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Unemployment Exists Because Capitalism Wishes for it to Exist

unemployment-grads-cartoon1Why is the world able to create an internet that connect billions of people in real time, yet it is unable to match the chronically underemployed with the hundreds of millions in the world that exist without even their basic needs being met? The answer of course is capitalism. In America, where 1 in 60 Americans is a millionaire, these spectacular results can be directly attributed to capitalism. Yet, where 1 in 6 is undernourished and 25% are underemployed, capitalism is also the culprit. Capitalism is the dominant cause for both our nation’s prosperity and for our failing underclass. If full employment of our people is a goal, then capitalism will require repair of its major flaws. To understand how capitalism impacts unemployment, let’s first look at its impact on trade.

Trade has improved man’s lot. Just a century ago, a man would come upon the earth, begin to work in his youth, and continue working until infirmed to live a year in the care of his children before departing the earth at age 50. Now, after preparation for industry through his teens, a man toils for 45 years to improve his life. He then retires for 10 years, consuming his savings until lingering two years in an institution and departing in his mid 70s. This advancement was made possible by the expansion of trade.

Trade improves life by increasing one’s marginal value of happiness, health, and longevity. When two people barter for goods or services, they expect to gain, at minimum, par value in the trade, at least a unique difference in their life if not an expansion in their life’s core value. For a trade to occur, each must expect that the other’s goods will provide this marginal value, thus increasing life’s value to both parties.

The marginal value of each traded good or service comes from some combination of hours of toil and raw material that has been taken from the earth. The hours of toil may have come from hundreds of sources depending on the complexity of its “equivalency hours”. As an example, equivalency hours for a house might include a 1,000 hours of direct assembly, but also hours in the construction of all the house’s sub components. The finished product reflects indirect hours to build the lighting fixtures, quarry and polish the granite cabinet tops, design its architecture, manufacture and construct the saw mills and dry wall plants that supply the sub products, and thousands of other integrated time components.

For so many to add their labor to the creation of a sophisticated, complex product, its marginal value to life must be deemed high. The more innovative and engineered, and the more integrated the sub-products become, the higher its hour equivalency becomes. By increasing hour equivalency of one product, thousands of degrees of freedom of sophistication break out into the economy. These degrees of freedom can be used to create even more sophisticated products with highly prized equivalency hours taking from and contributing to the same growing economy, creating marginal value for the entire nation as perceived by other economies willingness to trade.

A nation’s flow of trade then can be enhanced by fewer, more integrated, and more highly sophisticated equivalency hours that trade on par with other nation’s relatively more hours of lesser sophistication plus greater tonnage of raw materials in a balance of national equivalency. Some say that this stratification of hour equivalency causes an imbalance of trade, exacerbating structural unemployment throughout the world that now threatens to drag the advanced economies into depression. Yet, no matter what degree of productive sophistication societies reach, they should always be able to balance equivalency hours to enable trade between their own citizens and with the rest of the world.

Others say that workers are no longer required in such great numbers to create sophisticated products because the hour equivalency of sophisticated products is being dramatically reduced through increased productivity. Therefore, the resulting decrease in national hour equivalency creates structural unemployment. At the same time that the complexity of toil is increasing in our products, each product requires less man-hours, freeing up labor to idleness.

Yet if labor is freed, then that labor should be available to create additional goods for trade with others that are also currently idle and available to create goods to trade in return. Natural supply and demand for goods and services can and should expand to fill all available equivalency hours. Yet since it does not, some artificial barrier keeps this natural balance from occurring.

If we find that trade is limited while millions remain structurally unemployed for years, at some point we must allow ourselves to question the status quo rationale for why structural unemployment exists. We must seriously begin to ask the question, “What are the real limitations to trade?” What causes equivalency hours to be left unconsumed, manifested as high unemployment?

There are natural reasons for unemployment, which are asymptotic limits to trade, that have hardly ever been approached. If they were, perhaps mankind could rest on the understanding that nothing can be done to change our structurally unemployed fate. Yet these should really be the only rationale we should accept for such widespread unemployment:

* Saturation: Every person on earth has filled his desires to own every product or service

* Obsolescence: All lesser products have been replaced with others that fulfill our needs

* Raw material depletion: Elements have simply been consumed from the face of the earth

*Economic Nirvana: All humans are working to the limits of a healthy blend of body and soul. All have maximized their potential to contribute to society through an expansion of their natural skills through education and technology. All of society’s needs that can be fulfilled by the limits of science are being met. Work has been directed to its highest societal priorities given our times. A balance has been reached of work toward creating future innovation, toward planting seeds for tomorrow’s champions, and toward maximizing society’s output for each other.

Perhaps economic nirvana will never be reached, but there are also temporary, artificial constraints caused by an inability of man’s imperfect economic systems through either central planning or the invisible hand to perfectly match natural demand. These constraints of course can be modified to lessen their impact on unemployment. Yet even without modification, they do not come close to causing the devastating worldwide unemployment we face:

* Distribution limitations: The product cannot endure the limits of man’s ability to reach all consumers intact

* Inefficient market cycles: Causing temporary mismatches in growth of worker and consumer priorities

Therefore, if natural and temporary constraints are not the cause of increasing structural unemployment that is devastating the Western world, a more destructive artificial constraint to structural unemployment must exist. To understand this constraint with clarity, we must first examine the value of currency in an economy.

The complex array of man’s products and services creates a market with such a wide spectrum of hour equivalencies that one could only hope to clear the market by using currency as an intermediary in the transaction. Currency, having been secured by stashes of gold as recent as 42 years ago, created the illusion of a safe medium that could be used by buyers and sellers to clear trades without barter. With currency, buyers and sellers have expanded world trade exponentially over the past five centuries.

Yet while currency solved one of man’s great problems, it also added a naked fungibility to some of mankind’s greatest character flaws, greed and power. As an intermediate step toward fiat currency, currency required the backing of gold as a source of security. Ubiquitous yet rare enough, Gold became Western gold merchants alchemy, along with property rights laws, to strip the wealth of kings and peasants alike. Using gold, they inserted themselves into every commercial transaction as market makers, extracting with every transaction a percentage of the trade, that they then accumulated into real assets. Today this accumulation represents amongst their descendancy, the band of 1500, half of the world’s wealth.

As opposed to the assets held by the majority of the worlds inhabitants, the goal of true wealth, that of the band, is to grow ownership of assets which are non-depreciating; land, rare metals, minerals, stored energy and water. All other assets, whether real or contractual, are depreciating, most barely able to survive the generation in which they are born. Currency depreciates but is necessary as a transferring medium and thus 20% of the band’s portfolios are liquid. Industry is a good investment, as in aggregate it appreciates. Individual business values rise for a time and can be used to advance positions in real assets, but as with all other depreciating assets, individual businesses eventually fail and take their spot in the dust heap of all other depreciating assets.

For the past 500 years, the lineage of the band of 1500 has executed a goal of accumulating non-depreciating wealth that once acquired, is passed down from generation to generation. The means of extracting real wealth is the basis of the system of capitalism. The means and ends of Capitalism are certainly not limited to the band of 1500. It is this hope and share of Capitalism’s benefits that keeps all encumbered to its mechanisms as we all witness semblances of those ascending toward the ranks of the 1500. With this possibility intact, capitalism endures as the means for all of us to prosper. Yet those in the stratosphere of the system have the intergenerational means to sustain their prosperity.

The modern world has become conditioned by experience and by law to accept capitalism as the dominant method of commerce, including debt derived money, interest, and return on equity. The economic model of capitalism requires owners of wealth to invest equity and to lend currency to enterprises that will employ the world’s people. Because the band of 1500 owns half of the world’s wealth, the world is dependent on the band of 1500 to participate in employment and growth, for they are the capitalists of capitalism. If they do not invest, if they restrict credit, jobs do not materialize and the world’s output suffers.

Capitalism would be less flawed if the goals of the band of 1500 were aligned with full employment, but they are not. The world’s non-depreciating assets are finite and human population is growing. If each new soul wishes to gain non-depreciating wealth of land, rare metals, raw materials, stored energy, and water, then their accumulation must be gained at the expense of others. For the band of 1500 to continue to accumulate real wealth, the rest of the world must hand it over to them a bit at a time as the world churns in business cycles with apparent wins and losses that ultimately create net real asset wins for the band and net real asset losses for most of the remaining seven billion on the earth.

Capitalism uses the business cycle as the tool that accomplishes the feat of accumulation. During each cycle, the masses produce value in equivalency hours, consume, and invest. Yet, their investment results in a net loss of non-depreciating assets. 80 percent of new businesses fail every business cycle. 80 percent of investors lose money in the stock market. Real values of equivalent housing decreases. 80 percent of people retire at the end of their working life with less than two years income in liquid assets, and if they are lucky, a depreciating home. The vast majority leaves the planet penniless.

On the other hand, in every business cycle, the band of 1500’s wealth increases. Their liquid assets are invested in the churn while their non-depreciating assets are protected from the down turn through control of the money supply. Liquid assets are invested in the beginning of each business cycle to share in equity and interest returns. Real assets are collected from failing businesses and foreclosed personal assets in the trough of the cycle. In collapses of the capitalist system, currency is pumped into the economy to shore up temporary devaluations of price signals of real, non-depreciating assets while excess supply is secured from the market through controlled purchases directed at these assets using devaluing currency.

The system of Capitalism then relies on the liquid assets of the band of 1500 that are employed in the economy as the capital and base of loaned currency. These assets are then directed to where they can best accumulate real assets, typically in industry that is in the rising phase of its growth, as well as in providing the means by which the seven billion can indebt themselves to the capitalist system through long term loans to purchase depreciating assets.

The limiting factor in the growth of human civilization then, under the capitalist system, is the amount of assets that exist in liquid form as held by capitalists for the transference of man’s endeavors into real, non-depreciating assets. These limits were originally set by the amount of gold that had been extracted from the earth, and then later set by central banks as a means to limit exposure to capitalist collapse. Yet in all cases, the limiting factor is the participation of capitalists from the accumulations of their real wealth.

Could the world simply go around capitalists? Could the world create a new fiat system not tied to old money or real assets? Yes…In so doing, the entirety of mankind could expand its capacity to work toward the betterment of all men, keeping somehow the self-advancement features of capitalism that drive men to succeed, while eliminating the scarcity and maximization of marginal return limitations imposed on us by our current system, thus propelling mankind toward full employment.

Is this a viable option? No, not really, at least not in the short term of a generation or two…We are already witnessing the wild haired expansion of the world’s money supply in the makings of a currency war, as a system control imposed on the masses by today’s capitalists. By placing all the world’s currencies on the ropes, they have left little hope for any attempt at advancing a worldwide currency to succeed in the near term. And any rising third world power that attempts to create a market using its own currency is quickly thwarted and compelled to use the world’s reserve currencies, those held by the band of 1500, as its means of world trade.

China is creating a dominant market that is advancing its own system to circumvent status quo fiat currency. China is quickly expanding a currency system that relies on the talents and treasures of its trading partners and third world raw material vendors. Yet even though China’s system is modified so as not to discriminate amongst third world nations, China’s economic system simply exchanges one set of capitalists with another.

No viable threat to the capitalist system of trade exists or will rise in the near future. Therefore, if structural unemployment is to be solved, then modification of the existing capitalist structure is in order. Capitalists will continue to execute a goal of real wealth accumulation. Therefore, incentives that tie capitalist intergenerational maintenance of real wealth to the requirement that capitalists provide enough investment for full employment is the key to achieving optimum economic output. Unlike liquid assets, real wealth is less fungible and tied to the property laws of the land.

Since our current, long-lived economic system is an inevitability, then creating a business environment that makes the United States the optimum location for job growth investment is the least confrontational option. America’s trade laws, infrastructure, and employment costs must echo that of the world, if the world cannot be coerced to bend to our economic infrastructure. Since that time in our hegemony is beyond us, it is time for America to adapt.

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Filed under Economic Crisis, Full Employment