Happy Monday! Is IS Monday, right?? My apologies for being an airhead and completely forgetting that Stephen sent in a post. Thank you Stephen, for the post and for reminding me. Everyone stay healthy and safe!
I am often amused when “well educated” socialists whine that I just don’t understand the academic socialist theories describing the inevitable collapse of capitalist societies when I simply dismiss all socialism as foolish non-sense, and proffer that I ought to read more Marx and company.
What I know, that they obviously don’t, is the basic logic I learned in high school math classes that a false premise, axiom, or postulate leads to a meaningless, or rather indeterminate, conclusion, i.e. no matter whether your argument is valid or not, you cannot base any conclusion whatsoever upon a false premise.
Which brings us back to Karl Marx. In his magnus opus entitled Das Kapital, simply “the capital” in English or more properly “capital” as the article becomes superfluous in translation, the educated reader is immediately struck by the fact that Marx does not actually know what the word “capital” means.
All arguments after that profound error, thus become utterly meaningless.
To Karl Marx, and derivatively to anyone subsequently subscribing to socialism, the word “capital” was synonymous with “money”. The problem, obviously, is that capital does not actually mean money; if it did we would not even need the word capital at all.
It is slightly understandable how someone uneducated in the field of economics could confuse these terms in the shadow of places like the New York Stock Exchange or other entities commonly referred to as “capital markets”. Financiers and bankers often, like Marx, refer to money as capital as it suits their business purposes in selling loans and stock and makes them sound grand and noble in the spotlight of a “capitalist” system.
However, a “capital market” is not a place where people go to purchase capital but to acquire funds which they can then use to purchase capital. In economics there are typically listed three different factors of production, namely land, labor, and capital, the same three delineated by Adam Smith who also distinguished the benefits of the employment of those resources as rents, wages, and profits respectively.
To actually understand what capital is, it often helps to look at a more primitive state of society. I have often found amusement in watching videos of people demonstrating and applying historic and even primitive technologies.
In one such video, a man takes about a two foot section of a little over two inch diameter sapling with one branch coming off in the shape of a “y”. He would take another stick and drive that first branch into the ground, then wedge the stick under the “y” branch and lever the stick back out of the hole. Thus he had created a tool specifically to make the job of creating holes easier for his subsequent placement of support posts for a number of different projects.
Creating this tool is the very essence of the principles of capitalism, because that is what the word capital actually means, the tools and equipment created through the investment of time and labor designed to make more efficient use of the resources and labor available.
In a more abstract and philosophical sense, it shows the concept of the ownership of that tool which is created. He made the post hole digger, therefore it was his property. He later made a number of other tools such as baskets, a stone axe, pottery, a kiln, and so forth, each technology and tool used to make his later projects easier.
If the axe took ten hours to build, then only after is has saved ten hours of labor has the tool paid for the cost of its own construction, the break even point. A tool which does not last long enough, or is used so seldom or infrequently as to never reach the break even point is less “capital” than it is an idle curiosity.
In other words, for any invention to be considered as “capital” it must prove itself “useful” over the full period of its existence. For example, the ancient Greeks had invented a “steam engine” which was a hollow sphere attached to an axle with two bent tubes, which when filled with water and heated to boiling would begin to spin demonstrating the force of the expanding steam. However, in as much as it demonstrated the principle, it did not actually produce any useful work or labor saving, thus was relegated a mere academic curiosity.
It is that very increased efficiency and efficacy of the tools created, over and above their cost of production, which we call “profit”, just as the useful tools and machinery themselves are called capital.
Naturally, the added efficiency is only “profit” in so much as it saves more labor and resources than it cost to build the tool in the first place.
It is crucial to understand that “profits” is just another word for, or more specifically a type of, benefit. That which is not profitable is not beneficial, for the very reason that the returns do not exceed the costs. Thus an unprofitable venture is one which should not be undertaken.
(This is not to be confused with “charitable” endeavors which more defines who is the beneficiary of the profits than the existence thereof.)
Profit is often confused with revenue or even net revenue by those who are not careful with their terminology.
Thus people find it politically expedient to excoriate a drug company for raking in billions of dollars on a drug they create without consideration of the billions they may have spent developing the drug, much less the billions they may have spent experimenting with drugs which did not in the end prove to be useful.
Moving from the simple to the complex, a machine is not a simple tool but the complex arrangement of a number of simple tools, a factory a complex arrangement of various machines, an industry a complex interaction of factories and businesses.
A simple person will look at a factory and say that, unlike the man who built his own post hole digger, the owner of that factory did not build those machines therefore does not “deserve” the profits from using those machines. This pseudo-reasoning conveniently ignores that the factory worker also did not build that machine he is employing, or that his increased wages are already in part attributable to his use of that very machine.
Indeed, as Adam Smith’s entire purpose was to note that the accumulation and development of capital, real capital not money, was the true and securest form of the wealth of nations. The wealth of a nation was more properly measured in it’s productive capacity than in it’s accumulation of money, gold, silver, art and assorted baubles.
True wealth lies in the ability of a nation to produce that which it needs to sustain itself and its people, to defend its sovereignty, to maintain its moral integrity. That to these ends the citizens’ ownership and stewardship of their own property and estates was naturally more effective and efficient than any government control or mandate could ever hope to be.
One is reminded of the aftermath of The Great War where the factories of a defeated Germany were carted off lock, stock, and barrel to the newly formed Soviet Union as part of their war reparations, which left the Weimar Republic economically a hollowed out shell industrially speaking. It was only with great effort and sacrifice that they retooled and rebuilt their manufacturing machinery, their capital stock.
Contrast the plight of Germany with America during the Great Depression where the machinery and factories were still in place but had been “mothballed”, i.e. left idle, due to economic conditions of the times. It was to this unutilized industrial capacity that America had recourse during the war, the “waking of the sleeping giant” as Hollywood would refer to it in later movies.
Four score years later, America has exported much its own manufacturing base to foreign nations in pursuit of cheap labor, hollowing out its own industrial capacity, in pursuit of some new age economists ideal of a “service based economy” becoming much like the maligned Spain of Adam Smith’s day having money and wealth but devoid of the productive capacity which is the true strength of a capitalist society.
After all, what is a “capitalist” society which has seen fit to expatriate most of its capital? Have we traded in true wealth for the illusion of wealth? People often complained of foreign owned factories in America, but in the unfortunate event of a war, those factories were on American soil and could be used by us. Foreign ownership is less of a threat than an actual lack of physical capital.
Turning back to the modern political climate, while our manufacturing base has been starting to return and grow as the result of recent political changes, it has some way to go to rebuild the strength of our nation as the current lack of medical supply and drug production has shown.
Further complicating matters are universities pouring forth young people steeped in cultural Marxism who, in the grand tradition, do not understand the meaning of the word “capital” as they disdain and dismiss the very capitalist system in which they live, politically attacking wealth disparity and “big” corporations. (That is not to say that wealth disparity and overly large corporations may not be detrimental, but for entirely different reasons than they are currently espousing.)
This misdirection of the “deserving” of the profits of the factory tools is abstractly an indirect attack on the very concept of inheritance itself. (Even though much of the profits come from the organizational capital of the industry and not the physical capital, but that level of complexity confuses such proponents even more.)
For they imagine we would not have industrialists if they had not inherited as least some fortune from their parents to build into ever greater fortunes, on the childish belief that everyone should start life with the same quantity of wealth as if it were the beginning setup of a board game.
So let’s go back to the primitive technologist, the man who built his own stone axe. If he owns that axe, does he have the right to leave that axe to his children? If so, those children start their life with more capital than their neighbors. We immediately have wealth disparity. Egalitarian utopia is ruined.
Without that inheritance, men lose the incentive to create and invent if they can not bequeath their possessions to their heirs, to favor their own. The man who inherits the factory did not do so based upon merit, so it is foolish exceedingly to deride him for lack of merit.
Yet without inheritance itself, there is no reason for that factory owner to preserve his capital, commission new equipment to be built, to maintain or expand his business if his children may not inherit anything from him. He’d be better off letting that factory fall into ruin as he spends his time and money on frivolity.
