Intelligent people, some with degrees in economics, have often told me that their perception of capitalism is an economy characterised by “growth”. They give examples as to how it is expected that the stock market indices will increase and the value of share portfolios will enlarge with time. If that thesis is to be sustained, it is a pathway to null. It cannot be expected that any arena or community will continue to “grow” indefinitely. Of course, there are various tricks of numbers, such as progressive capital devaluation where numbers increase, although value does not. This will also conflict with the concept of “wealth” which can only occur via a parallel increase in “poverty”.
A very different view of capitalism will accept that growth is a component, but it is only a component as far as individuals are concerned. Capitalism is intimately related to ownership and the accumulation of individual “wealth”. Now let’s go back a step or two and look at what capitalism, and its twin; industrialism aim towards. That aim is to provide the individual with the comfort of perennial shelter, consistent security, adequate food and sustained health. Each of these components requires a material infrastructure – whether it is housing, a system of law, scientific agriculture, or the capital and intellectual equipment of medicine. But the key to capitalism is at the level of the individual, which is often forgotten. Recent issue of the Economist headlined “Europe’s other debt”. What did this mean? The first debt, from the economist point of view was the date of governments, which has taken the headlines because of the high level of control that government has over individuals and their “wealth”. But the new discovery, by the economist, was the debt at individual level.
Capitalism is characterised by trust. In particular this is the trust that a service provided can be repaid years ahead. This forms the foundation of banking and the stock market [where the donation of money is entrusted to those who claim that money will be repaid – in the long term – with interest (dividends)].
It is this long term trust which enables capitalism, allows the building of infrastructure, and differentiates it from other forms of trade.
Capitalism also allows “super wealth”. This is unusual, and perceptions of it’s existance – amplified by the press – should not distort the arms-length view. This has only a minute effect on the overall economy.
A counter-current, the distribution and equalisation of wealth – will be discussed in anothe post.