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Ways out of the capitalist rabbit hole



The great intellectual vice of modern economics is to create the delusion that transactions are real, and everything else — you know, reality itself — is slightly less so. It has, bizarrely, made us victims of a tool, money, which we ourselves created. Understanding that mistake is crucial if we are to escape the Alice in Wonderland rabbit hole we have jumped into.

Alice in Wonderland artwork featuring Cheshire Cat grinning in a tree. (Credit: ma_rish / Getty)Money should serve, not rule. It is an essential instrument, but that is all. Recognising that financial systems are a human creation rather than natural systems governed by 'capital flows' — and all the other second rate nautical metaphors that economists are so fond of — would be an important step to conceiving a more robust and equitable system. To ask what kind of society we want and only then work out what we want money to do for us is to put the horse back in front of the cart.

Even critics of capitalism fall into the error of treating transactions as the primary reality. It is routinely claimed that the capitalist system is unsustainable because it relies on endless growth (by which is meant consumption) in a world of finite resources. This is misleading. Capitalism relies on growth in transactions, and transactions are not the same thing as consumption. Financial activities, for example, are transactions but consume few resources; they are usually small bits of digital information. Paying for a service like physiotherapy involves a transaction but no significant consumption of resources need occur.

Because of increased efficiency in primary industry and secondary industries there has been a shift in developed economies towards services and so called 'knowledge industries' (which do not operate on scarcity because knowledge can be sold or shared without being lost to the owner). It has led to dematerialisation, suggesting that if there is over-consumption of resources it is because we have designed systems predicated on creating waste. It is possible to reconfigure that, have a system in which transactions go up while depletion of finite resources declines.

Another myth created by contemporary economics is the claim that markets are always, ipso facto, right, and if only governments would get out of the way then people would self organise into a materialist utopia. Like all the better deceptions, it has a kernel of truth. Markets do self organise, and they do seem to have a collective intelligence that exceeds the sum of the parts. They are, at least at a local level, social activities that for the most part create a general good.

It is also true that governments can be insensitive to collective or individual interests and create inefficiency due to excessive bureaucracy — although anyone who has worked in a corporation knows that this is not unique to governments.

Yet when claims about the timeless, unassailable benefits of 'free markets' are put under a little scrutiny the intellectual sleight of hand becomes clear enough. Markets are not a defining feature of capitalism; they have existed for thousands of years. Modern capitalism (whatever that is, exactly) has existed for a couple of centuries at most.


"We have been deceived by nonsensical or inaccurate economic theories into believing that something we created, money, is the primary reality."


Likewise, the neat dichotomy of markets versus governments is either weak or deceptive. It is true that some market behaviour is self-organising, but markets also need externally set rules to work — that is, government.

In financial markets, which consist only of rules, this is even more the case. Government provides the essential foundation of rule setting, even when, as happened in the lead up to the global financial crisis, private traders and banks, using the con of 'financial deregulation', were allowed to invent their own rules of money. That governments were subsequently blamed for the GFC shows just how far we have fallen down the rabbit hole.

Another myth is that capitalism is based on free markets. Globalised capitalism, which is probably more accurately described as 'corporatism', is a long way from the kind of freedom that Adam Smith envisaged. They are oligopolies that control markets with a blizzard of manipulative techniques, many of them 'extra-legal' (that is, governments are outplayed).

A measure of just how weak governments are, is that about eight per cent of global wealth is held in offshore tax havens. The scam called transfer pricing, whereby global companies report profits in places where there is no tax in order to avoid paying tax where the profits have been actually earned, is so intense that intra-company cashflows reportedly account for more than two-thirds of cross-border trade. That is, a substantial part of so-called 'trade' between countries is just big corporations manipulating their internal accounts.

We have been deceived by nonsensical or inaccurate economic theories into believing that something we created, money, is the primary reality. It has made it harder to see the growing fragility of modern economic systems, and the need to come up with something new.



David JamesDavid James is the managing editor of businessadvantagepng.com. He has a PhD in English literature and is author of the musical comedy The Bard Bites Back, which is about Shakespeare's ghost.

Main image credit: ma_rish / Getty

Topic tags: David James, capitalism



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Existing comments

Incisive article except the last paragraphs. Government's are the worst behaved enterprises controlling certain markets with a blizzard of manipulative techniques, many of them 'extra-legal' e.g Qld government controlled power stations. Its not the governments who are outplayed, but we the consumers / citizens. Regards Joe.

Joe Sicher | 22 October 2019  

Excellent article. A complex and touchy topic, but this is very well articulated. The point teasing out growth / transactions / consumption is spot on (free market/enterprise systems are not the same as the current unsustainable & short-sighted system of global capitalism or as your say corporatism). Thanks for providing the wording to explain it to those not from a financial background.

Megan G | 23 October 2019  

As always, enlightening and jargon free. Greed is hard to regulate.

Steve sinn | 23 October 2019  

David, I wish I had learnt this when I did Economics 101 in first year Uni. I think it would have summed up nicely why I decided that Economics was voodoo science ! I crossed to more practical science based subjects in second semester. It never fails to amuse me why the commentators ascribe human emotions to the Market gyrations!

Gavin | 23 October 2019  

Its not so much governments being outplayed but governments taken over by 'corporatism' and therefore being complicit. If governments try to establish regulations or enterprises to support the public good then those enterprises are nobbled or weakened so they will fail and then be outsourced or privatised and the regulations watered down. Consumers become the losers every which way.

Peter | 26 October 2019