A Very Short History of Capitalism

Since Romania is currently tens of billions of dollars in debt to western bankers, I thought a short history of capitalism was in order.

Interestingly enough, whether Romanian or American or Asian or African, it seems everybody is a lot more familiar with Communism. I’d wager the names “Marx” and “Lenin” slip off the tongues of people faster than similarly important capitalist thinkers.

Capitalism is a very strange concept and historically speaking it’s so new. Yet despite this most people just “feel” they get it – you do things for money and then try to get more money so you can get more things.

Anything one would consider “money” started out as a kind of token to represent something else, very similar to the way a poker chip is used in a casino. A bone, a special kind of stick, a shell, a piece of shiny metal, whatever.

Over time, more and more transactions began to be denominated in these tokens. Soon pretty much any ordinary daily activity could be measured (in some way) by tokens.

As the centuries passed, certain people began to create a second kind of “money”, which was a token to represent other tokens. For instance, if “money” was coins of gold, certain people would write paper notes that represented the number of tokens held in their possession.

Since paper notes were lighter (and smaller) than tokens, they could be carried further and thus, more business transacted further and further around the globe.

Over time, these notes also became known as “money” in their own right.

Later, a small group of private investors convinced the King of England to be given exclusive monopoly to print the “money” known as “paper representing tokens”. Soon other nations follow suit.

After some time, these nations began decoupling the paper notes from the tokens they represented. Therefore, no one knew from any one time to another how many tokens of “real money” could be exchanged for paper “money”.

Then these nations decoupled the paper from the tokens all together. Now there were no more tokens of “real money” to be had – all that was left was the paper.

And then the ones selling the paper to ordinary people designed an interesting system called fractional reserve banking. In essence, they could sell more paper notes than they actually had on hand.

As soon as this was done, an irreversible series of action began to take place.

The “economy”, as it is generally understood by that word, is comprised of three things:

1) “Natural resources”
2) People doing work
3) Controlling money

Gold dug out of the ground and clean water being bottled and sold are both examples of “natural resources”. In other words, it’s all the stuff that’s already out there for the grabbing (hey, this is how economists think).

People doing work is also known as “labor”. Whether you’re typing on a keyboard or digging a ditch, you’re doing something and if it’s coupled to money then it’s what economists call labor.

Controlling money is where it can get convoluted.

Imagine two neighbors, one with 50 gold nuggets and the other with 50 potatoes. Neighbor A buys 25 potatoes for 25 gold nuggets and everybody goes home happy.

Although this is clearly two people “doing business” this is mercantilism at best and is definitely not capitalism. At the end of the day, the “total value” is still roughly the same.

Paying gold coins for a good horse is the kind of thing I’m talking about. It’s exactly why Henry the Eighth sacked the monasteries – he was after actionable tokens (gold, silver, etc).

Capitalism comes into play when you essentially say “I’m going to give you something you don’t have in exchange for you pay me back more later”, formerly known as a sin in some major religions.

If group A lends tokens with interest to group B, then group B is going to have to expand somewhere else to acquire the “extra” needed to pay back the interest. Hence, a few wars of territorial expansion and then later colonialism.

When George Washington won his first battle against the Hessians on Christmas Day, he was fighting troops that a duke in Bavaria was lending to his cousin the British King in a war that started largely over as a protest against excessive colonial taxation.

At some point however there is an inherent limit to how many physical tokens (gold bars, etc) you can control and then there’s no more profit to be made from lending them out.

The last and final move was to just sell paper (and now mostly just electrons) for actual real things (“natural resources”) and human labor. And since every electron borrowed has to be repaid with something “extra”, the system must grow in perpetuity to survive. More and more “real” things need to be given to pay back electrons.

The motive of the IMF in lending money to Romania can be read in black and white. It isn’t hidden. It is to extract as many real resources (“natural” + “labor”) as possible in exchange for electrons. It’s not a mystery. It’s just never phrased this way.

I wish I could tell you I know when this cycle of infinite growth will collapse but I don’t know. It might be soon or it might not be for a long while. But I do know that the last thing I would want to do is live in a country where you can only find Brazilian and American chicken in the markets and Chinese toothpicks and millions of farmers are out of work and 10% of the population lives abroad primarily for economic reasons.

There was a reason Hitler took the personal time to direct the attack on Romania in 1940 – he knew damn well that this country was incredibly wealthy in terms of “natural resources”. Stalin and Kruschev knew it too. And Ceausescu starved 11 billion plus dollars worth of food out of this country and look how many people survived – incredible!

Almost all those things people consider “backwards” – rural roads, peasants doing their own thing, riding horses and wagons, making your own liquor, raising sheep and weaving wool – all of those are what’s going to insulate this country when the capitalism wave collapses.

At some point very soon the entire global debt will be greater than the net worth of the planet. What’s going to happen then?

The only reason this is allowed to go on is due to a consensual group delusion – that any one of us needs to convert our lives to pay back some electrons.

Although things look like rough sailing ahead for now, I’m betting my long money on the common sense and hardiness of the Romanian people.

28 Comments Add yours

  1. jos_cenzura says:

    Daniel, as much as I agree with your arguments in general, let me add that the informal economic sector in Romania is freer than in other countries (e.g., if you pay a bribe, you can make moonshine at home and sell it, whereas in a place like the US, you get arrested and cannot bribe your way out). Thus, while the Heritage Foundation statistics have a role, they do not tell the whole story. But I do agree that Romania, and the entire world, could use a lot more economic freedom. Unfortunately, with the education system worldwide getting poorer and poorer (and people feeling more and more entitled to spout BS without basic knowledge of subjects, or of logic itself), and with increased dependence on an all-powerful nanny state, I think that’s just fantasy…


  2. Lavinia says:

    I love your post and you are right, when the hole capitalist system will come crushing down, I’ll trust my grandmother’s pigs and chickens, like I used to do in the ’90.

    The problem with capitalism is that it realizes that it needs to exploit more in order to pay the debt so that’s why you get everything through banks, paper money will vanish and everybody will start working for points of something and then everybody will become more or less a slave to the system. I just hope that nobody will reach that far.


  3. Cosmin says:

    Ok, whatever..
    Being free to do something and being easy to do something are not quite the same.

    suntem in prima treime, deasupra unor tari precum cehia, polonia, grecia, italia..


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