Wednesday, January 31, 2024

The Connection Between Capitalism and the Debt System.

October 14, 2020 by  
Filed under Tech/Internet, Weekly Columns

( Today, debt is more of a commodity, since it is bought and sold between big financial institutions. You may be asking yourself, does debt fuel capitalism? The most straightforward answer to this is, “Yes, capitalism depends on debt and credit at the same time.”

 In capitalism, debt and credit take a similar monetary form. These two both propel capitalism, which causes instability in a country. For a long time, excess lending has been the only way to upgrade the living standards of the significant population when wealth can only be associated with the elite. You see, if you can’t earn it, you can borrow cheap financing made available for anyone today, thus increasing the borrowing levels.

 Why is Credit Essential for Capitalism?

In a capitalist country, all businesses need money to facilitate the trading process. Producers need money to acquire machinery, raw materials, and labor to manufacture goods for sale. While few producers can fund themselves, more will depend on credit, which means money is issued at some point. Traders may then get goods from producers on credit, which forms the new banking system’s origin.

 While traders and producers need credit to begin the economic process, buyers also need credit to buy goods. It could be that you lack enough money or some goods like a car and a house are too expensive to buy with cash payment. In that case, workers’ wedges have less value compared to the goods produced. A business gets profits from the difference and surplus value. If there is less market for produced goods, there will be no surplus, making more people access credit through home mortgages, deferred payment, or higher purchase to buy the excess goods. It worsens the situation since you won’t afford more credit.

If capital is going to accumulate, new money has to get into the system continually. Why is this so? It’s because the role of money in capitalism is to profit from the cycle of production and sales. In commodities, exchange money becomes the medium since goods are sold for cash, and the money is used to get other goods. It is very different in capitalism as the first reason for making a commodity is to get money. Money, therefore, gets into investment in goods production intending to make profits. This means the system needs a continuous supply of funds for desired gains, which becomes a dilemma in capitalism.

 The debt burden will, at some point, have to come down, meaning more saving is required, which reflects a low economic growth for several years. Inflation will probably return, forcing investors to seek a higher return, and it may make it hard for various governments to handle debt. It will have a lot of uncertainties on economic growth.

 You cannot do away with capitalism since it is much better than other systems, but you should be innovative enough to create new market opportunities. You should also be ready to live within your means, which means spending less than you earn. Debt to success system reviews can help you as an individual gets out of unnecessary debts.

Staff Writer; Bobby Brown

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