06 April, 2008

Capitalism Part 1

I've got a dozen ideas going through my head at the moment, ideas and observations about belief, spirituality and the whole answer about what is wrong with the world, but the problem is that every time I try to focus on a single point to begin my ideas, a dozen new ideas immediately link up and chains of thought push into new directions.

I guess that following on from my previous post might be a good idea, as this can be used to link into more esoteric concepts later on. Corporate chromatography, thermodynamics and the problem with capitalism as an economic model. It almost sounds like the title for a post-graduate thesis.

The pie chart is a great way of explaining things, it is used frequently throughout economics. It's all about describing a chunk of the world as a whole unit then dividing up the parts according to the relevant players in a particular field. We have $100 between us, I've got $50 and you've got $50, we each have half of the pie. We expand the economy out to a small isolated town, or an island deep in the Pacific Ocean. Two hundred people each have $50, so the whole economy of the island is $10,000.

You do a bit of work, you expect to be paid for it. You get paid $1, but where does that dollar come from. It comes from the person who wanted you to do the work. Suddenly, you've got $51 and the other person has $49. Your skill has proven that you are worth a little more in the scheme of things. I do a bit of work, I make a loaf of bread. I need to spend 50 cents on ingredients, power and just to cover wear and tear on my machines (this will be distributed out among other folks on the island later). I sell the loaf of bread for $1 and you buy it. Your sum of money drops back to $50, and if you want it to go back up again, you'll need to do some more work. My value goes up to $50.50 and five other people get 10c each once the costs are balanced out.

It sounds like a simple and valid concept. The value of people fluctuates as they do work that is valued by the people around them. But let's say someone gets greedy. They want to improve their wealth without doing a lot of work for themselves. They may specialise in one particular task that doesn't have much intrinsic value in itself. Let's call our hypothetical person "Mr. Black", and say that his skill is finding other people with useful skills. He'll charge you fifty cents every time you need to find someone with a particular skill, he doesn't do anything himself, he just knows a lot of people and what they are good at. You need three loaves of bread, Mr. Black refers you to me for fifty cents then you still have to pay me $3 for the loaves.

Mr. Black does this one hundred times and earns $50. Suddenly his value is $100 and he hasn't really had to work for any of it. The rest of the community has $9,900 to go around 199 people (their average value drops to about $49.50), and Mr. Black hasn't worked for any of it. Or has he?

Now that he has more than twice as much money as most people in our closed economy. Mr. Black has a couple of options available to him. Firstly, he could spend the money on loaves of bread, other foods, goods or services to improve his comfort and survivability. Secondly, he could spend the money on a party, or some other method to improve his social standing in society (after all, the more people know about his services, the more useful his services become). Thirdly, he could hoard away his money and lord his wealth over the other inhabitants of the island.

If he follows the first option, Mr. Black distributes his wealth back into the economy. He suddenly has more food, a better shelter, he might even provide for a family. He won't improve his social standing though. Mr. Black will still need to do footwork to stay in contact with the people he knows. Suddenly I stop selling bread and become a butcher. Mr. Black needs to be aware of the changes in the world because if he sends you to me for bread while I only have meat, you won't value his services as highly any more. You'll start searching for your own people to meet certain requirements and Mr. Black is out of a job with no real talents of his own.

If he follows the second path, Mr. Black becomes famous for his abilities. People get free feeds at Mr. Black's place once a month, and his parties are usually talked about for weeks after the event. Mr. Black might even offer donations to members of the island with lower wealth and suddenly he is seen as a philanthropist. He gives $10 away, it's nothing to him, but his social standing rises dramatically (does this sound a bit like celebrities in Hollywood). All the lower wealth people want to know Mr. Black because he might give them the $10 this month, and suddenly he knows plenty of new people with services he can refer on. By following this path, Mr. Black doesn't need to do much except organise parties once a month and people come to him for the rest. In fact Mr. Black probably knows a good party organiser as well, so he doesn't even have to do that.

If he follows the third path, what happens to the money? Everyone knows that Mr. Black is the richest man on the island despite having no real talents of his own. They try to get on his good side in the hope that he may release some of his money by buying their services. This is where human nature comes into play and the downfall of the utopia. Who is Mt. Black going to spend his money on? He has to spend it one someone, and since he has the most money of all the people on the island, when he does spend it he'll probably spend quite a bit of it. People get greedy, I'm selling bread and Mrs. White is selling bread. Mrs. White wants to be known as the person who got Mr. Black to spend his money, so she offers a cheaper price on the bread. Suddenly, even though he has more money and could afford to spend more on bread, he's being offered bread for 75 cents a loaf. It doesn't make sense that he is now paying less for bread despite having no real talents of his own. It's not as though he is going to us the bread for more benevolent or altruistic purposes than the next man. Everyone on the island starts doing the same sort of thing for Mr. Black and he actually gets to keep more of his own money despite purchasing the same goods and services.

The cycle continues. People trying to get on Mr. Blacks good side because he has most of the money on the island. They want a bit of it for themselves, and they want a bit of fame for being associated with the richest man on the island. They might even start offering their services as 2-for-1 deals or even for free, anything to be first out of Mr. Black's mouth when he offers advice on who has the best services. I guess this is the basis of advertising, everyone is greedy and wants a bigger share of the pie.

Mr. Black continues to sell his services, and refers people a few hundred more times (let's say he spends a bit of his money on food to stay alive and to get a nice island shelter of his own), the rest of the island ecomony has been fluctuating as well and a few other people have decided to follow Mr. Black's lead since he seems to be getting a very good deal out of being the richest man on the island. After a time, Mr. Black has $350, Miss Rose and Mr Indigo have $250, Mrs. White has $150 , a ninety-eight people are fairly even at $60 and the remaining ninety-eight have settled as the lower classes at around $30 each (on average).

Mr. Black is still paying 75 cents for a loaf of bread while the lower classes are paying $1. Then let's look at it another way, Mr. Black is paying 0.2% of his total wealth for a loaf of bread while the lower classes are spending 3.3% of their wealth on the same thing.

A government is established on our hypothetical island. Mr. Black is caught disturbing the peace late one night, he is forced to pay a fine of $10 (2.8% of his wealth). A lower classed individual with only $30 does exactly the same thing in the hope that emulating Mr. Black might lead to them getting a bit of fame or island notoriety for themselves. They cop the same fine $10(which equates to 33.33% of their entire wealth). Why should the lower classed individual suffer so much more heavily than the wealthy individual?

One of the Scandinavian countries (I think it's Sweden) has a great system where fines are indexed according to the individual's income. If I remember correctly, they consider themselves as a socialist country, rather than a capitalist country. Because they see that Mr. Black's dominance of the economy isn't matched by an appropriate level of responsibility in most capitalist nations. We're seeing the opposite in nations where the capitalist ethos reigns supreme. Consider a country like the USA, where celebrities get prison sentences measures in days and hours, while regular people get sentenced to weeks and months in prison for the same offences. It's just like Mrs. White and her cheap bread again, only this is teaching those with the money even less social responsibility.

If we apply this type of concept on a more global scale, with the global economy equivalent to the monetary vales of the individuals on the island. The first world nations have the largest share of the pie while the third world nations struggle over the remainder. They desperately try to get "Mr. Black's $10" and offer their services to the first world at budget prices, not realising that their efforts to do this only push the imbalance further toward those who are already rich. The costs of medicines for them are far more in comparison to their meagre wealth, the levels of poverty are far greater because everything just costs more in perspective.

It's odd that the US has outsourced most of it's industry to foreign lands, except the entertainment industry which it proudly proclaims to the rest of the world (through award shows, syndicated television programs, blockbuster movies and music studios, ). It's almost like Mr. Black trying to justify his existence to the rest of the island while providing no useful services of his own...just sitting there and saying how good he is because he's rich and everyone owes him favours for being so nice to them.

Is it any wonder that these poorer countries are exploited, and that they are doing whatever they can to restore a level of balance. I'm not saying that America deserved the 9-11 attacks because of the values of Christianity versus Islam, but I think it was inevitable that the US was targeted by a group of militant extremists who have grown up in a desolate land which they perceive to have been "raped by the ways of capitalism".

I'm sure there are valid points for and against the illustrative points I've mentioned above. I won't claim to be infallible, these are just some pieces of observation so far.
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