Capitalism/Financial Crisis tutorial Part 7

OK, so here we come to the heart of the matter and the first clue as to how capitalism has become so warped and derailed from its true principles, thus causing this financial crisis.

As humans grow and develop and society progresses, under capitalism the "subsistence" part of the economy is supposed to become easier to achieve, increasingly safer from risk and cheaper. What we have instead is "masters of the universe" who have made the subsistence part of the economy more expensive, more difficult to achieve, and increasing, rather than decreasing in risk. Let's use examples from my previous tutorials to better understand how "it is supposed to be" for capitalism to work properly and how, instead, "how far away from the true workings of capitalism" our economy has gone.

Up until around fifty years ago for the vast majority of Americans who lived outside of urban areas, so long as family members were able bodied you were able to have a house because you built it yourself. It may only be a shack, a log cabin, a bungalow or an addition onto the family farm, inn or homestead, but if the men in your family were able bodied, you had a roof over your head. That was total security regarding "housing." Pre-built and sold houses did not really occur until after World War II when so many soldiers returning home needed houses. So subsistence people, who were the vast majority of the population, who are the ones who "invented" capitalism (via selling surplus farm goods for cash), built their own homes, either with their own hands or with extended family members. So the starting assumption of successful capitalism is cheap and secure housing that is obtained by the subsistence homedweller.

As the subsistence person generates cash through the sale of excess farm goods, he could build a better, safer and bigger house. Risk decreased not increased. Capitalism allowed the man building his own house to buy better tools to obtain the raw materials (saws, axes, quarrying materials, etc) and thus he could build a better house for the same "investment." This is called "value added." The small amount of cash that was gained in capital markets by selling excess food crops or livestock was used to better enable the free hands that built his own free house and/or farm for his family. Forget about city folk and industrialists for a minute; I'm talking about the vast majority of people, not the poor who made their way up the economic scale via the Industrial Revolution (factories) and the industrialists whose lives were focused on managing cash. The vast majority of Americans (and indeed, people around the world) were simultaneously "inventing" authentic capitalism by investing the small amounts of cash they obtained by selling farm surplus back into their subsistence (self produced) food, clothing and shelter.

So under true capitalism the basics of subsistence (food, clothing and shelter) are supposed to be constantly coming down in "price" and certainly not up. The subsistence part of the capitalist economy is supposed to be stable and open ended in its availability (so as the population grows the subsistence part expands to accommodate new members), safer not riskier, and cheaper because as technology develops one has better products for the same amount of effort. Thus, under a genuine system of capitalism there should always be an ample supply of subsistence food, shelter and clothing that can be obtained at low price and via individual initiative.

And what have we seen? The median price of a "starter" house being $100,000 or more? People being unable to get an apartment for under $700 a month? And no one able to obtain shelter unless one plays the right games of getting the right jobs, pleasing the right people, or getting public assistance, and then put in less safe rather than upwardly mobile conditions? The past thirty years is the opposite of what America was in the process of doing back when it was pursuing true capitalism (as imperfect as it was even then, but people were still in touch with the foundational principles).

In true capitalism there should be an abundance of homes that are priced exactly the same as they were thirty years before and the means to get a livelihood to afford them should also be abundant. Rather than pushing the cost of housing up to ridiculous robber baron prices (and then enabling people to "afford" them), true capitalism would have ensured a plenitude of good houses in the right locations that cost exactly the same as what their grandparents paid. This country should have had tons of homes that are priced at $20,000-$60,000, and an abundance of "jobs" or other means to afford them. But we all know, now, what happened don't we? And there should have been tons of apartments that lease at $100-400 per month.

In true capitalism that is not manipulated by masters of the universe and robber barons, the natural market would have developed a plenitude of homes that are low priced and high quality, and jobs or other means of income that allowed people to increase, not decrease, their ability to buy entry level housing that is high quality.

Here's the tripping point. At some point the masters of the universe decided the economy should be based on "getting the highest price that the market will 'bear'" for both surplus and subsistence. So if someone is "willing" to pay $100,000 for a $40,000 home, ALL the $40,000 homes were forced to be priced at $100,000 through robber baron collusion. They then pointed to "capitalism" and say "hey, in a free market, if someone wants to pay $100,000 for this house, then the market is 'demanding' that we price all the houses at that level!"

I could not believe it when I saw this happen in front of my very eyes, starting in the early 1980's. (Of course the foundation for the disaster was laid in 1960's-70's when the "social revolution" meant that the "new generation" rejected values and eduction in favor of economic and other plundering and self gratification). But the 1980's was when true capitalism exploded and disintegrated. Everyone bought into the "well, gosh, we must charge what the biggest idiot will pay" and then they enabled the idiot to "pay" that amount, thus driving subsistence products into the most speculative and inflationary extreme of surplus philosophy "investment."

That, by the way, is the reason that conservatives teach that the biggest enemy of capitalism is inflation. In true capitalism you do not have inflation of subsistence goods. In fact, in true capitalism you have the healthy opposite of inflation, which is a constantly improved product (a better house) for the same price. That is the definition of "progress," by the way. You are not supposed to have riskier and more poorly constructed products for HIGHER prices! But that is exactly what this economy has become via deliberate manipulation plus some well meaning stupidity. However, today's conservatives, as right as they are about inflation, are colluders with the disintegration of true capitalism, rather than defenders. This is because they are part of the youthful, manipulative and ignorant plunderers, not the watchdogs against it that they claim to be. They used to be but they sold out. I saw it happen. I worked for a bank in the 1980's and I saw the Republicans being targeted by campaign donations so they would vote to get rid of the Glass Steagall Act (the one that kept risky investment banking separate from supposedly safe savings and commercial banking). The bankers I worked for knew that the conservatives were the ones who had to be turned away from being true capitalist watchdogs and become part of the looters.

The United States left true capitalism a long time ago and it is a total disaster.

In my next tutorials I'll go back to stepping you forward in how true capitalism unfolded and how it got derailed. *sigh*