While I see the merits in our form of economics, I am also critical of it for ethical reasons. Being critical at all is immediately offensive to some, but permit me a moment to explain why I perceive it that way.
We live in a world that consists of three commodities: apples, oranges, and bananas. All involve a simplified production process of planting seeds, watering them, and then harvesting the crop. This society needs no other goods.
Initially, all three require the same amount of work per unit to produce, and society allocates an equal amount of land to each good. That is, one apple = one orange = one banana. The disadvantage is that I, a farm owner, can grow only one of the goods. I, for example, have only apples on my farm. Others in my area have oranges and bananas. I need some of those to survive/meet a desired standard of living.
Alternately, I have a surplus of apples that I do not need. My excess apples become a currency with which I might trade for the surplus oranges and bananas in my area. I could offer 3 apples for 3 of your oranges, etc.
However, let’s assume the seasons are also different. My apples are ready now, but your oranges will not be ready until spring. I can extend to you a credit for the value of my apples, provide them to you now with the promise of receiving their value in oranges later.
We might even exchange paper notes as a record of the value owed. In fact, perhaps I do not exchange for your oranges, but provide you the excess apples solely for the notes, which I can then use to purchase bananas from another party – paper money.
Here’s where it starts to get forked – suppose you really want my apples. I find a way to leverage my position and convince you that one of my apples is worth two of your oranges. They aren’t – the market still has them as equal, but I’ve convinced you. You offer me two oranges for one of my apples. The two oranges is revenue. The second orange is PROFIT. All the cost of my effort and supplies was absorbed by the first. I now have more value than before, and you have less.
This is the nature of profit. The value of the good or service is in the cost of its production – profit is, by definition, a value in excess of that amount. One party in the transaction accrues more than the fair value of the transaction.
Now make it slightly more complicated. I, the “farmer”, employ people who do the actual work for me. I own the things and pay others to work the land. The amount I pay those workers is one of the costs of the production. That is, whatever I pay those workers for the production of one apple is less than the value for which I will sell that apple. They do the work, receive a share of the production value, and then I sell the good for profit.
Those workers need these supplies to survive themselves. So they go out to purchase apples, oranges, and bananas from myself and other farms. We’re selling them for profit. The workers are using their fraction of the production cost to pay above fair market value.
Thus, in every transaction the buyer wins and the seller loses value. Put another way, the rich get richer and the poor get poorer.
We falsify our work attitude with platitudes like “pull yourself up by the bootstraps”, a practice that is itself impossible, to further the idea that the harder you work the more successful you will become. The reality is that the harder you work, the more profit *they* will accrue. You will have additional purchasing power, but it’s still a fraction of what you helped to produce and each transaction still benefits the seller.
Consider another insidious element of this process: the loan. Our economy makes it possible for you to borrow the money to make purchases beyond your current resources, but requires that you pay back that balance plus interest. Here the loaner treats the loan as a service and derives profit from it as well. You receive the temporary boost in resources, used to purchase things at a personal loss, in exchange for indebtedness to a new party who also profits from the transaction.
Thus people with money generate even more money for themselves, all while doing no actual work. The money is working to generate additional money.
For example, consider the purchase of stock in the exchange. I buy a share in some company, then expect to receive back my investment plus some return. Fundamentally though, why should I expect a return in that transaction? More specifically, why should I expect continued return on that investment? After I have received back my investment plus some fee for the “service”, the transaction is complete. But people demand continued profit of companies to yield dividends.
What work has been done to warrant earning that money? Yes, a risk was taken, but a risk taken freely and of one’s own accord. Economic growth should provide incentive for taking these risks, not personal gain.
Because more people producing means more people purchasing, and more people purchasing means more consumption. Consumption drives further production, and so on. Specifically, one’s purchasing power corresponds with one’s production. The more apples you help to produce, the more value you have with which to participate in other transactions. Your production is not some fixed aspect of the cost from which others derive profit.
Because, yes, perhaps you are so enamoured with the new iPhone that you are prepared to pay $500 for it. But what if you knew that the fair market value of that iPhone was $350. Would you still pay $500 knowing that it could have been yours for $500? 25/
What you are willing to pay for the thing should not determine the price, because what you are willing to pay could be manipulated by concealing other market factors. Say, for example, if I locked away my good to create an illusion of scarcity.
This process of PROFIT results in an economy in which people behave unethically, not out of greed but out of necessity. If I develop a good that meets a demand, meets a need, but does not generate profit, my good will not go to market. The company who takes on the good that *will* generate profit will outperform and defeat the company who takes on the good that breaks even but does some actual benefit.
For example, many of us despise the media cycle that favours exceptionalism, sensationalism, and opinion over journalism and fact. However, a media entity can only exist with the funds to support their operation. That comes from advertisers. Advertising funds come from an ability to draw consumer traffic. The most objective news agency in the world is worth nothing if people prefer to watch the sensationalised coverage, as now advertisers see value in sponsoring the un-watched program.
WE have created the situation in which all of these trash companies, goods, and services exist, because WE collectively created a system that proliferates the survival of the absurd, sensational, and grotesquely fascinating. We created a situation in which it’s cheaper to provide billions in profit for a fast food chain, able to serve sub-quality food for low prices (and still generate that profit) than to eat healthy.
The mass-produced allows the few who profit to hold down costs, thereby increasing the attractiveness of the company to investors while also increasing the attractiveness to consumers (people paying above fair value for everything) despite no one liking the product as much.
We can despise a conglomerate as a people and still find ourselves spending our hard-fought money there, because we can stretch our dollar further there than at responsible competitors. Each round of the cycle worsens matters. As those conglomerates become more successful, hold down costs, and drive up profits more, they oppress competition further. Employees working beyond full-time for those conglomerates, producing those high-profits, cannot make ends meet.
In what world is it acceptable to work 60, 70, 80 hours a week doing actual work and still struggle to afford rent, food, and medicine while those who own, doing none of that work, earn more and more profit?
This is why I do support @AOC when she speaks about the marginal tax rate and point to historians who highlight its past in America. They should be paying for the benefit they derive from society if we are to keep this cycle. Let them re-introduce those profits to the economy. Specifically, let them do it in a way that benefits the society and not other owners (or themselves). These entities do everything they can to avoid and duck taxes in the name of “reducing costs”.
But I take you back to the earliest of points – if the name of the game is cost reduction, then why is profit increasing? Revenues should increase, sure, but profit, if there is to be any, should remain consistent.
Instead we see PROFITs rise. The value in excess of the cost of the good, an amount that goes exclusively to the owners who did not participate in that production, continues to increase while more of the producers continue to struggle with basics.
But we persist in this myth that if you work harder or work enough you can overcome this cycle. It *is* a myth. It’s a myth the way playing longer in a casino increases your odds of winning the jackpot. Quite the contrary, the more you play the more you lose. Every transaction is stacked against you and benefits the house. Again, I do not blame the poor character of those who own that house. If they do not pursue these avenues, they will fall to others who do. It’s a matter of survival for all involved.
The tragedy is that this pursuit of survival benefits only the haves who are successful with capitalising on the cycle. The have-nots will struggle more and more, and the haves who take a large enough misstep will become have-nots in their own turn.
The actual free market demands a return to greater equability in the market. Not socialism, per se, where everything controlled at the social level, as that would discourage increased efforts by the individual, but equable capitalism that rewards the effort put forth, rewards the investment in time and energy put forth by the individual. Investment of capital should be seen not as a means to profit, but as a means to enable others to succeed – because a market in which many succeed benefits all who participate.
You should want me as an equal member in your market, not as a consumer of your goods alone, because our commerce with one another enables growth for one another and a higher standard of living.
Our current system cannibalises itself. It squeezes all it can out of the majority to benefit a minority, thereby making it more and more difficult for the minority to succeed. Eventually the bottom falls out completely in a market that is unable to consume its production.
Anyway, sorry for the long, all-too-serious [thread originally on Twitter]. But I’d like to hear others’ thoughts as well.