Lecture 13    The Capitalist Creed

Segment 1  Science and imperialism are not enough to result in today’s society. 

Capitalism and economic growth are also critical elements.  Banks and loans are the main new factors in this.  The important fact is that banks can loan more money than they have on deposit in the form of hard cash on the understanding that the loans will eventually be repaid with interest and allow the banks to make a profit.        All this is based on a trust in the future.  This allows a much faster growth in activity in the economy.  In the past this was not possible because loans were not in general acceptable because all growth in individual businesses was considered to be to be “organic” from the profits of an existing business so this meant very small beginnings.  The present could only be based on the work in the past.  Modern capitalism is based on credit a trust in the future.   

Loans did exist in the past, but people did not believe in progress or that the future would be just like the present. One person only became richer because other people got poorer and this was considered to be bad. Loans were therefore small, short term and at high interest.

Segment 2  How was the blockage broken between credit and trust in the future?  

Science and technology showed us different better and more efficient ways of doing things and created the idea of improvement in the future.  Nowadays there is so much trust in the future credit is very easy.  This has created social revolutions.

Adam Smith in his “wealth of nations” was the first person to describe modern economics.  “Selfish” private profits lead to investment and this results in the improvement of the wealth of others by increasing the employment of others.  Almost all ways of using profits result in increasing business of someone.

It is important to recognise the difference between Capital and wealth.  Capital is money that is invested in production.  Wealth is just a heap of money that is doing nothing.  Even money in the bank will be used for investment.   In medieval times wealth was spent on conspicuous consumption like fine clothes and houses, not to improve the productivity of their estates.

Capitalism has now become a religion based on economic growth and a wealthy middle class.

Nowadays science is also mostly dominated by the need to contribute so economic growth and many consider “pure” science just for the sake of knowledge and with no potential financial gain as a waste of resources.

Recently credit and money has gone mad and the loss of credit will cause economies to collapse.  The trust is being eroded.  Science is the only thing that can save us.  New businesses and products are the only thing that can solve the problem.  More than 90% of the money we have today is imaginary.

Segment 3   Capitalism and modern European empires.  

Other empires had merchants and manufacturers but tended to discount them.  To expand their empires by conquest these empires needed to tax their population (the landowning Aristocracy) to finance the wars.   In Europe the capitalists became the ruling elite.  They defeated the Aristocracy because of their ability to finance their empire extensions through credit this proved profitable to the bankers and capitalists.  

The European Empires were created by limited liability companies.  e.g. the Dutch East India company.  (VOC)  The British did something similar in The British East India company.  The states later nationalised these companies.   Governments became controlled by the capitalists, for example fighting the Opium Wars to defend and sell opium for their profit (against the will of the Chinese government) and supply drugs to the 10% of Chinese who were addicts.

A country that is rated as a poor credit rating cannot raise money to improve itself even if it has good resources.  the opposite is true for a resource poor company with a good credit rating. Political influence on markets is considered bad, free market economics is considered better than taxation.

Segment 4       This has problems and has caused calamities!

In reality there is no such thing as a free market. It will always need some sort of regulation to prevent fraud and exploitation.  There must be some safeguards and protections.  Monopolies can result in labour exploitation and slavery as it has done in the past.  This can be overt slave trade or covert as wage slaves where the poor need to work for minimum payments to survive.

This is a common criticism of capitalism. However other systems have not shown themselves to be any better.  Communism and central control were not shown to be effective because they tend to stifle entrepreneurism and are just as subject to corruption.  In fact in Europe the standard of living had improved significantly in spite of the population increase over time.  Can the economic pie continue to grow?

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