Home > Uncategorized > Capitalism in the 21st Century

Capitalism in the 21st Century

from Asad Zaman and the WEA Pedagogical Blog

Reviewers have called it a 700-page punch in the plutocracy’s gut. The title of Thomas Piketty’s magnum opus suggests that he is updating Das Kapital, to bring Marx into the 21st century. Piketty documents a sharp increase in income inequalities over the last 25 years, not only in the US, but also in Canada, Britain, Australia, New Zealand, China, India, Indonesia and South Africa, with people with the highest incomes far outstripping the rest of society. However, he goes far beyond the compilation of statistics and provides a grand unified theory about the deep forces which have shaped human history over centuries. His analysis points out a fundamental conflict between free markets and democracy, directly contrary to widely accepted conventional wisdom that the two go together.

As one illustrative statistic, the bottom 80 per cent of the US population has only five per cent of the wealth, while the top five per cent has 72 per cent. This level of inequality matches the inequality levels seen around the Great Depression. Why is there so much inequality, and why does it continue to rise? Piketty’s answer is brilliantly simple: r > g. The ‘r’ is the rate of return to wealth. This is the profit that the wealthy can make when they invest. The ‘g’ is the growth rate of the economy, currently around 3.3 per cent, globally. There are two types of people in the economy. The wealthy earn money by investing their wealth, while rest must work for a living. If return to wealth is larger than the growth rate, the wealthy grow richer faster than the growth of the economy, while the earnings of the salaried classes grow at a slower rate. As a natural consequence, the rich get richer, while the bottom 99 per cent gets squeezed.  read more

  1. September 26, 2015 at 11:53 pm

    There is a solution. Reverse what is causing the problems.
    As Einstein said,”Make it simple.”

    “Capitalism is the “best” system to date devised by mankind. As it is administrated, perhaps, is where the “flaw” is manifested. If capitalism used its Central Bank properly,that is for the betterment of the common good, with equality and justice for all, capitalism would be the best ways and means to help “form a more perfect union….”, Pontifical Council.

    “LEGISLATE FOR “We the People” WHAT WE HAD LEGISLATED THE CENTRAL BANK TO DO FOR THE Private For Profit Banks (PFPB) ! ISSUE OUR OWN MONEY AS LOANS AND CHARGE A TAX CALLED INTEREST ! ! ! ” Create an honest Central Bank that shall fund-
    ““We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…””

    READ ( http://michael-hudson.com/2001/04/the-mathematical-economics-of-compound-rates-of-interest-a-four-thousand-year-overview-part-ii/
    By Michael Hudson
    “…. The Mathematics of Compound Interest
    A syndicate of less than one hundred American capitalists, if allowed to collect interest on their capital at a low rate and re-invest for 150 years or less, would at the end of that time own the earth and all real and personal property thereon. This is a simple mathematical proposition, capable of exact demonstration, and any one who doubts the truth of this statement may set all doubts at rest by computing compound interest on one and one-half billions of dollars for one hundred and fifty years, at five per cent per annum.
    …Flürscheim elaborated that “All exertions, all improvements in the methods and tools of labor, the strictest economy, the severest self-denial, are powerless to compete with the rapidity of self-increase possessed by capital placed at compound interest, and they cannot keep up with its demands.” To illustrate the dynamic at work, he composed an allegory (pp. 327ff.). Many ages after man was driven from Paradise and told “to earn his bread by the sweat of his brow, mercy began to prevail. A loving angel was sent down by the Great Master, charged with the task of lightening the burden. The angel’s name was Spirit of Invention. He began his work by teaching man to make useful tools” and tame animals, and in time to mobilize water power, air and wind power, fire and steam power to drive machinery.
    “It seemed that at last the golden era had come of which men had dreamed for ages past,” but “that envious spirit, that fallen angel, Satan,” was jealous that his own empire would soon be over for ever. Among the follies of man, one little imp, called Interest, managed to attract his attention. “‘What is the matter with you, Interest?’ he asked the saucy imp. ‘You don’t seem to be so dejected as your comrades are?’”
    “‘Why should I be dejected, master?’ replied the spirit, ‘Am I not one of your favorite soldiers? Haven’t I always been victorious under your august guidance?’”
    But Satan answered sadly, “Alas, You are no match for the Spirit of Invention.” The Interest imp, however, volunteered to demonstrate his prowess in a dual, helped by his son, Compound Interest.
    At this point, Flürscheim introduced an image that Napier had suggested at the outset of his second book on logarithms in 1617, the Robdologia, likening the principle of geometric increase to that of a chess-board on which each square doubled the number assigned to the preceding one. An old Persian proverb told of a Shah who wished to reward the inventor of chess, a subject, and asked what he would like. To the Shah’s surprise, the man asked “as his only reward that the Shah would give him a single grain of corn, which was to be put on the first square of the chess-board, and to be doubled on each successive square; which, to the surprise of the king, produced an amount larger than the treasures of his whole kingdom could buy. It is this kind of chess-game which capital is continually playing with labor.” The remarkable growth of compound interest soon swallowed “products, capital, the earth and even the workers.”
    This was in essence the ploy that Flürscheim’s Compound Interest demon used. “Look at this chess-board,” he told the angel against whom Satan had pitted him. “It seems just like any other chess-board, with sixty-four squares,” but it “had the peculiar quality of extending the dimensions of the squares, so as always to be large enough” to hold whatever was placed on them. Instead of asking for grains of wheat to be placed on them, the Interest Imp asked for soldiers. “Now, listen well to what I propose,” he said to the angel, pointing to the latter’s huge army.
    I enter the first square with my son, and you match one of your warriors against us. We enter the second square doubled in number; you send two more warriors – and so on every succeeding square. . . . When we arrive at the last square, and you have a single soldier left after occupying the same, we shall declare ourselves vanquished, and Satan with all his troops will leave this world for ever. If I win, you and your army are to be at the commands of my master. Are you agreed?
    The angel agreed, expecting his horde of soldiers to easily exceed the number that the Interest Imp and his son, Compound Interest, seemed likely to accrue.
    In the beginning the angel laughed, for, though twenty squares were passed, no noticeable diminution of his forces was perceptible. Demon Interest said nothing, but attended to business, quietly doubling his army on every succeeding square. At the thirtieth square the angel ceased to laugh, and soon saw he was lost.
    ‘I despised you, little fellow,’ he signed despairingly, ‘and I am punished for my vanity. I see there is no use fighting against you. Demon Interest is more powerful than the Spirit of Invention. I am your slave. Command your servant!’”

    Justaluckyfool’s comment explained in next paragraph)

    ‘I am the only servant of my great master,’ dryly replied the demon.

    “Here I see him coming. He will give you his orders.’
    And Satan gave his orders. He commanded that the angel was to continue in his work with all his troops, which were to be increased with all possible exertion, so that humanity – which did not know the nature of the antagonist it had to fight against – would always keep in fresh hope of final success when the new troops were forthcoming. But as fast as they appeared, Demon Interest was to send forth a larger army to capture the new forces, to enslave them, and – instead of their benefiting man – make them increase the slave-chains which weigh him down.

    (Justaluckyfool’s comment )
    “I will now be the servant of a new master,one that will pursue happiness for all mankind.”

    The answer lies in how you redistribute the wealth, not in how you make it.
    As for the worlds wealth, there is the possibility of total accumulation through compound interest (the most powerful force in the universe) which then begs the question, “How would that wealth be redistributed ? Who will be the master?

    We must go back to “In God We Trust” and use that ‘most powerful force’,compounding to fund
    “…a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…”

    3 Step QE Plan: Raise net wages, Increase Jobs, Decrease Federal Debt, Poverty & Inequality.

    3 Step QE Plan: Raise Net Wages, Increase Jobs, Decrease Poverty & Inequality….

    while at the same time Reduce the Federal Debt !
    When a bank charges interest, it may be usury.
    When the government charges interest it is taxation. “Render unto Caesar,what is Caesars”
    When a government has a mandate .. “to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…”
    What better way is there than:
    LOAN OUR own MONEY and CHARGE (interest) A TAX ON IT.
    AMEND THE FEDERAL RESERVE CHARTER; TURN THE FED RESERVE INTO THE FEDERAL RESERVE BANK OF AMERICA (FRBA),RESTORE MONETARY POWER BACK TO THE PEOPLE ,OPERATE THE FRBA WITH ABSOLUTE TRANSPARENCY, (“GLINDA,the Good Witch, owns a Great Book of Records that allows her to track everything that goes on in the world from the instant it happens.”_The Road to Oz)
    Form a more perfect “capitalistic “monetary circle: $100 trillion issued as loans to come back as $200 trillion as payment while at the same time as it returns creates a revenue strean for $100 trillion in new loans while spending $100 trillion as Congressional appropriations for the benefit of the people.Simply a better, fairer taxation.
    No inflation or deflation for there is zero change in the capital value of the sovereignty.
    There is zero change on the balance sheet of the Central Bank; a true zero net change.
    For any nation to be a Monetary Sovereignty….
    .. it must be the sole creator of its sovereign currency.
    …it must have the ways and means to control its sovereign currency for quality and quantity.
    …it must under modern money systems be fiat since its money is transferable “thru thin air”.
    …it must understand that it is the guardian of the value of the currency , if it wishes to be capitalistic; otherwise that nation will be totalitarian. As a guardian (recording and exchanging) it does not own the value of the currency it creates.
    …it must use that currency knowing that it must also return it back to the community (the rightful owners).
    …all transactions using sovereign currency must be “REAL”, meaning backed by 100% of issued sovereign currency. All that has been issued backed by “reserves” must over time be converted to loans from the Central Bank, the sole issuer of the currency.In order to prevent “systemic failure” it must make available the currency as loans at a fixed rate and duration in amounts deemed necessary to allow the private banking system to be solvent.
    Based upon an opinion by “Justaluckyfool” of the concepts of Noble Laureate Frederick Soddy, “The Role Of Money” (1926,1933)

    Comments by Justaluckyfool ( http://bit.ly/MlQWNs )
    ( “You are always welcome to share, copy, plagiarize, improve, etc..any comments.)
    Read and challenge:
    Frederick Soddy writings, namely “The Role Of Money”
    (Entire book as a free download…) http://archive.org/details/roleofmoney032861mbp

    (1) eliminate FICA giving a automatic 15% raise to all earning less than $102K/year without any increase in money supply or any increase in labor cost.
    (2) Change tax code to : Federal Income Tax to be 1% for income up to $102,000.
    with higher percentages for $103,000-500,000 then perhaps,30% thereafter.
    Corporate taxes could then be based on percentage of profits. y
    (3)” QE4JOBS”-a plan to create millions of jobs that will pay for themselves while decreasing federal debt, poverty, as well as the income gap
    “QE 4 JOBS”
    Have the American financial system rush to the rescue with a generous and flexible legal funding that no other country could match.
    Not a bailout.
    Not a cost to all the taxpayers.
    Not an increase in deficit spending.
    Rather a magic economic proven golden bullet, (Bernanke should get Noble for this).
    QE! A simple change in direction of doing something for the common bettering of all the people. Especially those in need now.
    The FEDS did in fact QE for the Private For Profit Banks.
    The FEDS made direct purchase of bank assets.
    Why not have the FEDS do for the States exactly that-purchase
    $20 billion of State improvement bonds w/ terms of 2% for 36 years.
    Thereby creating 3-5 million jobs while at the same time producing an income stream of $1trillion (money that by law is to be turned over to Congress for appropriations.

    ***** “Believe nothing merely because you have been told it…But whatsoever, after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”- Buddha[Gautama Siddharta] (563 – 483 BC),

    Comments by Justaluckyfool ( http://bit.ly/MlQWNs )
    ( “You are always welcome to share, copy, plagiarize, improve, etc..any comments.)

    Read and challenge:
    Frederick Soddy writings, namely “The Role Of Money”
    (Entire book as a free download…) http://archive.org/details/roleofmoney032861mbp

    This book attempts to clear up the mystery of money in its social aspect. With the monetary
    system of the whole world in chaos, this mystery has never been so carefully fostered as it is to-day.
    And this is all the more curious inasmuch as there is not the slightest reason for this mystery.
    This book will show what money now is, what it does, and what it should do. From this will
    emerge the recognition of what has always been the true role of money. The standpoint from
    which most books on modern money are written has been reversed. In this book the subject is not
    treated from the point of view of the bankers as those are called who create by far the greater
    proportion of money but from that of the PUBLIC, who at present have to give up valuable
    goods and services to the bankers in return for the money that they have so cleverly created
    and create. This, surely, is what the public really wants to know about money.

    It was recognized in Athens and Sparta ten centuries before the birth of Christ that one
    of the most vital prerogatives of the State was the sole right to issue money. How curious that
    the unique quality of this prerogative is only now being re-discovered. The” money-power ” which
    has been able to overshadow ostensibly responsible government, is not the power of the merely ultrarich, but is nothing more nor less than a new technique designed to create and destroy money
    by adding and withdrawing figures in bank ledgers, without the slightest concern for the interests of
    the community or the real role that money ought to perform therein.
    The more profound students of money and, more recently, a very few historians have realized
    the enormous significance of this money power or technique, and its key position in shaping the
    course of world events through the ages. In this book the mode of approach and the philosophy
    of money is expounded in the light of a group of new doctrines, to which the name ergosophy is
    collectively given, which regard economics, sociology, and history with the eye of the engineer
    rather than with that of the humanist. It is concerned less with the details of particular schemes
    of monetary reform that have been advocated than with the general principles to which, in the
    author’s opinion, every monetary system must at long last conform, if it is to fulfil its proper role
    as the distributive mechanism of society. To allow it to become a source of revenue to private issuers is to create, first, a secret and illicit arm of the government and, last, a rival power strong enough ultimately to overthrow all other forms of government.

  2. Jamie Morgan
    September 27, 2015 at 9:48 am

    Hello Asad, here is the link to what i had to say on the subject:

    I’d be interested in your opinion

    Best wishes, Jamie (I work on RWER with Edward)

  3. September 29, 2015 at 8:22 am

    @Jamie: I am 100% in agreement with your analysis. In writing for newspapers, my audience is mostly those enamored of capitalism as the way to go for Pakistan. So a first step is to create dis-enchantment, to show that this does not lead to good results. The deeper question is why, which focuses on power considerations. Even more difficult is how to create positive change. Note that power considerations are not entirely missing — a key argument is that concentration of wealth is not compatible with democracy, since power accumulates in the hands of the shrinking number of wealthy — patrimonial capitalism. However, you correctly point out that Piketty does not really take on board his own insights — if power is concentrated in the hands of the wealthy, how are we gong to enact a global wealth tax?

    A more important question for us to consider — I hope to do a post on this later — HOW can we, as heterodox economists — be instrumental in bringing about positive change?

  4. Jamie Morgan
    September 30, 2015 at 9:49 am

    The small and the large perhaps Asad? For example, MNCs should be taxed based on unitary taxation by formula apportionment since this makes transfer pricing manipulation difficult and would tend also to redistribute income along supply chains back to developing countries who are currently being systematically exploited. It suffers form problems of power asymmetry and policy capture, but equally provides a basis for social movement and state convergence for resocialisation of capital


    The Tax Justice Network is an excellent source.

    Best, Jamie

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