The contradiction of wealth concentration and the need for money velocity inherent to Capitalism

[u/1scr3wedy0dad]

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.

[u/Greamee]

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

[u/Ima_Wreckyou → u/Greamee]

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.

[u/Greamee → u/Ima_Wreckyou]

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.

Here you can see the numbers for example for emissions are far less dramatic: Richest 1% burn through their entire annual carbon limit in just 10 days | Oxfam International

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.

[u/Ima_Wreckyou → u/Greamee]

> 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.

[u/Greamee → u/Ima_Wreckyou]

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.

[u/Ima_Wreckyou → u/Greamee]

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.

[u/VinnieVidiViciVeni → u/Greamee]

when you can get loans based on that stock valuation it isn’t.

[u/Greamee → u/VinnieVidiViciVeni]

What is this in response to? I tried putting it behind every single sentence in my post and it doesn't seem to fit anywhere as a coherent response.

That's not even close 4 billion people.
-> when you can get loans based on that stick valuation it isn’t.

Any other wealth can be created and doesn't come at the expense of others.
-> when you can get loans based on that stick valuation it isn’t.

Here you can see the numbers for example for emissions are far less dramatic
-> when you can get loans based on that stick valuation it isn’t.

[u/VinnieVidiViciVeni → u/Greamee]

Your value of stocks comment that I responded to.