There’s a lot of talk about socialism and capitalism in the media lately. Yet — nobody seems to be able to define either. People who want higher taxes are called socialists while people who believe in free markets and low taxes are called capitalists. The dictionary does a terrible job of defining them both.
Capitalism vs SocialismCapitalism is defined as the private ownership of production. That is the case in most places, but there are always exceptions in every country. Socialism is defined as economic social systems and workers owning production. Every country that has a government has a social system. Self-employment is a rapidly growing category in the United States. Small businesses, including the self-employed, represent 99% of the jobs — and therefore production — in America. Despite this, America is not a socialist state. In fact, all countries that have governments have both socialist and capitalist elements.
The Tax, Spend, and Borrow CycleHigh or low, taxes have zero impact or influence on how capitalistic or socialistic a country is. The Free Markets rule.
TaxesThe invisible hand of the free market, economic uncertainty, productivity, and growth all occur in similar ways in any type of country. Socialist, communist, capitalist, democratic, or republican… they all describe the same thing.
- Governments levy taxes while people work and pay them.
- Governments borrow from people and other governments.
- Governments spend money… they have to, or there is basically no government.
SpendNaturally, all governments have to spend money. If they don’t, they would be powerless and pointless. Therefore, taxes are essential to raising the money that the government spends. Borrowing is optional, but most countries take advantage of the low interest rates provided by banks. As a result, global debt is skyrocketing after decades of falling interest rates. No country can spend money without levying taxes. Even Venezuela, Argentina, and Zimbabwe did not just print money and spend it. Instead, they borrowed the money. The Roman empire did not borrow money, but they still collapsed because they stopped using pure gold as money. They kept adding filler to the coins, so each coin had less gold. Everything just kept getting more expensive, and the Roman empire fell. What the Romans couldn’t figure out is that it wasn’t about the gold. It was about the number of coins. With more coins in circulation, the value of the money was lower. That’s why countries can’t borrow too much money. Too much borrowing causes money to lose value just like in the cases of Venezuela, Argentina, and Zimbabwe.
BorrowGovernments only have two choices:
- They can spend money collected in taxes.
- Or they can spend borrowed money.
BankismA new word needs to be penned for the global economic system that has homogenized governments around the world. The common connector is the banks.
- It’s the banks that need free markets and its freehand to do the dirty work.
- It’s banks that cause economic uncertainty.
- It’s banks that are responsible for productivity, unemployment and economic growth.
The History of BanksThe first bank was established in 1464, and it still exists today. The same bank has existed for 550 years like some kind of vampire (hint – that’s a good description). This alone should make you pause.
Imagine the first loan ever made.
- A person with money makes an agreement with someone who needs money.
- The rich man agreed to lend the money for a period of time and to have it returned.
- The rich man wanted extra money returned as payment for letting the poor man use the money — called interest.
The bank was in for a nice surprise.After making a contract to lend out the community’s money to one of the citizens, that citizen spent the money on a better home. This put the money right back in the bank’s big safe vault. The banker must have looked around with big ‘cha-ching’ eyes. The banker had made a loan agreement and wound up getting all the money back. The bank was ready to make another loan with the community’s money. One-by-one, the bank loaned out money to all the citizens. They all got nicer homes and nicer stuff.
Time for the first business loans.After all the citizens had been levered with debt, the banker set his eyes on the local community businesses. The businesses had noticed a nice uptick in business since the banker set up shop. So, thinking that times were good, they all borrowed money to expand their business. Now the community had better stores and better products to buy — it seems like real progress.
Municipalities start taking out loans.After all the businesses were fully levered with loans, the banker set his sights on the local community municipality. The town had seen all the nice homes being built, the nice stores, and all the new products and services available. So, the town decided to borrow money to pave the roads with sidewalks and upgrade the town. The bank was a magical progress machine, at least, so it seemed.
Everyone is in debt to the bank.At this point, the banker had all the people, all the businesses, and the town municipality fully loaded with debt. But — debts have to be paid back.
- The municipality had to raise the property taxes to help pay off the debt.
- The businesses started raising prices to pay off the debt.
- And the people started spending less because they had to pay off the debt.
Credit LinesSo, the bank lowered interest rates and offered businesses a line of credit that they could extend to the customers so they would spend more money. The story, at this point, is reminiscent of modern times where the banks keep offering lower interest payments to help people pay for loans they established in the past. But, when you add up the numbers behind the scenes, the total debt keeps climbing.
The True Definition of CapitalismThis, by the way, is the true definition of capitalism — the complete immersion of society in debt. The argument could be made that banks have been around for a long time, so how bad could it be? First of all, let’s notice that banks may be responsible for a short-term burst of progress. However, as debt payments come due, progress slows down even more than the debt sped things up. Once a person and a community are enthralled with debt, what used to be “wants and niceties” turns into “needs and greed.” It isn’t human nature to be greedy and to ignore the poor, it is simply the implications of debt obligations.
Banks create dependence.Let’s say that all of the people in a community make the same amount of money. But the majority of them use debt to make ends meet. The people who chose not to use debt wind up being forced to use debt because the cost of goods reflect the purchasing power of the majority that borrow. Therefore, their income will not cover their basic needs. Today, the poor use debt to get by, not to buy something nice. The same is true for businesses and municipalities. For example, you have two equally successful businesses without debt. One of them decided to use a loan to one-up the other business. Then the other business would have no choice but to borrow money to match the new expectations created by the first business. In the same fashion, a municipality is forced to make improvements as the surrounding towns or businesses. If they don’t, people would simply leave. It is this mechanism that makes banking persistent and pernicious. It allows for spending through borrowing that causes more borrowing and more spending. This means society, as a whole, becomes dependent on the banking system. The question is if society is better off borrowing and spending rather than saving and spending. Success is often determined by the ability to forgo short term pleasures for the long term benefits. It only seems logical that as a society we are being forced into less successful decision-making of spending now and forgoing the benefits of saving for later. One thing is for sure, the banking system is not able to adjust for the consequences of automation and advanced technology. It shouldn’t surprise anyone that the best interest of banks does not align with the interest of humanity. And everyone should heed this warning — as long as ‘Bankism’ controls the governments and the society of the world, humanity is in big trouble.
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