"Capitalism will last indefinitely."

(also featured at DailyKos.com and at Firedoglake)


This is the ninth diary of a series on excuses for "why we can't have socialism." The argument that goes that socialism is impossible because capitalism will last indefinitely, and prevent any and all alternative societies from arising. Societies that have held on to the old socialism, well, mostly Cuba, are completely ineffective at socialism, and survive only by virtue of a black market capitalism. See, e.g. Patrick Symmes' Thirty Days as a Cuban.

The idea with this excuse is that there is no real force in the world today opposing the capitalist system -- maybe there are a few protesters here or there but nothing is really going on to "take out" the capitalist system, and since it's defended by the US military, the global corporate elite's all-powerful proxy force (responsible for 46% of global military spending), we can expect capitalism to last indefinitely.

Within this ideological spell, "progressivism" appears as a taken-for-granted notion that things are, or can be, getting better, while at the same time the predatory economics of neoliberal capitalism (and the "inverted totalitarianism" described by Sheldon Wolin) is regarded as the ultimate goal-state of Western civilization.


It seems like I've heard this excuse from the time I was first exposed to radical ideas in the 1980s. Look at how strong the capitalists are! Who is going to defeat them? Usually this narrative is voiced by disillusioned radicals who see no option anymore beyond cowering in terror at the apparatus operated by the elites while "blending in with the crowd" and maintaining an image of outward conformity. Protests will be ignored, votes can be "arranged," and politicians can be bought, so don't even bother to challenge the system from the outside. If you voiced radical ideas in your twentysomething youth, as I did, you were told that it's best to "work within the system" if you wanted to promote social change.

The problem, of course, with such reasoning is that capitalism's ultimate defeat is not about what we do, though we can still have an effect upon the world. The most effective critique of the capitalist system today voices the objection that it is headed, on its own momentum, toward some sort of terminal crisis. This momentum used to be called "the contradiction of infinite growth on a finite planet" -- now, h/t to Jason W. Moore, it's called "peak appropriation":

Capital's problem today is not depletion in the abstract but the contracting opportunities to appropriate nature cheaply (i.e. with less and less labor). (p. 33)

Now, the capitalists (and their client governments) do indeed present a facade of invincibility. Capitalist, corporate rule (rule by governments beholden to corporate capitalists) is advertised as the pleasurable alternative to being shot by the cops -- or at least this is what the protesters at the 1999 WTO conference saw. And indeed the corporations may rule indefinitely, if they can get the mass public to believe in the corporate ideology of life into the indefinite future. The problem, of course, is that capitalist business depends, for the indefinite sustainability which its propagandists loudly proclaim, upon "profit," which itself is "capital accumulation" -- corporations getting richer and richer. This is not entirely a polite business, nor always a win-win situation for all involved, but is rather increasingly (in this era) a matter of their being able to manipulate the system so that they get a profit. Corporate profit today often means leaning upon government for appropriation opportunities (what David Harvey called "accumulation through dispossession" and what Paul Krugman recently called "profits without production") and the exploitation of cheap labor, as Moore points out in the abovecited article:

In contrast to the golden ages of American and British world power in the mid-20th and mid-19th centuries, the era 1983-2008 was not built atop an industrial revolution in labor productivity. Quite the opposite! The robot factories of the future, widely anticipated in the 1970s, never materialized. The future became a world of sweatshops, surplus humanity, and shock doctrines, not automated factories. (p. 35)

As the rediscovery of cheap labor in areas of the First World which in more prosperous times saw significant gains in worker rights requires a renewal of government repression of labor, we can expect austerity planning to be the trend in ideological justification of government policy today, even though (as one recent Alternet piece suggests) it hurts now and will hurt even worse later. And this is in fact what is happening.

In fact, one can imagine that such planning has been achieving its intended goals. The US suffering its biggest pay drop on record of recent is evidence of this. As Joe Firestone pointed out in a recent piece in Naked Capitalism, practically all of the budgets coming out of Washington DC are austerity budgets, and this is likely so for an important reason:

One explanation is that everyone in the political mainstream is on board with the gradual destruction of the American middle class and the creation of a plutocracy where wealth is concentrated in the hands of a few; and that everyone also knows very well that tight budgets lead to gradual private sector financial losses falling much more heavily on the middle class and the poor, and that these, in turn, will increase the wealth gap between the rich and everyone else. In this view, the effects of these budgets are not some overlooked side effects of implementing austerity; but are a great feature of medium and long-term austerity.

I don’t know how many people fit the bill provided by this explanation, but I think that far too many of our elected officials, and, many more than we like to think, embody this explanation. The truth is that the elites are after the American people, and that in the areas that really matter we’ve become a kleptocracy, a lawless oligarchy that continuously extracts more and more financial assets from most Americans by illegal means largely with impunity because authorities will not prosecute them.

This reasoning, unlike the others Firestone offers, cuts to the heart of elite motivation -- greater profit -- which (by the way) we also see in Volume 1 of Karl Marx's book Capital. There, in Chapter 25, Marx argued that the persistence of a large "surplus labor army," a mass of desperately poor, unemployed people (as promoted by austerity planning), will decrease wages, thus making labor-power cheaper. Cheaper labor-power means that businesses have to budget less for wages. Profit!

This is, as the Marx examples shows, neither a new trend nor a new elite motivation. The elite desire to force down wages may have been occluded, for a few years in the 20th century, by what in the academic business is called "Fordism" -- pay them more (as Henry Ford did) but control their behaviors through what Frederick Winslow Taylor called "scientific management" -- but this was later supplemented beginning with the neoliberal age (1973-present) with an emphasis on "flexible (i.e. disposable) labor." What's new, then, is that the drive to force down wages occurs in an era of declining overall growth, with a capitalist world-system that will have maxed out its potential on Earth through resource depletion and environmental despoliation, and is soon to experience "peak appropriation." And it is this combination of trends which has the potential to weaken capitalism to the point where it will either 1) morph into some other, oppressive system, or 2) be replaced by something else.

(Certainly we can say that the environmental catastrophe of global warming has reached the attention of our nation's "security" agencies, which are preparing now for the uprisings that such phenomena are expected to bring. Of course, the silliness of all this is that the US government, as the guardian and protector of global capitalism, expects the main challenge to capitalism to be not global warming itself but rather the uprisings it will provoke.)

Now, admittedly this is a form of speculation. I am merely saying here that "if this goes on" the ultimate end, the destruction of capitalism and its replacement by a regime of something more brutal (or possibly something better, if the resistance wins) is quite possible. I could, then, be wrong. I must point out in my defense, however, that the defenders of the capitalist system, the elites, are indefinitely committed to the continuation of most of the trends I cite.


During its golden age, corporate capitalist rule was justified to the masses upon the provision of goods to "the consumer" -- we can read in Ludwig von Mises' (1956) "The Anti-Capitalistic Mentality" (a propaganda piece of old) that capitalism exists for consumers. And, of course, we are still told that everyone can be a consumer -- in the system's adolescence this message was the fundamental notion behind Horatio Alger novels. But in this era the positive reinforcement of capitalism is taken for granted -- of course you want all of the good things money can buy, Sallie Mae no doubt assumes of its clients, because how else are you to enjoy life while paying off your student loan debts. At some point in the development of the future dystopia I'm suggesting here, the system will be largely characterized by the brute force with which demonstrators are cleared from the streets in Istanbul or disciplined in Sao Paulo or with which "security" is provided for the upcoming G-8 conference. What replaces the consumer utopia for us now is the simple slogan "I owe, I owe, so off to work I go." It's easy to imagine that at some late point the elites will create facades and name them "capitalism" without the actual conditions for what we call capitalism being there, the carrot and stick approach having been replaced by a series of ineffective appeals to debt servitude, electoral "democracy," and other ways in which the elites congratulate themselves.

Every once in awhile the system spits out some sort of propaganda around its ostensibly benevolent plans to "help the economy" -- microlending, for instance, or Japan's economic experiment known as Abenomics, here debunked by Mike Whitney. My local college library now has more than half-a-dozen books praising the virtues of microlending for peasants in poor countries -- which eventually I won't be able to see at all when the college libraries digitize their holdings and make them exclusively available to "students, staff, and faculty." When that happens, I suppose, we will be confronted with the reality of "peak propaganda" -- that point at which the propagandists are so desperate for money that they are no longer offering their services for free, and so one must pay if one wants to be propagandized.

But really what we are talking about is the early onset of what John McMurtry called the Cancer Stage of Capitalism. It is, in short, a time in which we are seeing what McMurtry calls the "pathologization of the market model," the use of "economic principles" to destroy both economy and ecology in eventually vain hopes of propping up the profit rate against a shrinking actual growth rate.

I don't see this process, the endless tightening up of the economy for the sake of the attachment of profit guarantees to normal behavior, as sustainable, which brings up the question of ultimate ends. What happens when an economy no longer has to have consumers (or for that matter, the whole productive apparatus that is supposed to be the basis for profit) for the continuation of corporate profit, and the corporations maintain their rule through theft aided by brute force while the vast majority of human beings become as useful as trash and the actual, living economy shrinks each year instead of growing? Does that reality still count as capitalism? As Wallerstein argued, we will eventually reach a point at which:


We can have a system better than capitalism or we can have a system that is worse than capitalism. The only thing we can’t have is a capitalist system.

As I've suggested above, what's new about today is not the repression of wage labor which was a mainstay of 19th-century life in the core nations and their overseas possessions. No. What's new about today are the economic and ecological conditions under which the current repression of wage labor is occurring: the capitalist system has suffered from a declining rate of growth (from decade to decade) since 1973 -- this was spelled out in a piece by William K. Tabb some time ago in the Journal of World-Systems Research -- as a world of resources becomes a world of environmental concerns. So the overall trend is headed in the direction of zero growth, and perhaps toward economic shrinkage, as the era of intensive global warming dawns upon us.

One of the ways in which we can say that the real-life trend shines through the propaganda of profit and growth is by taking a look at the "cheapness" of resources according to what Jason W. Moore (in another piece) calls the "Four Cheaps." The four cheaps are food, labor-power, energy, and natural resources -- they're what businesses need to keep growing. The economy of food, which maintains labor-power as a good resource for businesses, is an especially succinct example of what is going on economically today. We can say with certainty that the promoters of the status quo in India are interested in showing how life is better for all under their regime of capitalist progress, yet the cost of food has increased (leading at some points to food riots throughout the world) and Indians are living on less food than they had forty years ago. The sales pitches intensify as the products increase in price and the money we have to buy them decreases.

Today's economic austerity, which is what the technocrats call "fiscal prudence" or a "balanced budget," appears under these conditions as a sort of reversion to the Victorian model of capitalism, conditions of long hours, low wages, and misery, the model which received Charles Dickens' loudest complaints in novels such as Oliver Twist, which complained of a form of child labor which has yet to make its reappearance in the First World. (Of course, when Poland decides to scrap the eight-hour day to attract foreign capital investment, maybe it's just a matter of time before we see life as depicted in "Oliver Twist" again.) The primary cultural difference between the era of Dickens and now, though, is that the zeitgeist of the era of Dickens, as miserable as it may have been, also experienced the full flowering of the "Whiggish view of history," in which life was expected to improve indefinitely with historical progress. The spirit of this era, however, is one in which (to quote something the philosopher Jurgen Habermas said back in 1984) "the utopian horizon has contracted" and the zeitgeist is predicted in advance by Nouriel Roubini.

Add to the repression of wage labor the anticipation that we will not be able to "grow our way out" of the next economic crash, as it will be caused by the collapse of a market in which balance sheets are supposedly balanced by the claimed possession of $1.2 quadrillion in derivatives. A mere Keynesian stimulus is not going to do anything about the tidal wave of debt that will be rolling through the economy when this ultra-vast "derivatives market" house of cards is finally unraveled.

The most immediate cause of possible collapse for the capitalist system of today was spelled out by Harry Shutt in a series of books: The Trouble With Capitalism (1998), The Decline Of Capitalism (2005), and Beyond The Profits System (2010) are the ones I've read. The essence of Shutt's argument is this: capitalism today suffers from a surplus of capital that is getting ever worse. As more and more capital accumulates, the capitalists continue to demand more and more profit from the system, with the end-result that they leech the life out of the system as a whole. Eventually there should come some sort of great crash, similar to what happened in the Great Depression, which will purge the system of its excess capital. Unfortunately, government in this era exists largely to prevent such a crash, to keep capital alive through subsidy and by allowing capital to "cook the books." But the longer the eventual crash is forestalled, the more capital accumulates and the more precarious the real-life situation (unlike the one cooked on the books) becomes. Eventually the crash takes out the system as a whole, or at least that's Shutt's hypothesis.

Government's commitment to the maintenance of corporate profits in the neoliberal era is not merely limited to subsidy, although there are plenty of subsidies -- most notably the fossil fuel subsidies the US provides to companies whose activities are self-destructively the most obvious cause of global warming. Joe Shikspack's most recent diary contains a short discussion of a "divine right to profit" inscribed in the Trans-Pacific Partnership. Here's the fun part of the text Joe Shikspack quotes from the advocacy group Public Citizen's treatment of the TPP:

The U.S. has made one of the major planks of the TPP the expansion of the notorious “investor-state” enforcement system. It allows foreign corporations to challenge national laws and regulations outside of national courts. These pacts elevate individual corporations and investors to equal standing with agreements’ signatory governments, empowering corporations to directly enforce public treaties by suing governments in foreign tribunals for taxpayer compensation for domestic regulatory policies that investors believe diminish their “expected future profits.” These regulatory policies can be anything from environmental protection to financial regulation.

From here we can predict that the existing order will become a sort of fantasyland in which the parties all mutually agree to pretend to the eternal life of the principles of "profit," "solvency," and "economic growth," when the reality on the ground is one of the exhaustion of these same principles in ecosystems disasters. One recalls an old Native American quote to the effect that "When the last tree is cut, the last fish is caught, and the last river is polluted; when to breathe the air is sickening, you will realize, too late, that wealth is not in bank accounts and that you can’t eat money." The people at the top of the for-profit corporations really do believe that they can eat money -- so the prescription they make for themselves is to eat more money at a faster rate to make up for the nutrition they're not really getting.

At some point the commonly-held faith in money will fall apart, not as a sort of economic inflation but as a common recognition that whatever money one holds will eventually be sucked up by corporations or by government and that real material wealth will be in the possession of power, the power to tell the vampires to say "no."

Now, I realize that none of this will establish the actual possibility of some future socialism. After all, none of the protesting publics from Tunisia to Egypt to Greece and Spain to the US to Turkey to Brazil are ready to build socialism anew, and the experiment in "21st-century socialism" in Venezuela is at this early point the popular end of what used to be called Keynesianism. Socialism is not going to be granted to the people on a silver platter -- it will have to be achieved as the outcome of a class struggle which has not shown up just yet. But what I've tried to establish here is that the idea that capitalism will last indefinitely is more far-fetched than it sounds.





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I especially appreciate the many succinct phrases

geomoo's picture

The essay is filled with them:  inverted totaliarianism, peak appropriation, accumulation though dispossession, profit with production, and many more.

In the wake of a recent mini-storm on another website, I had wanted to ask you, Cass, to respond to a notion I had.  Someone made the claim, assuming it to be a good thing, that Obama had "saved the economy".  My first inclination, and that of many, was to question the "save" aspect of this equation, but it later occurred to me that the question really is "What is meant by 'the economy'."  If "the economy" refers to the present highly efficient system for transferring wealth, earnings, and power from the many to the few both through what is called capitalism and through indirect appropriation of tax dollars, then indeed it is accurate to say that Obama has continued the tradition of saving this system from facing the consequences of its own unsustainable behavior.  it seems you have addressed this very idea:

Unfortunately, government in this era exists largely to prevent such a crash, to keep capital alive through subsidy and by allowing capital to "cook the books."

I wonder what you would say to this proposed definition: 
the economy = a system, enforced and chimerically sustained by plutocratic government, for exploiting nature and for concentrating wealth.


My over-riding point is that the phrase "the economy" is ill-defined to the point of being practically meaningless.

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What you see from a number of economists

Cassiodorus's picture

(or so I read -- I am only familiar with the marxist ones) is this idea that the boom-bust cycle was and is a normal byproduct of the operation of the capitalist system, because capital for various reasons becomes stale with an extended period of business -- it loses its market to competition, it saturates its market with products and nobody with money wants to buy them anymore, and so you have a surplus of capital that needs to be shut down, preferably with an economic downturn of limited scope and with limited pain. 

With the bailout of Chrysler in 1971 what you had was the beginning of a series of attempts to keep stale capital alive, and so with neoliberalism you have this great surplus of capital, which can continue its stale lifespans through expanding into new markets.  But that only lasts so long, and so capital must undergo further and repeated bailouts and subsidy. 

Your definition of the economy as such is fine, as long as you mean a capitalist economy.

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I don't even mean necessarily capitalism

geomoo's picture

I refer to the US today, specifically the "economy" Obama is praised for saving, which I don't believe can be summarized with one word any more, so entertwined are tax collection and distribution; direct and indirect subsidies; and militarism, intelligence-gathering, and covert maniplations all creating perogatives which would not be available to capital alone.

Thanks for that explanation of surplus capital.  I had wondered what that meant.

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Indeed, some form of boom and bust ...

BruceMcF's picture

... is intrinsic to any monetary production economy, due to the decentralized decision making of actors implying that it can never operate like a well-oiled mechanism. Its always necessarily in some way out of sync with itself because the information flows required to remain in perfect sync would overwhelm any real world information processing system. When it is out of sync in one direction, growth in effective demand exceeds the capacity of the system to provide the demanded goods and services, and then either by rationing or inflation or some combination of both, that surplus in effective demand and shortfall in goods and services is resolved. On the other hand, when effective demand falls substantially under the capacity of the system to provide the demanded goods and services, there must be an increase private unemployment, which then must either be met by public employment or an unemployment recession.

Given the information processing limits of a monetary production economy, there is much we could change as to how the imperfect synchronization plays out ~ we can decide between rationing and inflation, and not just in a "either/or" but also combinations in between; and we can decide between forcing people into unemployment when the private sector cannot employ them, offering them direct public employment, or directly spending on goods and service to generate sufficient effective demand to narrow that gap.

Because of the time lags in the last of the three recessionary policy choices, a genuine full employment policy in that kind of monetary production economy would require some direct government employment, even if it just played a secondary supporting role in support of the indirect employment support via stimulus spending.

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I would also like to note that ...

BruceMcF's picture

... when the inevitability of the collapse of the current economic system is combined with discussion of what kinds of system(s) someone would like to see take its place, it can easily be interpreted as the new system being required to push the old one aside.

And then the talking point in response is to criticize the feasibility of the new system, and expect that "debunking" the hoped-for replacement implies that the status quote just hangs around. "I don't believe that it can turn into 'System X', therefore Capitalism must persist indefinitely".

However, the sustainability or unsustainability of the form of transnational corporate capitalism that we have does not depend on anybody's imagined alternative being workable.

That is, if it is headed toward collapse, then it will collapse, and disagreements over what will follow, and indeed being flat out wrong about the feasibility of some hoped for alternative, does not, in fact, prevent the collapse.

This is the critical distinction between "will be replaced by superior system X", and "will collapse, because it cannot be sustained".

IOW, suppose that you own a house, and are having trouble coming up with a replacement. If you cannot make up your mind, you might stick with your house indefinitely. Now suppose the house is taken out by a tornado. Sticking with the current house indefinitely is no longer on the table as an option.

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Precisely so,

geomoo's picture

and is it my guess that we the people are, as usual, behind the thinking of the most successful capitalists.  Throughout this conversation, something has been nagging at me that I tried to get at in a previous comment. It has to do with the role of raw power.  To give an example of the question of power vs. economics, I wonder how the following scenario would/will play out:  China owns US debt, US is armed to the teeth.  If push comes to shove, which reality will dominate, the economic reality of US obligations to China or the raw force reality of the US controlling obscene levels of armaments?  Iow, economic theory does not operate with a life of its own.  As another example, what would be the name of the economic system in the traditional company town, say a mill town, in which the population are all dependent in some ways on the mill, all "owe their souls to the company store" with no hope of ever getting out from under the contrived indebtedness.  The history of the labor movement has shown that such systems, in the end, are based on brutality rather than any internally consistent economic arrangement.  Perhaps another way of saying it is that, it seems to me from a naive perspective, that one way of looking at economic systems is as a legitimization of realities concerning power rather than as operating independently, with relative power being much more the determining factor than such things as supply and demand curves.

So, back to the inevitable collapse of capitalism.  I doubt any of this is news to the wealthiest and most powerful.  Just as they spend money and time denying the existence of climate change while simultaneously preparing to profit from it and to protect themselves from it, just as they cynically manipulate ideas concerning patriotism and the rule of law while not caring a whit about either, so are they likely also postioned wrt capitalism.  It is a convenient rallying cry, just as anti-communism has been for so long, but they hate competition and try to eliminate it at every turn, to give on obvious example.  So, from what I see happening, I see efforts to control through ownership and debt backed by lawless force.  They are buying up the houses they stole from people, not through the self-governing forces of capitalism but rather through manipulations of the law, of investors, and of perceptions.  They will hope to rent these houses back.  They are taking over municipal garages in unholy arrangements which place city residents in a position of guaranteeing profits while paying exorbitant parking fees.  Etc.  To me, again from a naive perspective, this looks like the new model, and it looks a lot more like the company town than capitalism to me.

Long comment short, I think those who legitimize their positions of power, usually ill-gotten, through appeals to capitalism know better than anyone that the whole capitalism theory is a crock because they have been gaming the system at a level we plebians can hardly imagine.  These powerful people are already envisioning the next "system," and the cornerstone of that system is them retaining their power through any means necessary, most especially through militarized police and universal surveillance.  Which brings me to ask again, what would be the correct name for the economic system governing the company town?

Perhaps a different way of saying this is that the biggest winners under "capitalism" understand that the system has already collapsed and they are actively engaged in reacting to the new state of affairs through manipulation of perception and honing methods of crowd control.  Reams of analysis notwithstanding, the currency of their thought is power; they are not prone to entrust their fate to any impersonal economic system which does not play favorites.

I am very interested in the response of those of you who are familiar with economic theory.

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Cassiodorus's picture

Perhaps a different way of saying this is that the biggest winners under "capitalism" understand that the system has already collapsed and theyare actively engaged in reacting to the new state of affairs through manipulation of perception and honing methods of crowd control.

I wouldn't be surprised, although I'd imagine that the community of the super-rich labels such people as "survivalists."  I'm sure the higher-ups in the Pentagon think this way.

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On the first question ...

BruceMcF's picture

... you're falling for the story line that the Chinese owning US debt gives them the economic whip hand. Those aren't the rules of the game. The bonds give the Chinese (or any other holder) the right to be paid a stream of money that the debtor, the US government, has the power to create, and then to be paid the original face value of the bond when it matures, again in money that the US government has the power to create.

And the reason that the Chinese are holding those bonds is to depress the exchange rate of the Yuan RMB versus the US Dollar. If they were to "cash it in", the exchange rate will rise and the price of Chinese made goods everywhere around the world would rise with it ... and if they had wanted that, they could have just avoided buying the bonds in the first place.

The only real power that the US bond holdings give the Chinese is the power to do something that the Chinese don't want to do. In order to continue doing something that they wish to do, they will have to continue buying financial assets denominated in US dollars.

On the second question, some do, and some don't. An advantage of being extremely wealthy is it allows one to buy substantial buffering from the travails of most people's everyday life, and its perfectly possible that many of the wealthy chief executives believe the tripe they are selling regarding the system's ability to respond to the situation we are facing.

After all, they have either inherited their position or they have risen to it. If they have risen to it, they are well practiced in answering, for a wide range of issues, the the question of what the immediate impact on them. If they were not, they would not have risen to that position. And if they have inherited their position, like the Koch brothers, they have likely gone most of their lives with people telling them what they wanted to hear, and what they typically want to hear is that the system should be reformed to give the wealthiest more power.

The ability of privileged vested interests to convince themselves that their wealth is due to merit and the system in which they became wealth is necessary for the broader public good should not be under-estimated. There surely will be those among the wealthy who understand that the shit is starting to hit the fan and it will get much worse before it gets better, but they are likely in a minority and so likely must tread softly to avoid alienating the majority of those at the level at which they operate.

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Thanks for both responses, Cass and Bruce

geomoo's picture

I find them frustrating, but I'm sure the problem is that I have not been clear.  I'll try one more time.

I am not contending that the wealthy are clear-headed and realistic, that they are avoiding self-deception and understand fully their own bs.  I do not propose to invest any energy in analyzing how the uber wealthy might justify to themselves their own behavior, but it goes without saying that such justification exists.  Here is one of my asssumptions.  We who think in terms of society, who think of ourselves and our interests as embedded in the wider interests of society, we  imagine economic systems with lives of their own existing independent of us and within which we necessarily play by the rules, both natural and man-made.  In contrast, I assume most of the uber-wealthy, to the extent that they feel the need to self-justify, think in terms of their own self-interests and think of any system, economic or political, in terms of how they can manipulate that system to serve their own interests.  The fact that the myth of capitalism allows them various avenues of avoiding social accountability by pretending that in being purely selfish they are somehow magically serving the greater good, well, that is mere mentalization, fantasy, and beside the point of this analysis.

Wrt the notion survivalist, I do not refer to dropping out.  To the contrary, I propose that the thinking is still mainstream, involving how government, the military, and economic realities can be consciously manipulated to protect their own comfort.  They do not think in terms of leaving behind so much as of assuming their rightful place as the ones most likely to survive, as the ones directing the activities of the little people inasmuch as is necessary to insure that the upper crust and, most important of all, the power structures, survive.  Again, I have little doubt that most super wealthy people have no trouble deluding themselves in various ways that their behavior is somehow best for humanity as a whole.  The delusion is of little interest to me.  We're not sure how the inhabitants of Rapa Nui deluded themselves into thinking it was a good idea to cut down the last tree but, in my mind, there is an excellent chance that the behavior sprang out of believing salvation lay in preserving a dysfunctional, hierarchical system rather than in adjusting to natural realities.  What I am thinking of doesn't strike me as survivalist, although I have little doubt that Cheney is not alone in building himself some kind of cavern underneath his home, nor the Bushes in preparing a retreat to Paraguay.

Bruce, I understand the notion you explain about China and our debt.  My question involves if push comes to shove, does the debt actually give China any power.  In general, debt is one of the primary tools of control of a population--we are seeing that everywhere today.  The IMF and others have been using debt to gain control for a long time.  What I am proposing is that debt as a tool of control relies in the end on relative power relations.  (The fact that the Chinese own more and more of America surely gives them more power to affect what we do, and they are likely quite aware that this soft shift of power depends on making sure push does not come to shove, at least until they achieve some kind of military parity.)  This fact can be seen in cases such as Cuba in which the ownership and resulting power relations changed overnight in the face of forceful appropriation of what once was owned and controlled by others.  One of the first things the US has done during Arab Spring is cancel the debt of countries to Russia.  The loan shark can charge exorbitant interest because he can come to your home with a baseball bat.

Perhaps the uber-wealthy delude themselve into thinking they still practice capitalism; perhaps they don't.  But it is my impression that, in practice, they are creating what might be called a more feudal structure, a system in which the rich own everything, can collect taxes at will while paying none and control where those taxes go, and can charge rents at will while rewarding labor any way and to any extent they damn well please.  They may think of this as capitalism, but it ain't.  I don't know whether it is even appropriate to call feudalism an economic system; it seems to me more apt to think of it is a political/military arrangement in which the economics are subject to the whim of those in control.  Iow, it seems to me that the "next system" will not be determined by economic factors or natural impersonal forces but rather by politics and military/police force, both of which are in the firm control of a few powerful people who are pleased to call themselves capitalists.  I propose that those in control of these things do not confuse themselves with analysis of systems but rather think in terms of perpetuating and consolidating their own control, justifying their purely selfish behavior after the fact with whatever theory best satisfies them or best manipulates opinion in their favor.  One imagines a citizen with a gun held to his head responding to a thuggish, "Is this capitalism and is this the best system?"  "Um  . . . er . . . yes, yes, it's capitalism and capitalism is the best and only system."

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To split things off ...

BruceMcF's picture

... regarding the Chinese, what holding all of those US bonds gives them the power to do is to sell the bonds on the open market in return for US dollars and use those US dollars to buy Yuan RMB to push their exchange rate above the floating market rate.

That is the power to reduce employment in their export sectors, slow growth of employment, and risk growing social unrest as young people see economic opportunities dry up in China, while the US has an export boom, rapidly falling unemployment and dramatic increase in economic opportunities for young people.

IOW, their power to "do something to the US" is the manipulation of the Yuan RMB that results in bond holdings piling up. And every country with its own currency has the power to depress its exchange rate against the dollar and as a side effect pile up US bonds, so long as the US tolerates that activity.

Selling off the bonds would be surrendering that power without the US forcing them to. So the "power" to sell off the bonds is no economic power to do anything to the US at all. Its the power to ride out a change of economic policy from a neo-mercantalist policy to one surrendering foreign markets in pursuit of some domestic economic strategy, and since that would be in the interests of the US, there's no threat to be found there.

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Yes, that's the system called capitalism.

BruceMcF's picture

But it is my impression that, in practice, they are creating what might be called a more feudal structure, a system in which the rich own everything, can collect taxes at will while paying none and control where those taxes go, and can charge rents at will while rewarding labor any way and to any extent they damn well please.

Feudalism was a system in which rents on control of natural resources are received by those in a position of personal allegience to the sovereign authority over those natural resources, and the recipients of those rents dominate the economy.

Capitalism is a system in which rents on control of produced productive equipment are received by those in a position of personal or private collective ownership over that produced productive equipment, and the recipients of those rents dominate the economy.

To be anything approaching "pure" capitalism, the state has to be under the thumb of the owners of the produced productive equipment. So the fact that the wealthy who are wealthy due to their control of produced productive equipment are in control of the government and dictate who pays taxes and how the taxes are spent does not in and of itself imply a movement from feudalism to capitalism.

What lay behind the movement from feudalism to capitalism was the flipping in status of natural resources from the core strategic resources for the exercise of economic power to resources transferred in largely routine transactions with the accumulated produced productive equipment becoming the core strategic resources for the exercise of economic power.

It has been argued that the purest form of capitalism in actual practice was the state capitalism of the Soviet Union, in which a single corporation, the Communist Party, owned all the produced productive equipment. Or as the old joke went, the difference between the US and the Soviet Union was that in one, those with all the money got power at city hall, and in the other, those with power at city hall got all the money.

But feudalism was not the sole system in place when natural resources were the core strategic resource ~ and indeed was not even the most common system. Slave and/or bureaucratic empires were more common, and communal ownership was also wide spread, through more in the periphery than in the semi-periphery or core areas of the Eurasian economic system.

During the Cold War, the United States spent a lot of effort and resources proselytizing the mixed economic system we developed during the Great Depression and refined during WWII, and there was a lot about competitive markets in that proselytizing, but there is nothing about competitive markets that is intrinsic to a capitalist system: the benefits of competitive markets are rather something that we receive if and only if we are able to place and maintain sufficient fetters on the capitalist part of the mixed economy.

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In theory, corporate capitalism is quite possibly ...

BruceMcF's picture

... even more brutal than corporate capitalism, since whether an individual capitalist is a psychopath is a case by case question, while corporations are psychopathic by construction.

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But, yes, this goes straight to the theory of the mixed economy.

BruceMcF's picture

Anything approaching pure capitalism is both brutal and also self-destructive.

It is, in my mind, an open question how useful it is to have it working as a servant, but one thing it always does over the long term is fight to become the master, and there is no question it makes a horrific master.

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One more thing about the leverage provided by debt ...

BruceMcF's picture

... it makes a massive degree of difference whether its possible to force the debtor into default.

A monopoly issuer of its own currency cannot be forced into default in debts denominated in its own currency. It can only be forced into default in debts denominated in a foreign currency ~ which is the normal IMF / World Bank situation, and the situation in Greece, Portugal, Ireland, Spain, Italy, Ireland, and more Eurozone countries to come. That was the issue in the Asian Financial Crisis, with Southeast Asian countries borrowing in US dollars, getting paid for their work as a cheap production zone in Japanese Yen, and getting caught in a squeeze when the Japanese allowed the Yen/USD exchange rate to drop dramatically.

But our Treasury Securities are payable in US dollars.

So even a country that was NOT in China's situation, and who WAS free to demand payment for US Treasury securities on maturity instead of rolling it over ... could not "force" the US government to do anything except if the US government played along. If push came to shove in a national power struggle, the US government could simply issue debt to the Fed and use the newly generated Federal reserves to pay off the overseas debt in dollars.

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All very interesting

geomoo's picture

Thanks for the teaching.

I'm sure there would be ramifications to the US having to print currency to send a lot of its money overseas, but I know you are merely giving the 101 version.  One thing I do know is that houses and factories and other things in the US are increasingly owned by the Chinese.  That is a different issue than bonds, but my guess is that the two are somewhat connected, perhaps in a way that is yet another reason why the Chinese rather we owe than pay off.  Anyway, Chinese money is involved in buying up houses that used to be homes at fire sale prices. Surely that translates to a measure of power.

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Flip it around ...

BruceMcF's picture

... the need is to buy Dollars with Yuan RMB to depress the value of the Chinese currency. Then those US dollars have to be used to buy something priced in US dollars. The Chinese central bank accumulates Treasury Bonds, because that's how Central Banks work.

Now, you are a Chinese individual who has earned Yuan RMB and wants to save some overseas for safe keeping. If you are buying US real estate as an investment, the fact that they are "over-priced" in Chinese terms is no big worry, since you expect that the Chinese government will continue to manipulate the currency so it will still be over-priced when you sell.

And the Chinese government certainly won't discourage that outflow of financial capital, which makes it easier to depress the value of the Yuan RMB as they wish to do.

But we don't need to look at China to see what is going on, we can focus entirely inside the US. We run a trade deficit. That means that we need to run a capital account surplus. That surplus comes primarily from financial capital inflows. But all financial capital comes with strings attached, so as we continuously run trade deficits, we continuously accumulate new strings attached to the corresponding capital inflows. The details are what are the precise strings attached ~ real property rights, interest obligations, share of profit income ~ and where the strings are tied to overseas. That will naturally be the trade surplus countries, and with Germany having most of its trade surplus as intra-European trade, that means mostly countries like China and Japan.

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