I know, I know. It sounds crazy. Hyperbolic. But give me a minute to explain and I’ll have you scratching your head soon enough.
Just looking up the definition of capitalism is telling. And why look it up when we all know what it means. It’s like Rice Krispies for breakfast. It’s simple and easy to understand. But wait.
The trusted Merriam-Webster defines it as,
“An economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.”
This is the definition we all understand with that well-known buzz word “free market.” This is what it’s about. The market controls everything. If your product sucks, no one buys it. If your service is amazing, everyone flocks to it. And as the customers come streaming in, so too does your revenue. And then you hire more people, move to a larger building, and amass more capital. With more capital you invest more and keep going.
But then let’s see what Google says,
“An economic and political system in which a country's trade and industry are controlled by private owners for profit.”
Wait, what?
It says, “economic and political system.” Isn’t that an oxymoron? How is it a free market when the government controls the markets? And how do “private owners” make the decisions if it’s a “political system?” But it also says, “economic and political system . . . controlled by private owners for profit.” Which implies the government is “controlled by private owners.” Well actually, yes. In practice, that’s how our system works — extremely wealthy individuals and companies controlling the government. Remember Citizen’s United?
Turns out my Mac Dictionary app delivers the same definition — two of the most ubiquitous sources of understanding are conflating an economic system with a political one. Or maybe the wisdom of Google and Apple is that they want us to understand that for a free-market system to prevail we need a political system to support it? But that’s not what the definition says. It says, “and economic and political system,” emphasis on “and.” But it can’t be both, and if it’s not both which is it? Economic or Political?
For some further granularity I turned to my new research partner, ChatGPT. Which by the way, research (I perceive) is one of its principal utilities, not the generation of news and creativity. Anyway, here’s what the enlightenment of AI had to say about capitalism,
“Capitalism is an economic system in which private individuals or companies own and control the means of production and distribution of goods and services, and operate for profit in a competitive market. Under capitalism, the production and distribution of goods and services are determined by the laws of supply and demand, and prices are set by the market. In this system, individuals are free to make their own economic decisions and to compete with one another for resources and customers. The accumulation of capital is a central goal of capitalism, and profits are reinvested into businesses in order to generate further growth and wealth.”
The part that stands out for me as being core to understanding capitalism is, “The production and distribution of goods and services are determined by the laws of supply and demand, and prices are set by the market.”
Another way of framing it is that the market is us. We’re the market. What do we need, want, and prefer. Which product is best for our needs, or priced the best, or fits our unique style? But so much of what we purchase from day to day has nothing to do with what’s best for us, which is where the paradox of capitalism comes into focus.
Time for a little story,
In the 1970s my dad made it big in commercial real estate. Right out of college he went to work for Bank of America and quickly learned the world of high finance. While working at BofA he began purchasing small apartment buildings. He’d spruce them up a bit, raise rents, and leverage the enhanced equity to purchase his next building. Pretty quickly he saw more opportunity in real estate than banking. So he went all in. By the late 70s he was buying high-rise office buildings and making a killing.
Then he looked for new horizons and set his sights on the oil business. Somehow he found a small country that had unsuccessfully attempted to nationalize its oil industry and was looking to off its shiny new and completely unused oil tankers.
Not to digress, but time and again when small countries attempt to nationalize their oil industry it proves disastrous. Not because they can’t figure out how to make it work, or because the economics aren’t favorable, but because of the might of the US of A and the CIA that pull out all the stops to prevent it from happening. This itself is the topic of many well written and thoroughly researched books, usually penned by academics, because it’s easy to ignore a lofty book written by a tweed wearing egghead than if it were presented as popular literature.
The point being, they tried, they failed, and found themselves with two oil tankers and no oil industry. Just as they were about to sell the ships for scrap metal to a company in India my dad swooped in and offered them pennies on the dollar and found himself in the oil business.
Then, and this is the mysterious part of the story, he worked his way into the Saudi Arabian oil ministry. Seriously! With one of the two ill-fated tankers he purchased he presented himself as a legitimate merchant of oil. Meanwhile he was wining and dining heads of state of small countries like the Marshall Islands, and some not so small countries like Indonesia and South Africa to supply them with oil.
Wham bam and he was an oil tycoon.
The economics of the oil industry is all about volume. The average seafaring oil tanker carries several million barrels of oil. They don’t actually carry barrels though, it’s just a unit of measure. Let’s just say it’s a lotta oil. And the profit on a barrel of oil might be only a few pennies. But a few pennies times several million becomes a fair wage for transport across the seas in 1970s terms. In other words, it adds up.
So there he was, cruising along as the chairman of a small independent oil company, filling his tanker in the middle east, selling in the central Pacific Ocean and the U.S. until the big oil companies took notice.
Oil tankers all have transponders that enables the big infrastructure of oil to track every tanker around the world. Deals are made and prices determined based on the flow of oil. It’s a big deal in the industry. And once the big guys perceived my dad’s small upstart as a threat they timed the market to drop the price of oil just below what he paid for his oil 24 hours out of port.
That meant that my dad had to continue into port, tie up, and wait until the market bounced back, or otherwise sell at a loss. But the big guys could wait him out, and they did. Eventually my dad was forced to sell at a loss, and mysteriously the price of oil shot back up just after the sale. A few trips from the middle east at a loss and he was out of business.
This was in the mid 1980s. A long time ago and my first lesson in how free-market capitalism is not actually free-market.
There is a lot to unpack with this topic, and I’ll do my best to be as un-academic as possible — in other words accessible and hopefully a little entertaining. The reason for this series is that the notion of what capitalism is and is not, is not even as faintly understood as the pink elephant in the room. It’s more like an invisible elephant in the room — it’s there but we can’t see it, so we don’t know it exists. And yet this particular elephant is affecting literally all aspects of our culture, economics, and politics.
More to come.
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Amazing that your dad was enough of a threat to cause global price manipulation
Thanks for sharing your astute observations. My book, Medicinal Herbs of California, includes an opening chapter entitled “A Brief History of Medicinal Herbs in America,” in which I explain how the takeover of medicine and the creation of the pharmaceutical industry by the robber barons, led by J. D. Rockefeller, resulted in the removal of herbs from the U. S. Pharmacopeia and the closing of most existing medical schools in the early 1900s. That chapter is free to read in the book summary on Amazon or Google Books. I will elaborate on this topic at the 2023 Ojai Herbal Symposium in November in a presentation entitled “ The Political History of Herbal Medicine in America.” In researching this topic, which was not easy to do, I recently discovered an amazing book called Rockefeller’s Medicine Men: Medicine and Capitalism in America. It’s out of print now but, thankfully, reprinted by a publisher who saw the value to society of having this history available. While focused on Rockefeller’s transformation of medicine, it explains so much more about how we ended up where we are today.