Fundamentals of capitalism

Michał Kalecki derived this relationship dividing the whole economy into two groups: workers, who earn only wages and capitalists, who employ workers to earn profits. The economy is assumed to be a closed system and that there is no public sector.

With these assumptions Kalecki derives the following identity:

P + W = CP + CW + I

where P is the volume of gross profits (profits plus depreciation), W is the volume of total wages, CP is capitalists consumption, CW is workers consumption and I is the gross investment that have been made in the economy.

If we assume that that workers do not save, i.e.,

W = CW

we get,

P = CP + I

This shows that profits that capitalist together makes is the sum of their consumption plus the investment they make.

Kalecki applied this to a closed national economy but this present model fits the present global economy better wherein the intervention and influence of the state is being eliminated.

The global workers exist mostly in third world countries but since the global economy is a boundaryless economy, third world like substructures exist even in first world also, as ghetos in London, Paris and New York, similar to the official restricted areas in South Africa.

Capitalists mostly exist in first world, in places like London, Paris, New York, Geneva etc., but since it is a globalized economy they also exist in the poorest of poor places like Somalia, Indonesia, India, China. The capitalists are globe trotters so may jump from one country to country looking for a better set of workers.

Traditionaly, agriculture market has been operating outside the big capitalist markets. However, agriculture workers can also be considered as workers in the sense that their wages are almost same as their consumption. Agriculture is also on the verge of taking global dimensions and has the potential to create global food shortages in place like Africa and India. Cash crops such as sugar cane, cotton, tea, coffee etc. will also increase, causing global food shortages.

Flow of investment in non-capitalist third world countries creates newer markets that can expand newer avenues to make profits. However, as pointed out by Kalecki, the unfortunate aspect of capitalism is that flow of investment and consequent profits associated with it increases the price of material goods thus reducing the profit potential in mature capitalist markets, landing it in a crisis. The crisis is temporarily overcome by invading and converting non-capitalist markets to capitalist markets, i.e., by exploiting unexploited natural and mineral resources and bringing them under boundaryless global markets. Of course all this comes to a naught, eventually, when these newly exploted regions of the world matures into a fully developed capitalist market, as they will loose their potential to make more profits.

Just as capitalism operates globally reaching across various cultures, it also operates deeper into human psyche as it looks for newer avenues to turn other hitherto unexploited non-material aspects such as health, education, marriage, dating and other social interactions into marketable products. Pharmaceutical and other such product companies will try to exploit newer social platforms through the internet, thus penetrating deeper into their markets.

In order to survive, the actors in capitalism will try all possible avenues. At the managment level the strategy is to turn more and more actors to workers while at the same time increasing the salaries of the managment. This creates a loyal set of managers. This exhaberates inequality between the capitalists and the workers. Big corporates fund non-governmental organizations (NGOs) to work with poor workers to soften the possibility of a revolt while at the same time the NGOs work towards providing a safety net for the poor when all the state owned social services are dropped. Once the revolt has been muted the big corporates will pull all the funding for the NGOs who will be left high and dry. The workers will slowly get used to their missery. Newer theories will be proposed that will show that all these disparities are justified by showing that there are some underlying genetic cause. Hinduism may be of even greater help than genetics if they start believing karma and the sins of previous birth as being the justification of all these inequalities.

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