The triumph (and death) of capitalism

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PostMon Apr 07, 2014 8:34 am » by Middleman


I'd rather not report the source of this article for fear that some of you will react the way I do when you cut and paste stuff from the trumpet or Alex Jones, but I will put my hand on my heart and say that every thinking person should be made aware of the situation described within it.

It concerns how just as the internet has reduced the cost of producing and moving information to near zero, so new technologies are increasingly lowering the cost of producing physical goods and services to a similar state.

Some of it is a little hard going, but I promise you'll find it worth your time.

The internet of things has facilitated an economic shift from markets to collaborative commons, with costs close to zero


Karl Marx spent a lifetime trying to uncover what he suspected were the deep contradictions that drove the capitalist system forward but that would one day lead to its demise. Although his search revealed a number of important ancillary contradictions, his focus on the relationship between the means of production, surplus value and alienated labour kept him from unmasking an even deeper paradox at the heart of the system.

In a capitalist market, governed by the invisible hand of supply and demand, sellers are constantly searching for new technologies to increase productivity, allowing them to reduce the costs of producing their goods and services so they can sell them cheaper than their competitors, win over consumers and secure sufficient profit for their investors. Marx never asked what might happen if intense global competition some time in the future forced entrepreneurs to introduce ever more efficient technologies, accelerating productivity to the point where the marginal cost of production approached zero, making goods and services "priceless" and potentially free, putting an end to profit and rendering the market exchange economy obsolete. But that's now beginning to happen.

Over the past decade millions of consumers have become prosumers, producing and sharing music, videos, news, and knowledge at near-zero marginal cost and nearly for free, shrinking revenues in the music, newspaper and book-publishing industries.

Some of the US's leading economists are waking up to the paradox. Lawrence Summers, former US treasury secretary, and J Bradford DeLong, professor of economics at the University of California, Berkeley, addressed this in August 2001, in a speech delivered before the Federal Reserve Bank of Kansas City. Summers and DeLong focused their presentation on the new communication technologies that were already reducing the marginal (per-unit) cost of producing and sending information goods to near zero.

They began by acknowledging that "the most basic condition for economic efficiency: [is] that price equal marginal cost", and further conceded that "with information goods the social marginal cost of distribution is close to zero". They then went to the crux of the problem. "If information goods are to be distributed at their marginal cost of production – zero – they cannot be created and produced by entrepreneurial firms that use revenues obtained from sales to consumers to cover their [fixed set-up] costs … [companies] must be able to anticipate selling their products at a profit to someone."

Summers and DeLong opposed government subsidies to cover up-front costs, arguing that they destroy the entrepreneurial spirit. Instead they supported short-term monopolies to ensure profits, declaring that this is "the reward needed to spur private enterprise to engage in such innovation". They realised the trap this put them in, recognising that "natural monopoly does not meet the most basic condition for economic efficiency: that price equal marginal cost" but nonetheless concluded that in the new economic era, this might be the only practical way to proceed.

The pair had come up against the catch-22 of capitalism that was already freeing a growing amount of economic activity from the market, and threw up their hands, favouring monopolies to artificially keep prices above marginal cost, thwarting the ultimate triumph of the invisible hand. This final victory, if allowed, would signal not only capitalism's greatest accomplishment but also its death knell.

While the notion of near-zero marginal cost raised a small flurry of attention 12 years ago, as its effects began to be felt in the music and entertainment industry and newspaper and publishing fields, the consensus was that it would likely be restricted to information goods, with limited effects on the rest of the economy. This is no longer the case.

Now the zero-marginal cost revolution is beginning to affect other commercial sectors. The precipitating agent is an emerging general-purpose technology platform – the internet of things. The convergence of the communications internet with the fledgling renewable energy internet and automated logistics internet in a smart, inter-operable internet-of-things system is giving rise to a third industrial revolution.

Siemens, IBM, Cisco and General Electric are among the firms erecting an internet-of-things infrastructure, connecting the world in a global neural network. There are now 11 billion sensors connecting devices to the internet of things. By 2030, 100 trillion sensors will be attached to natural resources, production lines, warehouses, transportation networks, the electricity grid and recycling flows, and be implanted in homes, offices, stores, and vehicles – continually sending big data to the communications, energy and logistics internets. Anyone will be able to access the internet of things and use big data and analytics to develop predictive algorithms that can speed efficiency, dramatically increase productivity and lower the marginal cost of producing and distributing physical things, including energy, products and services, to near zero, just as we now do with information goods.

Summers and DeLong glimpsed that as marginal costs approach zero, "the competitive paradigm cannot be fully appropriate" for organising commercial life, but admitted "we do not yet know what the right replacement paradigm will be". Now we know. A new economic paradigm – the collaborative commons – has leaped onto the world stage as a powerful challenger to the capitalist market.

A growing legion of prosumers is producing and sharing information, not only knowledge, news and entertainment, but also renewable energy, 3D printed products and online college courses at near-zero marginal cost on the collaborative commons. They are even sharing cars, homes, clothes and tools, entirely bypassing the conventional capitalist market.

An increasingly streamlined and savvy capitalist system will continue to operate at the edges of the new economy, finding sufficient vulnerabilities to exploit, primarily as an aggregator of network services and solutions, allowing it to flourish as a powerful niche player. But it will no longer reign. Hundreds of millions of people are already transferring bits and pieces of their lives from capitalist markets to the emerging global collaborative commons, operating on a ubiquitous internet-of-things platform. The great economic paradigm shift has begun.
Jeremy Rifkin
The Guardian, Tuesday 1 April 2014

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PostMon Apr 07, 2014 8:43 am » by Mydogma


good post, I think capitalism has been a doomed illusion for some time, Kleptocracies which support monopolies is more were we are at....
If you don't wake up, Your the problem, not the thief...www.cattledum.com

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PostTue Apr 08, 2014 5:04 am » by mediasorcery


the guardian of reality.dont think its quite dead just yet.
interesting post tho.cheers.

communism for the rich.capatilism for the poor?
the story of life is quicker than the blink of an eye, the story of love is hello and goodbye, until we meet again my friend.

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PostTue Apr 08, 2014 6:57 am » by Domeika


Easily copied digital media has had an ever decreasing value. However, real goods, will always be real. Even with an internet of "things", said "things" may be connected, but someone had to make those "things".

The sensors are made by machines that are run in an environment ten times cleaner than an operating room. That is one expensive facility to maintain and run, and that's just the building.

The machines used to produce the actual chips/sensors are in actuality a conglomerate of component systems and structure. Most people do not appreciate the amount of work or materials used in their manufacture, so as an example, let's build a machine. To simplify it, we'll just build the machine frame.

First, let's assume we downloaded a full set of engineering drawings to work from the "global commons". It was free.....yay.

We will need mechanical tubing, let's say 2" square with a 1/4" wall thickness. The tubing is made of carbon steel, precision rolled to it's dimensions. The steel is made by mining iron ore, or recycling scrap steel. Mining is a whole industry by itself, and uses specialized heavy equipment for extracting the rock, crushing it, then transporting the ore, usually by rail or ship or both, also whole industries.

Whether mined or recycled, the iron ore or scrap is melted in an electric smelting furnace. When a batch is being produced, it's called a "heat", and added to it are small amounts of other metals that measured to form an alloy. This "heat" is usually in excess of 2000 degrees F and is not achieved by solar or wind energy, but reliable cheap coal fired or nuclear electrical generation plants. It's also worth a mention that when producing stainless steel, the "heat" is above 2700 degrees F. The steel plant itself is comprised of extremely large equipment made of steel, produced in the same way. It is a hellish environment that requires constant maintenance and the only way to make a profit or break even is to produce thousands of tons on a daily basis and, the running of a steel mill is not a weekends off type of business. If it shuts down, it takes time to get it running to capacity again. You can't just re-boot.

For the tubing we need, when the required temperature is achieved and the alloy content is tested and accepted, the cauldron is then carried by a gargantuan crane and is tilted to pour the steel in to large ingots. The ingots, still red-hot, are then rolled to a smaller girth thereby extending the length, and then the steel is sheared into managable lengths, then rolled using mandrels to achieve exact size and shape. We only need about 20 feet of tubing, but in order for the cost not to be prohibitive, the steel mill must produce a few hundred feet of it, hoping that someone will buy the rest.

So now we have our tubing, but not quite yet. It must be delivered, and it's not put on the roof of a Prius or Volt, it's loaded onto a diesel semi, or train, with other steel so as to keep the cost of transport competitive.

Once we have our tubing, we need to cut it, so we could saw it on a band-saw, or radiac saw. We can't flame, laser, plasma, or water-jet cut because the stock is not a flat plate. No matter what the method, the equipment to do the actual cutting must be manufactured, and in the case of the saw or radiac, the consumables are saw blade and cut-off wheel. Saw blade is also made at a steel plant and rolled through special mandrels to achieve the tooth and pitch requirements, but is also hardened and tempered for toughness and flexibility. To achieve any profit or break even, thousands of miles of blade must be produced. For the cut off wheels, they are reinforced and pressed grinding media, which also must be produced in mass quantity or the cost outweighs the effort.

Now that our parts are cut to a rough length, they must be machined to exact length. To do this, we will use a horizontal milling machine and stack all the parts together, then face cut all of them. Afterwards, parts of the same finished length will be grouped together and cut. The milling machine itself is heavy steel. The table is made of cast iron that was chemically aged and then machined by another milling machine to produce the finished shape. After it is machined, it is "touched" using a hand lap with blueing to show the hips and valleys and is hand scraped into flatness tolerance. The other parts of the machine or "ways" are brought to precision in the same manner. Then there are the other components such as lead screws, which are usually ACME thread or roller bearing shafting, either one precise and not easily produced. Then there are the actual handles, and or console, transmission, power, and feed/servo components, none of which are made by elves. And, the cutter used as a face mill is a mass produced item that uses mass produced carbide inserts.....yet another whole industry.

Our frame members will be welded together, and to achieve that, they must be pinned into place using 3/16" x 5/16" steel dowel pins. Dowel pins are produced in massive quantities and in a plethora of sizes. They are case-hardened to achieve a hard and durable surface while maintaining a somewhat flexible core. Their manufacture requires centerless grinders capable of mass production or the cost would be prohibitive. And, they are made to an exacting tolerance of .0002" which is not easily achieved or maintained unless run in massive quantities. The grinding machines used are produced maintaining tolerances that far exeed that of most milling machines or lathes.

The holes required for the pins must be produced on a milling machine. A horizontal or vertical mill can be used for the pins perpendicular to the side of the stock, but due to length, the pins located in the ends of any of the parts must be done on the horizontal mill.

Each hole must be center-drilled to achieve exact location, then drilled to a depth wherein it does not break through the tubing wall, then reamed to achieve the required exact diameter. The production of the center-drill, drill, and reamer, is yet another whole industry.

Now that the parts are all pinned, they can be welded. Because this frame will be used in a clean environment, the weld must have no porosity, so we'll TiG weld it. The TiG welder itself is again, another whole industry, as are the alloy welding rods, and, the Argon gas used in the welding process and, the gas containment cylinders.

So now we cap any openings in the tubing, and run a secondary argon gas into the frame itself to achieve a full weld penetration. We have to tack weld all the pieces together while trying not to over-heat any one section and cause warpage, and once that is done, fully weld all the frame members together.

Now that we have a fully welded frame, we need to put it on a stress-relieving machine, which is a heavy steel plate 4" to 6" thick that will vibrate the frame at super sonic levels. This will take any of the built up stresses from welding out of the frame and will help to achieve a stable precision platform for the rest of the components that will need to attach to it.

That's a lot, and it's just the frame, of just one machine, that produces a chip or sensor. It takes many mass producing industries to make it possible, and that's not even scratching the surface of building the "things".

And, none of it was printed.

I don't doubt that manufacturing processes will improve over time, but right now, and for the foreseeable future, it is going to take heavy mass industry to power, produce, and move the things that people, like the author of the article, take for granted.

He put's forth the assumption that because digital items can't be protected from being copied they are in effect free, which is true to certain extent only because it can't be stopped. But for him to assert that because of that, everything else will be free, illustrates how little he knows about how "things" are actually produced, let alone the "things" that make the "things" that make the "things".

The devil is in the details, and it takes a lot of details to make "things". It just does. So the assertion that all these industries are or will be on the edge of the "new economy" is incorrect. The many industries the author has probably never heard of have been and will be the backbone of global economy regardless of what anyone thinks or wants. That's just the reality of it.

I for one would love to have a 3D printer that could make a functioning complex machine, or even just the simple machine frame I outlined above, but sadly, it's quite a few tomorrows away.

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PostTue Apr 08, 2014 10:42 am » by Middleman


20 years is 7300 tomorrows away. 20 years ago, most people hadn't even heard the word internet. Cell phones were large, expensive and rare. Home desktop computers were just starting to truly become popular. Laptops were massive, rubbish and cost many thousands of dollars. So called video conferencing was something done by big companies and governments.

7300 tomorrows later, and even many homeless people carry a smartphone around in their pocket that can do all of those jobs and access all of those services at cheap prices.

Nobody will be putting the resource sector out of business any time soon, but they too will find increasingly efficient ways to go about their business. Heavy industry will still be necessary for a lot of things, but think about being able to design and print your own clothes, shoes, house ware, eye glasses, furniture and more for not much more than the cost of the raw materials.

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PostTue Apr 08, 2014 10:45 am » by DarkHeart


Middleman wrote:I'd rather not report the source of this article for fear that some of you will react the way I do when you cut and paste stuff from the trumpet or Alex Jones, but I will put my hand on my heart and say that every thinking person should be made aware of the situation described within it.


The Guardian, Tuesday 1 April 2014



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PostTue Apr 08, 2014 11:09 am » by Middleman


You're right, that long article's numerous detailed arguments don't make logical sense anymore because of the date it was published.

It's a good thing nobody else has ever made the same case about future economies of abundancy on other days of the year, or you might look like a bit silly, DH.
:cheers:

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PostTue Apr 08, 2014 3:12 pm » by Domeika


Middleman wrote:20 years is 7300 tomorrows away. 20 years ago, most people hadn't even heard the word internet. Cell phones were large, expensive and rare. Home desktop computers were just starting to truly become popular. Laptops were massive, rubbish and cost many thousands of dollars. So called video conferencing was something done by big companies and governments.

7300 tomorrows later, and even many homeless people carry a smartphone around in their pocket that can do all of those jobs and access all of those services at cheap prices.

Nobody will be putting the resource sector out of business any time soon, but they too will find increasingly efficient ways to go about their business. Heavy industry will still be necessary for a lot of things, but think about being able to design and print your own clothes, shoes, house ware, eye glasses, furniture and more for not much more than the cost of the raw materials.


Yep, alot of tomorrows. I really hope it's sooner than later though. For the items you mentioned, I'd like to see where that goes because 3D printing is snowballing right now, and I remember the clunky dot-matrix printers and look at printers today....amazing. What will also be interesting is how the technology, or the limitations along the way, will steer product design. For example, you stated clothes. I can't see a shirt being printed like I have on right now....button down cotton with one pocket. We think in threads right now, but in 3D printing, you wouldn't print a continuous thread, but very small locking "blocks" that together are flexiible, like high-tech chain mail although it wouldn't look like chain mail, but it wouldn't look quite like woven fabric either. They key there would be that basic repeatable "block". This would also make buttons and zippers almost obsolete because the pieces where buttons or zippers were used can be replaced with micro-precision locking mesh, i.e. printed velcro. That would be a very interesting shirt, and then people will be looking back on my button-down like we look at a cell phone from th 80's.

For now though, 3D printing is taking off, but other than the buzz, it's not in every home yet. A good machine that would go with it like peas and carrots would be one that the user dumps used plastic bottles, or cups or forks or spoons or knives or plates and can recycle the material to make new versions of what you dumped in, or a shirt.

The melted plastic would be drawn into a wire and spooled. The spool would then feed the printer. In my opinion, put those two together and they will be mainstream in only a few years.

Another big unknown in 3D printing, as of now, but has intense potential for it, is graphene. Print said shirt while also depositing graphene, and you not only have a nice shirt, but a bullet-proof one. At this point who knows all the ways they'll be used toghether, but the potential is staggering.

And eventually, print heads will be developed to deposit tiny amounts of metal, like we do with spray welding today. That will be a gigantic step towards making housewares, such as printing yourself a new toaster.

The legal hubub now is, as with digital media, the design and patent rights....someone wants to get paid even if you print something at home. In other words, GE wants a piece of the toaster you print if it is a copy of theirs. That old mind set, will have no choice but to change.

For the future of heavy industry, only one thing will change it from what it is today, and that is cheaper more abundant energy. I don't mean bigger better generation plants, I mean the fundamental way we produce electricity. We smash atoms to unleash horrendous amounts of energy......we need to finesse it out without breaking anything.....that would mean a limitless clean source of power, and then steel and other metals could be cheaply smelted on a small scale, a true indsustrial re-revolution.

That may be mostly speculation, but someone has to dream it before they can make it. I just hope they don't blow the world up before we get there, or worse, use these emerging technolgies as a way to cheaply produce masses of lethal bots. And we'd be lying to ourselves to think that somewhere some dickhead isn't thinking of just that.

Two edges to every blade I guess, but we'll have to wait and see.

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PostMon Apr 14, 2014 8:30 pm » by Middleman


Capitalism simply isn't working and here are the reasons why

Suddenly, there is a new economist making waves – and he is not on the right. At the conference of the Institute of New Economic Thinking in Toronto last week, Thomas Piketty's book Capital in the Twenty-First Century got at least one mention at every session I attended. You have to go back to the 1970s and Milton Friedman for a single economist to have had such an impact.

Like Friedman, Piketty is a man for the times. For 1970s anxieties about inflation substitute today's concerns about the emergence of the plutocratic rich and their impact on economy and society. Piketty is in no doubt, as he indicates in an interview in today's Observer New Review, that the current level of rising wealth inequality, set to grow still further, now imperils the very future of capitalism. He has proved it.

It is a startling thesis and one extraordinarily unwelcome to those who think capitalism and inequality need each other. Capitalism requires inequality of wealth, runs this right-of-centre argument, to stimulate risk-taking and effort; governments trying to stem it with taxes on wealth, capital, inheritance and property kill the goose that lays the golden egg. Thus Messrs Cameron and Osborne faithfully champion lower inheritance taxes, refuse to reshape the council tax and boast about the business-friendly low capital gains and corporation tax regime.

Piketty deploys 200 years of data to prove them wrong. Capital, he argues, is blind. Once its returns – investing in anything from buy-to-let property to a new car factory – exceed the real growth of wages and output, as historically they always have done (excepting a few periods such as 1910 to 1950), then inevitably the stock of capital will rise disproportionately faster within the overall pattern of output. Wealth inequality rises exponentially.

The process is made worse by inheritance and, in the US and UK, by the rise of extravagantly paid "super managers". High executive pay has nothing to do with real merit, writes Piketty – it is much lower, for example, in mainland Europe and Japan. Rather, it has become an Anglo-Saxon social norm permitted by the ideology of "meritocratic extremism", in essence, self-serving greed to keep up with the other rich. This is an important element in Piketty's thinking: rising inequality of wealth is not immutable. Societies can indulge it or they can challenge it.

Inequality of wealth in Europe and US is broadly twice the inequality of income – the top 10% have between 60% and 70% of all wealth but merely 25% to 35% of all income. But this concentration of wealth is already at pre-First World War levels, and heading back to those of the late 19th century, when the luck of who might expect to inherit what was the dominant element in economic and social life. There is an iterative interaction between wealth and income: ultimately, great wealth adds unearned rentier income to earned income, further ratcheting up the inequality process.

The extravagances and incredible social tensions of Edwardian England, belle epoque France and robber baron America seemed for ever left behind, but Piketty shows how the period between 1910 and 1950, when that inequality was reduced, was aberrant. It took war and depression to arrest the inequality dynamic, along with the need to introduce high taxes on high incomes, especially unearned incomes, to sustain social peace. Now the ineluctable process of blind capital multiplying faster in fewer hands is under way again and on a global scale. The consequences, writes Piketty, are "potentially terrifying".

For a start, almost no new entrepreneurs, except one or two spectacular Silicon Valley start-ups, can ever make sufficient new money to challenge the incredibly powerful concentrations of existing wealth. In this sense, the "past devours the future". It is telling that the Duke of Westminster and the Earl of Cadogan are two of the richest men in Britain. This is entirely by virtue of the fields in Mayfair and Chelsea their families owned centuries ago and the unwillingness to clamp down on the loopholes that allow the family estates to grow.

Anyone with the capacity to own in an era when the returns exceed those of wages and output will quickly become disproportionately and progressively richer. The incentive is to be a rentier rather than a risk-taker: witness the explosion of buy-to-let. Our companies and our rich don't need to back frontier innovation or even invest to produce: they just need to harvest their returns and tax breaks, tax shelters and compound interest will do the rest.

Capitalist dynamism is undermined, but other forces join to wreck the system. Piketty notes that the rich are effective at protecting their wealth from taxation and that progressively the proportion of the total tax burden shouldered by those on middle incomes has risen. In Britain, it may be true that the top 1% pays a third of all income tax, but income tax constitutes only 25% of all tax revenue: 45% comes from VAT, excise duties and national insurance paid by the mass of the population.

As a result, the burden of paying for public goods such as education, health and housing is increasingly shouldered by average taxpayers, who don't have the wherewithal to sustain them. Wealth inequality thus becomes a recipe for slowing, innovation-averse, rentier economies, tougher working conditions and degraded public services. Meanwhile, the rich get ever richer and more detached from the societies of which they are part: not by merit or hard work, but simply because they are lucky enough to be in command of capital receiving higher returns than wages over time. Our collective sense of justice is outraged.

The lesson of the past is that societies try to protect themselves: they close their borders or have revolutions – or end up going to war. Piketty fears a repeat. His critics argue that with higher living standards resentment of the ultra-rich may no longer be as great – and his data is under intense scrutiny for mistakes. So far it has all held up.

Nor does it seem likely that human beings' inherent sense of justice has been suspended. Of course the reaction plays out differently in different eras: I suspect some of the energy behind Scottish nationalism is the desire to build a country where toxic wealth inequalities are less indulged than in England.

The solutions – a top income tax rate of up to 80%, effective inheritance tax, proper property taxes and, because the issue is global, a global wealth tax – are currently inconceivable.

But as Piketty says, the task of economists is to make them more conceivable. Capital certainly does that.
Will Hutton
The Observer, Sunday 13 April

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PostMon Apr 14, 2014 9:02 pm » by The57ironman


a top income tax rate of up to 80%, effective inheritance tax, proper property taxes and, because the issue is global, a global wealth tax


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..... If you can't be kind, at least have the decency to be vague.......
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