Capitalizing the common wealth
"Capitalism" is a free-market economic engine based primarily on Adam Smith's "The Wealth of Nations" theory that the common wealth (i.e., the combined wealth of a nation) is best produced by each individual pursuing his (or her) own interests. This theory was disproved in 1949 by Nobel Prize winner John Forbes Nash, who showed mathematically that the common wealth is best produced by each individual pursuing what is in his own best interest and what is in the common interest ~ that is, that Ayn Rand-style unrestrained "free enterprise" is not the "magic formula" for the creation of wealth. Nash's theories have been applied by the US government and large corporations to tremendous profit, but insufficiently to eliminate poverty in America, as could easily be done were the primary "producers of wealth" to actually include "the common interest" (or "the public interest" or "everyone's interests") in their "capitalism." This means that Adam Smith's theories continue to be primarily influential in America's economy, and in every other national economy including those that have "socialized" many subsistence functions (welfare, medical care, etc).
Karl Marx, in his "Das Kapital," analyzed Adam Smith's "Capitalism" and showed that market forces would cause periodic disruptions ~ today called "inflation" and "depression" ~ that would dispossess wage slaves, reduce the middle class, and lead to serious "contradictions" between the haves and the have-nots. He theorized that this would polarize society between the owners of capital ("capitalists" and "petit bourgeois" ~ small business owners) and the workers ("the working class"), leading to dispossession of the owners and a socialist society in which "from each according to his ability and to each according to his needs" would form true communism. This was the basic theory, to which Lenin and Trotsky added "activism" ~ organization of the laboring classes to accelerate the downfall of capitalism ~ and the theory of "permanent revolution" ~ that as each ruling elite, after overthrowing its predecessor on the road to true communism, it would become a new "owner class" and would need to be overthrown in its turn by the "have-not" classes.
But human nature shows us that people strive to acquire what they want, and that desires and ambitions ~ as well as abilities ~ differ. This is what creates the "haves" of any society ~ people who devote their efforts to their wants and desires, who produce more than they need to "get by." And as they succeed, they enrich not only themselves but also others. This is the way human beings are built: to "produce, proliferate, and partake as you please." We produce more than we consume, we reproduce faster than we kill each other off, and we do what we want. This is why "communism" is not in harmony with human nature.
But neither is unrestrained free market capitalism, as Marx showed in his analysis ~ although his "resolution" of capitalism's "contradictions" was erroneous.
When we produce more than we consume ~ individually and collectively ~ we call the excess fruits of our labors "profit." Some of it goes into comforts beyond the necessities of life, some of it goes into increasing production, or "capital." It is this excess "profit" that increases the "common wealth," and it is unique to humanity ~ we are the only creature able to provide the necessities of life for each and every member of our species, through our cooperative enterprise.
But in human history, these "profits" have not become the "common" wealth, but have been kept ~ not unreasonably ~ by those more capable of producing profits. This is what drives the "free market" economy of "capitalism," that profit motive is what makes it successful. People work to reach prosperity, and produce prosperity.
But prosperity also produces poverty. This happens in two ways:
First, not everyone has the same capacity for production, we are not all the same. And as industrial production came into being, with factories produced by the investment of "capital," the means of production changed ~ labor became, instead of the primary source of wealth, a "factor of production" that the owners of factories purchased from the workers ~ their time and labor. (It was the "ownership of the means of production" (i.e., the capital that built factories) that was the focus of Marxist theory.) Poverty was created by the fact that the ways in which an individual could produce the necessities of life for his family became fewer and fewer, with "jobs" ~ selling labor ~ becoming predominant. Since "labor" required a buyer, and "capitalists" needed to buy as little as possible as cheaply as possible in order to make a profit, the number of "jobs" available never did match the number of people trying to sell their labor, which drove down the price of labor. And because the "profits" of industrial production were the property of the business owners, those without either jobs or some other means of production were left behind as the owners and workers moved toward prosperity.
Second, as those "haves" gained in prosperity, prices rose, and the cost of living along with them, and some of those who had jobs could not keep up.
Invariably, when a society increases in prosperity, there are those "left behind" through no fault whatever of their own, it is just the way the free market economy works.
But continued prosperity requires growth, which means new businesses, new production, more people joining the prosperous classes, and new "entrepreneurs" ~ people who have ambitions and desires and the capacity to produce goods or services at a profit. Obviously, people below "the poverty line" do not have the capacity to catch up, let alone lead.
This is the meat of the economic theory of John Forbes Nash, who said that the common wealth is best advanced by people pursuing their own interests and the common interest. Poverty, which is produced by prosperity, also destroys it.
The solution that has worked in human history is to recirculate capital to the bottom of the economic order. This has been done by collecting a small percentage of fixed capital ~ the capital that produces wealth, like agricultural real estate, factories and their tools and machines, forests and lumber mills, the things that people or corporations own that are the means of production ~ and using it to raise people out of poverty by capitalizing new businesses, providing people with new jobs, funding their schooling or medical care or even their subsistence, in order that they might be able to become productive. In history, this worked to completely eliminate poverty in a federation of nations across the Eastern Hemisphere in about the Ninth or Tenth Century (when Europe was in the so-called "Dark Ages"), so that when the funds were collected across the continents, there was no one who was poor enough to qualify to receive them. Instead, those funds were used to establish the world's first teaching hospitals, pharmaceutical sciences, and other medical advancements that we are still using today.
Today, what we have is taxation of individual incomes (income taxes), of individual homes (real estate taxes), of market transactions (sales taxes), of the cars we need to drive to work (vehicles licensing and gasoline taxes), and just about everything that moves or stands still, if it can be measured and recorded. When America was founded, there were import taxes ~ the Constitution forbade taxation of individuals ~ and the federal government had a budget surplus until the turn of the Twentieth Century. Since the institution of the income tax, the federal government has had an increasing "national debt" and income taxes go to pay the interest on it. This is the result of Adam Smith's theories of "capitalism" and a failure of American business ~ the most powerful and wealthy on the planet ~ to pay the dues of prosperity, which is to distribute the common wealth sufficiently to eliminate poverty.
Communism is not the solution, and neither is unrestrained free market capitalism ~ the wealth that moves invariably to the top of the economic pyramid must also move to the bottom, or the pyramid's foundation will erode like sand in the tide.
That's the premise underlying America's "welfare" programs ~ without customers, businesses will fold up and close their doors. So following the economic theories of John Maynard Keynes, the "New Deal" that brought America out of the Depression included "transfer payments" to poverty-stricken and suddenly unemployed populations across the country, so they could "prime the pump" and get the economy moving again.
It was enough then, but it never went far enough ~ and it's too little today. The dollar is losing value, jobs are being shipped overseas, the middle class is shrinking as fast as the glaciers if not faster, and the disparity between the "haves" and the "have-nots" is increasing daily.
But the system of recirculating capital can operate at the local level, in individual communities, small towns, church communities ~ anywhere that people decide to "take care of their own" and set out to do it together. It works.
Capitalism and communism don't work.
That's a considerable difference.
