Thank you for your explanation Bakari. After thinking about it you are right. Based on the definitions I gave they are the same thing or at least one necessitates the other and vice versa.
Even in a barter system capital would be very important. If I have a million apples to trade and you have 10 I can simply trade my apples for less stuff per apple until you eat your apples and are screwed.
Under a barter system, with no state intervention, there is no realistic way you are ever going to amass a million apples in the first place.
Your apple orchard will only contain as much land as you can personally defend.
This is my whole point about the difference between a free market and capitalism.
When I think of capital I not only think of monetary capital but human capital as well. All the skills I can perform and knowledge I learn is my human capital. It’s my ability to grow a million apples that gives me the advantage, not the fact that I have them.
I think relatively few people would argue that everyone should have exactly equal compensation, regardless of skill or talent. But having over 18 acres of private land (about the minimum you need to hold the 2000 trees it takes to grow a million apples in one season) takes more than skill and talent, it requires a land title deed and a government which will arrest trespassers and apple thieves for you.
I am with you on not wanting the government to distort the free market any more than is absolutely necessary.
perhaps we disagree on what constitutes "necessary".
Your general store example is more philosophical at heart. The only real choice any human has is whether or not to commit suicide. All other “choices” are merely trade-offs. I do believe there are other trade-offs you are not considering. If I own a general store and a Walmart comes in and sells at a loss I would close up shop. The moment Walmart started selling at a profit again; I would open my store back up.
Assuming you had the capital necessary to open back up (or to keep paying the bills with no income for a year or two).
It is not "philosophical" at all, it is a simple example of what actually happens in real life:"this study examines the impact of the arrival of a Walmart store on retail and wholesale employment. It looks at 1,749 counties that added a Walmart between 1977 and 1998. It finds that Walmart’s arrival boosts retail employment by 100 jobs in the first year—far less than the 200-400 jobs the company says its stores create, because its arrival causes existing retailers to downsize and lay-off employees. Over the next four years, there is a loss of 40-60 additional retail jobs as more competing retailers downsize and close. The study also finds that Walmart’s arrival leads to a decline of approximately 20 local wholesale jobs in the first five years, and an additional 10 wholesale jobs over the long run (six or more years after Walmart’s arrival). (Walmart handles its own distribution and does not rely on wholesalers). This works out to a net gain of just 10-30 retail and wholesale jobs, and the study does not examine whether these jobs are part-time or whether they pay more or less than the jobs eliminated by Walmart. The study also found that, within five years of Walmart’s arrival, the counties had lost an average of four small retail businesses, one mid-sized store, and one large store. It does not estimate declines in revenue to retailers that survive."http://faculty.smu.edu/millimet/classes/eco6352/papers/basker.pdf
The opening of a Walmart on the West Side of Chicago in 2006 led to the closure of about one-quarter of the businesses within a four-mile radius, according to this study by researchers at Loyola University. They tracked 306 businesses, checking their status before Walmart opened and one and two years after it opened. More than half were also surveyed by phone about employees, work hours, and wages. By the second year, 82 of the businesses had closed. Businesses within close proximity of Walmart had a 40 percent chance of closing. The probability of going out of business fell 6 percent with each mile away from Walmart. These closures eliminated the equivalent of 300 full-time jobs, about as many Walmart added to the area. Sales tax and employment data provided by the state of Illinois for Walmart’s zip code and surrounding zip codes confirmed that overall sales and employment in the neighborhood did not increase, but actually dipped from the trend line.http://edq.sagepub.com/content/26/4/321.abstract
Walmart only makes a 3% profit margin (and is still getting beat up by Amazon). I could probably price match them and beat them on customer service and lower operational costs.
They have their own trucks and warehouses and contracts with other major corporate suppliers. You managing lower operational costs is not realistic. This is, again, how having enough capital makes for uneven competition.
This would force the Walmart to sell at a loss continuously to keep me out of the market and that they cannot do. The issue is none of what I am saying is easy, so why would I do all that work for 3% profit margin when I can invest in corporate bonds at about 4% with no work? What I think is going on is, the market is sending me clear signals that my time and capital can be used more efficiently else ware in the market.
Corporate bonds are where the WalMarts get the capital to undermine smaller businesses. In order to pay 4%, they have to be making at least 4% over costs - its just that money used to pay interest on debt isn't considered "profit" in neoclassical economics.
Your flea market example on your blog was good. The first thing I thought was: Who owns the damn market and why are they renting all the lots to the same company?
I don't know, maybe because that one company offered a 5% increase in what they were willing to pay, in order to gain the flea market monopoly? Or maybe they just filled the waiting list with the names of every company partner and the market didn't know they were all really affiliated. Doesn't matter how, the system allows for it to happen.
Someone should set up a flea market next door and rent to a variety of people because that’s why people go to flea markets anyway.
assuming there is space next door, and anyone has the capital to clear and pave that space and set up tents and an office etc...
Even in this scenario you cannot guarantee that “each seller does better than break even” for a million different reasons.
Did you mean the opposite of what you said? Under perfect competition (granted, rarely 100% possible) no one is able to make profit, because someone else will undercut them on price right down to the break even point (but obviously not further).http://www.investopedia.com/ask/answers/031815/why-are-there-no-profits-perfectly-competitive-market.asp
I think your basically describing a monopoly, which can’t exist for the reasons listed above without help from the government.
Well, or an oligopoly, which also benefits from government help - and which more or less describes the modern American economy."11,000 independent pharmacies have closed since 1990. Independent bookstores have fallen from 58 percent of book sales in 1972 to just 17 percent today. Local hardware dealers are on the decline, while two companies have captured 30 percent of the market. Blockbuster rents one out of three videos nationwide. Five firms control one-third of the grocery market, up from 19 percent just five years ago. A single firm, Wal-Mart, now accounts for 7 percent of all consumer spending."https://ilsr.org/impact-chain-stores-community/
Mind you, that quote is from 17 years ago. The trends have of course continued (this before the rise of Amazon), although I can't find more recent data.
This is 10 years old, doesn't include restaurants, and considers having 10 locations as "independent", so again, the current reality is much more lopsided than even this shows.
We agree on getting government distortions out of the market.
But would you agree that granting and enforcing corporate charters is in itself a form of market distortion?
I was really hoping you would define profit better; especially when it comes to interest. I would deduct the cost of hiring a manager in the open market. If my company makes $50k a year and to hiring a manager would cost me $50k a year, then I made no profit. My question then becomes: If you have an idea and no money how are you going to get the money you need? Take on debt? This is why I need to know if you consider interest profit.
Do you mean interest you pay, or interest you make?
My answer to your question is this: start small.
When I graduated college, and the position I got hired for which I had spent months applying for and dropped out of several other application processes for first said I was hired, and then had an unexpected funding cut and withdrew the job offer, I had nothing but an idea, my (personal) truck that I bought on Craigslist for $2000, and a tiny toolbox of basic screwdrivers and wrenches.
I put an add on craigslist that I could help someone out with small deliveries or getting rid of junk for $10 per hour plus $1 per mile. After a couple weeks I saved enough from those jobs to buy a dolly, and started charging $15 and then $20. After someone noticed the toolbox and asked if I could install the fridge I had just delivered, they then asked if I could do a number of other things around the house, I realized I had repair skills the average person doesn't, and I started explicitly listing "handyman" on my (still free on Craigslist) ads.
Over the next ten years I gradually expanded my toolkit - almost always buying a tool only if the specific job I needed it for would pay for it in full. I didn't even have a website until I had been doing it a couple years. I learned enough basic html to build and maintain it myself, and pay $25 per year for the server space. I still drive the same 30 year old truck. I have never paid for advertising. I am insured and a certified green business.
A friend of mine wanted to have a plant nursery, and started growing plants in her backyard. She sold them at the fleamarket until finding a independent retail location that was looking to expand into selling rare urban garden food crops. That same location hosted a little coffee pushcart for a couple that didn't have the capital for a retail location. I used to do bike repairs at the farmers market across the street from a guy who made vegan mexican food. For years he just went from market to market, until he finally bought a retail location, which has thrived at that spot ever since.
If your goal is to grow as fast as possible and capture significant market share and out-compete the biggest players in the field, then, yes, you need to take on debt and its accompanying risk.
However, if you simply want to be sustainable, and provide something of value to the community while providing income for yourself, more often than not large amounts of capital are not a prerequisite.
In the system I envision, one of the roles to government would be providing small subsidized start-up loans to low-risk business ventures, while, (just like in the early days when the concept was invented) corporate charters would be issued ONLY to those ventures which for some very specific reason could not realistically exist without a significant amount of capital (an aircraft manufacturer, for example). There would have to be a concrete and specific explanation of how the existence of this corporation would be to the benefit of society in general, and (like the original corporate charters), it would have a specific end date (just like term limits on politicians :))
Furthermore, businesses would be limited to a single location, unless they were in an industry which by default necessitated multiple locations (transportation, utilities, and communications are probably the only 3 that qualify).
This would of course mean growth would slow enormously as we would lose a lot of efficiency.
Thing is, we already have enough total wealth! We don't really need to grow anymore. For a developing nation growth is important, but we are far past that stage. Now our major issue is distribution, and this change would even out wealth without needing to do anything to tax structures or any other form of active redistribution.
Hell, it would even go a very long way to dealing with the inevitable robot take over of employment. (haha, remember that topic!?)