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Beyond
The 19th Century in Economics
- Bill Collier
Introduction
Currently
the terms free enterprise and capitalism are used almost interchangeably.
But if the terms are not different why use different terms, why not
instead use only one term? The fact is the two terms are not synonymous
with one another, moreover one could have a form of capitalism without
free enterprise and a form of free enterprise without capitalism. This is
a bold, and controversial, thing to say. In most people’s minds there
are only three realities in economics: capitalism, socialism, and
so-called “third way” solutions. I would submit, and will assert
here, that we are really talking only about one reality: capitalism.
There is free market capitalism, state-socialistic capitalism, and
variations on the two themes that fall between them. What we need in our
age is a new ownership model which takes us beyond capitalism and allows
enterprises to meet the needs of the market while leading to the maximum
wealth creation.
Capitalism
The
number of useful and productive laborers, it will hereafter appear, is
everywhere in proportion to the quantity of capital stock which is
employed in setting them to work, and to the particular way in which it
is so employed.
Adam Smith, Introduction to “The Wealth of Nations”
Adam
Smith’s “mistake”
While
Adam Smith was a genius in his thinking his work tends to create
ambiguity between capitalism and free enterprise, as if the two are
interchangeable. The above quote, however, points solely to capitalism.
It is essentially saying that all value and wealth comes from capital.
What is capital? Basically, “the means of production”. Capital may be
considered land, property, money, or even labor. Within capitalistic
theory one could have any or a combination of these forms of capital. In
capitalism all profits go the those who own or otherwise control the
means of production. Land capitalism rewards land-owners with the profits
from business enterprise. Labor Capitalism rewards the worker, although
in effect it rewards the collective organizations which employ labor.
Industrial Capitalism rewards owners of productive assets (investors,
stock-holders, proprietors) with the profits. In all forms of capitalism
capital is employed in such a way as to generate profit.
The
nature of capitalism
There
is a difference in capitalism between capital and a commodity. A
commodity is a resource utilized by capital to create a finished
product.. The different versions of capitalism apply the terms capital
and commodity differently but, generally, everything except the main
product is either capital or a commodity. A land capitalist would view
the factory on the land as a commodity, as well as the labor of the
workers in the factory. They have a “right” to the profits because of
their ownership of the land. An industrial capitalist would view the land
and the labor as commodities and the factory as capital. Though the
capitalist may not “own” the land (many lease property instead of
buying it) they do own the capital and, therefore, have a right to the
profits. In either case those who are counted as “owners” of the
means of production are entitled to the profits.
Every
economic entity, from the individual to land and raw materials, is
classed in one of only four categories. Capital (the means of
production), commodity (the elements which employ and are employed by
capital to create finished products), owners (those who are counted as
the owners of the capital and, therefore, who receive the profits), and
the product itself. Everything in capitalism is employed by the owners,
be they an individual, a corporation, or even the state (as in the
capitalism of Marx, who mistakenly did not consider himself to be a
capitalist).
Two
opposing theses of capitalism
In
the world of capitalism there are two opposing theses: there is the
thesis of industrial free enterprise capitalism and the anti-thesis of
labor collectivist capitalism. Incredibly Marx had the right idea when he
spoke of the thesis and the anti-thesis reaching a critical nodal point
where the one overthrew the other, resulting in the synthesis. The
synthesis of Marx’s capitalism and the capitalism of our own robber
barons is liberal socialism which contains elements of both systems.
Socialism is really nothing more than state capitalism. Liberal socialism
is a combination of private enterprise ownership of the means of
production with state control, albeit often indirectly, over the means of
production. In this system the profits are shared by the state and the
owners. It is a more efficient system than outright socialism and a bit
less (seemingly) exploitative than outright industrial capitalism.
Capitalism
is most efficient when linked with free enterprise but, as we have seen,
it is not synonymous with free enterprise. If capitalism is the idea that
ownership of profit devolves on those who own the capital what is free
enterprise? Free enterprise speaks less to how profits should be shared
than it does to the issue of profits and price. Free enterprise deals not
with how the products are produced, the division of labor, but rather
with how the products are sold.
Free
enterprise
The
basic thesis of free enterprise is best explained by Ludwig von Mises in
his book “Human Action”. The basic thesis of the book is this: all
action is a response to a felt lack and those who can profitably supply
that lack will prosper. Quite simply, the consumer is king. In free
enterprise price is determined solely by demand and no group of buyers or
sellers can control the “market”. The market is where products are
bought and sold. A free market sets prices based on demand. This is the
invisible hand that Adam Smith made famous, an invisible hand that
creates the complex relationships needed to meet all of society’s needs
and that adapts, grows, invents, and changes to meet those changing needs
under changing circumstances.
Free
enterprise is the most efficient way to distribute and sell products, it
is the most efficient way to develop new products which meet new needs or
which more efficiently meet old needs, and it is the best way to ensure
freedom for the individual who can buy and sell as they please. One can
have free enterprise without capitalism just as one can have capitalism
without free enterprise.
Up
until this point in time there has only always been forms of capitalism
competing with one another. So-called ‘third way” ideas, between
“capitalism” and “communism” are nothing more than a curious
mixture of what are still capitalistic systems.
Alternative
ownership models
No
system can state that there is no such thing as capital: the means of
production. There will always be, by whatever names we choose, capital,
commodities, and products. The question now relates to ownership.
Specifically the question relates to the criterion for ownership. In
capitalism of all types, ownership devolves on those who possess the
capital, whether the collective, the government, the stockholders, or the
proprietor. This situation, in all cases, sets up two primary classes:
those who control the capital and those who are employed by it.
What
if there were different criterion for “ownership”? What if possession
of capital were not the sole criteria for determining ownership? Once you
state that possession, direct or indirect, of capital is not the sole
criteria of “ownership” you are no longer a capitalist. You may
embrace free enterprise, the perfectly competitive market, but you are
not a capitalist.
Perfect
capitalism
The
perfect capitalist owns ALL the means of production and has an absolute
monopoly on profits. The perfect capitalist must needs first eliminate
the free market and create a corporation which has total control over all
capital and commodities as well as the means to distribute products and
set prices. Why is this? Because capitalism is acquisitive by its very
nature: it says simply “the more capital you own the more profits you
receive”. To out-compete is to eliminate your competition until only
your company is left in the field to claim the spoils.
The
theory of the perfect capitalist could be found in the corporation
erected thanks to the ideas of one man, Karl Marx. He was not the only
perfect capitalist, but his “communism” won the most adherents and
ended up winning power for itself in a major nation, Russia. If Marx was
the most articulate person ever in selling this perfect capitalism the
most perfect capitalist in practice was Lenin whose corporation-as-state
gained a near 100% monopoly over both capital and the market. This does
not mean that we think capitalists are Marxists, but it does mean that we
think Marxists are capitalists of a different color. They are capitalists
without a free market, though they would certainly not see it that
way..
Beyond
capitalism
When
you are ready to dispense with the idea that possession of capital is the
sole criteria for ownership you are ready to depart from the mental
constraints of capitalism, you are ready for something that transcends
capitalism.
Before
we proceed, however, let me state firmly that capitalism was indeed an
advance for humanity. Without it we would not be in the position we are
now in to speak of transcending it, we would still be stuck in the mire
of mercantilism.
In
an age where automation, the internet, and robotic technologies means
that we can do much less with human labor than ever before, where
information is the dominant product to be sold, and where capitalism is
producing ever larger monopolies that threaten free enterprise we do not
need compromises between different forms of capitalism, we need to
transcend capitalism and challenge the whole notion of possession of
capital as the sole criteria of ownership.
The
purpose of economics
Adam
Smith desired to show how nations could end poverty, and his capitalism
and free enterprise stood humankind in good stead. Today only free
enterprise remains relevant and economics in general is less about ending
poverty than it is about increasing profits for the capitalists (be they
owners or the state). Just as capitalism has lost its relevancy in a
world where one needs little or no capital to produce a product so also
economics in general has lost its relevancy where profits are increasing
but poverty is as well! Only a free enterprise freed from capitalism and
an economics which starts and finishes with the question “how can we
allow people to create wealth and end poverty for their lives” will
suffice for our age. Instead of talking about “the wealth of
nations”, and of possessors of capital, we need to speak now solely to
“the wealth of people”.
Human
capitalism?
In
the early treatment of what we now refer to as Concordianism, an economic
thesis which does not make possession of capital the sole criteria of
ownership, there was talk of “Human Capitalism”. The purpose of human
capitalism was to establish ownership, and more specifically profit
sharing, based on level of participation. The key word here is
participation. Participation can come in various forms, and the terms and
conditions of that participation need to be defined by the participants
in the enterprise. Participation means, quite simply, sharing the burdens
and risks of ownership. The form of this burden sharing varies greatly
and, again, depends on the participants. The main problem with this term
is semantic, it can also be read that human participation is capital.
This is not the case. All capital is human participations, the owners
apply it to be used for the enterprise, but not all human participation
is capital. It is necessary to distinguish between ownership based on all
forms of human participation as opposed to ownership based on only one
form of participation.
What
Concordianism says, especially in its Economic Rights and
Responsibilities, is that participation (as we defined it) is the
criteria of ownership. Those who are most effective at developing an
ownership plan that provides the proper initiative to all concerned to
best meet the demands of consumers will prevail and their form of
ownership will be more widely utilized than a form of ownership which is
less effective in this regard. In other words, just as we allow the
market to determine what will be produced and at what prices, we let the
market determine what the criterion of ownership should be.
Concordianism
will not be imposed
Concordianism,
as it proposes ownership models based on participation, cannot be
imposed. The political aim of a Concordian will be to fight for the
liberty of Concordians to create their own participatory, as opposed to
capitalist, economics without being interfered with by corporate or
governmental monopolies. This does not mean that a capitalist, an owner
of capital, does not count as a participant. What it says is that
ownership of the enterprise need not be based solely on the possession of
capital. Moreover, I would submit, Concordian economics, which is based
on participation and not solely capital, is more efficient in terms of
providing all participants the incentive they need to produce the best
products at the best prices for the consumer than capitalism.
Concordianism will be implemented because people will see its merits, not
because of a law or regulation.
Aside
form working at the political level to protect the right of Americans to
define their economic relationships as they see fit, Concordianism seeks
to win the day by persuading people that its economic relationships and
institutions are best suited to the well being and profit of all
participants in the economy. Moreover, I would even go so far as to say
that capitalists would be able to earn more if they embraced
Concordianism than they are earning now.
Participatory
economics
What
is a business enterprise? It is, more than anything else, the product it
produces. Capital by itself cannot produce a thing, therefore capital is
only a part of what makes up a business. Those who utilize the capital
are also a part of the business, however they cannot produce without
capital. Let’s also not forget the vision of those who create the
business, whose inventions and ideas lead to the working together of
capital and human labor to create a product that meets a need.
A
business enterprise cannot be so easily defined as a house or a plot of
land. A house is a product, land is also (or it is a commodity). These
are ends (something with inherent value in and of themselves). A business
has no value unless it is selling a product. Once it stops producing a
product it becomes only a product itself, but the value of it as a
product is far less than the value it would have as a producer. A
producing business is a means of production, it is not itself a
production. Its value is found in one place and one place alone, in its
profit and loss statement. If it is serving the market well it profits,
if it is failing to produce what the market needs it loses money and is
in danger of being dismantled and sold as a product.
Participatory
economics states that participation is the criteria of ownership because
human participation is what makes a business, not simply the capital that
business utilizes.
Participatory
economics has three very large opponents: Big Business, Big Labor, and
Big Government. Big business is not interested in defining ownership by
any other means save possession of capital any more than the nobility of
old was interested in ownership being defined as something other than
possession of land. Big Labor is more interested in giving workers an
“equal share” in profits without necessarily sharing the burdens and
risks of ownership. Big Government is beholden to both Big Labor and Big
Business for donations that allow politicians to pay for the advertising
they need to get elected. None of these three entities has a real
incentive to embrace participatory economics.
Participatory
economics, by its very nature, does not need the permission of
politicians to become a reality, at least not in America today.
Individuals are quite free to create their own ownership models via
contract and then, as a business enterprise, sell their products to
whoever wants to buy them. If they successfully provide the right
incentives to get the best participants, from capitalists to producers
and managers, they will produce a product the market wants to buy and
they will profit.
More
money for capitalists?
How
is it possible for today’s capitalists to make even more money while
other participants also make more money? The answer is very simple:
wealth is not a pie which is split up between all participants. There is
no human limit to the wealth that can be created. Certain commodities are
of a limited nature but throughout history humanity, and the market in
more modern times, has been able to develop alternatives when a commodity
became rare. Robotic technologies, nano technologies, information
technologies, recycling, and alternative energy sources are being
developed now which will replace many of today’s “rare” or more
expensive commodities. This means that the potential for wealth creation
is going to increase greatly over the next decades.
Wealth
is unlimited
There
is no “pie” to cut up. Wealth is not like oil, wealth is as abundant
as the wind or sunlight. When we act as if wealth is a pie to be cut up
we actually retard the further creation of new wealth! The idea that
there can only be a “few” wealthy people is based on a mindset that
prevents people from believing they can create new wealth. Because people
believe they can’t create more wealth they tend to either accept their
“place” in the economic scheme or they tend to want to amass as much
wealth as possible for fear that they will not be able to get their
“piece of the pie”. This leads to a slave mentality on the part of
most people. This is the beggar’s position of always asking for as much
as possible while trying to give as little as possible but being forced
to give more and more for less and less. We need to be liberated from
this concept of wealth as a finite thing before we can fully take
advantage of the tremendous leveraging power of participatory economics,
hereafter simply referred to as Concordian economics, to create unlimited
wealth and win the war against poverty.
As
we see here Capitalism is not synonymous with free enterprise. In fact,
Capitalism can be an impediment to free enterprise, especially in an age
where possession of capital is less important. Capitalism was an
improvement over mercantilism because mercantilism was based on land and
precious metals. This limited the ability of enterprises to produce what
the market needed and it inhibited the creation of new wealth. Capitalism
is based on possession of capital, but capital is becoming less
important, just as land and precious metals were becoming less important
in the 1700’s when Adam Smith wrote the wealth of Nations.
Concordianism is the next step.
Conclusion
We
needed capitalism in the early days of the industrial revolution, it made
the most important element of wealth creation for the times, capital, the
criteria of ownership and removed the old criteria, land, because that
criteria was inefficient for the market and for wealth creation. Today
capital is not nearly so important, in fact in many enterprises it is
actually not necessary. Information and human creativity, in short human
participation in its various forms, is the most important element in
terms of meeting the needs of the market and creating wealth. For this
new reality, a brave new reality which does not depend on capital nearly
as much as it requires a broad range human participation, we need new
criterion of ownership which bring together the best elements to meet the
needs of the market and create the most amount of wealth.
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