Capitalism for the Intelligent but Ignorant – Part One: the Constraints

First, the obvious that hardly anyone talks about: If you have not taken at least two good courses in economics, it’s not likely that you understand even the basics of capitalism. If you have, when you were 19 and suffering from severe testosterone poisoning (male or female) it’s still likely that you don’t understand much. There are exceptions: It’s possible to teach oneself through assiduous reading of a good newspaper such as the Wall Street Journal. I don’t know how many people do this although I did, to a large extent. It took me about ten years.

Don’t blame yourself at all. Capitalism is a topic that should be taught every year throughout junior and senior high school. It never is. Also teachers of introductory economics often do a very bad job of it for reasons we need not go into here. A few do more harm than good out of their own ideological blindness. We all know such cases, even outside of the People’s Green Socialist Republic of Santa Cruz where I live. So, below is a handy intro to the subject. If you wish for a more scholarly but still basic approach, please go to my entry “Capitalism” in the 2006 Edition of the Blackwell Encyclopedia of Sociology. Make sure you consult the hard copy edition. The paperback entry that followed is pure trash done by a simplistic 1930s-style pseudo-Marxist.

Capital is money that’s put to work. The $500 in banknotes under your mattress is not capital although it’s potential capital. The valuable tract of wilderness you inherited from your grandfather and that you preserve carefully is not normally considered capital. It’s also potential capital. The millions of dollars worth of gold dangling from the ears of Indian women today are not capital. In all these example, something of value is sleeping, not producing except by happenstance.

Capital has no size. The $200 I put into my brother- in- law’s restaurant truck in return for a small share of ownership in his business is capital. The $100,000 currently in your savings account (2014) is not really capital, at least, it’s not your capital.

Capital does not belong to “capitalists.” Curiously, the word “capitalist” has no fixed meaning today. I believe we have capitalism of some sort but no capitalists. More on the actual actors of capitalism in Part Two of this essay.

Every economic system is also a social system. The way a society or a group makes its living has many implications for how it lives. (Manufacturing Germany is sociologically different from oil-mining Saudi Arabia in several important ways.) One implication, but not the only one, is the degree of poverty of that group. Where capitalism of some sort does not flourish, the poor remain poor.

The Unites States is currently a capitalist society but only in a severely limited sense. We must distinguish between theoretical market capitalism and the real capitalism prevailing in this country, the US, which I will describe presently.

In a theoretical free market (that exists nowhere today) sellers and buyers complete their transactions and that’s it. unless strong bonds of trust exists between the ones and the others. Such a bond of trust allows for the planning of future exchanges. This trust is difficult to achieve with large numbers who know little or nothing about one another. It may be increasingly easy to achieve such bonds, however, because of the Internet. When trust exists buyers and sellers can agree on some future transaction. The purchase of a crop still in the ground is a classical example.

To compensate for the shortage of such trust conditions, the contract came about. A contract is a promise to deliver something in the future at an agreed upon price. The value of a contract is multiplied if it’s enforceable in courts of law. A court is an institution that forces people to do what they don’t want to do at the moment. A classical example is the delivery for an agreed-upon in December price of $19 a bushel for a crop that’s worth $20/bushel in the open market in August.

Courts thus limit the free play of the market; they are a constraint on free market capitalism, but a virtuous one if you ask me.

Next, as hard as it may be to believe, some products in this country are subsidized directly by governments. Every year, Congress gives wheat, corn, soybeans and rice growers billions of dollars in direct payments. There are also thousands of indirect subsidies. Two come to mind: The American sugar industry is allowed to practice higher prices than otherwise would be the case because of a more than century-old custom barrier on sugar imports. Foreign sugar, has to pay customs duties, a fine really, to be allowed into the US. The American consumer pays more for his sugar than he would otherwise

The second form of indirect subsidies, of course, is tax exemptions for government favorites- of-the-moment projects, most notably today so-called renewable energy endeavors (but not nuclear energy for some reason although there are infinite reserves of nuclear material available).

All subsidies distort the allocation of resources, the main moral justification for market freedom. Thus, I may put my money into windmills I think little of because of the clear unearned head start the windmill industry enjoys entirely through tax advantages. Note that I am not speaking here of recent scandals where renewable industry ventures received government support they squandered or stole. I am talking only about ventures that actually proved viable. The corruption frequently following government subsidies is a separate topic.

Beyond courts and government subsidies, taxation itself, limits the free play of the market. All monies take by the government are withdrawn from the free choice of citizens and other economic actors. Historically, it used to be a small thing. Today, at any given time, in developed countries, around 50% of all the income (Gross Domestic Product is a good enough approximation) available is in the hands of government. It’s a low of about 40% in the US, a high of 57% in France. It’s as if developed countries had two economies a capitalist, market-based economy and a state socialist economy, of more or less equal size. Within each country, the latter always has low productivity. Thus, calling such countries “capitalist” is a significant abuse of language. In addition, the costs of simply complying with tax laws is deemed no negligible by various reasonable estimates.

If I wanted to stem the rise of health costs and that of health insurance premiums while lowering the number of uninsured, the first thing I would do would be to spur competition sharply within the health insurance industry. I would accomplish this miracle by doing my very best to void all regulations limiting insurance companies’ activity to one state. You got that right, there are such regulations. If an insurance company in Maine offered me, a private person, better terms than does my current insurer today, I would not be allowed to accept its offer.

Many government regulations act, in particular, as barriers to entry in addition to fulfilling (or not) whatever their other roles (such as promoting safety) might be. This explains why industry associations often ask to be regulated. Business decision makers like competition but mostly for the other guy. ( In a related mode, see Peter Thiel’s Op-Ed, “Competition is for Losers” in the Review section of the Sept. 13-14th Wall Street Journal.)

The biggest, most significant way in which modern capitalism in most countries differs from market capitalism is that the supply of money, of currency available in the economy is tightly managed by a government entity. In democracies, that entity is independent from the executive branch of government. That is the case in the US, with the Federal Reserve Board, in the UK, in France and in addition, in the European Union, for example. Yet the enormous power to release and restrict money – the main medium of exchange – is taken away from the market. The results often differ sharply from what we think the market would do of its own accord.

In the US, the Federal Reserve Bank, ( “the Fed”) only has the formal power to change the rates at which to federal government lends and borrows money. Its formal mission is narrowly defined to fighting both inflation and unemployment through these instruments. In practice, however, at any one time, so much of the potential capital is in the hands of the federal government that the Federal Reserve Bank pretty much determines under what conditions other economic actors operate. A current example: If interest rates are high, investors flock to government bonds and to other bonds because their interests rate follow those of the Fed. (A bond is a loan to a government entity or to a private entity.) If interest rates are low – as they are now, by design – (2014) many investors will move their money to stocks or “equity.” More on this in Part Two of this essay

It would not be far from the truth to state that the US has four rather than three branches of government: legislative, executive, judicial , and financial.

Note that I am mostly only describing until now. Now, I will opine: It seems to me that this constitutionally flawed system has served us fairly well in practice. I don’t know what an alternative would look like. Many people of libertarian bent seem to say that if the US would only return to the gold standard there would be no need for the Fed. This means that a US dollar would be exchangeable at all times from the federal government for a fixed quantity of gold. I don’t think their argument is credible. It’s possible I don’t understand it well.

If any of this is not clear, just ask in a Comment. There are no dumb questions, just dumb answers, and dumb silence.

You might be interested in a historical digression about one of the most popular false beliefs about capitalism, its alleged relationship to Protestantism. If you are, read on-line my co-authored article:

Delacroix, Jacques and François Nielsen. “The beloved myth: Protestantism and the rise of industrial capitalism in 19th century Europe.Social Forces 80-2:509-553. 2001.

Posted in Socio-Political Essays | 2 Comments

Un autre livre.

J’ai une nouveau livre sur Amazon, en Français celui-ci:

“Les pumas de grande-banlieue: histoires d’émigration.”

Il existe seulement en version électronique pour le moment, en attendant qu’un grand éditeur parisien me découvre enfin.

Voici les liens qui y amènent:

En France:

Aux Etats-Unis

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Obama Grows Up Some – Updated 9/12/14

America does not need another wide-ranging commentary on President Obama’s speech of 9/10/14. So, here are some narrow comments.

The president gave the best speech he could have, given his past, given his many underhanded declarations against past Republican wars.

There is even a possibility that he has been cured by events of the silly, simplistic historical narrative that liberal intellectuals have to keep explaining in such tortuous ways.

When innocent American civilians are assassinated publicly, we should not need a coalition to act against the killers. We sure don’t need one morally. On a practical level, the ugly thought hits me that if you wanted to weasel out of a war, you couldn’t invent any better condition for that war than having secured the cooperation of Middle Eastern states who seldom get their act together about anything.

There is a confusion in media commentators’ minds that I have not seen or heard disentangle last night after the speech or today. “Boots on the ground” can be used to kill people and break things, or to rebuild a society along new lines, or to do both. The US failed in Iraq and – I think -in Afghanistan, as well, in doing the second, and therefore the third. American capacity to use boots on the ground to kill those who need killing and to break their belongings remains intact and unsurpassed.

We can always leave for the neighbors- who are so prudent about ruining their shiny war toys – the task of rebuilding what needs to be rebuilt. Incidentally, and in this connection, the widespread belief that the territorial integrity of Iraq, its boundaries,  must be preserved is incomprehensible to me. For one thing, there does not seem to be any Iraqis but only Shiites, Sunnis, Kurds (of both sects), Turcomans, Chaldean Christians, etc. The only group missing in the mix is Jews. Go figure!

I am not persuaded that the  threat ISIS poses to the US is a good justification for going to war. It would not be absurd to say that multiplying counter-terrorism intelligence budget by ten would be as effective or more effective in protecting America and still cost less. I am influenced in expressing this opinion by the lack of interest in the countries most directly threatened for  putting their military at risk. Saudi Arabia, for example has not committed a single jet fighter or even a single camel.

I hate to be a party pooper but I don’t remember a single current ISIS authorized source threatening us. The guy I saw on TV doing so must have been about 23

There are other reasons to go to war nevertheless. These include helping the brave Kurds of Iraq and humanitarian salvation projects. Above all, I think we should wage war because the Russians and the Chinese, and probably also the madmen in North Korea are watching with interest what happens when one assassinates Americans.

By insisting that ISIS presents a real danger to America now, I fear that the administration is making the same mistake that President Bush made regarding weapons of mass destruction. There were really hundreds of valid reasons to kill Saddam Hussein but once it became obvious that the weapons were a product of Hussein’s own imagination, the other reasons could not be invoked. President Bush and his allies had lost too much credibility by then.

I believe the president should seek authorization from Congress, at least the way President Bush did before committing the country in both Afghanistan and Iraq. That’s what constitutional government requires. In a democracy, it’s healthy to count publicly raised hands and to keep the count in an open register.

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Mr and Mrs Rice Slaughtered on the Bloody Altar of Silly Feminism

I was hoping discussion of young Mr Rice, the good footballer (Note to overseas reader: we are talking here about American football) and of his wife, Mrs Rice, would be gone by now. In fact I can’t escape these “news” while ISIL is happily slaughtering the innocent in Iraq.

So, some time ago, Mr Rice punched his girlfriend in unconscious in a hotel elevator. The event was filmed. High Muckymacks in the the football league who had already punished Mr Rice decided a couple of days ago to award him much stiffer punishment. Basically, they fired him and ended his career, apparently, for good. They explained their committing an act of double jeopardy by alleging that they had never before seen the whole video of the beating. They said it was worse than they thought.

Between the video-taped event and the Muckymacks’ new findings, two important events happened.

First, Mr Rice was taken to court and the court did what it thought should be done. The case was essentially closed.

Second, the victim married Mr Rice. (Yes, read this again.)

Every one seems to have a comment or two or three. Why not me? I have two. I hope they contribute to closing this boring and obscene tabloid episode.

First comment: The video clearly showed the then-girlfriend advancing on Mr Rice when he punched her. I don’t think this justifies anything and certainly not a big strong man beating a small woman. I am just interested in the fact that no one in the media seems to have mentioned this fact which is a plain as daylight in the video.

Why not? My guess, is that it does not fit the narrative, not the narrative of this little story, the general, simplistic narrative of women as always utterly innocent-by-definition victims of male brutality. Great hypocrisy in the media when it comes to sex (not the activity, the category, I mean what the semi-literate P.C. call “gender.”). Just food for thought.

Here is my second comment: For a little while, it was entertaining to hear female experts, quasi-experts, pseudo-experts, and frank non-experts gravely and endlessly discussing the deep, complex psychology of women who, like Mrs Rice, cherish a brutal man. Meanwhile, the male colleagues stay carefully away from the altar of silly feminism where the sacrifice in taking place. They are scared poopless that they may become the next sacrificial sheep. It’s the same as with race. OK. Mssss (is this the plural of Ms?): Time to stop; there is nothing to talk about. Let me give it to you in a capsule.

Mrs Rice decided that she would rather be a rich, occasionally beaten wife than a poor, never beaten wife, or than a poor occasionally beaten wife. It was a rational decision by a grown woman. There are no children involved. The decision makes perfect sense, depending on one’s values. I will bet thousands of women would make the same choice were they given a chance. There is no complex psychology involved, no tortuous theory to appeal to.

Incidentally, I am not defending Mr Rice, the football player. I just think he is normal in his occupational category. I would easily bet that a group of poorly educated young men who are lavishly paid and who are systematically rewarded for acts of (regulated) violence often act like hoodlums. N. S. ! I would bet that the women who develop an interest in such young men know it from the start. As long as the women are over 18 when they get involved, none of it is anybody’s business, to my mind.

As for the football Muckymacks, collectively, they committed a gross act of invasion of privacy by reviving this old story under a very thin pretext ( “I did not know at the time”) that would never hold up in court.

What’s next? Is some corporate entity going to discover, to condemn it in the most forceful terms, the fact that many young women actively like hoodlums? That may have been that bitch Mother Nature’s plan all along anyway. See on this blog my “Why Young Women Are Stupid….” ( It drew 1,200 hits and a single, one (mild) protesting comment.

And next in the line of discovery,perhaps, will be the fur-lined handcuffs carefully put away in the closet wrapped in red tissue paper by your loving and ardent wife? You might even lose your job as a bus driver from the resulting clamor against the oppression of women.

Stop people, stop! What seems merely stupid is sometimes also dangerous to plain liberty.

Posted in Cultural Studies, Current Events | Tagged , , , , | 8 Comments

A New Dispensation

In October, my wife Krishna and I will have been married 38 years. It was a long road. Now that the likelihood of reconciliation on the pillow and of compensatory grudge mating is floating away in the distance, it’s especially important to renegotiate our live-together contract frequently. Here is a new version, fresh from today.

She may abuse me as often as she wants and under any circumstances, and in as loud a voice as she wishes.

She does all the drudge work in the house and she feeds me well and often.

I try to manage our finances.

I may never criticize her or anything she does under any circumstances.

My wife claims that we are just putting black on white the rules of the normal, conventional, traditional marriage.

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I Will Be Right Back

Don’t give up on me yet. Thank you.

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Book Reading and Signing (Again, I Know)

A reading of my new book: I Used to Be French: an Immature Autobiography will be held tomorrow, Friday September 5th 2014 at the coffee shop Lulu Carpenter’s in Santa Cruz. I will have copies available and I will sign them on the spot. Don’t forget your checkbook but I accept cash too. (It’s $17 plus $1.60 for the Governor.)

The coffee shop is at 1545 Pacific Avenue, near the clock tower.

This important event will start at 6 pm.

Your grandchildren may not believe you when you tell them, “I was there.”

If you are too busy or if you live too far to come – say, in India, or in France, or in China – you can just order one or two from me. Use this email, please:

I will not take names at the event and there will be no quiz on the book at any time subsequently!

I have been neglecting this blog because of the promotion of my book. It’s much harder than writing. It’s like hauling rocks uphill with a donkey where I am the donkey. Make a note that I am not averse to working with an agent or with a publisher. If your daughter or your son is dating one, please, keep me in mind. Thank you.

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