Friday, October 3, 2008

Capital: The Key to Economic Survival, and Improved Standards of Living

(This is the 2nd installment in a series of articles about the problems associated with government's attempts to ignore free market principles in a free market world ecomony.)

No matter what we may think, the world economy is a free market, even capital based, economy.

Basic Economics 101

For any government/state system to exist, and maintain, it must have an associated economy which can make available, at minimum, the basic necessities and consumables for its citizenry. For economic stability, the participants in the economy must provide some contribution to the economy in proportion to the resources they need.

As a population grows, so must the availability of these necessities and consumables. More people require more food, more housing, more clothing, et al. And, to the degree that the consumer/participants maintain a suitable level of contribution, the economy maintains a balance, and is sustainable. If this condition is met, the standard of living can be maintained.

However, in this modern age, simply maintaining the standard of living is unnacceptable in most economies. But an improved standard of living, by definition, requires an even greater availability of resources for each member of the population, and, therefore, an associated increase in production offered by the participants.

Capital is the Centerpiece of all Economies: Improved Capital Means Improved Productivity. Improved Productivity Means Improved Standard of Living

Increased production comes from the development of improved means of production. And, means of production is, by definition, capital. To cause the means of production to increase in its ability to produce, hence an increase in the standard of living, there must be an investment of some sort, capital investment.

Restated, since all economies require some means of production, they must be said to be capital based. Since all economies desire an increase in their standard of living, there must be capital investment.

Even Non-Capitalist Economies Require Developing Capital

Yes, Virginia, it doesn't matter what China, India or Middle eastern countries call themselves, communist, socialist, facist, capitalist, or whatever. It doesn't matter that their own domestic economies aren't considered free market, capitalist economies. The world economy, at its core, is a free market, capital based economy, no matter who controls the means of production.

A socialist country may own the means of production. But, the means of production is still capital, A government may "control" the earnings of its citizens, but those citizens must still have access to sufficient resources to secure the things they need for the economy to exist. If a particular economy's consumption needs exceed the availability of available resources, that economy, hence the system it supports, cannot survive.

And in order for even the socialist economy to exist, to improve the standard of living demanded by its citizenry, there must be capital investment. It logically follows that the governmental system that does the most to encourage investment in capital will obtain the greatest increase in production, and improvement in its standard of living. Such has been the experience of the nations who espouse the economic system called Capitalism.

Recognize these Principles at work:
  • An economy can be stable only when it is able to produce and deliver the goods and services necessary to support its population.
  • Economic balance occurs when the participants produce at least what they consume. A simply balanced economy maintains a stable standard of living.
  • The standard of living increases when production exceeds what participants use or consume.
  • Productivity is effected by the means of production, by definition, capital. When capital is improved, the standard of living is improved. When capital is diminished, the standard of living is diminished.
  • The basic element by which capital can be improved is investment. Every economy, no matter its form, is subject to this principle.
  • Economies that discourage investment in its capital inherently diminish their ability to improve the quality of life for its participants.
Capitalism provides the only means by which a society can improve its standard of living. It isn't the enemy. It isn't even the problem.

But there are knocks on capitalism, one I will discuss in the next installment.

CJ Coolidge is a regular contributor to HRTools.coms.
You can now get your own copy of his groundbreaking book, The Squaredime Letters.
You can vist CJ online at

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