Debt-Based Money and Pseudo-Capitalism Drive Planned Obsolescence
Would planned obsolescence still be a feature of a modern economy if debt-based money didn't dominate the economy? by Walt Thiessen
(libertarian)
Sunday, August 15, 2010
Debt-based money, the classification of money which includes every major currency on the planet today, has a long list of detrimental effects. The effects we have focused on most consistently involve the boom/bust cycle (the perpetual cycle of financial crises), government expansion, and the long-term impoverishment of billions of individuals on a planetary scale. However, the negative effects of debt-based money go far beyond these primary forms.
For instance, debt-based money is the engine which makes planned obsolescence succeed in modern business. Without debt-based money, the planned obsolescence pattern could not continue.
Let's begin with a definition. Wikipedia explains, "Planned obsolescence or built-in obsolescence in industrial design is a policy of deliberately planning or designing a product with a limited useful life, so it will become obsolete or nonfunctional after a certain period." The motivation that economic producers have for building items with intentionally limited useful lifetimes is to induce customers to keep buying new versions of products after they "wear out" or break.
This raises a question: why doesn't the market punish producers who utilize planned obsolesence by encouraging other producers to take away their business by producing longer-lasting products? The answer is that the market is not a free market. Rather, it is a government controlled, Fed-regulated market that is dominated by debt-based money. It is against the interests of the money suckers to allow free market patterns to emerge and dominate the economy.
Debt-based money depends upon its ever-expanding money supply to justify its existence. As I and other writers on this site have described in numerous articles, monetary expansion (known as "inflation") creates illusions of prosperity that seem to go away and then return over and over again. In reality, there is little real prosperity at all. Because we are not permitted to have the option to use any other forms of currency (i.e. silver and gold currencies), we know no other economic pattern as consumers and producers. So we incorrectly assume that the level of "prosperity" that we have now is the most we can ever have.
Before we pursue this topic further, we must define the difference between real capitalism and pseudo-capitalism. Real capitalism is where capital (money and resources) is acquired by producing goods and services. Profits are reinvested in the business, thereby financing the expansion of the successful business, toward the goal of gaining a greater share of the market. Pseudo-capitalism is where capital (money) is acquired by taking out a loan (or a series of loans in the form of business loans, bonds, commercial paper, and other forms of modern lending) for the purpose of financing a business toward the goal of obtaining a greater share of the market. The difference is subtle and is often difficult to discern in a particular business, because these days a successful business cannot usually survive solely by reinvesting profits. Most already successful businesses end up taking out loans of various kinds in order to expand more quickly. Still, the difference is an important one, because the necessity for even successful businesses to take out loans is a feature of a debt-based monetary system. Replace debt-based money with hard money, and real capitalism quickly replaces pseudo-capitalism as the dominant economic pattern.
Debt-based money is money which increases in quantity via the process of lending money out. At the central bank level, new money is created out of thin air with a keystroke, then loaned out to large financial institutions and corporations. At the commercial bank level, new money is created each time a customer deposits money in their bank account. The bank, in an act of fraud that is legal for banks but illegal for everyone else, counts the deposit simultaneously as a liability (because the bank owes the money to the depositor, usually on demand) and also as an asset for lending, minus a small percentage of it that is kept "on reserve" for covering depositor demands for their funds. Once this money is loaned out, the money supply in circulation has effectively increased, just as the central bank's newly created money gets similarly circulated by lending it to the large institutions.
Businesses working within the context of a debt-based monetary system quickly find that they have only one route of capitalism available to them. If they want to succeed, they must borrow their way to success. The reason is that debt-based money enables competitors to leap headlong into business on a major scale virtually from day one, in many cases without even having to prove itself as possessing a viable business model. In such an economy, it becomes almost impossible for a business to compete by using "real capitalism" practices, because the expansion in such an approach cannot occur as quickly as it does under pseudo-capitalism.
In this way, debt-based money and pseudo-capitalism create our highly familiar rat race system, where everyone chases the almighty dollar as quickly as possible for the purpose of trying to corner markets as fast as humanly possible by taking on newly created debt, rather than by earning their way to market dominance. For this reason, planned obsolescence becomes more than a feature of the economy. It becomes a necessity.
Contrast the current system with one of real capitalism, where the option to rely on pseudo-capitalism for business growth is dramatically reduced due to the inability of investors and startups to borrow their way to wealth. Businesses are then required to find ways to build better, longer-lasting products in order to gain larger shares of their respective markets.
So while we rightly laud the fact that permitting the use of hard money in competition with debt-based money would lead to the end of the boom/bust cycle and would replace pseudo-prosperity with the real thing, we should not overlook the fact that there are other benefits to be reaped from a hard money system, including the fact that it would discourage the pattern of planned obsolescence.
Imagine that! We could actually have goods sold to us that had longer and longer lifetimes of service! Light bulbs, cars (and transportation of all kinds), houses and construction, consumer electronics, clothing, furniture, and everything else that makes up our current economy would last longer, be made of more reliable materials, and cost less for consumers to buy.
Walt Thiessen is the author of The Money Suckers, a novel about the financial crisis.
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Nice article Walt and a valid point that also applies to the environment.
One of the fundamental purposes [besides the excellent points you mentioned] of fiat money is to fuel the monopoly capital economy.
Monopoly capital has used state intervention to disconnect itself both from price competition and competition for labor by "overinvesting" privleged capital and creating what is falsely referred to as "economy of scale".
That leaves an underpaid [relative to costs] workforce and an overpriced [relative to product costs], overabundant [relative to demand] product. the only way out is to "create money out of thin air" and that everpresent cry for more "growth".
