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Useful, useless and harmful capitalists

  • Capitalism is based on the belief that accumulating capital is a good thing.
  • The left often rejects this view; the right supports it – so which is true?
  • What if they are talking about different types of capitalists?
  • German economist Raphael Glöckle divides capitalists into three groups – useful, useless, and harmful – and explains the differences.

Capitalism is the prevailing economic system around the world. Some hate it, some love it. For many on the left, capitalism is bad; they want to stop the flow of disastrous capital, prevent exploitation by foreign capital investors, and expropriate domestic capital owners. For those on the right, capitalism is wonderful; they want to increase the flow of precious capital, attract generous foreign capital investors, and support domestic capital owners. So, are capitalists good or bad? In his recently published book, economist Raphael Glöckle sets out to answer this question.

The goal of the capitalist is to redistribute money to himself.

According to the International Monetary Fund, capitalism is ‘an economic system in which private actors own and control property in accord with their interests, and demand and supply freely set prices in markets in a way that can serve the best interests of society.’ Within this framework, a capitalist is a person who gives somebody else money in order to get more money back later. That is, the goal of the capitalist is to redistribute money to himself. There are several ways to achieve this goal:
 
(1) Interest: A capitalist lends x money at time t to person b. At time t+1, person b returns the money (x) plus some interest (i). Banks and money lenders earn interest, as do the holders of interest-paying bank accounts.

(2) Trade goods: A merchant buys a trade good for x money from person a at time t. At time t+1, he sells exactly the same good to person b for x+m (m = markup) at a different location. This can be a one-step interaction, or there can be a chain of merchants, each selling to another until reaching the final customer who consumes or uses it. This type of capital is the basis of any retailer such as supermarkets or online stores.

(3) Means of production: The owner of a production company pays money for land l, production space s, raw material r, machines m and workers w. The workers use their body and the other means of production to convert the raw material r to a finished good f that is worth more money. Over a certain period of time (eg, a year), the costs for l, s, r, m, and w are lower than the price for all the sold finished goods f. The cost difference is the profit of the capitalist.

(4) Capital game: Capitalist a buys an object of value (shares, gold, land, Bitcoin, wine, real estate, etc) at time t for price p, holds it for some time, waits and hopes for a price increase p+1 and then sells it at time t+1 to capitalist b. Capitalist b holds the object of value for some time, waits and hopes for a price increase and then sells it at time t+2 to capitalist c. The object of value rotates between hundreds of different capitalists, without changing its form. The price will go up and down. A capitalist wins when he buys at a low price and sells at a high price. The win of one capitalist is the loss of the other and vice versa.

Wealthy stock market speculators bet on falling share prices.

Glöckle further divides capital into useful, useless, and harmful, and describes each type as follows. All capitalists want to redistribute money to themselves. The useful capital creates positive side effects to society or real economy via this redistribution. Instead of a positive side effect, the useless capital creates nearly no effect to society or real economy. Finally, the harmful capital creates negative side effects to society or real economy.

Most capitalists are part useful, part useless, and part harmful.

In simple terms, Glöckle argues that governments should support useful capitalists and reduce useless and harmful capitalists.

Useful capital

Useful capital has positive effects for society or the real economy as it flows into maintaining or improving the means of production (such as raw materials, workers, production sites, and land), the increase and efficiency of production (such as new facilities, technological innovation, better education), distributing goods (warehouses, retail stores) and maintaining/improving the division of labour (infrastructure, transportation vehicles, logistic, communication, information systems).

These useful capitalists help to maintain or increase production, while also redistributing money to themselves.

Useless capital

Useless capital has nearly no effect on society or the real economy and simply flows into the capital game. A capitalist buys an object of value, eg a piece of art. They don’t look at it, they don’t enjoy it, but they buy it because they think the price will increase. When the price is high enough, they sell it to the next useless capitalist who acts in the same way.

All capitalists want to redistribute money to themselves.

This buying and selling without consumption or change of the object has no effect on the real economy or prosperity of society. The object of value (part of the real economy) stays exactly the same; only the price (monetary side of the economy) changes. The big contribution of the useless capitalist is to sit down and wait for a higher price.

Harmful capital

Harmful capital has negative effects for society or the real economy and is deployed by capitalists who want to benefit from damage to other people, society, or the real economy. Such capitalists include big companies that buy smaller competitors just to reduce competition; they strengthen their position not by producing better products or by lower prices, but by reducing the options available to customers. Others buy vital medicine licences and then increase the price of life-saving drugs. People in need of the medicine have no alternative but to pay; those who cannot pay, die.

Useful capital has positive effects for the economy – for example, by increasing production efficiency through technological innovation.

Wealthy stock market speculators bet on falling share prices. By pushing negative news about a company, they can encourage shareholders to sell stock. The more the company loses, the more the speculators win. Due to bad news and lower share prices, the company gets less money from banks to higher interests. If this company contributes to the real economy, the speculator is harming the real economy. Some capitalists use money to perpetrate fraud; for example, by developing computer viruses or deceiving other companies or customers by creating fake websites, social media accounts, and product reviews.

Capital can sometimes be two or more of these types at the same time. For capitalists buying and selling shares on the stock market, the redistribution of money is ‘useless’; however, when the shares are first issued and sold, the enterprise itself gains the funds necessary to invest in the means of production until the company is profitable, which is useful for the real economy. A capitalist who buys land, property or infrastructure with the goal of increasing the rent and/or achieving a higher selling price is useless or even harmful (for example, causing inflation without any positive effect to the real economy). However, a capitalist who buys land to improve means of production has a net positive benefit for society.

So, are capitalists good or bad? In reality, most capitalists are part useful, part useless, and part harmful. What kind of capitalist are you?

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Further reading

Glöckle, R, (2023) Wirtschaft mit neuem Menschenbild denken: Wie wirtschaftliche Anreize die Menschen lenken. Springer Gabler Wiesbaden.

Raphael Glöckle

Raphael Glöckle is an economist and currently works as a controller in the automotive industry.

Contact Details

e: [email protected]

Cite this Article

Glöckle, R, (2024) Useful, useless and harmful capitalists,
Research Features, 152.
DOI:
10.26904/RF-152-6439086648

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(CC BY-NC-ND 4.0) This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License. Creative Commons License

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