Old vs New Capitalism

[sparky]

Time again for Coolidge Capitalism?

The debate among the Republican presidential hopefuls over the role of capitalism in our society is likely to be a faint foreshadow of the contest this fall. President Obama cannot accept blame for the persistent recession and expect to gain re-election. His only rational option is to blame someone else. Pinning the blame on his predecessor worked for a while but he has realized that this will not be acceptable to the necessary number of voters come November. So the strategy is simply to blame the bad economy on capitalism itself.

And since every political enemy must have a human face, the culprit will be personalized as capitalists. His policies over his first three years in office are consistent with this view, with the exception of his total failure to investigate and hold to account the individuals criminally responsible for the financial crisis that shortly preceded his taking office.

In one sense blaming capitalism for the recession is correct; business cycles are a necessary part of the process by which innovation and productivity are advanced and inefficiency is reduced. And the financial crisis that triggered the retreat was arguably the result of capitalistic greed and regulatory myopia. But the prolonged nature of the current recession could legitimately be placed at the president’s feet. However, as the even the communist Chinese have learned, the cure of this nation’s economic ills is the very thing the president is poised to demonize – capitalism.

The question is will capitalism have an advocate in the fall debate? In today’s society where public understanding of these principals is at an historic low, will anyone articulate the truth, and do so in a way that is both comprehensible and compassionate? Anyone so inclined would be advised to review the words of our 30th president.

Calvin Coolidge was an unabashed capitalist. He consistently promoted unencumbered commerce as the machinery through which society’s ills would be repaired. But he was careful to distinguish between means and ends: He wrote, “Of course, the accumulation of wealth can not be justified as the chief end of existence. But we are compelled to recognize it as a means to well nigh every desirable achievement. So long as wealth is made the means and not the end, we need not greatly fear it.”


On January 17th, 1925, Coolidge addressed the American Society of Newspaper Editors in Washington, D.C. Out of nearly 2,500 thoughtfully prepared words, nine would come to define the Coolidge philosophy: “… the chief business of the American people is business.” For those of us too young to remember the twenties, we need only look back at the 1990’s to understand why these words resonated within their time. And why, given the perspective of the 1930’s, they were revised (“The business of America is business”) and scorned.

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Vermont Tiger: Presidents Day

~S~

 

[itfitzme]

Time again for Coolidge Capitalism?

In one sense blaming capitalism for the recession is correct; business cycles are a necessary part of the process by which innovation and productivity are advanced and inefficiency is reduced.

Tripe.

It is self contradictory tripe. If business cycles are a "necessary part of the process....." as part of capitalism, then the prolonged recession is a "necessary part of the process....." as part of capitalism.

Prove that business cycles are a "necessary part of the process....." Prove that innovation and productivity are only advanced and inefficiency is only reduced by the business cycle. That is what "necessary" means. It means required. As I recall the automated check out line was created back in 2005, that is innovation and efficiency. That happened before her recession, not as an effect.

Business cycles are not a necessary part of the process of capitalism. Capitalism is simply private property rights. Business cycles are an unfortunate side effect of market instabilities. Indeed, it was mechanization, the over abundance of agriculture that drove the Great Depression.

Feed back mechanisms have positive and negative feedback. Negative feedback stabilizes and positive feedback destabilizes. A dynamic and living feedback system, like the economy, changes the very nature of it's own feedback. When it gets into a positive feedback, like deflationary processes, it drives it self downward. Losing the productivity of 5% to 10% of the workforce isn't a part of the process by which innovation and productivity advanced and inefficiency is reduced. Innovation and productivity are advanced and reduced through competition. Eventually, competition catches up and becomes as productive, adopting the same innovation.

Business cycles are an unnecessary secondary effect of an unstable process.

How about "tornado's are a necessary part of they cycle by which poorly built houses are weeded out and demolished." Or that same for hurricanes. How about "cancer is a necessary part of life that eliminates people that are prone to cancer."

Utter bull shit.

 

[TakeAStepBack]

I agree with itfitzme on this one. The business cycle is a creation of monetary policies. It is not a process of which is inherent to capitalism. Or we would have seen the same constant bubbles during the classical gold standard. They are pleasantly absent during that time frame.

 

[itfitzme]

I was so depressed last night thinking about the economy, wars, jobs, my savings, Social Security, retirement funds, etc., I called the Suicide Hotline. I got a call center in Pakistan , and when I told them I was suicidal, they got all excited, and asked if I could drive a truck..

Except that never actually happened, did it?

Oh, I get it, suicide bombers. I thought the outsourcing the call center was the joke. Couldn't figure out what it had to do with truck driving school, or if it is some sort of hyperbole. It's a little funny, but then loses too many points on obscurity and racism (i.e. "Pakistani's are suicide bombers.")

 

[itfitzme]

I agree with itfitzme on this one. The business cycle is a creation of monetary policies. It is not a process of which is inherent to capitalism. Or we would have seen the same constant bubbles during the classical gold standard. They are pleasantly absent during that time frame.

I agree with itfitzme on this one. The business cycle is a creation of monetary policies. It is not a process of which is inherent to capitalism. Or we would have seen the same constant bubbles during the classical gold standard. They are pleasantly absent during that time frame.

That's somewhat amusing. Thanks for agreeing with me for the wrong reasons.

I already did this one in another thread. There were business cycles throughout the entire period that the US was on the gold standard. A gold standard does nothing but fix the price of gold to some ratio of the average price of goods.

Would you like to provide an operable definition of "classical gold standard"? I'd enjoy doing a proof on that.

A gold standard also limits monetary policy from maintaining price stability.

Busines cycles are not caused by monetary policies. Bad monetary management can allow price instabilities.

Business cycles are caused by systematic behavior of economic agents that drive the very process that they are intending to overcome.

Declining prices case consumers to hold back spending. This promts businesses to lower prices to entice sales.

In the case of the Great Depression, over abundance of agriculture depressed prices causing farmers to ramp up production to increase output. This just depressed prices further. Revenues were less then needed to pay back the yearly loan which then caused farms to fail. One would have only hoped that this would have simply shifted production from farms to other enterprises. Unfortunately, is caused a banking crisis. In the total scheme of things, the propagation of information was faster then many of the physical process could adjust.

In the case of the '07 recession, declining return on investment caused investors to abandon investment which drove return on investment down. Home owners, as consumers, seeing declining growth pulled back on spending. Businesses, seeing limited and declining growth began shedding workers. Rising unemployment drove demand downward, driving more businesses to shed workers. In the positive feedback, the system collapse.

Monetary policy isn't the cause of recessions. Recessions happen whether monetary policy exists or not. A declining money supply can cause a recession. If no monetary policy exists to mitigate declining money supply, additional recession will occur. If monetary policy doesn't maintain the correct money supply, recessions can happen. Monetary policy may allow them to occur or fail to stop them.

What is your idea, to not have monetary policy and just let it be random? Now there is an idea. Maybe we should get rid of stop light because they cause rear end collisions.

 

[editec]

I guess it must be Itfits' turn to bang heads withthe gold bugs.

We've seen this happen over and over again.

Gold bugs cannot be squashed by facts or reason.

Gold Buggery is a FAITH BASED economic theory.

Want to know where GOLD BUGS basic premise is wrong?

Ask them if gold has intensic value and that is why it is a good specie.

You see, they think units of measure of past work are real-er than the work that species represents.

They believe thast STUFF has value BEFORE humans give it value,

Basicially these people don't understand what money really represents.

 

[TakeAStepBack]

I agree with itfitzme on this one. The business cycle is a creation of monetary policies. It is not a process of which is inherent to capitalism. Or we would have seen the same constant bubbles during the classical gold standard. They are pleasantly absent during that time frame.

I agree with itfitzme on this one. The business cycle is a creation of monetary policies. It is not a process of which is inherent to capitalism. Or we would have seen the same constant bubbles during the classical gold standard. They are pleasantly absent during that time frame.

That's somewhat amusing. Thanks for agreeing with me for the wrong reasons.

That may be how you see it. Myself and a lot of others see it entirely different.

I already did this one in another thread. There were business cycles throughout the entire period that the US was on the gold standard. A gold standard does nothing but fix the price of gold to some ratio of the average price of goods.

No, the price of goods is determined by supply and demand. What the gold standard does is fix the money supply to not allow for artificial manipulation of the amount of notes in rotation. Better known as monetary inflation. When the supply is manipulated like we see today, all kinds of unseen consequences manifest. Like artificially low interest rates (creating cheap abundant credit) that spurred malinvestment as the catalyst to the panic of 2008.

Would you like to provide an operable definition of "classical gold standard"? I'd enjoy doing a proof on that.
Sure, I'll reply separate.
A gold standard also limits monetary policy from maintaining price stability.

Yes it does. Price is not best determined by money controllers. it is best determined by supply/demand and production.
Busines cycles are not caused by monetary policies. Bad monetary management can allow price instabilities.

Yes, they are. When you have a central bank that adjusts interest rates and attempts to price fix off debasement. You get consequences that happen in the form of bubbles and bursts. There are plenty of examples of this.
Business cycles are caused by systematic behavior of economic agents that drive the very process that they are intending to overcome.

Vague, but I'll concede to soem degree based on vagueness and interpretation of that. The question becomes WHICH economic agents.

Declining prices case consumers to hold back spending. This promts businesses to lower prices to entice sales.

Declining prices usually happen based on supply/demand/produciton/competition, under true capitalism. I would say that this statement would vary depending on much more than this easy presentation of held back spending.
In the case of the Great Depression, over abundance of agriculture depressed prices causing farmers to ramp up production to increase output. This just depressed prices further. Revenues were less then needed to pay back the yearly loan which then caused farms to fail. One would have only hoped that this would have simply shifted production from farms to other enterprises. Unfortunately, is caused a banking crisis. In the total scheme of things, the propagation of information was faster then many of the physical process could adjust.

That is pretty inaccurate. But not really something I cvan address ina few short lines.
In the case of the '07 recession, declining return on investment caused investors to abandon investment which drove return on investment down. Home owners, as consumers, seeing declining growth pulled back on spending. Businesses, seeing limited and declining growth began shedding workers. Rising unemployment drove demand downward, driving more businesses to shed workers. In the positive feedback, the system collapse.

That's not it at all. Not in the least. Interest rates were held lower, this, plus govt. policies in the areas of home ownership and commercial real estate, spurred borrowing and lending that exceeded true credit abilities. Driving housing prices up. When the interest rates turned higher, the lenders began to see borrowers unable to pay. Malinvestment became apparent (witht he help of federal backed loans) and lenders began packaging these into other securites in the hedging basket. Leadign to toxic securites in the market, losses from nonpayment, etc...

Monetary policy isn't the cause of recessions. Recessions happen whether monetary policy exists or not. A declining money supply can cause a recession. If no monetary policy exists to mitigate declining money supply, additional recession will occur. If monetary policy doesn't maintain the correct money supply, recessions can happen. Monetary policy may allow them to occur or fail to stop them.

Sure, when the monetary policy is to manipulate the supply. recessions will happen. It's a question of how long they last and what sparks the recession. Drought on agri-production as one example.

What is your idea, to not have monetary policy and just let it be random? Now there is an idea. Maybe we should get rid of stop light because they cause rear end collisions.

You're misunderstanding. There is a need for monetary policy. I'm not arguing with that. I'm arguing the TYPE of policy being used. But your sarcastic idiocy is duly noted.

I'll get to what a classical gold standard is after a bit. That's enough for now.

 

[TakeAStepBack]

I guess it must be Itfits' turn to bang heads withthe gold bugs.

We've seen this happen over and over again.

Gold bugs cannot be squashed by facts or reason.

Gold Buggery is a FAITH BASED economic theory.

Want to know where GOLD BUGS basic premise is wrong?

Ask them if gold has intensic value and that is why it is a good specie.
You see, they think units of measure of past work are real-er than the work that species represents.

They believe thast STUFF has value BEFORE humans give it value,

Basicially these people don't understand what money really represents.

Gold was money more than 6,000 years for a reason. I'm not going to spell it out for you. The intrinsic value, comes from several things about gold. It, like many items, requires labor to obtain, the energy from which all the market place derives from, being part of it. It's also, rare, maluable, almost indestructable, easy to recognize and impossible to counterfeit (unless based on purity).


I suppose everyone that came before was stupid and we suddenly figured it all out in the last 100 years. That would be why this entire system is facing a masssive collapse (Imm sure you'll disagree with that too). We see boom/bust harder and faster each time and the debasement of the money is a great thing. I really do not have an interest in arguing with people over gold in this thread. There are several like it.

You either understand that exchange medium arised naturally through human action/markets, or you believe that governments are the ones who decided it is a good idea. One is right, the other is wrong. Plain and simple.

 

[midcan5]

The debate goes on, but any reading of the economy before the gold standard was discarded proves the complete failure of that idea.

Good piece in February Harper's on contemporary market capitalism - not sure if available or for how long. Killing the competition: How the new monopolies are destroying open markets?By Barry C. Lynn (Harper's Magazine)


This looks interesting: [ame]http://www.amazon.com/Paper-Promises-Money-World-Order/dp/1610391268/ref=sr_1_1?s=books&ie=UTF8[/ame]


"Moreover, if we give the matter a moment's thought, we can see that the 20th century morality tale of 'socialism vs. freedom' or 'communism vs. capitalism' is misleading. Capitalism is not a political system; it is a form of economic life, compatible in practice with right wing dictatorships (Chile under Pinochet), left-wing dictatorships (contemporary China), social-democratic monarchies (Sweden), and plutocratic republics (the United States), whether capitalist economies thrive best under conditions of freedom is perhaps more of an open question than we like to think." Tony Judt 'Ill fares the Land'

 

[TakeAStepBack]

The debate goes on, but any reading of the economy before the gold standard was discarded proves the complete failure of that idea.

Yeah, no.

 

[DSGE]

In response to itfitzme on money and business cycles:

Yes, there can still be business cycles in the absence of money, but those are supply-side cycles (because Say's law holds). Changes in the productive capacity of the economy. But those kinds of business cycles are "real business cycles" (that is, not nominal). Real consumption, investment, output, employment, etc would fall, but there likely wouldn't be "unemployment" because the nominal rigidities that prevent labour market clearing won't be relevant. The presence of money allows for demand-side business cycles.


In response to TakeAStepBack:

You understand that a gold standard only has the potential to not result in malinvestment when banks are free to issue their own banknotes right? Changes in the relative demand for currency have exactly the same effects as changes in supply of outside money. If those changes aren't offset by endogenous changes in the nominal stock of currency (through banks issuing their own banknotes), the result is an interest rate either above or below the "natural rate" and the slow adjustment of prices to restore equilibrium.

An inflexible nominal stock of base money (constrained by a gold standard) creates malinvestment the same way an inflationary/deflationary fiat money policy does. So there are two options: 1) if we're to have a central bank the monetary base must be flexible. 2) allow banks to issue their own banknotes. But if we're going down the free banking path then it's a moot point since banks and consumers will freely decide what is to be used as reserves.

By the way, before you go ahead with any "oh you monetarists blah blah blah" comments, this is straight out of George Selgin's The Theory of Free Banking.

 

[TakeAStepBack]

Itfitzme, here you go. I am trying to cram in some work before the holiday weekend so i don't have time ot run a dissertation of my personal understanding. I'll give you something to rip apart though.

The Classical Gold Standard, 1815-1914

We can look back upon the "classical" gold standard, the Western world of the nineteenth and early twentieth centuries, as the literal and metaphorical Golden Age. With the exception of the troublesome problem of silver, the world was on a gold standard, which meant that each national currency (the dollar, pound, franc, etc.) was merely a name for a certain definite weight of gold. The "dollar," for example, was defined as 1/20 of a gold ounce, the pound sterling as slightly less than 1/4 of a gold ounce, and so on. This meant that the "exchange rates" between the various national currencies were fixed, not because they were arbitrarily controlled by government, but in the same way that one pound of weight is defined as being equal to sixteen ounces.

The international gold standard meant that the benefits of having one money medium were extended throughout the world. One of the reasons for the growth and prosperity of the United States has been the fact that we have enjoyed one money throughout the large area of the country. We have had a gold or at least a single dollar standard with the entire country, and did not have to suffer the chaos of each city and county issuing its own money which would then fluctuate with respect to the moneys of all the other cities and counties. The nineteenth century saw the benefits of one money throughout the civilized world. One money facilitated freedom of trade, investment, and travel throughout that trading and monetary area, with the consequent growth of specialization and the international division of labor.

It must be emphasized that gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium. Above all, the supply and provision of gold was subject only to market forces, and not to the arbitrary printing press of the government.

The international gold standard provided an automatic market mechanism for checking the inflationary potential of government. It also provide an automatic mechanism for keeping the balance of payments of each country in equilibrium. As the philosopher and economist David Hume pointed out in the mid-eighteenth century, if one nation, say France, inflates its supply of paper francs, its prices rise; the increasing incomes in paper francs stimulates imports from abroad, which are also spurred by the fact that prices of imports are now relatively cheaper than prices at home. At the same time, the higher prices at home discourage exports abroad; the result is a deficit in the balance of payments, which must be paid for by foreign countries cashing in francs for gold. The gold outflow means that France must eventually contract its inflated paper francs in order to prevent a loss of all of its gold. If the inflation has taken the form of bank deposits, then the French banks have to contract their loans and deposits in order to avoid bankruptcy as foreigners call upon the French banks to redeem their deposits in gold. The contraction lowers prices at home, and generates an export surplus, thereby reversing the gold outflow, until the price levels are equalized in France and in other countries as well.

It is true that the interventions of governments previous to the nineteenth century weakened the speed of this market mechanism, and allowed for a business cycle of inflation and recession within this gold standard framework. These interventions were particularly: the governments' monopolizing of the mint, legal tender laws, the creation of paper money, and the development of inflationary banking propelled by each of the governments. But while these interventions slowed the adjustments of the market, these adjustments were still in ultimate control of the situation. So while the classical gold standard of the nineteenth century was not perfect, and allowed for relatively minor booms and busts, it still provided us with by far the best monetary order the world has ever known, an order which worked, which kept business cycles from getting out of hand, and which enabled the development of free international trade, exchange, and investment. [1]

[1] For a recent study of the classical gold standard, and a history of the early phases of its breakdown in the twentieth century, see Melchior Palyi, The Twilight of Gold, 1914-1936 (Chicago: Henry Regnery, 1972). Murray Rothbard

there you go. Have at it.

 

[TakeAStepBack]

But if we're going down the free banking path then it's a moot point since banks and consumers will freely decide what is to be used as reserves.

I agree with you DSG. I'm also 110% confident that the reserve will ultimately turn back to gold. I'd bet every penny to my name on it. It would take time, but that is exactly how we got to gold int he first place.


I'd liek to resign from another gold standard argument though. The business cycles are excaberated by the monetary policies of both the govt. adn the central bank. That was my main point of contention with the OP. Perfections in the market are unattainable. There will be down turns, the same as there will be upswings. The current situation is neither. it's a toxic mix of debasement and trade wars on the international market. In short.

 

[DSGE]

But if we're going down the free banking path then it's a moot point since banks and consumers will freely decide what is to be used as reserves.

I agree with you DSG. I'm also 110% confident that the reserve will ultimately turn back to gold. I'd bet every penny to my name on it. It would take time, but that is exactly how we got to gold int he first place.

Fair enough. Just seems kind of odd that people are always pushing for a gold standard rather than free banking. Who cares if gold or wheat or salt or fiat money are used as reserves? It just seems like people pushing for a gold standard don't care so much about monetary equilibrium and care more about satisfying their juvenile perception that unbacked money "isn't real".

I'd liek to resign from another gold standard argument though. The business cycles are excaberated by the monetary policies of both the govt. adn the central bank. That was my main point of contention with the OP. Perfections in the market are unattainable. There will be down turns, the same as there will be upswings. The current situation is neither. it's a toxic mix of debasement and trade wars on the international market. In short.

Well that's one of the things that irritates me. Everybody of the Austrian persuasion wants to talk about debasement of the currency. Money can be to tight as well as too loose. Hayek recognised that the Fed made the Depression much worse through pursuing tight money. Hayek and Selgin both recognise the importance of looking not at interest rates, but at nominal spending to assess the stance of monetary policy. Why is no Austrian (except Selgin) willing to admit that monetary policy is currently excessively tight?

 

[regent]

I guess it must be Itfits' turn to bang heads withthe gold bugs.

We've seen this happen over and over again.

Gold bugs cannot be squashed by facts or reason.

Gold Buggery is a FAITH BASED economic theory.

Want to know where GOLD BUGS basic premise is wrong?

Ask them if gold has intensic value and that is why it is a good specie.
You see, they think units of measure of past work are real-er than the work that species represents.

They believe thast STUFF has value BEFORE humans give it value,

Basicially these people don't understand what money really represents.

Gold was money more than 6,000 years for a reason. I'm not going to spell it out for you. The intrinsic value, comes from several things about gold. It, like many items, requires labor to obtain, the energy from which all the market place derives from, being part of it. It's also, rare, maluable, almost indestructable, easy to recognize and impossible to counterfeit (unless based on purity).


I suppose everyone that came before was stupid and we suddenly figured it all out in the last 100 years. That would be why this entire system is facing a masssive collapse (Imm sure you'll disagree with that too). We see boom/bust harder and faster each time and the debasement of the money is a great thing. I really do not have an interest in arguing with people over gold in this thread. There are several like it.

You either understand that exchange medium arised naturally through human action/markets, or you believe that governments are the ones who decided it is a good idea. One is right, the other is wrong. Plain and simple.

The debate is not the history of gold but business cycles and cause. I counted at least seven recessions during the classical gold period, but of course the period, or something, will now be changed. The problem is finding an amount of time long enough to be called a period or era with no recessions.

 

[sparky]

In response to itfitzme on money and business cycles:

Yes, there can still be business cycles in the absence of money, but those are supply-side cycles (because Say's law holds). Changes in the productive capacity of the economy. But those kinds of business cycles are "real business cycles" (that is, not nominal). Real consumption, investment, output, employment, etc would fall, but there likely wouldn't be "unemployment" because the nominal rigidities that prevent labour market clearing won't be relevant. The presence of money allows for demand-side business cycles.

had to look that up (thank you)>>>>

Supply creates its own demand - Wikipedia, the free encyclopedia

the best real world example is one i'm living now, wiring a shoping mall

it's lauded as Springfield Vermont's economic salvation by all the political windbags , of all stripe

this is Obama's shovel ready grants, your tax $$$ at work here

so now we've 400K sq feet of space to offer, mostly behind the town square, which has 4-5 empty 'for rent' store fronts as i type to you

so far, all they've got is starving artists looking to hawk their wares

~S~

 

[sparky]

Prove that business cycles are a "necessary part of the process....." Prove that innovation and productivity are only advanced and inefficiency is only reduced by the business cycle. That is what "necessary" means. It means required. .

oh , we could well debate the points you make Itfits , but we will most likely fall into the terminology vortex

biz cycle being inclusive of what?

for instance, are we talking a biz cycle of 1/4ly's alone, or all the mitigating factors involved? regulation, taxation, ad nasuem.....

~S~

 

[sparky]

Gold Buggery is a FAITH BASED economic theory.

A term on par with your Bankster quip Editec, sexual undertones completely fitting btw....

~S~

 

[sparky]

I was so depressed last night thinking about the economy, wars, jobs, my savings, Social Security, retirement funds, etc., I called the Suicide Hotline. I got a call center in Pakistan , and when I told them I was suicidal, they got all excited, and asked if I could drive a truck..

Except that never actually happened, did it?

Oh, I get it, suicide bombers. I thought the outsourcing the call center was the joke. Couldn't figure out what it had to do with truck driving school, or if it is some sort of hyperbole. It's a little funny, but then loses too many points on obscurity and racism (i.e. "Pakistani's are suicide bombers.")

consider it a biz cycle parody itfitz

~S~

 

[Douger]

I was so depressed last night thinking about the economy, wars, jobs, my savings, Social Security, retirement funds, etc., I called the Suicide Hotline. I got a call center in Pakistan , and when I told them I was suicidal, they got all excited, and asked if I could drive a truck..

Except that never actually happened, did it?

Oh, I get it, suicide bombers. I thought the outsourcing the call center was the joke. Couldn't figure out what it had to do with truck driving school, or if it is some sort of hyperbole. It's a little funny, but then loses too many points on obscurity and racism (i.e. "Pakistani's are suicide bombers.")

He could have called them goat fuckers
Muslim Statistics (Pornography) - WikiIslam) Braize Wally !