A high level perspective
It seems pretty clear that how one understands capitalism depends largely on perspective. A ground level view shows us a world of fierce competition, greed, poverty, wealth, stock markets, interest rates, government debt downgrades, foreclosures, and so on. The learned economists thankfully provide us a sense of security in their assurances that this chaotic mess is actually the good, just, and smooth rhythm of supply and demand curves.
If we ascend to a very high level, though, everything seems to change and the world appears far more tranquil. In this post, I’d like to examine some ideas on what the world may look like from on high. We lose much of what can be seen from the ground, but I think we gain a good bit of insight. Luxemburg, Kalecki, and Minsky provide the influence for most of what’s written here.
I’ll frame the discussion around two questions. The first and by far the easiest is this: In whose interests is the world run? As noted ad nauseum on this blog, 72% of financial wealth is controlled by just 5% of the population with the bottom 80% having just 7%. The data is for the United States but similar levels exist throughout the world. If anything, concentrations are actually even worse given the certainty that substantial hoards are hidden offshore and in secret accounts. Given these numbers, it’s no surprise that global commerce is a tightly run game, with 40% of total global revenue flowing to just 500 corporations. The titans who sit on top of the world stage own virtually everything – they control the mass media, all major corporations, the banks, the bond and commodity markets, and every other important institution. No further time need be spent on this question. The world is being run in the interests of the owners.
The second question, though, is a bit more complicated than it seems. It’s this: What are their interests? A historically popular answer, running from the Marxist left straight through to the far right would be profit. The prime interest of the owners is for never ending and forever expanding profit. This of course seems reasonable, but it turns out to be far too simplistic from our idealized high level perspective.
To gain an important insight into the actual interests of the owners, I think it’s useful to look a little closer at ownership within the capitalist system. There turns out to be an academic discipline – finance – that’s devoted specifically to the practice of capitalist ownership itself and one of its bedrock axioms is The Capital Asset Pricing Model (CAPM) as developed by Harry Markowitz, William Sharpe, and others. The “optimal investment portfolio” according to this model is a perfectly diversified basket of everything, the weighted sum of every asset in the market – the “market portfolio”.
At the highest level, we don’t find Bob owning corporation B and Bond B competing against Alice with corporation A and Bond A. We find both having a diversified “market portfolio” and they are therefore indifferent to the relative performance of either security; they are fully diversified. Each mega owner should also be expected to be well diversified and the ownership class as a whole is necessarily so since they are “the market”. Bob, Alice, and the rest of the ownership class aren’t competing, they just own.
The view we want to establish here is of the ownership class as a unity, a family so to speak. If the interests of the mega-owners were thought of in this way, as a family operation, our second question becomes a bit more precise. What are the interests of the unitary family? Given its complete diversification, we can see that little within the normal course of “economic” events will affect its interests. “Asset “values” change but these are almost completely based on sentiments about the future; opinions having no bearing for a family already owning everything. If it’s impossible to sell an “asset”, what meaning can “market value” have? Our family, of course, can’t sell its “assets” since there’s no one outside of Earth to buy them. Projections of the future and estimates of “market value” are therefore as idle as contemplating the future evolution of the universe.
It’s quite a bit like the ownership of a great casino in which everyone on the planet must play. The owner takes a mathematical cut on all activity and is therefore indifferent to how any particular table performs on a given day. We can go further and ask if the family should care if the “government” suddenly taxed a portion of the cut and redistributed some chips to the “players”? Logic would say it wouldn’t care at all since the “players” would have to continue playing at the tables and whatever was taxed away would quickly return to the house. It’s just circulation.
Similarly, the family shouldn’t care whether wages are high or low since whatever the worker may get is necessarily returned via consumption. Again, just circulation. Profit also is a pretty meaningless concept for a family owning all. What can it mean? Profit is nothing other than the portion of total circulation that accountants deem proper to “capitalize” rather than “expense”. Regardless of classification, all funds disbursed are returned and the accountants will always discover that debits equal credits. Let’s return to the casino to illustrate. Suppose in year 1 the family decides to issue 10 mega trillion chips to the players of which 7 mega trillion are used to pay for the combination of personal luxuries and regular casino upkeep and 3 mega trillion are used to expand the number of blackjack tables. 10 mega trillion out and 10 mega trillion returns through consumption at the family tables. The balance is zero; it’s all just circulation. Was there a “profit”? In a meaningless sense, yes, as long as the accountants report that the expansion of the blackjack tables qualify as an “investment” and can be “capitalized” on the books. In year 2, let’s say the casino paid out just 7 mega trillion chips for regular “expenses” and nothing more. The net balance again is zero as everything returns but this time the accountants say there’s no profit. Can anyone believe the owners give two shits whether or not the accountants declare a profit? The owners know what the accountants don’t: it’s not about profit.
Our high level view I think gives us a pretty decent realization that the politics behind “economics” has little to do with anything “economic” and everything to do with the simple maintenance of power. The family has nothing to fear about non-confiscatory taxation, high wages, or the government use of the printing press. Everything spent is just circulation and it all returns to the house coffers.
There is, though, one overwhelmingly critical issue for the family, and that’s the maintenance of power. Were the family confident of its unchallengeable grasp on power, then one could suppose it would be tempted to rule in a caring generous manner. The technology exists after all to provide excellent living conditions for the population and there’s nothing lost by greatly expanding circulation. Why not be devoutly loved Lords and bask in the adoration of the people? The problem is that the family doesn’t hold power based on unchallengeable rights; the claim is based solely on money. The threat is clearly one of democracy and a spirit of egalitarianism. The greater the security of the masses, the greater the threat of ever rising demands. It’s the fear of the slippery slope, a carry forward of the Domino Theory from Vietnam days. The entire era from the late 70′s through to today can be seen as an ongoing attack against the democratic spirit that arose in the 60′s.
In our public debates we notice that the policies of the right aren’t directed toward increasing profits; they’re aimed instead at reducing the security of the population and enhancing the power of concentrated wealth. We see it every day, from the austerity drives in Europe, to never ending demands for “worker flexibility” by all international organizations, to the most recent republican approved US budget in the House that seeks to slash all programs providing for worker security. The center-left economists scream at times that this is all bad for the “economy” but they’re completely missing the point.
The population has no real friend in the mainstream left as it’s firmly planted on the same basic playing field as the right. It offers pathetically limited ideas centered around such crumbs as perhaps a bit more infrastructure, a few hymns to education, or maybe an expansion of the ability for workers to visit a doctor every now and then. Even the slightly more radical left like the MMT economists take pathetically limited positions. We can print our own money they correctly proclaim, but then meekly add we should do so only to provide minimum wage jobs. Some even outlandishly propose the printing press should be used to expand the interest income of wealth holders!
Obviously I’m in the camp of those who see the system of power we call capitalism as a moral abomination that needs to be directly confronted. It’s the towering barrier to any advancement of democracy and the struggle will almost certainly be the primary theme of this century.