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The economic system called capitalism

14/10/2013

The economic system called capitalism, is based on capital looking for ever growing yields in form of interest, rents, dividends and other forms of capital gains payed out of profits. But increase in profits needs continues economic growth. Since the management is always in the hands of the capital barons, the bankers or the equity investors and their representatives, they created an economy with continuos necessity of profits that demands continually production volume growth. (By the way, when it was in the hands of the “workers representatives”, they performed even worse results. They tried to replace the representatives of the capital in management, denying the need to have their skills and refusing to implement their knowledge earned after centuries of experimentation).

The result is an economy with drive to produce more and more with increased production efficiency and profits. Increased production efficiency means to produce with fewer and cheaper labor. But then the major share of the demand for increased production volume of consumers goods should come from the employees, after all the capital owners are only a very small minority. But the employees income is in stagnation or even in decline. At beginning the system tries to overcome this problem by creating seductive advertisements to increase artificially consumers demand. When all the tricks of the marketing “experts” are exposed, and stop to be efficient, the system turns to another tool, easily approachable consumers credit. But credit is debt, and if most of the borrowers are the employees and their income is in declining trend, it necessarily will create a crisis. And here comes the most common secret lie of the economists. They call private dwelling purchase an Investment and not a Consumption. This gives to the banks full legitimacy to lend almost unlimited loans in form of mortgages. The returns of these loans is not based on income created out of the premise but out of employees, wages. And the poor employees, who feel great to be an “Investor”, since they know very little about profits, yields, interests etc., unless he is an economist, but even then only if he doesn’t live life of self denial, as most economists do. They believe they had became property owners. Capitalists. But their “investment” in dwelling is not a yield creating investment. It is just an another consumers product giving no return, unless the owner gives it for rent. But then he himself has to become homeless to generate net income out of his possession. (Subject to understanding that it is his only possession, otherwise the dwelling purchase would be a real investment). What is even more disturbing, his wages (in average) is in decreasing trend.

And here you have a perfect scenario stage for the next economic crisis.

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