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Peaked Capitalism? Pt. 1

22, April 2009

1.  The ‘Free Market’ crashed, right?

Before spring ’08, Northern Rock a UK bank, experienced a ‘bank run’. People queued (physically and electronically) to reclaim their deposits, the bank crashed, the British government intervened, eventually nationalising the bank. The writing was on the wall then, and years earlier on a less noticed wall,  now,  it wasn’t just all over town, it was all  over the TV.

Stock market plunges, collapsing housing values, failing businesses; unemployment… all that followed should make it incontestable to say that the ‘free market’ crashed. Yet most business continues, a small minority of people are still able live in luxury, even excess… sport and entertainment are unabated…  Our contrasting perspectives affect our views of economic and political systems: As we attempt to understand what is going on even the words we use get in the way.

The argument over words is illustrated by the term ‘free market’ – some say that the economic system is out of control, and that lack of regulation has caused the current crisis. Others say that there has never been ‘free market’ capitalism. ‘Socialism’ gets the same rap – ‘never been tried – is not communism, etc” The 2nd part of this blog will address that subset, for those who are interested.

So what happened? What caused this economic ‘crash’?

Central Banks, State Intervention and ‘Fiat’ Money Systems

Some people do not link the cause of the crisis to any events such as the housing ‘bubble’. Instead they question the sustainability of the very monetary system under which most of the world operates: The ‘Fiat’ Monetary system. This system decouples money from any actual ‘store of value’, (such as a rare commodity, like gold). That, together with the creation of central banks, they argue, allows governments to print money, create deficits, and devalue national currencies.

Worse still, they maintain, the system can only sustain itself by ever more reckless behaviour, ‘inventing’ more money and derivative values which are backed by very little.

Richard J. Greene, a huge critic of The ‘Fiat’ Monetary system, predicted the current situation back in 2004. According to Aida Edemariam the percentage of the UK’s money backed by something real verses ‘unbacked’ money in bank deposits is approximately one, yes – just 1%.

Does money actually have to be backed by something real? Intuition would tell us so, but if so what? Labour? Mineral or material wealth? And how, given that most money doesn’t change hands at all, would the system change in a digital age? The 4th part of this blog takes that subject up. First, there are other viewpoints to note…

Too much government.

Some people think that there is too much intervention by government and that as a consequence ‘Free Market Capitalism’ has not been allowed to flourish as it would in an unregulated market.

They see central banks as being under state control, tacitly or otherwise (even though the Federal Reserve, for example, is independent of the US Government and owned internationally by other banks). They also say that taxation allied to the provision of social ‘safety-nets’, distorts the economy.

It’s a little difficult to understand why many of those who hold this opinion are not averse to the government using taxes, bonds and increased money supply to ‘save’ the system.

Elite Excess

People who think it’s a super-rich scam are furious over what they see as “the government – acting on behalf of the capitalist system – effectively seizing the money of the ordinary workers to prop the failing banking system up.”

I’d attribute these quotes but if these people are correct we’re headed to a ‘police state’ and they wouldn’t want their names used; here’s another: “It doesn’t matter how you dress it up, tyranny is always tyranny…. What we need is to stop turning on people because of their colour or religion, and turn against our common enemy, the ruling elite.”

Greed… A Weakening of Constraint… or Not a Problem!

Martyn Jones, a independent commentator, put it succinctly: “there is no mystery as to why a combination of the overabundant supply of cheap and easy money, decades of economic bubbles and market manipulation (military-industrial, dot com, real estate, energy, basic foodstuffs, etc.), together with a somewhat decadent laissez faire attitude towards the shenanigans of some financial capitalists, has resulted in a financial and economic crisis of major proportions.”

People who normally have faith that the market ‘will generate wealth and ensure its equitable distribution’ blame, in particular, the removal, weakening, or absence of regulation tied to an ever-decreasing bank reserve requirement.

But others of different persuasion do not think Capitalism has failed at all; believing it will right itself and be fine again for a decade or so, then repeat in a ‘normal economic cycle’.

What’s different this time? They ask.

Resource depletion, that’s what. Oil and gas supplies, vital to energy and industrial agriculture (and just about everything else), as well as water and hence food. The rules of global economics seem to have been stretched so far from reality that some enforced restraint would seem necessary even if there were not a looming crisis over supply of energy.

If life really is all about supply and demand, then how long before the demands of billions of humans outstrips the supply. Surely the economic recovery has to be built in a way that’s sustainable, in every sense.

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