Capitalism

 

The Last Time I Saw Paris

The last time I saw Paris, her heart  was warm and gay,
No matter how they change her, I'll remember her that way.
I'll think of happy hours, and people who shared them
Old women, selling flowers, in markets at dawn

Is capitalism the number of markets?

"When we toss out these big words, capitalism, socialism, they get ... sensationalized, and people translate them into meaning things that perhaps they don't mean," she told Yahoo Finance's editor-in-chief, Andy Serwer. "So to me, capitalism, at its core, what we're talking about when we talk about that is the absolute pursuit of profit at all human, environmental, and social cost.”  February 5th, 2020

This quote was attributed to Representative Alexandria Ocasio-Cortez.  I would like to suggest that the pursuit of profit is due more to the owners of capital seeking  a User Optimal solution as opposed to  seeking a System Optimal solution.  Profit is just a measurement in that User Optimal solution.   I am making a distinction between free markets and capitalism.  The two are often combined as in free market capitalism, but I would like to suggest that they are really separate and distinct.  Free market refers to many markets as opposed to a single market.  If a transaction can not take place in one market, then the buyer and seller are free to seek another market.  Capitalism, IMHO, is not how many markets there are, but who owns the profit from the production equation.

The seller’s production equation has traditionally been expressed as a function of capital and labor.  To be more precise, it is a function of capital, priced input materials, unpriced input materials, and the labor need to apply the capital to those input materials.  The amount of labor required is a function of the amount of output to be sold.  If less output is to be sold, then less input material is required and less labor is required.  Less capital is required too, but that is why there is a stock market so that a producer’s capital can be liquid.  But because there is a stock market that means that rather than lowering the amount of capital, it may be advantageous to the owners of capital to disproportionately lower the cost of inputs and labor as a way to seek their User Optimal solution. 

The problem with this is that the buyers are laborers and other producers.  Maybe not of that producer’s product but of other products.  If the wages paid for labor, or the prices paid for inputs, are reduced, then the buyer's demand equation will not be constant but will also be reduced.

The amount of priced inputs can be unfairly reduced if the producer is approaching a buyer’s monopoly, a monopsony. 

Unpriced inputs,  common goods provided by society, such as like fresh air, clean water, etc. can be consumed at a price without regard to their value with the false assumption that they are not only unpriced but unlimited.

If the return on investment of capital is low, a producer can decide to increase market share, at the expense of competitors, to maximize his share of the “profits” for that product.

Capitalism, socialism, etc., is who is the owner of the components of production as well as the as the outputs of production.  Free markets for buyers and sellers are NOT capitalism.  You can have free markets and ownership of some capital and/or products by society, i.e. socialism, and still have a free market as anyone in Scandinavia would be happy to attest. 

Free markets require truth in the transactions between buyers and sellers.  In the US we have regulated free markets because too often one party is NOT truthful.  A single market requires that the market is perfect. If that market is operated by humans, the temptation is that they will operate it for their own advantage, and not perfection. “All animals are equal, but some are more equal”.  “Power corrupts and absolute power corrupts absolutely.”