Historical ‘Capitalism’ is Over and Done – Why?


The core principles of Capitalism have vanished from America and we now live with ‘transition’ economics…which will change our Nation and World going forward! What do I mean?

The foundations of Capitalism are based on core concepts and principles. These core concepts and principles have been replaced with a whole new set of realities. All the underlying philosophy of Capitalism has vanished with our new technologies and new centralized polices…which have emerged in recent years.  Also, our world has become globalized and interconnected to a degree never before witnessed as a result of our global internet and communication technologies. These changes mean that we now need a new SYSTEM for our planet going forward. Let’s review and think about what all this means and what has caused these new realities. Capitalism has evolved into a ‘counterfeiting’ scheme. History reveals what has happened.


First of all let’s review the philosophy which underlies Classic Capitalism so we can understand what has changed. Classical Capitalism was based on the philosophy of ‘materialism’. Materialism is a philosophy which ignores the primacy of the human mind and spirit and focuses on physical goods and material wealth as the key reality. Our American economy started with the philosophy of Adam Smith, a Scottish philosopher, and the ideas of our Founding Fathers. Adam Smith’s primary focus was upon growing material wealth for our country (and all nations) and expanding material prosperity for America and the World. Our Founding Fathers recognized that this philosophy was right for America and our Westward expansion. This meant that most American philosophers focused on the ideas of materialism and resource development as primary goals and fundamental realities.

Free and decentralized markets were central to this material philosophy. Open competition and decentralized markets allowed for the human spirit to pursue their creative passions. Smith envisioned material growth and wealth creation as our main goals and objectives. The American Dream was to be accumulation of material goods and material prosperity. Central to this Classic Capitalism were the concepts of ‘value’ and ‘money’. Value was perceived as inherent within the wealth that was created and then exchanged in the marketplace. Value was also viewed as an ‘objective’ concept and a thing which existed within the goods produced. The economists who espoused this theory of value for our country all viewed material goods as items of value. Wealth and money accumulation were goals that fit our character and destiny. All this seemed logical and relevant for this period of our history. The ideas of Central administration of our money, wealth, and growth was anathema to the philosophy of Classical Capitalism!

This philosophy of ‘value’ was derived from such prior thinkers as David Ricardo, John Locke, Thomas Jefferson, and then Adam Smith with his book called the ‘The Wealth of Nations’ (published in 1776). Classical Capitalism needed ‘money’ that was material in substance and which would create this mindset of having ‘value’ intrinsic within the goods produced. The Labor Theory of Value created this mindset of inherent/intrinsic value. Later, such thinkers as Karl Marx reinforced the idea that ‘value’ was present within the material wealth produced via Capitalism. Most of our key leaders after our founding in 1787 reinforced this idea of wealth creation as our primary goal and objective within economics. And ‘money’ was the tool which everyone needed to pursue to obtain wealth and prosperity. Silver and gold played a key role in giving our money this material substance and intrinsic value perception.

Additional thinkers from the Austrian School of Economics reinforced the core principles of Classic Capitalism with a major twist. Carl Menger, Ludwig Von Mises, and Frederick Hayek all promoted free market Capitalism with the understanding that ‘value’ was subjective (an internal/personal judgment) rather than being objective (intrinsic within goods). This change in the concept of ‘value’ was also mostly adopted by John Maynard Keynes and his disciples as promoted in Keynes’ General Theory, published in 1936. Value was mostly subjective and, therefore,  central administration was better than any type of fixed standard that tied money to silver or gold via a fixed definition with market convertibility. Keynes and his disciples prefered Central Bank administration and ‘central planning’ by the government over the decentralized markets promoted by Adam Smith and his disciples. Keynes also felt that full employment could best be monitored and promoted via central government policies. The market was much too uncertain and chaotic.

Austrian economists vs. Keynesian economists
Classical Capitalism lasted until the Great Depression of 1929-1937. With this economic depression came new ideas and a new deal for America and later the world. Progressive ideas emerged which desired to change our decentralized economic system. The big change that occurred just prior to the Great Depression was the passing of the Federal Reserve Act and then the Federal Income Tax. These changes and all the new ideas of John Maynard Keynes and his disciples provided the foundation for centralization of money creation and political power within Washington and the Central Banking institutions. Experts were now needed to administer and monitor the markets so that wealth and prosperity could be managed by these experts. Banking experts and finance experts were key to allowing our political leaders to control future trends and directions via debt and borrowing.
The philosophy of Classical Capitalism was based on the idea that ‘supply created demand’. Decentralized markets and stable prices via a silver and/or gold standard were essential for these decentralized markets. However, with the economic crash of 1929-37 and after the new concepts of Keynes emerged as central doctrine. The philosophy of Keynes presented the new idea of ‘demand creates its own supply’. And it was the responsibility of the central administers of demand to monitor money and finance so that wealth creation could be restarted and maintained. The Government and our Federal Reserve banking system needed to be in control of the markets via their centralized management policies. Business cycles must be managed by these experts so that full employment, stable prices, and material prosperity could develop.
Then with the success of America after the Second World War, America and the American Dollar were supreme globally. Also, America had some 70% of all the official gold supply within their possession (700 plus million ounces in 1944). This situation allowed the United States of America to become the Banker for the World via our dollar policies and the confidence given to us from having all this gold within our possession. We used this new status to create our ‘dollar’ as the reserve currency for the World and even backed up this currency by defining our dollar in terms of gold for all foreign Nations. Our dollar was as ‘good as gold’ and our control over the global markets and prices allowed us to borrow and spend with few international consequences. We could now create the American Dream for all Americans as we consumed, spent, borrowed, and expanded our Empire.

All this expansion and control lasted until the mathematics of Keynesian economics reached is threshold level (2008-2012). The consequences of Keynesianism were positive as long as we could borrow, spend, and service all our debts. Demand management was right for economics and politics. But this philosophy of Keynes and his disciples has now reached a threshold level (mathematically) which now prevents further expansion and growth. DEBT has become our Achilles heel. See this website: www.usdebtclock.org. Keynesianism worked great as long as confidence in our dollar was strong and our borrowing was limited and serviceable. Math and objective formulae seemed to work as Models for continuing prosperity and growth.

The CRASH of 2008 brought an AWARENESS to many that the Keynesian Model was bankrupt. According to Keynes and his disciples debt was positive and good and centralized management produced the prosperity that politicians and the bankers desired. In the ‘long run’ we are all dead…said Keynes, so let’s create a now society of consumers, borrowers, and spenders. Borrowing and spending will create more Demand…and Consumption will create our prosperity (the American Dream). We have now re-elected Barrack Obama for a 2nd term with his socialistic model of big government and centralized monetary policies. Will any of this philosophy work going forward? I don’t personally think so! DEBT is our problem today and DEMAND is waning as our baby boom society retires and downsizes. Tax revenues are declining relative to our huge government spending and borrowing. There is no solution to our problem. Some 40 cents of every dollar spent is now borrowed by our government. Go to:  www.usdebtclock.org for clear and convincing evidence.

So where are we going in 2013 and beyond? Can we reboot the Keynesian Model of borrow, spend, and consume? Personally, I don’t think so! We have reached a ‘cliff’ and a ‘threshold’ level. The Keynesian Model is mostly bankrupt and we now need to THINK in terms of a new economic model for our planet. Will the newly elected Obama (and his disciples) try to reboot Keynesianism with new stimulus, borrowing, and centralized spending? The coming days and months should be interesting to watch and contemplate. My sense is that the global markets will bring a halt to the idea that Keynesianism can be rebooted. A stock market decline and collapse is likely in 2013. This crash of our financial markets will change our leaders THINKING and cause them to refocus on our financial problems (unsustainable debt, deficits, borrowing, spending, and global manipulation).

The game of Keynesian economics which has now been practiced since the last Great Depression is about over. The model is bankrupt and the math is illusionary. Accounting gimmickry and QE counterfeiting will not lead to sustainable growth, full employment, or prosperity. We now need a NEW model and a NEW economic system for our interconnected and interdependent world of 7 billion people. The concepts which allowed Capitalism to flourish are now defunct and obsolete for this new world. We now realize that ‘value’ (the foundational concept of Capitalism) is psychological and we also recognize that our money unit is virtual and imaginary. These philosophical factors (along with a host of other factors) mean that Capitalism is basically OVER and DONE. Think about the underlying issues as you watch the markets going forward. All Systems have a life cycle! I AM:  http://kingdomecon.wordpress.com.

avatarDon Swenson - Kingdom Economics posted Wednesday, November 7th, 2012.

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