Capitalism, What’s it Good For…

Since business is the corner stone of capitalism, it would make sense to start with a look to the greatest business futurist there was, Peter Drucker who in the Practice of Management said “There is only one valid definition of a business purpose: to create a customer”.  Interesting enough he doesn’t say to turn a profit as that is a result of the first as without a customer, the potential for profit does not exist.  While this may sound like poetic pose, the fact remains that this is a substantive truth of the model as many bright people do not get this fact.

As in a capitalistic system unlike others, the customer is also allowed to own the business therefore we create a closed loop system where the customer purchases also in turn benefit the customer from the demand side as well.  It’s within this duality of customer <-> shareholder model an interesting byproduct occurs as a result of the oscillation within the economic side of the equation. The ‘byproduct” which is created is social affluancy which can be viewed as the potential to do future work.

Hand Crank Capitialism

Hand Crank Capitialism

To liken this to a practical analogy, let’s use one of those hand crank flash lights you see all over the market for fewer than ten bucks as our example.  As when we take it apart we see it is composed of three primary components which we will use to represent our social-economic model.  The first is a hand crank generator, in terms of our model this is the “economic engine” which oscillates with the turning of the crank much like our markets.

The next is the battery and worthy of special note is the fact this is a small “battery” its purpose is not solely to drive the system, only to buffer the impacts of the economic engine (the generator).  So as we slow down or speed up our cranking the difference is made up or taken back by the battery.  This in terms is the “social affluancy” of our system or the ability to do future work when the crank may not be turning as it needs to be.

The final component is the “light” which is the “work” component of the system and in theory what allows us to turn the crank in the first place.  So the result of our efforts is the production of light at the cost of cranking.

So when we look at the causal components of the system we see the oscillations within the economic system as a critical driver as without them the crank would not be able to be turned, therefore fluxuations in all of our systems is a necessary evil.  Be-it the stock market, political arena or work place, what one can say is “change” is not only good, it is needed.  This is why attempts at steady state social systems will fail, as the law of entropy will take over as in the arrow of time the second law of thermodynamic says that entropy of an isolated system will increase*.  Therefore this becomes the down stroke of the crank, where the upstroke or counteraction is the exertion of “work” to counter the entropy**.

However the most important part for this discussion is the “battery” as one of the things to look at is if we compare the economic impacts of 2008 to 1929 we will see a vast difference and what caused that?  The simple answer is “social affluancy” as we had rote value built into the system which did not exist in 1929 which we could tap.  However now tapped, the affluancy once again must be repaid to the system, else the light will grow dim or even go out all together as should we stray from the model because as the adage goes, no pain, no gain

*Note: this has always been a fascination of mine as if you think about it leaving food out it rots, the same with metal (rusts), radioactive particles (decay) you name it.  As all entropy happens without cause as a result of the second law of thermodynamics; however the law is “mono directional” which is what precludes perpetual motion machines from becoming reality.  However another oddity of nature is a Möbius strip which is both mono directional as well as a “recursive” loop.  Just something to think about before you claim impossibility.

**Note: This is a simplified example for the general public as yes, I fully understand the loop is not closed at this point; it’s just for example purposes as it provides no additional value other than to add to the confusion to carry it out further to full closer as the results will be the same.

Advertisements

About Joseph Campbell

As a strong believer in the fact that "people work for people", it has been a life driver to better to understand the complexities of the various aspects which drive efficiency within this axiom, especially the concepts of leadership. Supporting this, I have been fortunate enough to having experienced this as leader on a global basis over the last decade and half. During this time it has been clear there are three core drivers being Life, Leadership and Economics.
This entry was posted in Economics... and tagged , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s