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by Peter A. Belmont / 2011-09-22
© 2011 Peter Belmont
The capitalist system came into being based on an assumption—long since raised to the level of an unquestioned and “unquestionable” (that is, ideological) truth—that there will always be a reasonable return on investment (ROI), that is, that money can always be invested at agreeable rate of interest.
Our system of pension funds, mutual funds, etc., are based on this assumption. My assumption that my IRAs and 401(k)s will sustain me in years to come depends on this assumption. Past earnings are “saved” in investments, not as cash.
If there is no return on investment—no profits of an enterprise—then there will be no dividends (traditional issuance of profits as “interest” return on investment) and no capital gains (latter-day re-investment of profits into growth of the enterprise in lieu of paying of dividends). Without profits (ROI), investments must lose much of their value, retaining only a share-interest in the value (on a hypothetical forced sale) of the assets of the enterprise.
In two separate ways, this assumption of an agreeable ROI is based on Ponzi-scheme-like arrangements. It cannot be sustained on arrangements which must ultimately (and perhaps rather soon) fail to perform as assumed.
First, it is based on the assumption that fixed wealth (the huge but finite world supply of fossil fuels) will forever be available, and at more or less the same production costs as initially experienced. Burning our finite supply of fossil fuels to supply ROI via fuel-burning industries is Ponzi-like in that earlier investments (the laying down of the fossil fuels came long ago, even if no humans were responsible for them) are used to pay out ROI on current investments.[1]
The capitalist system came into flower largely due to the discovery of coal and oil, and, later, natural gas, as fuels and chemical feed-stocks both abundant and cheap and easy to extract and transport—forming, it was thought, a dependable basis for a manufacturing regime capable of constant growth without limitation of time. (Ask yourself when anyone said, “Capitalism is just great, wonderful really, and will last until 2050.”)
Second, capitalism is based on the idea of constant “economic growth”. “Economic growth” was always a mysterious and undefined abstraction for economists, but in practice it has always meant making more things, making more consumer goods, building more factories, and as a justification for all this making, also making more people.
This dependence on population-growth (“market-growth”) assumes that the world can sustain more people without limit.
But world over-population is already a fact, and becomes more so every day that passes. Food-supply limits human population as also do ability to transport and pay for food, etc. Food-supply depends on the availability of energy for transport of food-stuffs and, increasingly, as feed-stocks for chemical industries producing pesticides and fertilizers[2] (see first topic, above) and depends on the supply of water. As human populations aggregate in cities (because the business of food production has been so thoroughly mechanized that farm-labor is less required, dense populations become more susceptible to diseases and indeed produce new diseases where the dense over-concentration of chiefly poor people make a manufactory for new and evolving diseases, and particularly for antibiotic-resistant strains of disease organisms.
Water supplies come under attack from chemicals from run-off from farms, where large amounts of chemicals are frequently used as pesticides and fertilizers, from manufacturing where chemicals as undesired side-products are flushed away as waste, and from extractive industries (uranium, shale oil, tar-sands oil, gold, as examples) where chemicals are used to separate the desired extraction-item from other substances among which they are found. These wastes poison water supplies and thereby (in effect) make clean water (poisoned by industrial operations) a (possibly) unintended feed-stock for the industrial operations, and, indeed, a feed-stock for which the industrialists are not in general required to make payment.
Today, the price of oil and natural gas are rising, spectacularly, due to over-use of finite supplies.[3] This reduces profits of enterprises which use these fuels and looming increasing scarcity (together with ever-increasing demand due in large part to the huge world population) promises to show up for all to see the Ponzi-like assumption of ROI for the enormous capital (or, rather, “money”) supply of the world.
And what of global warming? Climate change promises to alter agricultural productivity world-wide, improving some and reducing other. Fiercer and fiercer storms are promised and recent hurricanes experienced in the Eastern and southern USA suggest that much worse (with enormously expensive recovery requirements[4]). Moreover, since the “recipe” for avoiding the smaller-and-smaller-but-still-avoidable ravages of climate change is a recipe for the ENDING OF USE OF FOSSIL FUELS. If this recipe were to be followed, even a little bit, the effect would be just as if the price for those fuels had gone way up. Or as if they were running out much sooner than had been anticipated.
A word about “money”. I don’t know what money “is”, today. Once it was gold. For a while it has been paper money. Today, what with the shenanigans of the big banks and big governments, “money” would seem to be nothing other than entries on computer files, and growing “like topsy”. [5]
Let’s look at this growth. Imagine the entire world supply of money on 1/1/2011 is “C” (for capital). Imagine that it is invested at an average interest rate of 5%. Then, on 1/1/2012, the world supply of “money” will be (1.05)C. On the same assumption, on 1/1/2013 the world “money” supply will be (1.05)(1.05)C. And so on.
If the value of “C” is 100 trillions of “dollars”, then the annual increment for 1/1/2012 would be 0.05 * $100,000,000,000,000.00 which is 0.05 * $5,000,000,000,000.00 ($5T). A lot of money.
Were factories built which captured this enormous wealth? I doubt it. Whatever “growth” is, there’s been very little of it outside China-India-Brazil.
My guess is that the desperate gambles represented by all the recent banking shenanigans (betting on interest rates with uninsurable interests insured by insurance companies lacking funds (wealth, money) to pay off losses, known-to-be-bad mortgages being sold to gullible investors, etc.) are, to an extent, due to a NEED for ROI in a world increasingly unable to provide it.
All that money with no place to go other than a mattress. Do they make mattresses that large? Ooooh, lumpy!
No wonder the USA’s central bank, the “Fed”, charges 0% for loans to its preferred customers, the big banks such as Goldman Sachs from which the Fed’s officers have largely been chosen (or is it “by which”?). They cannot get return on money they hold, so could not afford to borrow from the Fed at any interest higher than 0%.[6]
Of all the ridiculous insurance schemes on offer today, the stupidest is the agreement by governments to bail-out banks. Capitalists are supposed (by book-theory-of-capitalism, if not in practice) to RISK their capital. If they guess wrong, they lose it. Why on earth should the government get into the insurance business, especially when it charges NO INSURANCE PREMIUMS for this insurance? It’s like insuring housing in frequent-flood plains. Stupid.
But whether sensible or not, governments in the USA and in Europe do bail out banks. Probably not because they believe it makes good economic sense, but simply because the Congresses and Administrations have been bought and paid for by the big banks. After all, economic theory is so harad to understand that even economists cannot understand it. Who would expect Congressmen and Presidents to understand it? No-one. But the corruption of large campaign contributions is so simple to understand that any congressman or President can understand it in a New York minute.
Meanwhile, due to unchecked but nevertheless unsustainable human population growth, due to the in-fact finiteness of the world’s fossil fuel supply, and due to the necessity imposed by climate change for the world to cut back (and cut down to zero) its burning of fossil fuels long before they actually run out, the Ponzi-like arrangements which seemed for so long to justify an economic system based on ROI and growth are called into question.
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[1] This is similar to the Ponzi-like exhaustion of aquifers which is occurring due to massive overuse of water world-wide.
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[2] The growth of corn and soy and wheat have sometimes been called a biological manufacturing process whereby petroleum is transformed into grain.
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[3] Not only is the total reserve of fossil fuels finite, but the amount that can be extracted and transported in a unit time is also limited.
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[4] recovery becomes especially difficult as the very, very rich in the USA and elsewhere have managed to insulate themselves from the possibility of being required to pay a fair share, or even any share, of the costs of government.
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[5] But ehatever “money” is, today, people who own it still desire a ROI, and the worst outcomes of this desire arise from the modern capitalist inventions, Research now shows the uprisings in North Africa and the Middle East this year were triggered by spikes in global food prices fueled by speculators betting on the price of agricultural commodities. * * * This financial speculation was made possible thanks to market deregulation under the Commodity Futures Modernization Act of 2000, the same legislation that introduced obscure financial derivatives like “credit default swaps” into the American lexicon and ultimately caused the collapse of mortgage and stock markets in 2007 and 2008.  Commodity Traitors: Financial Speculation on Commodities Fuels Global Insecurity
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[6] Nevertheless they seem to make handsome profits. Something wrong here. Is that “wrong” my arithmetic, my reading of the situation, or evil?
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