A Very Short History of Capitalism


Since Romania is currently tens of billions of dollars in debt to western bankers, I thought a short history of capitalism was in order.

Interestingly enough, whether Romanian or American or Asian or African, it seems everybody is a lot more familiar with Communism. I’d wager the names “Marx” and “Lenin” slip off the tongues of people faster than similarly important capitalist thinkers.

Capitalism is a very strange concept and historically speaking it’s so new. Yet despite this most people just “feel” they get it – you do things for money and then try to get more money so you can get more things.

Anything one would consider “money” started out as a kind of token to represent something else, very similar to the way a poker chip is used in a casino. A bone, a special kind of stick, a shell, a piece of shiny metal, whatever.

Over time, more and more transactions began to be denominated in these tokens. Soon pretty much any ordinary daily activity could be measured (in some way) by tokens.

As the centuries passed, certain people began to create a second kind of “money”, which was a token to represent other tokens. For instance, if “money” was coins of gold, certain people would write paper notes that represented the number of tokens held in their possession.

Since paper notes were lighter (and smaller) than tokens, they could be carried further and thus, more business transacted further and further around the globe.

Over time, these notes also became known as “money” in their own right.

Later, a small group of private investors convinced the King of England to be given exclusive monopoly to print the “money” known as “paper representing tokens”. Soon other nations follow suit.

After some time, these nations began decoupling the paper notes from the tokens they represented. Therefore, no one knew from any one time to another how many tokens of “real money” could be exchanged for paper “money”.

Then these nations decoupled the paper from the tokens all together. Now there were no more tokens of “real money” to be had – all that was left was the paper.

And then the ones selling the paper to ordinary people designed an interesting system called fractional reserve banking. In essence, they could sell more paper notes than they actually had on hand.

As soon as this was done, an irreversible series of action began to take place.

The “economy”, as it is generally understood by that word, is comprised of three things:

1) “Natural resources”
2) People doing work
3) Controlling money

Gold dug out of the ground and clean water being bottled and sold are both examples of “natural resources”. In other words, it’s all the stuff that’s already out there for the grabbing (hey, this is how economists think).

People doing work is also known as “labor”. Whether you’re typing on a keyboard or digging a ditch, you’re doing something and if it’s coupled to money then it’s what economists call labor.

Controlling money is where it can get convoluted.

Imagine two neighbors, one with 50 gold nuggets and the other with 50 potatoes. Neighbor A buys 25 potatoes for 25 gold nuggets and everybody goes home happy.

Although this is clearly two people “doing business” this is mercantilism at best and is definitely not capitalism. At the end of the day, the “total value” is still roughly the same.

Paying gold coins for a good horse is the kind of thing I’m talking about. It’s exactly why Henry the Eighth sacked the monasteries – he was after actionable tokens (gold, silver, etc).

Capitalism comes into play when you essentially say “I’m going to give you something you don’t have in exchange for you pay me back more later”, formerly known as a sin in some major religions.

If group A lends tokens with interest to group B, then group B is going to have to expand somewhere else to acquire the “extra” needed to pay back the interest. Hence, a few wars of territorial expansion and then later colonialism.

When George Washington won his first battle against the Hessians on Christmas Day, he was fighting troops that a duke in Bavaria was lending to his cousin the British King in a war that started largely over as a protest against excessive colonial taxation.

At some point however there is an inherent limit to how many physical tokens (gold bars, etc) you can control and then there’s no more profit to be made from lending them out.

The last and final move was to just sell paper (and now mostly just electrons) for actual real things (“natural resources”) and human labor. And since every electron borrowed has to be repaid with something “extra”, the system must grow in perpetuity to survive. More and more “real” things need to be given to pay back electrons.

The motive of the IMF in lending money to Romania can be read in black and white. It isn’t hidden. It is to extract as many real resources (“natural” + “labor”) as possible in exchange for electrons. It’s not a mystery. It’s just never phrased this way.

I wish I could tell you I know when this cycle of infinite growth will collapse but I don’t know. It might be soon or it might not be for a long while. But I do know that the last thing I would want to do is live in a country where you can only find Brazilian and American chicken in the markets and Chinese toothpicks and millions of farmers are out of work and 10% of the population lives abroad primarily for economic reasons.

There was a reason Hitler took the personal time to direct the attack on Romania in 1940 – he knew damn well that this country was incredibly wealthy in terms of “natural resources”. Stalin and Kruschev knew it too. And Ceausescu starved 11 billion plus dollars worth of food out of this country and look how many people survived – incredible!

Almost all those things people consider “backwards” – rural roads, peasants doing their own thing, riding horses and wagons, making your own liquor, raising sheep and weaving wool – all of those are what’s going to insulate this country when the capitalism wave collapses.

At some point very soon the entire global debt will be greater than the net worth of the planet. What’s going to happen then?

The only reason this is allowed to go on is due to a consensual group delusion – that any one of us needs to convert our lives to pay back some electrons.

Although things look like rough sailing ahead for now, I’m betting my long money on the common sense and hardiness of the Romanian people.

28 Comments Add yours

  1. Daniel says:

    “You say we have little economic freedom? You have the right to do anything you want, you can sell and you can buy. The average Romanian is free to do what it wants with its money and his choice was to make credit to eat and show off.”

    That’s it. I’m done talking to escapees from insane asylums. If Romania has “economic freedom”, then I’m Santa’s little helper.

    You just carry on living in your own fantasy world.

    Like

  2. Cosmin says:

    You may call it a present government, but to me it looks they are mostly collecting and less administring. So for me they are absent where they should not. Medical service is back in the 90’s, police work is getting worse. They are not absent because you pay high taxes? How about you try Sweden or Denmark for taxes. Ow, wait.. Denmark is ranked no1 in the world for taxation? Ouch! It’s now the tax it’s the return that’s the issue. What? all pharmacies were state owned until last year? OMG communist Denmark!!! Would you like to pay taxes in Denmark or Romania?

    Dude, people bought tv’s, cars and houses. That money came from credit and some sold land. How many of them used credits for businesses? You say we have little economic freedom? You have the right to do anything you want, you can sell and you can buy. The average Romanian is free to do what it wants with its money and his choice was to make credit to eat and show off. How many started a business or tried to do something?

    I know people that started a business, some failed, some not, but it requires work. I also know people that had more than 500k euro and spent it all.

    You have economic freedom, maybe what you don’t have is the money for the freedom you desire.

    Like

  3. Val says:

    Well, I’m not going into details but it’s safe to say most Romanians unfortunately don’t have any idea what free market capitalism is or how it works.
    Here’s some basic reading for my fellow citizens. Read it all, it’s very interesting. Might help people, you know, form an educated opinion on the subject!
    http://en.wikipedia.org/wiki/Capitalism
    If you’re trying to find the Romanian version of that page, well you’re out of luck, there’s only a stub there with the basic translation of the definition from English. We Romanians do not “believe” in capitalism, we follow the church of communism without even knowing what it means just like we follow the teachings of the Ortodox Church without knowing what it means.
    This is part of the Romanian Script I’m afraid: Americans are stupid. Capitalism is a failure. Communism would have worked perfect if implemented right. Socialism is awesome, just like in the EU! Yadda, yadda.
    Nobody gives seconds thoughts about these phrases because clearly the socialist economic system in Europe works wonders. No country is in debt, prices are lower that in the States, services are awesome, everything is juuuust peachy! /end sarcasm.
    I can understand Sam’s fear of the never-ending growth cycle, it’s one of the problems of capitalism: we as humans have not come to fully understand how economics work. But we’re working on it!
    And unlike communism, capitalism accepts bankruptcy, which basically means: if you suck at your job, you will not make money. Go make money and pay for the stuff you need.
    Socialism says: if you suck at your job but make a lot of money, we’re willing to subsidize your incompetence. If you’re good at your job, it wouldn’t matter because we need a lot of your profit to pay for stuff that’s supposed to be free: social security, healthcare, education.
    Communism says: everybody is equal, no matter how much you suck at your job. If by any chance you’re good at your job, we’ll take most of what you make. We wouldn’t want to give the sucky ones the impression you’re a bourgeois and brake the whole “equality” thing…
    I’d rather back up a system that will give me a level playing field and the opportunity to shine. I don’t want forced equality, subsidies or state owned monopolies. I like my economy based on a free market.

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    1. Cosmin says:

      Nicely said :)

      to answer Daniel’s question on when did free-market: after the left party (FSN..PSD) the interference from the state kind of dissipated. Everybody started selling things without adding any value to anything and making acquisitions not investments. What did the gov’t do? Nothing? They left everybody sell and buy as much as they can getting their debt as much as possible. No state intervention = free market. I would even say the state is sometimes absent in Romania. I would not like for the state to intervene too much, I would like it to concentrate on education, health of the people and security of its citizens as in fighting criminality and corruption better. Right now it looks like the state concentrates on how to get more money for its budget by increasing taxes and reducing expenses. I always thought it should get more money because its people earn more and not because they are taxed more and earn the same.

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      1. Daniel says:

        Dude, get your head out of your ass and look around you.

        The Romanian gov’t spends around 40% of Romania’s GDP. 31% comes from taxation, the rest is borrowed (and guess who’s gonna pay back – you and me).

        A gov’t that collects (that is – STEALS) almost a third of what is produced in Romania is an ABSENT gov’t ???? Are you insane ??

        We have tons of insane regulations. By all measures, we have very little economic freedom. WHERE is that “absent government” you speak of, other that in your ignorant fantasies ?

        And what the hell does “Everybody started selling things without adding any value to anything and making acquisitions not investments.” mean ??

        Who’s “everybody”, what did they sell, how do you know they weren’t adding value, how can you tell the difference between one man’s “aquisition” and another’s “investment” ???

        You, my friend, are a very ignorant man. And like all ignoramuses, think you know EVERYTHING.

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      2. Lavinia says:

        I think you should chill….really, Romania’s market is more free than in other countries, let me give you an example: internet.

        In Romania we have high-speed fibre-optic internet EVERYWHERE. In UK….they have the most lame internet ever, the use dial-up if you want to know. How did that happen? Well…neighborhood internet networks that were a good competition to the big guys=free market…

        I believe that in the UK (the most advanced country on Earth) they do not have that.

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    2. Valentin says:

      When I said
      “If you’re good at your job, it wouldn’t matter because we need a lot of your profit to pay for stuff that’s SUPPOSED to be free: social security, healthcare, education.”
      I actually meant:
      “…to pay for stuff WE LIE TO YOU (we i.e. the Government) it’s free…”
      Remember people, “There ain’t no such thing as a free lunch!”

      Like

  4. Cosmin says:

    Zicala din perioada comunista: “Daca ar fi mancare ar fi ca-n timpul razboiului”

    Commy time proverb: “If there would be food it would be like during the war”

    What Romania had was not communism, it was occupation than authoritarian regime, it was no different from what we had in the Middle Ages with the Turks. Nowadays capitalism is clearly a failure and a different system should be tried.

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  5. nea_caisa says:

    1. Communism is an utopia. At some point in the future it will probably make sense but right now the human species is not ready for it.
    2. Countries and empires have gone bankrupt on all kinds of financial systems. Neither system is safe against sheer human greed. When ‘buying’ is bigger than ‘making’ and ‘selling’ then you’re screwed. If foreign groups are cashing in from my peers greed and stupidity and practically enslaving them, so be it. Nobody forced them to buy more than they can afford. ‘Somnul rațiunii naște monștri’ (i don’t have an accurate translation for this).
    3. No, being stuck in the 19th century doesn’t save you. Or it would if you were completely isolated from the real world. Those people and their old ways that you admire so much are sadly a big part of the problem. While their ‘work’ is at a 19th century level, their demands are up to date. We just got lucky that the world crisis hit before everyone was knee deep in debt. I sense that you’re disenchanted (i certainly am) by the savage plutocracy in your old country but the current Romanian ways are not the answer.
    4. I see you have a very romantic view of the pre 1989 times. Just for fun let me make you a rough schedule for you to follow to make an idea:
    – you’ll only watch and listen to TVR1 and Radio1. TV is allowed between 19.00 and 21.00 hours; if you watch anything else , have your neighbour come and beat the shit out of you
    – around 21.00 get a neighbour to cut the power until morning
    – if you need to buy food, get up at 5.00 and go wait out side the shop until 10.00 to get in; remember you can only buy one or two things at one trip; you have a limited quantity allotted to you, usually much less than you would like; you’ll only buy basic foods like flour, oil, bread, dairy;
    – make chicken feet soup (not legs or drumsticks), they’re delicious after boiling them for a whole day; neck, hearts and gizzards only once a month
    – old people in your bloc will be your best friends, they have a sixth sense when stores are about to get food
    – oh yeah, on one out of two trips to the shop, after waiting the required time come home empty handed;
    – do you like Vietnamese shrimp chips? you’ll love them;
    So you see, nobody died in those days. But nobody lived either.

    Like

    1. Cornel says:

      foarte-foarte bine zis (2 si 3).

      Like

    2. Val says:

      ‘Somnul rațiunii naște monștri’ would roughly translate as “The nation’s sleep breeds monsters”
      Nice write up btw!
      Oh yeah, I’m all for ditching this capitalism thing and go back to some really functional communism if there is such a thing. Unfortunately, we’re not the Federation in Star Trek yet. :)

      Like

    3. Lavinia says:

      Somnul ratiunii naste monstri=The sleep of reason breeds monsters (Francisco Goya)

      Like

      1. Valentin says:

        Thanks for the correct translation :)

        Like

  6. Sirg says:

    I don’t understand why you are trying to show that capitalism is something evil. The single major issue with capitalism, as with other systems, is greed, which is a human factor. Man will always be greedy, and greed is something very hard to control – communism tried to make everyone equal so people will be less greedy.

    When people are very poor, greed is replaced by survival needs, thus some people will steal to feed their family, etc. But when people can afford the basics, they start to become greedy and want more. Sometimes they are “persuaded” by advertisting to want stuff they wouldn’t want otherwise.

    Also, bankers and politicians are greedy, and they will try to get as much as possible regardless of consequences.

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    1. Cosmin says:

      capitalism = financial profit = greed

      capitalism is a system
      financial profit is the object desired
      greed is just the the desire for profit

      each community has as minimal goals survival and procreation, capitalism only encourages all that has as purpose financial profits

      the issue is that the financial value is not equal to the value of a service/product provided
      a regulated system in this sense would not be capitalism

      Like

      1. Daniel says:

        You think you know what you’re talking about, but you don’t.

        I get tired of saying this, but capitalism is the economic system based on PRIVATE PROPERTY.

        Everything else is horsecr*p. And anybody who says otherwise (and that includes you) doesn’t know the subject at hand.

        How about you do some reading on the subject of economics ?

        Like

      2. Cosmin says:

        I never said capitalism is not based on private property, I was just commenting that the so much blamed greed is encouraged by the system. Since the article is about Romania where a free-market-capitalist model is promoted I never thought it was not implied we all mean this model of capitalism (free market capitalism, not capitalism as a concept).

        For some reason the Romanian saying “nu mai sta cu nasul in cur bagat” – “stop staying with your head up your bottom side” comes into my mind. It has 2 meanings:
        1. reference to somebody that is upset (a sta cu nasul ..)
        2. it refers to somebody that does not have an open mind ( a fi cu nasul..)

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      3. Daniel says:

        “Romania where a free-market-capitalist model is promoted”

        Really ? When did this happen ?

        “free market capitalism” – Is there any other kind ??

        “the so much blamed greed is encouraged by the system”

        Riiight, because “greed” is a recent phenomenon.

        Like

      4. Lavinia says:

        Corect :)

        Like

  7. SGDWS says:

    Going back on your example with mercantilism: let’s say you need 10L of milk.

    10L of milk costs 30Kg of potatoes, but you only have 25Kg of potatoes.

    So I say: I’ll give you 10L of milk today, if you give me 35Kg of potatoes tomorrow.

    You take the deal, get the milk, make that AWESOME cake for your kids’ birthday, then mow your neighbour’s lawn in exchange for 10Kg of potatoes.

    The next day you give me 35Kg of potatoes for my AWESOME milk delivery services. Everybody’s happy: you got the milk, your kids got the birthday party, your neighbour’s lawn is neat.

    All you had to “add” was some of your own work, no need to expand your yard or to make a colony across town.

    All economy is simply an abstraction layer over basic physical / biological processes. But with a large degree of subjectivity :)

    There’s nothing wrong with debt in itself. As for the global debt, I believe we have no clue what’s really going on at those levels. People have been predicting the downfall of the monetary system for aeons now (internet time) and still nothing.

    Like

  8. SGDWS says:

    IMO the clearest definition is the one about property rights: thou shall not alienate another man’s property. Simple.

    There’s nothing special about debt. It’s an exchange like any other.
    I buy the service of having those resources now rather than in the future.

    Confusion stems from the idea that money is necessarily what TPTB defines it to be: gold, green paper or electrons in the banking system.
    But in fact anything can be used as currency. For example, inmates use cigarettes as money.

    If you think money is restricted to whatever TPTB dictates it to be, then you might think you have to invade neighbouring nations in order to pay your debts.

    If not, you could simply do whatever you were doing until you pay for the service you contracted when you made the loan. But you always must remember: nobody forced you to use credit.

    People don’t want money in itself, they want that which money can buy. And there’s always something you can make that people are going to want, until the entropic death of the universe.

    The global economic system has nothing to do with capitalism. It’s backed up by states, and states are the exact opposite of inalienable property rights.

    Like

  9. Daniel says:

    Fara suparare, dar n-ai inteles nimic din “capitalism”.

    Capitalismul e pur si simplu sistemul economic bazat pe PROPRIETATE PRIVATA (cu tot ce implica asta – atat in termen de drepturi, cat si de responsabilitati). Asta e “cheia de bolta”, nu emisiunea monetara.

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