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Yield driven capital

by on 06/06/2018

Capitalism is capital driven system, where yield hunger capital is the central pillar of the system. Average positive yield on capital demands positive economic growth on aggregate level. Capitalistic economy, in its foundation has a necessity for continued aggregate economic growth, and as such needs continues increase in demand for goods and services, that will pull with it a parallel increase of supply. To secure continues economic growth, the capitalistic economy developed tools to increase demand. Such tools include modern marketing as branding, advertisement, but also continues search for new products, some of them human life paradigm changing.

If in the past the major driving force for technological development was the need for advanced military equipment, or fierce competition between world leading superpowers, not anymore. Since the collapse of the Soviet Empire, the major engine of the technical advance became introduction of new paradigm changing products to the consumers markets. Technologies like space technology, GPS, internet, used in the recent past purely for military purposes, or initiated by governments within global competition between two superpowers for political superiority, are introduced to civil markets as new consumers products, to drive the need for growing aggregate demand, that will bring increased supply levels, what in other terms is translated as economic growth.

While satisfying the need for growing supply, additional new products introduced globally on markets, brought high level of employment and increase in productivity. Introduction of new technologies in production processes increased efficiency of capital and labor usage. Global brands are enabling worldwide distribution of the same products, using global financial institutions and capital in global consumers markets, and the demand and supply for the same products is satisfied. This consumerism driven culture changed the way of life worldwide from local to global.The same food chains, drinks, clothing, music, movies, etc. are produced and distributed in every corner of the world.

Consumerism became the major social and political ideology in all the societies worldwide, including in those countries and cultures, that are trying to oppose it, and are trying to introduce ideologies opposing the focus of the individuals on consumerism. But these societies can oppose successful only temporarily this trend, while using repressive political institutions, and when this system changes to more democratic and liberal, the local culture inevitable transforms itself into culture of consumerism. This is what happened in the post communist countries. In some religious or ideology based countries, where still exists opposition to culture of consumerism, will eventually follow this trend too, or fall into huge identity crisis, when the leading elites will be disconnected from the masses, demanding to adopt consumerism, promising illusion of happiness through comfort and leisure.

While local way of life can exist without adaptation of modern economic tools, and some human activities can be self produced and self used, without to be exchanged by mean of exchange, money, not so in global exchange markets economy, where every product is monetised, and has its price. The process of monetisation itself brings economic growth measured and expressed as monetary income. This economic growth, even if not accompanied by growth of physical side of economy, but just a process of giving price lebel to already created product, is important, because it increases the economic basis for tax collection and return on capital investment. Other form of monetisation is the process of privatisation, that is not only change of ownership and management of economic activity from public ownership to private ownership, but also monetisation of services, before distributed freely for all and financed through taxes to distribution through private monetised system

All these components of capitalistic economic system created an unprecedented drive for global economic growth, that in last decades reached annually 3 – 4%, (except in years of economic crisis, like in 2008). Such a growth is unsustainable, because of it’s devastating impact on global environment. Since without economic growth, existing capitalistic system will necessarily fall into economic crisis, if no organized system change will happen, it will necessarily bring global environmental collapse. Until now no democratically elected government tried to cope with the problem of creating economic system with long term ecologically sustainable economy, and rather acted out of short term populistic policy. When the need for sustainable economic system will penetrate the understanding of the masses and their democratically elected representatives, the capitalistic yield driven economic system will have to change fundamentally, and with it the unrestrained consumerism of each individual in the capitalistic society.

If it will not happen in organized way, it will happen as a new global economic break down, that can come in form of economic crisis, or complete system break down of countries. (As it is happening in some Arab and African countries). It will also trigger mass migration of people from economically and ecologically collapsing countries to neighbouring rich and relatively stable countries.
Money as sole product value measure agent, representing relative value relationship between different products in the market, in form of price of the product, or exchange value measurement, also represents future exchange value, and as such it has capacity to accumulate wealth. No commerce can be even imagined without such a tool as money. Since all economic activity is about exchange of products, money is fundamental to any economic system. But this value holding asset property of money needs faith in its sustainable value. Faith is a human concept, totally unpredictable. So money value is unpredictable too.

All the economic models have underlying presupposition, that interest rate influences the human evaluation of money as value holding asset. This is why higher interest rate should cause increase in wish to hold money, meaning increases its relative value as asset value guard. But there are other, not less important factors influencing money’s asset value holding properties, like it’s scarcity or abundance, and also the trust in vault depository institutions, like banks, insurance companies and other financial institutions. Distrust in any of these my cause failure of the whole economic system based on money, like the modern exchange based economy.

It can be observed that since 2008 crisis money is changing its position and status.
Quantitative easement is not only about transfer of cash money from central banks to commercial banks, as against overpriced securities and other financial assets, but also causing abundance of cash money in the economy. The 2008 year collapse of economy, was followed by collapse of trust in financial institutions. The restored trust in the monetary system and its institutions happened because there are no real alternatives to existing system. Bitcoin and other cryptocurrencies as alternative, because of their high value volatility, are still marginal as tool of economic value exchange mean. So the official money, issued by the central banks is the only real mean for commercial exchange. But money is losing its position as value preserving asset. The worldwide increase in real estate, company shares and even cryptocurrencies prices is rather decrease in value of money, than increase in value of non monetary assets. Since the fixed value of money is absolutely necessary to sustain faith in its validity, this processes need tight follow up.

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