8.05.2004

More Dollars Than Sense

Any economic system that does not take into account human greed is doomed to failure. People not only want more than they currently have, they also want more than their neighbours. Capitalism addresses these issues with a system that closely matches human nature and a Darwinism that resembles nature in general.

When capital is being invested, people want to make interest off of it. It needs to outstrip the rate of inflation or you aren't actually increasing your wealth. However, the problem inherent in the system is that profit alone is not enough. While most people would be satisfied with a profit that doubled the rate of inflation or so, capital is always happiest when it is maximised. So not only is profit measured but the growth of that profit over time. If a company had revenues of one trillion and expenses of ten dollars, that would be a pretty good investment, right? But if that profit stagnated (ie: stayed the same) investment would probably flee. There's no growth. Ok, that's exaggerating but not by a lot.

Companies need to understand that growth cannot possibly be indefinite but the expectation that drives companies to bloat beyond their means clearly exists. This pressure to continuously grow often forces succesful companies, companies that usually grow to success through a good value to price ratio, to mess with their formula by either cutting the value (remember when Snapple was made with real juice?) or blow prices through the roof (bank service charges are reaching ludicrous proportions and competition is not on the way).

The problem is that people in general are never satsifed with what they do have and that mentality is visited upon us all through capitalism. However, as a reflection of human selfishness and short-sightedness, well, it's damn near perfect.