No. For example look at HSBC, terribly exposed to the Sub-Prime market in the US. Made a huge provision recently for all the bad debt.....but guess what. It's other businesses still posted a profit.
Bumpy times ahead for sure, but the world is not the house of cards built on nothing at all.
Lets just explain for a second, how the economy works.
In a pre-monetary culture, the value of everything is relative.
When cows are plenty, you get less turnips for a cow than when cows are scarce.
Silver being easier to carry around then cows, working out the value of everything relative to little lumps of silver is a good idea for people who seek to take the exchange of goods thing to a new level.
By watching when things are scarce or plenty and taking advantage of those cycles, they end up with more possessions.
So silver coinage becomes a facet of organised cultures.
...so far so good on economic theory
In such culture, usury can be useful to an individual, but overall it is a social nuisance, unless kept to absolute necessity.
If I borrow ten silver coins and promise to repay you eleven, it stands to reason, I am looking to find some way of making twelve.
Whatever way I choose, means someone else being down two silver coins.
Um no, the supply of silver is increasing all the time, new coins are minted. The supply is not finite and never has been. The money is also traded for new production. The ten coins might produce 10 new fields to pasture and therefore generate future revenues far greater than 11. Non one has lost out.
In a finite community, this sort of thing can spiral out of hand, because there really are only a finite amount of silver coins. In those days, money didn't just grow on trees. It's value was fixed.
How did they get these coins? They were either minted or traded for...the supply has never been finite and inflation has been present since the dawn of using a currency as a means of exchange. Even in Ancient Bablyon 5000 years ago.
So in this sort of culture usury aids those with lots of silver coins to profit from someone's misery, even if it isn't the borrower, but someone further down the line.
No it does not, see above. Cultures without currencies are inferior as there is not relative means of exchange and therefore most people live off the land. Cultures that developed a currency became far richer and stronger. Not good for everyone as they still had slaves, but relatively a greater proportion of people became richer over time.
Monarchs and Rulers could benefit from it, and thus it survived.
Yup, more soldiers, more conquest.
But the advent of world trade changed that. Now usury had a purpose.
'World trade' began over 300o years ago. Spices from East Asia reached Western Europe long before the Roman's had even settled on the 7 hills.
Usury was reinvented as a positive. Now it could provide funds for speculative ventures which would of their very nature, bring dividends. It was used to create the money tree which financed the plantations, the tea schooners and the slave ships.
Investment is not usury. Leveraging your resources to develop new ways of creating value is not usury. Paying Brunel to invent railways, propellers for ships and iron bridges is not usury. The lenders made profit, Brunel made profit, people could travel across the world more quickly and so profited. Where is the usury?
And then people saw what the money tree could do.
And it did some pretty amazing things.
It powered the industrial revolution, it taught the common people to read and write, it built railways, steamships and telegraph lines.
No it did not. The Romans had money and manpower, they never reached industrialisation. The Chinese had money and technical know-how nearly a thousand years before western Europe. The age of reason with scientific experiment, the creation of nation states and the protestant reformation are far more important than the presence of money alone.
Because there were always new markets. You borrowed ten thousand, promised to repay eleven thousand, and made twenty thousand through trade.
This was the miracle of free trade.
Brilliant is it not, trade with each other and both grow richer, no matter how different rich or poor either side is; the ricardian principle.
There is of course a problem.
Silver is finite. There is a limit to what is in the world. The world is finite.
This is technically true, but one should remember Malthus here. Productivity increases is exponential, not linear. More can be made from less as time goes on. At some point no doubt with a vast human population there will come a finite point; but we are a long way away.
Everyone can't borrow AND repay for ever. What are they going to repay with?
The excess profit they produced from their initial investment.
Now in a silver currency, you can have deflation as well as inflation. If someone finds a silver mine, the value of silver drops. Inflation.
If a fleet of Spanish ships sinks, deflation, The silver is worth more, there's less of it.
Exactly, it has a major problem....I wonder what the solution is?
But a system used to perpetual growth gains a new dynamic. A continuous pressure on prices. The only brake on this is the fact that the coinage really is finite. There is only a finite amount of silver. In fact, by this time, most countries had adopted the gold standard, linking coinage to value in gold ingots.
The pressure is simple. With so many people in debt, if there is a hiccup and trade goes bad, they owe money they can't repay. Not only that, with goods being scarce, traders are tempted to put their prices up.
Both these problems mean that those not in debt want wage rises, just to put things back on a level.
These times were hard times, but eventually trade would pick up again.
Indeed, the up's and down's of life; made worse in a smaller economy and less of a problem as the global economy is larger and can withstand the shocks.
Inflation on a modern scale was only seen in countries with 'fiat' money. This is money which is worth what people say it is. It isn't tied to anything. You CAN make as much as you like. So it keeps inflating.
Another good idea; let the government decide what money is worth rather than the owners of silver mines. Much more in the peoples' interest don't you think?
But when the growth really did slow down for good, when it really did stop, there was a problem.
There was, I guess you are referring here to the world of 1900-1935. there was also an event called WW1. This did have a massive effect on all the industrialised countries at the same time (except Japan, which unsurprisingly did just fine in this period, too well for its own good eventually).
The banks were the mainstay of the world. They lived on interest. The world was driven by the motor of profit.
But it was a demon that needed feeding, and there was no more for it to eat.
Infinity is an imaginary number.
The gold standard of the time kept everyone poor when huge investment was needed after the war. All the gold had gone the the USA which had no real need of it, hence an asset bubble in the US and depression in Europe.
And since the war, it has continued.
Eating money that isn't there.
The imaginary debt figures rise, but who would repay it, if it was called in?
After the war there was the Bretton Woods agreement, effectively a less strenuous Gold Standard which fell to bits in 1971 due to Vietnam and an Oil Shock.
The UK for example in this post-war period, despite hardship, continued to repay its debt and rebuild its economy.
The Credit side goes down, the Debt side goes up.
And no one knows how to stop it.
In a sense it doesn't really mean too much. The world won't end when the crash comes, but the economy as we know it will.
Why will it end? Did the world end in 1929? How long did the recession last...decades, centuries..or 5 years?
Not to belittle the suffering, but the world did not collapse and the places that did were the rich parts of the world anyway.
Ed, I don't hate it, I can just see that it's an illusion, a growth spurt phase in the history of humanity.
And the last few decades the growth has been an illusion- fuelled mainly by the illusion that people were 'buying' their own homes, rather than taking out loans for life.
The Economy doesn't really grow any more, it's just the Interest is still fed.
An illusion? All the developments of drugs, technology, cars, planes, phones, computers, the Internet, billions of tons more of food grown both in acreage and intensification of land use? Billions of new people and yet % wise fewer living in poverty? Diseases eradicated, global communications developed, the solar system explored.
All an illusion, where is the growth in that? Where is the sustainability of development.
When it can't eat any more, the system is f**ked.
We can all eat more than ever before, despite terrible floods in our country we barely even notice and the shops are full of food. This is no illusion, this is amazing progress.
I don't disagree that if you print money excessively you will damage the economy and there is a strong chance of this happening, but the world is not about to end. not only that but the world really is the world now. India, China, East Asia, South America; not all these places are infected by the Anglo-Saxon credit model, these markets won't die. Companies too have made great strides forward with ideas such as just in time delivery which will massively aid the smoothing out of the bumpy ride.
If you are looking for real long-term problems then resources, population and climate change are far more scary than money; but there is time to fight these. The world does not end tomorrow. (Asteroid strikes apart).