The End of Capitalism as We Know It

Cay Hehner

[A presentation made at the annual conference of the Council of Georgist Organizations, held at Cleveland, Ohio, 7 August, 2009. Reprinted from GroundSwell, September-October 2009]


Capitalism & Communism are proving to be the obverse & reverse side of the same counterfeit coin. As Communism has fallen, because it was based on unsustainable economic and ecological principles, so will its un-evil or evil twin fall! The question is not if or whether it will fall, but when. This paper will explore the causes of why & how.

The world is changing before our eyes as we speak.

Or maybe we should say the world is unraveling as we watch wide-eyed. This morning's headlines announced that the G 7 and G 8 meetings are being officially superseded by the G 20 meetings. Twenty years after the fall of the Iron Curtain and the end of the Cold War the present U.S. President therefore acknowledged that the 'old world order' that dissected our planet into:

The 1st world of capitalism

The 2nd world of communism

The 3rd world of the non-aligned nations

The 4th world or the break-away regions that claim autonomy

The 5th world or counter-cultural movements within the first four

They all have now themselves become history and have become obsolete. Since communism collapsed from the inside out, it really made no more sense to speak of countries like India, China, or Brazil or any other country really as "third world" countries. Now that capitalism is on bail-out intravenous it makes even less sense. This old world order, come to think of it now after its demise, was incredibly jingoist and racist. It was based on retrograde ideas of social Darwinism and colonialism promulgated by Herbert Spencer, Thomas Carlyle, Friedrich Nietzsche, Oswald Spengler et al that have meanwhile been well exploded & proven fallacious. It's main tenant is roughly not the survival of the fittest, but the survival of the most ruthless, a kind of neo-Machiavellism, neo-Hobbesian, very jaundiced view of human nature that holds that man is but an anti-social beast with a usually dysfunctional brain, & that humanity as a whole can never aspire to anything higher than dog-eat-dog, the permanent war-of-all-against-all, and the law of the jungle. On this theoretical dyslexia Adam Smith based his Wealth of Nations and on this literally beastly view of man Marx based his Capital theories only replacing the wage-slave-driving, whip-wielding capitalist with the Kalashnikov-brandishing polit commissar. So we are not tossed from the frying pan into the fire, but from poverty row into the soviet psychiatric ward and the Siberian gulag. I have analyzed the inherent likeness and the inherently lethal limitations of capitalism and communism in essays like "Where Adam Smith & Karl Marx Agree They Are Both Wrong" and "Where Capitalism & Communism Have the same Goals They Will Both Fail".

Two centuries after their inception the reasons for this dual failure are now patent and evident. With the Industrial Revolution at the beginning of the 19th century barely one, two generations apart both capitalism & communism set out to transform & meliorate the earth; it was a scientific revolution as well as an industrial one -- or rather the scientific paradigm shifts fired up the dawn of the industrial age. Both materialistic economic systems set out to abolish world poverty, hunger, infant mortality, pandemics & other scourges of humankind. While they were partially or largely successful with some of these measures they have failed miserably with the abolition of poverty & the eradication of world hunger.

The New York Times this January was running a prominent two-page editorial with the headline: "The End of the Financial System as we know it." A little later Newsweek had a front-page provocation that proclaimed: "We Are All Socialist Now!" Late this summer The Wall Street Journal ran a prominent one-page ad for a bestseller of one of its leading reporters with the title Guide to the End of Wall Street. Now Pravda has been predicting the "imminent end of capitalism" from the Russian Revolution in 1917 onward till the collapse of the Soviet system in 1989. The Marxist arguments why capitalism would and should surely fall have lost traction since, except with a few Ivy League economics professors with a pronounced disdain for clear empirical, historical data. Nobody denies at this point that we have entered a period of global economic turmoil only paralleled by the Great Depression in the 1930s. However there are fiscal, financial, and economic policies that can be set to counter rising unemployment, increasing pauperization, the depression of the middle class and the erosion of economic and real estate value, not to forget the depletion of resources, the large-scale destruction of nature and human, animal, and floral habitats and the crisis of finance and industry.

In direct proportion to the giddy heights of their far-above-average intelligence quotients smart people tend to have more problems than the average John or Jane Doe to incorporate reality into their theories. The problem of fact and truth finding is further compounded if they are working for think tanks that are sponsored by Big Oil, Big Money, Big Pharma, etc. Although communism has collapsed two decades ago - & even weeks before the collapse foe & friend alike had been certain of its perpetuity - an astounding number of pundits & savants continue to spin mind-boggling abstractions that factor in Marxism and the Soviet system as if it had never been proven wrong in reality. Now we are told Cuba is still Communist and China. Not to forget North Korea. If that is true these asservations bear a closer look. It is doubtful that communism as we have known it will survive the death of Castro in Cuba, and it is equally doubtful if Kim had ever seen the light of day as North Korean strongman without China holding him to their guns. And what about China our formidable erstwhile trading partner and credit provider, former adversary, now friendly neighborhood banker? Viewed in the sober daylight of the fading first decade of the 21st century China is not exactly state-monopolist communist anymore either. China by its own linguistic standards has progressed from orthodox Stalinist and Maoist communism proper to a new form: "Free-market Communism"

Not to be left behind -- or shall we say not to leave any grammatically challenged former president behind who brought us this mess to begin with -- U.S. capitalism has not exactly stood still either. Capitalism made in the U.S.A. is now no longer the much maligned unbridled Wild West cowboy capitalism; it has progressed to a highly state-interventionist, all-nationalizing capitalism. Appreciate the double-irony here: The generally accepted orthodox definition of communism is that of a command-economic system run by polit-commissars. The generally accepted classical definition of Capitalism on the other hand is that of a free-market system that is decidedly non-interventionist with the state's role at its most minimalist in a mere traffic cop function. So what are we now exactly? "Socialized and Communistic Capitalists"?

Both Adam Smith and Karl Marx would have clearly resented if we were trying to sell them what is happening in China today as "communist" or in America as "capitalist". So what is happening?

Today the U.S. government holds a 60 % stake in General Motors and an 80 % stake in A.I.G. [Source NYT]. Not to talk about Fanny Mae, Freddie Mac, Goldman Sachs, Morgan Chase, Citigroup and Bank of America who all would have gone down the same memory lane to oblivion if there had not been a monumental, historically unprecedented wholesale bailout on taxpayers' dollars. 'Privatizing profits, socializing losses' seemed to have been the driving principle behind the bail-outs. The United States without G. M. is like imagining Paris without the Eiffel Tower or Egypt without the pyramids. For the last several years it seemed every time you opened the morning papers a major bank, financial institution, or major corporation had folded over night; Fred Harrison is urging us to help "make poverty history!" Meanwhile -- to name but a few -- Lehman Bros., Bear Stearns, Merrill Lynch, Washington Mutual & Chrysler have become history themselves; Bill Gates & Warren Buffet - as if by accident - converted their for-profit multibillion dollar operations into private, non-profit charities just a year or two before the domestic & global economy tanked to a degree not experienced since almost a century. Last winter a rumor went around that Buffet, the 'oracle of Omaha' and apparently richest man in the U.S. was going broke. This April it became official: Bloomberg reported that Berkshire Hathaway assets had lost 97 % of their value the first quarter of 2009 - a 97 % loss is as good a definition of bankruptcy as anyone is ever likely going to get. In my locker room the other day I overheard a conversation between two brokers: Remember the last time Capital Management went broke in 1998? One wonders what made the Fund liquid all over again other than the printing press being turned on to print dollars backed by no corresponding economic value.

What is really happening is that the leaders of both systems, the capitalist and the communist one, are loath to look reality fair and square in the face: Both systems are non-functional, and have been so for some time, both systems have created an environmental devastation of historic proportions, both systems have failed in their basic promises to give air, water, food, shelter, and clothing to all of humanity, and both systems if we plan to survive need to be replaced by something radically different.

At this point enters Henry George, the maverick economist and probably most underrated social thinker of the last 150 years: Henry George urges us to study economic principles & apply them. In many class room discussions over the past years and decades students often interpret George either in capitalist-free-market or in communist- socialist terms. I used to indulge them, but lately I have come around to a different station point more in line with reality. If you come from either system and you are trying to interpret the works of Henry George in either Capitalist or Communist terms - as laudable as this effort may appear in itself -- you will certainly miss what is most essential, most vital & best about Henry George. In other words you will miss George and the economic analysis and solutions to present day economic problems altogether!

The old story of the Zen master comes to mind who received an aspiring student and kept pouring him a cup of tea till, indeed, the cup overflowed, and the table was completely flooded. Upon the vehement protest of the student the Master alerted him of the fact, that he could not have any fresh tea at all as long as the cup he was bringing was filled to the brim to begin with. In other words if our minds are full of old, pre-conceived notions we will not be able to understand anything radically new and if reality would take a radically unexpected turn we might be left out in the dark and cold on the curb clueless and scared.

What is scandalous and scary about capitalism and communism is not what distinguishes them to mutual exclusivity and a nuclear to-the-death struggle has we have been brainwashed to believe for a near century and a half in all hemispheres, but what they hold in common, or more clearly stated: the huge blind spot they both hold in common. To illustrate I would like to use an example that may at first appear anecdotal. Standing in line in a bank to cash a check I recently overheard the following conversation of two people directly in front of me. It must have been April or May, when seasons change from winter into summer in New York without bothering to engage spring.

"I hate this kind of weather," said the first person. "Yes?" queried the second. "It's too warm to turn the heat on, but it's too cold for air condition either!"

In other words the weather was perfectly bearable & needed no squandering of any natural resources at all. How alienated can we get? Or rather how alienated can get those masters of thought who become the foundation, yea, indeed, the very bedrock of our cultures and civilizations. Adam Smith and Karl Marx both pay lip service to the three factors of classical economics: land, labor, capital, but then seem to be struck be amnesia regarding land (or nature, raw materials, natural resources etc.) and continue the calculation and the organization of society in complete disregard and ignorance of it. Environmental destruction was actually worse in countries behind the Iron Curtain, but we have by no means gotten a handle on the problem in the West "this side of paradise." We have seen Argentina in economic dire straits earlier this decade, the whole nation of Iceland has gone bankrupt recently because they mistook their land for a hedge fund. We are told California and Great Britain are on the verge of bankruptcy, worse still the trade papers threaten to take GB from their AAA financial rating status. The question is here how sensible is it to define and characterize entire countries, indeed, the world by their more or less appetizing features for venture capital investments. "Human capital", "natural capital" and other terms are there to fudge important economic distinction and turn all of us into cannon fodder for the speculator and the monopolist. Oliver Stone has been asked for some time to resurrect his "Greed-is-good" Wall Street banker Gordon Gecko. He resisted this suggestion with the laconic comment: That would be like glorifying pigs.

How much now does the concept of man in both systems on which these rating practices are based, the economic man or homo oeconomicus, correspond to our actual experience of reality?

The concept of "economic man" is not humanist at all as has often been argued, it does not derive from the renaissance& it is so reductionist that it defies all description. The renaissance has given us the proverbial renaissance man, meaning that human individual that is versatile and developed in many directions, by no means reduced to the cycle of production - consumption - ejection only. The conception of the human of the renaissance, on the contrary functions on many levels: physical, artistic, theoretical, spiritual, integral -- to name only a few. That is, it is not confined to the material exclusively. Capitalism as we know it is doomed to failure in the very near future, not because I or a good number of like-minded social thinkers may say so, but because it does not allow us to live up to our full human potential, because it does not see humanity fairly & squarely as part of nature, and because it disrespects & defies natural law to a degree to which both world & humanity quite abruptly become unredeemable.

At heart our inability to conceive of the future and to conceive of the new may be illustrated with the example of parents and child.

A child may resemble both or either of its parents to an uncanny degree, at the same time it will bring in character traits, and a unique identity not contained or explainable from the character of either parent.

In formal logic one of the basic principles states that A = A and may not at the same time be unequal A. This principle is called tertium non-datur.

In history & social science this principle would have to be amended:

Tertium datur!

We often get asked if the Keynesian approach of the present government will enable us to overcome the present crisis, this Point Of View gets most prominently championed by Nobel Prize winning economist Paul Krugman in his New York Times editorials. As laudable as Keynes and Galbraith's contributions to the science of economics may be, what often gets forgotten is that deficit spending is but a fire-fighting measure that would bankrupt any state when used long-term. It was never meant as anything else. What would now be the Georgist precepts to overcome the crisis?

First: end the love-fest of the Fed & the S.E.C. with the multi-billion dollar hedge funds

Second: the de-emphasizing of financial capital in favor of productive capital

Third: the abolition of rewarding resources speculators with public funds

Fourth: the abolition of taxes on labor and production

Fifth: the institution of a public fund created out of resources user's fee

Sixth: the cleaning up of the environmental defalcation through the rigorous application of the causative principle

Seventh: the furthering of R & D and consequent implementation of natural energy sources like solar, air, water, even electric & the gradual phasing out of the rapacious ones, oil, coal, gas, all those resources whose combustion would contribute to the greenhouse effect

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