Maybe you have seen the film of Gandhi, where in one scene a curious reporter asks the dhoti-clad visitor “Mahatma, what do you think of Western Civilisation?” After a suitable pause for consideration / effect comes the response “I think it would be an extremely good idea.”
I often think that way about capitalism. It may be that the world once upon a time, or on various occasions, has had a brief experience of genuine free-market capitalism. I have little doubt that such events have been rare and absolutely no doubt that none of us have experienced it.
If you, beloved reader, are over 70 years old, it is faintly possible that you will have experienced an approximation of capitalism, in which the value of goods was determined by the laws of supply and demand with something approaching freedom from manipulation by governments, cartels and skulduggery of various kinds. In this ideal, the price of a thing is determined by us, we the people, according to how much we desire or need it, how scarce it is, and how much we can pay or are willing to pay. That is a system in which money means something, and we determine what that meaning is.
The world used to pay lip service to this free market principle. The principle was not bent too far out of shape because the amount of money was under control. It was – most of the time – anchored to a stable commodity, gold. They called it the gold standard. It was also controlled by the prevention of counterfeiting. Only the government-approved central banks could take the image of the head honcho – queen, president, despot etc. – and print a bank note with it. There is a reason we called them bank notes, you see.
In the early seventies, this changed, and that is why those under 70 will not have had an adult experience of capitalism. Two things happened back then. First, the gold standard was abolished, so there was no stable base for value of currency. Money could mean anything. The second thing was computers. We stopped counting real notes and coins, and kept records in electronic form. And very soon afterwards we allowed those records to catalogue loans and mortgages and record credit card transactions. It came from nowhere. I think Harry Potter calls it “apparating”. No money was printed and no coins were minted. Banks could put a record of non-existent money onto their ledgers. You could buy a house or a car with it. Governments didn’t care where the money came from. They didn’t realise that they and the central banks hadn’t asked for it – or if they did, it suited them to stay quiet because the amounts of money in the world got bigger. They can call that growth, which makes governments look good.
What we operate with now is not capital. It is not a capitalist system. It is a creditist system or a debtist system depending on whose side you look from. No capital is required. And because the credit that can be issued has no anchor, there can be a lot of it. Very roughly, for every 1 unit of “real” money in the world, there are 20 units of this other stuff that I like to call “funny munny”. The end result is that how things are priced doesn’t respond to supply and demand. The supply of money is now unreal. If you want to know how house prices got the way they are, that’s your answer. The figures for funny munny got bigger and bigger. You and I were fooled or confused into thinking that we had gained something. But of course it isn’t just houses. It is everything. Free market capitalism was destroyed.
So don’t blame capitalism – at least, not until we have tried it.