Marc Cuniberti The basic premise of Capitalism is a transaction between individuals where two parties buy, sell or swap goods or services at a price that is agreeable to both, and the value of the transaction is kept by both.
This basic transaction has enabled humankind from the beginning to exist by acquiring what they need from other members of the species.
The economic model of Capitalism is this same mechanism but on a grander scale.
The transaction can be modified with the agreement of both participants. As long as the participants and only the participants make the modifications to the agreement, a capitalistic transaction still has taken place. Simply put, it is the willing transaction between two parties or more to the satisfaction of all without outside interference.
That said, in recent months, I have been asking myself if our economy is indeed broken, but knowing that as long as transactions are taking place, the economy is functioning, hence by definition, is unbroken.
It would be impossible to actually break an economy, as people will always need to procure things from one another. However, it is becoming evident, as it has happened so many times before, in humankind’s history, that intervention into this basic transactional event can move an economy towards a breaking point.
When interference into this basic transaction occurs, economic distortions materialize that begin to seemingly make little sense. These distortions are caused by intervention in this basic transaction. The intervention can be a natural obstacle such as bad weather, but more often in modern society, it is a third party interfering with the agreement between the original participants.
Examples of third party interference would be forcing one party to accept the terms of the other (think terms or conditions not agreeable to one or both parties), adding or subtracting from values of the items exchanged (think forced rationing or mandated minimums or maximums), or demanding a subsequent value transaction for every standard transaction (think tax or subsidy).
Obviously, in our modern-day society, the basic transaction is laden with dos and don’ts, rules and regulations, deductions, surcharges, fees, or taxes. The worth of each transaction has been altered by such additions or subtractions and because of decades of intervention, we may finally be seeing what starts to resemble a breakage of the economy. Some may call it a tipping point.
Examples of these distortions today would be our high unemployment rate while businesses have difficulty finding workers (this condition persists nationwide), a severe misallocation and highly unbalanced distribution of wealth, and a necessity to manufacture intrinsically worthless receipts (our currency and deficit spending) to address the economic maladies that have materialized because of these distortions. Other symptoms include the necessity of an ever-increasing safety net to constituents (despite improved efficiencies throughout history in manufacturing techniques) a perceived need for ever-increasing regulation and taxation in order to sustain the system and increased violence and unrest as a result of these economic distortions that wreak havoc on members of the economy caused by more and more interventions. The more havoc that materializes, the more these third parties feel it necessary to intervene.
Plainly put, what started as a simple transaction has somehow morphed into something that no longer accomplishes its original purpose.
Having attracted intervention by a host of others not part of the original transaction, the simple exchange of goods and services has morphed into something almost completely unsustainable. What started as a working economic model moves more and more towards an unfunctional one. In summary, the Capitalistic economic model is nothing more than people buying and selling at an agreeable price to both, with their needs fulfilled and the value of the transaction kept by both. When man tries and improves on this basic transaction for whatever the perceived reason, the natural economy begins to break apart as the basic transaction is interfered with.
In conclusion, our economy may not be broken, but to this analyst, may have reached a point to be almost unrecognizable as to its original intent. Despite this, the interventions continue to increase, and the parties responsible for these interventions are growing larger by the day. What comes next is usually more interventions to try and correct the distortions that the previous interventions have caused.
Opinions expressed here are those of Mr. Cuniberti and not those of any bank or investment advisory firm. Nothing stated is meant to insure a guarantee, or to be construed as investment advice. Neither Money Management Radio (“Money Matters”) receive, control, access or monitor client funds, accounts, or portfolios. For a list of the services offered by Mr. Cuniberti, call (530)559-1214. California Insurance License #0L34249 and Medicare Agent approved. Insurance services offered independently through Marc Cuniberti and not affiliated with any RIA firm or entity. Email: [email protected].
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