Alan von Altendorf

General Overcapacity Cannot Exist

Derryl,

I scarcely know what to say in reply. A single national employer without competitors is communism or fascism depending on which corporate slogans and songs are imposed by the Thought Police.

Why is it my job, all of a sudden, to explain capitalism on SA?? Jeez.

Subsistence farming and handicraft means that you produce enough to feed and clothe your immediate family or commune. Smart people save enough seed corn to plant next spring, and try to pair the best livestock to increase the herd, etc. Maybe there's a barter arrangement between tradesmen, planters and a couple kooky inventors like Ben Franklin.

Capitalism refers to capital goods, a harvester that no individual farmer could afford to buy or build. When you get on a jet airplane, you haven't bought it -- haven't even paid a meaningful fraction or what it took to engineer and assemble. Capitalism doesn't work without credit. You can't build a computer with seed corn and horseshoes. I don't even think you could build a water tower or septic tank with "savings" in the material sense of surplus leather for instance.

Trade, speculation, banking and credit arise from the need to facilitate exchange and bridge the gap from present to future consumption. Money is a token given and received in expectation of delivery at a future date. Even in your impossible world of a single national producer, whatever "money" they pay out in salaries and graft presupposes that those pieces of paper or metal coins can be redeemed for goods at a later date, even if the interval is only a week or two, living paycheck to paycheck (like most of are in reality today).

Borrowing and lending does not change the game. The only difference between cash and credit is duration to maturity. Both are liquid, and sensible people don't pay much attention to M1 cash or M3 deposits. Think "total liquidity" (L) -- all the instruments that mark to market and can be freely exchanged, including stock certificates and derivatives.

Individuals have different skills, abilities, needs, ambitions, and degrees of risk aversion. Some need cash today. Some are bright enough to save for the future. A few are entrepreneurial, risking their reputation and pocketbook on something new.

Overcapacity and shortage are part of the business cycle, by which we mean a somewhat predictable overshoot to adopt or popularize something new, like railroads in the Golden Age, radio in the Roaring 20s, computers and SUVs in the 90s.

Please don't confuse government spending and borrowing with capital formation. Our problem today has nothing to do with overcapacity or financial leverage or lending bubbles. It's easy to say that capitalism is unworkable. Unless you ask yourself what government wrought.