Why does capitalism need 3% growth?

[the B]

It's the one where people produce what they're good at producing. The net result is more stuff.

Economics ends there. How stuff gets distributed is the politics.

 

[butchersapron]

You mean where the big ones get to tell the small ones what they're good at producing and shut up and do it.

Economics ends there. How stuff gets distributed is the politics.

This is the most vacuous thing i think i've ever read.

 

[the B]

Time to stop the sauce and start the sleep.

Douchy, til the next time I can wind you up... and laugh at your expense or just for my own damn humour

 

[butchersapron]

I feel humbled to have been played by such a master.

 

[elbows]

Please help me to understand what is wrong with this view:

http://www.preservenet.com/studies/FallacyCapitalismGrowth.pdf

 

[yield]

Please help me to understand what is wrong with this view:

http://www.preservenet.com/studies/FallacyCapitalismGrowth.pdf

Yes the unions did well shortening the working week but also there was increased mechanisation and the outsourcing of low margin manufacturing.

He seems to be saying that reformers aren't revolutionaries? And that somehow these 19th century Marxists are being defeatist because green capitalism is our only hope?

During the nineteenth century, Marxists were wrong to claim that higher wages and shorter hours are impossible in the context of capitalism, but at least they had an idealistic (though misguided) view of the future: higher incomes and shorter hours would come after the socialist revolution.

What are the politics of Peter Victor and Robert Solow? They seem like mainstream economists? The article feels like a sketch too many things are glossed over.

 

[elbows]

Yeah I think that article is a silly mess but I was hoping to learn something from people refuting its points nonetheless. When it comes to wages it seems to be ignoring the cheap overseas labour that globalisation offered too.

 

[yield]

Theory of Comparative Advantage. Takers?

Don't put all your eggs in one basket.

Yeah I think that article is a silly mess but I was hoping to learn something from people refuting its points nonetheless. When it comes to wages it seems to be ignoring the cheap overseas labour that globalisation offered too.

Which supports the "19th century marxist" argument that capitalism drives down wages.

 

[littlebabyjesus]

I give you butchy the douchy. Models?! NO!!!!!!!!!!!!!!!!!!!

Application of anything in the scientific method? NO!!!!!!!!!!!!!!!

You're an odd one, aren't you?

I've not come across this one before. Has it changed its name?

 

[butchersapron]

Nah, he's just someone who made an idiot of themselves years ago, went away for a few years and now comes back now and again to do it all over.

 

[Blagsta]

He used to squat in Brixton and painted "harry roberts is our friend" on the window

 

[gorski]

What the fuck do you think douchy even means? No i don't like models abstracted from any historical reality or imposed on the future. I'm not a utopiast or a liar.

Utopiast? Luv that! And you're NOT one? I though you're a revolutionary...

On the other hand, I thought ethics is not your strong side, being a revolutionary...

The 2 don't go well together by definition...

 

[ViolentPanda]

And ToCA has value.

Applied to which situations? Globalisation of production means that the ToCA is spun free of whatever intellectual moorings it had when it was created.

Or you reckon it's worthless?

It's an interesting idea, but it's utility is extremely limited unless the argument you're making using it is value-laden.

There's very little chance of me coming on here to chat to you when sober. Your mind isn't for changing. Ever! Which is what makes you so douchy and funny

You're hardly going to change someones' mind by referencing a 200yr-old theory that has limited utility in the here and now, and is based around premises that have been superceded.

 

[TruXta]

Because everything inflates. You can get individual capitals or people moving money around but that's it. The system itself cannot run on that. Where does the humongous surplus needed to be produced even to just stand still then come from?

Economies do contract you know? Sometimes they even disappear. For all your talk of not liking abstract models you're pretty entrenched in one.

 

[butchersapron]

That sort of proves my point. Why on earth would you think that it didn't?

 

[TruXta]

No it doesn't. Contraction proves that capitalism can "work" under a range of conditions. Not necessarily work well, but still survive.

And why did I write what I did? What's the first sentence I quoted from your post? See a leetle contradiction here?

 

[Idris2002]

You mean where the big ones get to tell the small ones what they better produce.

That goes back to the Treaty of Metheun, doesn't it? When Britain told Portugal to concentrate on growing Port.

Thing is, I've never seen anything on that treaty outside of the Marxist texts (and actually precious few there). Or have I missed some key references?

 

[Falcon]

What elbows said a while back. Debt financed fractional lending systems must grow exponentially for the monetary system to remain solvent (the 10 credits interest owed at the end of the year on a 100 credit / 10% loan doesn't exist, so must be created, increasing the total amount of debt in existence).

But the total level of debt must be matched by the physical outputs of the capitalist enterprises funded by that debt, driving exponential growth of the capitalist system. It's not capitalism as such, but the mechanism by which capitalism is financed, that must grow exponentially.

The financial system is abstract and can undergo an unlimited number of doublings. The physical (capitalist) system is limited by the availability of matter and energy. So over time, the financial system becomes decoupled from the matter/energy system and it collapses. It is only the relative abundance of matter and energy over the last few octaves of financial system growth that have caused us to confuse the two and forget about the physical system.

 

[ska invita]

What elbows said a while back. Debt financed fractional lending systems must grow exponentially for the monetary system to remain solvent (the 10 credits interest owed at the end of the year on a 100 credit / 10% loan doesn't exist, so must be created, increasing the total amount of debt in existence).

But the total level of debt must be matched by the physical outputs of the capitalist enterprises funded by that debt, driving exponential growth of the capitalist system. It's not capitalism as such, but the mechanism by which capitalism is financed, that must grow exponentially.

The financial system is abstract and can undergo an unlimited number of doublings. The physical (capitalist) system is limited by the availability of matter and energy. So over time, the financial system becomes decoupled from the matter/energy system and it collapses. It is only the relative abundance of matter and energy over the last few octaves of financial system growth that have caused us to confuse the two and forget about the physical system.

thanks for this post - i think i just learned something

 

[ymu]

thanks for this post - i think i just learned something

Me too. Excellent explanation.

 

[ItWillNeverWork]

What elbows said a while back. Debt financed fractional lending systems must grow exponentially for the monetary system to remain solvent (the 10 credits interest owed at the end of the year on a 100 credit / 10% loan doesn't exist, so must be created, increasing the total amount of debt in existence).

But the total level of debt must be matched by the physical outputs of the capitalist enterprises funded by that debt, driving exponential growth of the capitalist system. It's not capitalism as such, but the mechanism by which capitalism is financed, that must grow exponentially.

The financial system is abstract and can undergo an unlimited number of doublings. The physical (capitalist) system is limited by the availability of matter and energy. So over time, the financial system becomes decoupled from the matter/energy system and it collapses. It is only the relative abundance of matter and energy over the last few octaves of financial system growth that have caused us to confuse the two and forget about the physical system.

Now this is the sort of thing I can understand. Nice one.

 

[deke t lefel]

I've often heard that capitalism requires at least 3% growth over time to prevent itself collapsing. Is this true? If so, why? Would it ever be possible to have zero growth capitalism?

an original tenet of the current capitalist system is that an increasing money supply will continue to produce economic growth

another of the original intentions of this economic system was that continued inflation would benefit the debtor over the creditor (this still holds true to a certain extent, although the system has polarised - the "west" is now the debtor and the "east" is the creditor)

however, it now seems possible, even with an ever increasing money supply, that zero growth (or continuous economic decline) is quite likely

in the current overarching system, this will probably lead to a re-pegging of currency to gold, the re-introduction of a "gold/silver/food" standard, the collapse of capitalism and a return to mercantilism

 

[Backatcha Bandit]

.. if you look at the members of a stockmarket, there are winners and losers. People who pick the winners do well, people who pick the average or the tracker funds do only averagely and those who pick bad stocks do badly.

This is actually one of the main myths repeated in support of the current economic system.

It's demonstrably false:

The finding suggests that the basic inequality in wealth distribution seen in most societies may have little to do with differences in the backgrounds and talents of their citizens. Rather, the disparity appears to be something akin to a law of economic life that emerges naturally as an organizational feature of a network.

Shades of inequality
Bouchaud and Mézard's discovery suggests that the temptation to find complex explanations behind the distribution of wealth may be seriously misguided. What makes wealth fall into the pockets of a few appears to be quite simple. On the one hand, transactions between people tend to spread wealth around. If one person becomes dramatically wealthy, she may start a business, build a house, and consume more products, and in each case wealth will tend to flow out to others in the network. Conversely, if a person becomes terribly poor, he will tend to purchase fewer products, and less wealth will flow through links going away from him. Overall, the flow of funds along links in the network should act to wash away wealth disparities.

But it seems that this washing out effect never manages to gain the upper hand, for the random returns on investment drive a counterbalancing rich-get-richer phenomenon. Even if everyone starts out equal, differences in investment luck will cause some people to start to accumulate more wealth than others. Those who are lucky will tend to invest more and so have a chance to make greater gains still. Hence, a string of positive returns builds a person's wealth not merely by addition but by multiplication, as each subsequent gain grows ever bigger. This is enough, even in a world of equals where returns on investment are entirely random, to stir up huge wealth disparities in the population.

That doesn't mean that inequities in wealth can't be mitigated. In a Pareto distribution, the factor by which the number of people declines as wealth increases remains constant in any particular country, but the factor itself is different in different countries. So, while there is always a disparity between the rich and the poor, there are differences in degree from country to country. And, socially speaking, there's a world of difference between an 80-20 distribution and 90-5.

Bouchaud and Mézard's network model can track those degrees of inequality and show how Pareto's distribution can be influenced. Specifically, the two researchers found that the greater the volume of money flowing through the economy and the more often it changes hands, the greater the equality. Conversely, the more volatile investment returns are, the richer the rich tend to get.

http://hbswk.hbs.edu/archive/2906.html

The rich get richer precisely because they are richer, not any 'cleverer' or 'better' at picking stocks.

-

@Falcon

Beautifully eloquent description of the systemic drivers inherent in debt financed fractional lending systems, upon which the need for 'growth' is predicated. Nice one.

It is only the relative abundance of matter and energy over the last few octaves of financial system growth that have caused us to confuse the two and forget about the physical system.

While this is undoubtedly true, I'd suggest that perhaps the roots of the confusion lay beyond that.

In short, the physical realm is subject to entropy, the financial (consisting of information) is not.

Gesell put is well in his model of a '2 person economy'.

 

[ItWillNeverWork]

Good post Bandit. I've been reading a lot recently about Complexity Theory and it's application to economics. What you're saying seems to tie in with that. Interesting stuff.

 

[littlebabyjesus]

No growth is the unsustainable part of that not inflation. And inflation only will move around pockets of money, it wont do chnage global production. That requires growth because the whole system is and can only be premised on competition (or read that technological development if you're an apolitical type)

What elbows said a while back. Debt financed fractional lending systems must grow exponentially for the monetary system to remain solvent (the 10 credits interest owed at the end of the year on a 100 credit / 10% loan doesn't exist, so must be created, increasing the total amount of debt in existence)

Sorry if I'm being thick. There have been some good posts on this thread, and Falcon's is a very clear explanation.

But I still don't quite see how this whole thing could not operate simply with inflation, not growth.

Let us assume that we have a static system in which there is a fixed amount of energy, resources and work available, and everyone does the same thing the same way. So there is no growth in the real economy at all – every year, there is the same amount produced by the same number of people. This static system is mediated by money that is created through fractional reserve lending at interest.

As Falcon says, the interest due on loans necessitates the constant increase in the money supply through the creation of more and more debt. But does that not simply mean that there will be more and more money chasing after the same amount of goods, so prices will simply go up to compensate? Could that not be a stable system? It would mean that overall the real value of 'investments' would not go up, but it would also mean that there would still be an incentive to invest as the real value of uninvested money would go down over time.

 

[weltweit]

A thing about growth, is that it makes it easier for everyone involved.
Easier to find new customers, easier to buy raw materials, easier to put prices up, and wages.

But I am not convinced GDP growth is a requirement for capitalism.
imho It just makes things easier.

 

[Blagsta]

Sorry if I'm being thick. There have been some good posts on this thread, and Falcon's is a very clear explanation.

But I still don't quite see how this whole thing could not operate simply with inflation, not growth.

Let us assume that we have a static system in which there is a fixed amount of energy, resources and work available, and everyone does the same thing the same way. So there is no growth in the real economy at all – every year, there is the same amount produced by the same number of people. This static system is mediated by money that is created through fractional reserve lending at interest.

As Falcon says, the interest due on loans necessitates the constant increase in the money supply through the creation of more and more debt. But does that not simply mean that there will be more and more money chasing after the same amount of goods, so prices will simply go up to compensate? Could that not be a stable system? It would mean that overall the real value of 'investments' would not go up, but it would also mean that there would still be an incentive to invest as the real value of uninvested money would go down over time.

The missing part of the equation here is production. That's where value gets produced.

 

[weltweit]

The missing part of the equation here is production. That's where value gets produced.

Don't get me started !!!

Production, something the Germans still do!

 

[littlebabyjesus]

The missing part of the equation here is production. That's where value gets produced.

I've assumed for the sake of argument that production is constant and that there is no room for growth. If lending money at interest inevitably increases the money supply as more and more money is borrowed to pay the interest, why cannot that system exist on top of the static system of production, with an ever-larger pot of money representing the same absolute value? That would just produce inflation. Why can it not be a functional system?

 

[weltweit]

with an ever-larger pot of money representing the same absolute value? That would just produce inflation. Why can it not be a functional system?

Yes, representing the same value it would be inflation.

But are GDP figures not adjusted for inflation.

So 3% growth, is in "real" terms.