Just look at the mess the world is in today. Has Capitalism failed? Well that is what the leftists would like you to believe. I would contend our market is nowhere near a capitalist system. Government interference has rendered it almost unrecognizable and getting worse all the time.
Every time the Federal Reserve turns on the printing press, without destroying an equal amount of old currency, they produce counterfeit dollars. Every dollar in existence before the creation of new currency has a tangible value in the market as determined by those who use it. Currency is merely a token of the value of labor and assets, and that is all that backs the value. Ink and paper hold no value alone; they represent no actual good or service. Infusing un-backed money in the market is akin to...let me use an analogy.
Say you own a Ming Dynasty vase; one of only 100 known to exist. The value of the vase is enhanced by its rarity, and its value is determined in the fair market based upon demand. Let also say all 100 of these vases have been known to exist for 100 years. Over the 100 years, many of the vases have traded hands, and by doing so the value has been established via supply and demand. Lets say today’s value was $10,000, and based upon comparison with commodity indexes, the actual value of the vases have remained stable over the 100 years. One day, out of the blue, 50 more identical vases were discovered and hit the market. The vases look the same and were made by the same people but the question is would they (and the ones previously known) be worth the same as they were before? Of course not. What would they be worth? That is the crux of the issue.
Establishing a new value would take time since all of the vases would not be on the market at the same time. Of course there would be appraisers and dealers that would attempt to set or influence a market price but the true value could only be established in the market with actual money changing hands. This is exactly what printing money does to the market; confuses, and dilutes it. Lets add one more tad bit of confusion into the mix; credit.
Let’s say during the establishment of the new value of the vases, a few people bought the vases and put them on credit. The newly purchased vases, bought on credit, established a baseline to the new value of all the vases; or did it, was it real? Now lets also assume those who bought the vases on credit (and established a new value as a result) were unable to meet the terms of credit and the vases were repossessed. The market was inflated by false demand, due to the “buyers” ability to pay. Credit, skewed the value of the market. After repossession of the vase, the creditor must make liquid, the vase (sell it). Since the banks are not in the retail sales business and time and use of money is their business, the bank will forego top market prices to recover capital (sell it for less than it’s worth). Discounted sales in such a circumstance recess the market, lowering the value of all of the vases to some extent. The use of credit not only can falsify the market to the positive but the negative as well. The little credit vase analogy is almost identical in nature to the housing crisis we face today. Printing and borrowing money is an enemy to a functional capitalist system. Printing and borrowing money is a weapon of mass confusion. Don’t lose faith in the capitalist system… if you are younger than 100 years old you probably have never really seen it in action. America, we need to get back to the basics. The basics will yield slow, steady, unrelenting growth.