Capitalism, basically, refers to the economic system based on capital. The capital is in the hands of free market. Free market consists of firms, the owner of the firms(bourgeois) and their employees(middle class and proletariat). The invisible hand mentioned by Adam Smith (father of capitalism) basically says that the free market where everybody does their own interest will run the economy well. In our age, free market refers to the firm. The “Capital” is an asset under the control of firms. So, the firms control the mechanism of capital economy.
What do I propose in this article is that the free market economy is misunderstood. First proposal is free market should not be related to the firms but to the people(employees). Second proposal is the capital is not the asset “Money”, but the value created. Third proposal is the invisible hand mechanism can only work if the capital is controlled by middle class and proletariat.
1.Free market should not be related to the firms but to the people(employees)
Imagine a day that everyone in the world disappears. Would there be any Google, Microsoft or Amazon? Companies exist just because of their people. People generate the companies and keep them alive. If all the world would accept that there isn’t any company called Google in the world, if people behave and live according to that, there would actually not be any Google in the world. Companies live only in our minds. They are not physical object. They are abstract creations made by human(Homo Sapiens,Y.N.Harari). The labor of the people create the value, that value is measured by money and that value is shared iwith all over the world to create new values. The value created is exchanged when the value and price of it is coherent. As I said above, the value created is measured and exchanged by money. If the money that can be exchanged with value created is high, the value won’t have problem for exchange. So, if the people have money, the goods and services are going to be distributed more. All distributed goods and services create more value which causes a loop that gets bigger and thicker each time. This is what people call growth in economy. Other than the amount of exchange, the number of people who makes the exchange is important for growth. That’s why consumption oriented economies grow faster. So, the exchange determines the free market. The produced good or provided services work only if there is a consumption demand of them. To clear this, let’s give an example. Imagine a government that wants to support small business, start-ups. There are two policies that they consider. First one is to give money to the small businesses so that they can start creating the value. Second one is to do tax relief on the product or service that will be produced by those small businesses. Which policy would be more efficient? Which policy would actually work? According to the previous policies made by countries on this subject, the second policy gives much better results. Because the tax relief increases the consumption demand, only thing that the companies should do is just to create the value for the demanded exchange. All the effort spent on selling the created value will be reduced. The probability of the failure of company because of less demand will be lowered down. The main actor (consumers)in the free market is going to prove that they rule this economy.
The efficiency of the money that will be spent for exchange is also important for growth and wellness of the economy. The overvalued goods and services are exchanged in narrow channels. Only a few people (mostly bourgeois) executes these exchanges. The overvalued goods and services are not the subject of efficient exchanges. Because of this, the exchange of luxury product actually affects the efficiency of economic growth. To lower down the amount of these exchanges, money distribution is the essential factor. The efficiency of the exchange of fundamental goods and services is much more higher than the efficiency of luxury goods and services. The price of the luxury goods and services does not determine their real value. The real value of them is the amount of their effect on the following values created. So, the value that should be created and exchanged should be the value that creates more value. As an example, let’s imagine a rich woman going to jeweler to buy a diamond ring. The money paid for diamond ring affects the other values to be created. The money goes to the diamond miners, jeweler and ring makers. Now, let’s imagine a food company that produces eco-friendly chocolates. The money paid for chocolate does not come only from one channel, but from many people. The exchange amount is higher here. And the money goes to the workers and owners of the chocolate company. Even though the money amount that goes to the factory owner is big and cannot be used so efficient, the number of workers in the chocolate factory is higher than the number of workers in jewelry. So, the money is distributed even more. The chocolate is sold to many people, so the happiness amount that is distributed by chocolate is higher than the happiness amount that is distributed by jewelery. So the effect of chocolate factory is higher than the jeweler.
People exchange the money for certain values. Food, education, health and insurance are the areas that the money is exchanged in by everybody (rich and poor). After these areas, not vital but important areas are coming. Further the area to the fundamentals, lower the value that is created for each exchange. The high technology is an exception. The value created in high tech increases the efficiency of the values created in all areas. So, it creates value indirectly. In this manner, the capital should be hold and controlled by the people instead of firms.
2. The capital is not the asset “Money”, but the value created.
The capital refers to the money in free market economy. Capital belongs to the firms and controlled by owner and manager of these firms. The money asset is accepted as capital in the free market economy. But, I claim that it is not. The capital is the value created. So, the employees in the firms share the capital. If the return of this capital share is not balanced, employees cannot do proper exchange. This situation again brings us to the first proposal. The real “capital” term refers to the value created and, it needs to be controlled and shared equally by the owners(employees) of the capital. Let’s think about an example. There is a company developing software to the clients. If the company does not develop software, the company cannot make profit. The value created makes the profit, not the money that the firm has. Money is just an exchange material here. Salaries of the people are the exchange of value created and money so that the employees can also exchange the value that they created with other ones. If the salaries of people do not satisfy equality, then the real owner and controller of the capital will not get what they deserve. The system will be disrupted and the efficiency of use of money will be decreased. Because the salaries of the employees are spent for highly efficient values, while the money of owners are spent on less efficient values.
3. The invisible hand mechanism can only work if the capital is controlled by middle class and proletariat.
The system’s core component is invisible hand. This component works like “Evolution”. The capital controlled by employees gets exchanged in most efficient way. This creates an environment where the unnecessary and undemanding values are eliminated. Invisible hand makes it by giving less and less capital to the firms which create undemanding value, so that these values are created less and less until they are not created at all. If the capital is controlled by firms, there would be created values which are inefficient or not efficient for individuals, which then causes unbalanced situation in economy. If the capital amount is high, then the invisible hand cannot affect those firms which create undemanding value. Because, even though the value created by those firms is not efficient, it still grows the capital itself because of the big amount of those capitals. Let’s assume that the Google stops creating all efficient values and starts making inefficient values like jewelries. Because the capital of Google is high enough, the jewelry market would be dominated and Google would take all the profit from here. This would lead the world economics to a certain shrink and recession.
The countries creating high values and having equal money distribution have the biggest efficiency for the use of money in the world. The chart “Distribution of Wealth” shows the money distribution in world in 2012. The average of the ranges for the money for each individual in the chart is between 100k and 1m USD. So, if the money distribution in a country is good, then the amount of people in this range should be maximum.
I sorted the chart according to the 100k-1m range for the distribution of adults according to the wealth range. As we see, the countries having the best money distribution also has the highest GDPs in the world. The reason of it is as explained above; equal money distribution gives the control of capital(the value created) to the individuals. Individuals exchange their money (exchanged with the value that they created) for most efficient values so the economy grows faster and more efficient. These countries do not do something special to get these nice numbers. They just understand that the capital is the asset of people, it is the value created by their labor and, it belongs to them. They also recognized that the most efficient values are the fundamental and high tech ones. So, they distributed the money to the people well so that efficient values are going to be exchanged more than inefficient ones.