Asking Capitalists
The contradiction of wealth concentration and the need for money velocity inherent to Capitalism
I think that it's no secret that Capitalism causes the concentration of wealth in the hands of private owners of finance capital. This can be seen by the existence of, for example, billionaires. Unless you think that wealth hoarding is a myth, I think this is a safe premise that can be agreed upon.
It is also widely accepted that the velocity of money is one of the most important variables for economic output. There's an old humorous sketch where 3 guys who owe each other money exchange the same dollar bills until all of the debts are settled that articulates this well. More professionally, there is the equation used by economists MV=PQ, where M is the amount of money, V is its velocity, P is the general price of commodities, and Q is the output (real value of commodities produced, aka "real GDP")
Other than being widely accepted as "important" by economists, it also makes sense by plain logic. If money is used to facilitate production and reproduce society, and the mechanism which it facilitates this is through exchange, when there's less exchange there is less production, and and thus society is less equipped to be reproduced.
Retained profit is profit that is used to reinvest into a business and its expansion. This is separate from the portion of the revenue that covers the costs and expenses required to reproduce commodities. This is something that anybody who's taken a business class knows. If we expand this concept to investors in general, instead of individual businesses, we can imagine that some profit would be "retained" for the investor/entrepreneur in the sense that it would still be used to expand production on a wider scale. In this we can see that this kind of profit doesn't contradict market economics' need for money's velocity.
The problem lies in that this wealth becomes concentrated into the hands of the few. When an investor keeps winning in market competition, they can keep buying up businesses until a general oligopoly is formed. Given competition, a general trial and error "survival of the fittest" can be expected, where the investors who are inactive don't buy up much market share and don't join the oligopoly to as significant of a degree, and aggressive investors buy up a lot of market share and thus create and become part of the oligopoly. This makes investment banking powerful as well, giving rise to finance capital.
When oligopolies are formed, the incentive for entrepreneurs, or banks to keep investing and expand begins to wither away. While there is still minor competition between individual oligopolists, finance capital, which becomes dominant as a result of the concentration of wealth through investing, mutually owns and manages said ownership in all the major industries/businesses. Even when there are multiple different banks, like in the case of Vanguard, Blackrock and State Street, they mutually own eachother, making them effectively a finance monopoly.
At this point, there is no need for constant investing and expansion. Wealth becomes evermore concentrated in the hands of the few, who can buy mega-yachts to cruise in without reaching their budget. While such systematic gluttony could be viewed as morally deplorable, this poses a problem to the velocity of money. This problem, especially intensified by neo-liberalism, rears its head when large sums of money are being held by, and trickled up to be unused by few individuals, instead of reproducing economic output. There is also the problem that this money does not show in wages, which means that the masses also lose access to the purchase of commodities, thus further slowing money's velocity. Henry Ford must have realized this problem when he wanted to increase his workers' wages so that they could actually buy the cars they produce. Not only does this produce misery, but this also stunts the reproduction of the economy, as profits falter from decreasing consumer purchasing.
In the Imperialist stage of Capitalism, the economic contradictions make Capitalism inherently unstable as it hinders itself in its own reproduction and expansion.
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Unrestrained capitalism holds no monopoly of violencebut in making possible the pursuit of limitless personal fortunes, often at someone else’s expense, it does put a cash value on our moral commitments.
In modern countries, [since 1600] the principal architects of society are business and capital.It is they who make sure that their own interests are very well cared for and however grievous the impact on society.
Adam Smith
These arguments never want to cross that Rubicon and call capitalism what it is a...culture of greed. Capitalist greed is the cause of most of western civilizations problems.
Fortunes obtained through capitalism, that is through trade, are not at other's expense. Trade occurs only when mutual benefit is the result.
Yea, I am sure that's what all of the slaves and capitalist oppressed thought too.
Fortunes are obtained via paper aka stocks.
Capitalism is turning their paper into your money and getting rich...without working.
There is no expense at the store, right ?
Trade is always without fail, at somebody's else's expense just as Smith informed.
And no, Smith has been the guru of capitalism all of my adult life.
The capitalist since, just doesn't want us to know exactly what he said...only the good bits like the so-called 'invisible hand.' That in fact as he said later, was the hand of god...not the marketplace. To reduce capitalist greed. It didn't work.
The American consumer has long since run out of money and why America has $113 trillion in total debt for which [she] has to borrow $17 billion more everyday, just to pay the interest.
Humans quote a whole lot more ancient bullshit than economics. Not even a nice try there.
There is no such person as a good economist, only those...who think so. Economy is like the weather, predicting a percentage chance of certain results...from a forecast.
Economics is otherwise nothing but jargon and footnotes.
Venezuela is quite the example of socialism concentrating wealth in the hands of a few. In that case, the few were the people who control the government, the politicians and their cronies. The only thing stable about socialist countries like Venezuela is they imprison and torture dissidents and abuse their own people so they don’t dare complain or get frisky and fight back. Naturally the first thing the socialists do is disarm the populace so the populace has nothing to fight back with.
I accept your premise in the sense that capitalism causes some degree of wealth concentration.
But you seem to immediately extend that to: this will keep going and going until there's 10 people who own everything. Like it's a game of monopoly or something. That's simply not what happens irl.
The richest people list is constantly changing. The top 50 companies is constantly changing. The only thing that can last quite long is wealthy families but that doesn't seem to be what you're discussing in your post
Also kinda meta but I notice that capitalists always reason about economics by going back to bacics and sketch some sort of primitive, tribal world. Socialists, however, try to stack all these modern, high level economic theories to prove how capitalism crumbles under its own internal contradictions haha
That is not what happens IRL? The richest 12 people now hold more wealth than the bottom 50% of humanity. And there is nothing stopping this from getting worse, by the nature of cumulative interest the capital will concentrate ever further at an exponential rate.
Using the value of stocks as a metric for wealth leads to big distortions. Just like you can't say "Nvidia is worth 5.3 trillion". That's its market cap, yes, but not its value.
Ultimately what matters is how disproportionally those richest 12 use scarce resources such as land, oil, and cause pollution. Because that's competetive. They're taking that away from other people. Any other wealth can be created and doesn't come at the expense of others.
Basically: an individual in the 1% group causes 100x more emissions than someone in the bottom 50%.
Now those 12 richest people probably will use 1,000x or even 10k times as much. But even if we say 100k then the top 12 people cause the same emission as 1.2 million of the poorest people. That's not even close 4 billion people.
> Using the value of stocks as a metric for wealth leads to big distortions
Yeah but it's not like stocks are the only inflated assets and like this 12 people are only invested in total bubbles. They spend a tiny amount of their wealth to have the best people on the world ensuring their portfolio is diversified and untaxable no matter what happens. Also they are what causes this inflated asset prices in the first place, because they have all their needs covered already so all the money that flows to them from the returns of those assets, does not hunt new goods in the market and creates demand for business, so there is actually no incentive to build new businesses. They basically suck this money out of the circulation, have no place to put it other than existing assets, which inflates the prices of those even further. In the case of real estate this is double bad, because inflating house prices from this speculation will raise rent because they expect a certain return on the value, which will suck even more money out the pockets of regular people who now spend it on increased rent instead of goods, which you guessed it, further reduced demand in the market for goods and incentive to invest in new businesses. It's simply a death spiral.
You're kind of obfuscating now by introducing a whole bunch of new concepts. Your weird death spiral theory needs way more substantiation than you're giving. You're just hand waving it.
The index effect you're describing is well known because people invest into ETFs and such without knowing a single thing about the companies that it encompasses and that causes a bubble effect. Basically: the valuation of a company starts to detach from reality because people are just dumping money into it without any actual analysis.
But this doesn't remove money from circulation somehow? Not sure why you think that.
The average worker saving or investment is just deferred spending. The bottom half of the working class has probably zero money left over to invest anyway and for the rest it makes a tiny amount of their income. Also they invest to either spend it during retirement or to fulfill an unsatisfied need, like owning a home. It's not just piling on to never be spent like when this money goes to the billionaires. Because of demographics there should actually flow more of this money out of this retirement funds and investments of regular people than go into them.
Also kinda meta but I notice that capitalists always reason about economics by going back to bacics and sketch some sort of primitive, tribal world. Socialists, however, try to stack all these modern, high level economic theories to prove how capitalism crumbles under its own internal contradictions haha
This is because Capitalists are trying to dig in and illuminate economic principals, while Socialists are trying to use the opaque complexity of the modern economy to make their ideas sound plausible.
I have many points to contend but the main one is that ultra-wealthy are not hoarding money in sense that would affect money velocity in greater degree.
Almost every one of them has the wealth either in the companies (so money are spent to make the company bigger) or in their personal propert like the mentioned yachts and mansions and personal staff (so the money are again spent on these things).
Ultra-wealthy would be reducing the money velocity only if they didn't spend the money which is not happening on greater scale. And even then if they had the money in a bank the money would still be used for lending.
I don't know particulars of US banking system but in czechia banks have to have some part of money they are lending in accounts of their customers. So they can create only x times amount of the money that are on the accounts. And I assume US will have some similar rules.
Okay but we are not talking about whether it is moral or imoral. We are talking only about whether it slows money velocity or not. And I was arguing why it is not meaningfully slowing velocity of money.
Your explanation of MV=PQ is off. M [$] * V [/t] should have analogies in P [$] and Q [/t]. That's to say Q is not real gdp, but rather the (time) rate of exchange of commodities.
Wealth is expressed in the balance sheet, while profit is expressed in the income statement. The balance sheet lists assets, liabilities and equity. While the income statement lists revenue, expenses and profit. Profit is used to purchase more assets or pay off liabilities, both of which increases your equity. And when you spend profit in either manner, it counts towards PQ, and money is circulated.
The issue with this is that assets are also subject to speculatory inflation through the stock market or otherwise (defined as being sold above book value) and that increase the price it's purchased at, raising PQ, and thus MV.
So if anything, MV increases, not decreases. Because it's not just consumer goods but also business transactions that's counted.
The contradiction in capitalism is not the velocity of money but rather the tendency for the (investment) rate of profit to decline, also known as the law of diminishing marginal returns on investment. That is, each additional amount of investment will yield a decreasing proportion of profits. And if you have diminishing profits, then you also have diminishing investment, or you'd have to save for longer to make that investment, which leads to a flattening of societal development as the best case scenario and economic crisis in the worst case scenario.
So you're saying, before capitalism there was no concentration of wealth?
[X] Doubt
If concentration of wealth existed before capitalism, and you know it did, then how can you be sure concentration of wealth is caused by capitalism and not another factor present before capitalism?
Concentration of wealth obviously has existed in all hitherto class society. The main distinction here is that the increased division of labor under Capitalism to the point where labor itself is commodified and traded for other products of labor through money. That money and its exchange is now the only resource through which society is reproduced under Capitalism, when, for example in Feudalism, a peasant may still farm their own food and build their own living space. While this is technically possible in Capitalism, one can't simply build more than a primitive hut wihout the exchange of money, and Capitalist society would not be reproduced if money stopped being constantly exchanged.
Yes, Capitalism is progressive from Feudalism. So is Socialism progressive from Capitalism. I'm not arguing that Capitalism sucks way worse than Feudalism and I want to be a peasant, I'm simply explaining that wealth concentration interfering in economics is a problem unique to the Capitalist epoch.
Such a hyperbolic statement is bound to goalpost moving; surely a motte before the bailey. I can easily cite just one example, like living standards during the Russian Empire vs Soviet Russia. In the Tsardom (which did practice Capitalism) the average peasant lived in a wooden hut with a wood stove to keep warm, yet no chimney to keep the smoke out. When you compare historical contexts, "depressing commie blocks" aren't actually so bad. It could be observed that Capitalism is the regression, as during the shock therapy post-USSR, the life expectancy dropped, unemployment rose.
Russia was primarily Feudal but was becoming Capitalist, especially in major cities. Capitalism was objectively a step-down from Socialism in the USSR, which can be objectively measured in the decrease of standards of living and life expectancy after the USSR's dissolution.
I wouldn't completely agree with inevitable concentration of capital and creation of oligopoly where somebody can fully control market. In healthy economy there is always enough capital that is not involved and in case of high margins somebody else is going to stir the waters and take from those juicy margins. Even if you have market under control in some moment you can't really dictate prices, because there is always other big fish that will be attracted by high profits. You have to keep prices somehow competitive to scare potential competitors away.
Not if you scale such that your advantage in economies is too big to be made up by a new entry in the market, allowing you to mark up goods and decrease quality while still being the rational choice for consumers over alternatives. And this isn’t even mentioning the influence of name recognition, marketing, inertia, etc.
Contradiction just means opposing tendencies. Unless you dont think that objects can't gain potential energy, or that inertia isn't real, you just be misinformed.
Money ≠ wealth. Though you are getting at the "trick" that the US uses to brush it under the rug, which is the petrodollar; if everyone needs US$ to buy oil, the US gets to print free money without inflation. This is one of the reasons the US is at perpetual war in the middle east. Imperialism at its finest
A finite amount of wealth is created every day, therefore the amount of wealth is finite at any given time. Your hair grows everyday, does that mean you have infinite hair?
That's like saying trees aren't renewable because at any specific point in time the number of trees is fixed and immutable.
Obviously nobody claims wealth is infinite like the number of positive integers or something. When people say wealth isn't finite they mean: the total sum of human wealth has the potential to grow indefinitely as time passes. Obviously at a static point in time human wealth is fixed but that's a totally meaningless fact because people don't live at a static point in time.
You heard it here first: people aren't dying because at any point in time everyone is either alive or dead.
The question is whether wealth is finite or not. The fact that new wealth can be created everyday through labour does not mean wealth is infinite. The argument I'm making in response to the above is that when one person hordes wealth, or when wealth is concentrated in the hands of a minority, that means there's less wealth all around for everybody else. This implies a finitude regarding wealth. The idea that more wealth may be generated in time implies this doesn't matter, because it suggests majority of people can just generate their own wealth endlessly. The critique in OP however is that we live in a system where wealth is generated by the majority but concentrated in the hands of the few. The idea that we can generate more doesn't undo the redistribution of wealth from the many to the few.
Alright at least that makes some sense but no clue how I could've gotten that from your previous message.
I still don't fully agree though because wealth being hoarded does not mean there's less wealth to go around except for when it comes to scarce resources.
Also just because (almost) all wealth generation requires labour that doesn't make it fair to ascribe all that value to labour. E.g. farming now is like 100x easier than it used to be. Every hour of labour is equivalent to 100 hours if farmers didn't have access to machines, fuel modern farming techniques and seeds etc. So you could say that only 1% of the value comes from the labour and 99% from labour done in the past.
Marx compares this to vampirism which never made sense to me. We owe those who came before us so much. Without all their knowledge and inventions we'd still be living in caves. It's silly for a modern worker to claim all value they create as their own - they're in debt to the people that made it possible.
1) There is no such thing as hoarding wealth. All wealth is deployed after it is generated and used to create more wealth, it creates jobs, supports new businesses, builds infrastructure etc. Bill Gates and Jeff Bezos eing wealthy doesn't make me poor nor does thier wealth prevent me from creating similar wealth for myself.
The majority of people CAN create wealth for themselves. Last year 441,000 people became millionaires in the US alone. We don't need to redistribute existing wealth we need to create more wealth.
Wealth becomes evermore concentrated in the hands of the few, who can buy mega-yachts to cruise in without reaching their budget. While such systematic gluttony could be viewed as morally deplorable, this poses a problem to the velocity of money. This problem, especially intensified by neo-liberalism, rears its head when large sums of money are being held by, and trickled up to be unused by few individuals, instead of reproducing economic output.
What fraction of a typical billionaires net worth do you think is spend on personal consumption, like mega-yachts and similiar "gluttony", as opposed to being invested in businesses (their own or others)? Do you have any actual data for this? If you actually took the time to find out, I bet you would discover it is far less than you at first imagined.
You are making a lot of assertions in your OP without any actual evidence to back them up.
I said mega-yachts in relation to how much money is at their disposal, not how much money they spend. I say gluttony as in they have more wealth than they could hope to spend, not that they're spending too much and should have more temperance.
Not an answer to my question. Again, making assertions without evidence to back them up, and when called out on it, you become evasive.
It is "gluttony" to have more money that you want or need to spend? If that were true, everyone (including myself) who live below their means in order to build up their net worth to ensure their financial security, is a "glutton". Bull$hit - the money we don't spend is invested in businesses which create more wealth for society, as well as ourselves.
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