New Theory and Practice of Capitalism: New Market Theory, Investment, and the Path to End the Global Economic Crisis

Chapter 1.

The Market and the Trend of Demand

1.0. Introduction

The word market appears in the first chapter of this book. I get to the market where all the decisions of private and public business are made, for the future of business and for the estimated survival of business, where producers and buyers look for the best decision on their gain. For any business, the goal is to reach the market; it means the goods and services are getting into market, where buyers and consumers get them on time, wherever they want to get them. The entities of production in every economy make goods, to cover the needs of buyers and consumers. They buy because they need the products or services they consume. The principle of satisfaction of people’s needs is indeed the work of economic activities. I speak here about the economy. Since product cannot be made from nothing by human beings, raw materials should be used for making goods and services.

In order to produce goods and services, the initial step is required, the starting point from which human beings develop an idea of products and a realization of goods and services. We cannot exclude the starting ground of the production of goods and services; it is the capital. This capital has many forms. It could be material things you need for your work for producing goods and services; it could be money that you use for producing the goods and services. The definition that Ricardo gives us in his work, The Principles, is the capital is this part of wealth of a nation which is used for the production. It is composed of alimentary goods, clothes, instruments and tools, engines, raw materials, and so on, necessary for making work productive.¹ I refer to this definition of capital so that at the beginning of this book, every reader has a clear idea of the point I want to reach and the vision of capitalism I want to give. Many authors have different definitions of capital. Whatever they say, the common point of something to have in hand before doing business is always the main idea. Capitalism is the doctrine that says we need capital in order to produce goods and services, while profit gives sense to this capital going in investment. This is what Karl Marx brought into the economic system with his book, The Capital. Since capital is present, capital is not about money and goods that will be wasted or consumed, but used to answer needs that arise from the demand of goods and services by human beings. Everyone in the world has needs and wants, and is thus a cooperator in the economy. People’s needs get answers only from economic activities. People are cooperators because those who have capital and produce goods and services perform their activities because consumers demand their products and services. In this interaction, the economy is the servant of humanity, and humanity is a cooperator for a good economy. The trend of demand for goods and services creates a prosperous market for market agents especially for producers and sellers.

Chapter 1.1. The Actors and Cooperators of the Market

The actors and cooperators of the market are both equally important to the market. The law of the market always consists of supply and demand. Someone is at least supplying something, but the supply has its full meaning only if there is someone else who accepts what is supplied. Cooperation means accepting and enjoying the supplied goods and services. Cooperation between two persons in a relationship of giving and accepting can also be seen when you give something to someone. For example, when you give a gift to your relative or friend, the joy of giving and receiving makes sense when the giver sees that the receiver accepts the gift; both, the giver and the receiver show satisfaction when the act of giving and receiving is done. It means the giver needs the cooperation of the receiver to receive what is given. Someone may refuse a gift from someone else; this situation happens a lot when the receiver does not cooperate. The act of giving and receiving does not make sense, and is null, since the receiver does not accept. The good intention to give should make sense only when there is a receiver for the gift—the cooperation between giver and receiver. In the market, we do not make donations and give gifts; rather money has been invested toward getting those goods and services, which should come back with some profit. Here at this point we encounter the definition that Adam Smith gives us on capital, the capitals do not have other goal, neither other destination than maintain and increase the funds of consumption. It is this fund that nourishes dresses and lodges the people.² Capital won’t involve giving for free and making gifts on market, funds should be increased from the initial fund so that the capitalist also gets more money for his living expenses. Being human himself, at this level the capitalist should also understand that the buyer is like him wanting to cover the needs of human existence. The perspective to open the way to humanized capitalism will be widely explored in later chapters of this book. For now let us focus on the aspect of a market with actors and cooperators. Actors in the market are producers and sellers on one side and buyers on the other side. Producers act while producing knowing that their products have to end on the market; sellers then bring the products into market. Cooperators buy the products and services. The full accomplished market is efficient and effective through actors and cooperators. The idea of calling every buyer and consumer a cooperating agent in the market has huge openness for potential buyers—every human being in the world and every population of all nations of the world.

Chapter 1.2. The Origin of Demand and Offering in the Market

The people of the world come from different places and nations. However all human beings everywhere have the same anatomy and the same needs. The location of human beings does not matter. The only differences relate to conditions of the climate, cultural influence, religious beliefs, and other individual tastes. In some countries for example where the temperature is very high, people do not demand heavy clothes so impact of climate plays a role in demand. In some other countries where the temperature is very cold, the demand for air-conditioning is not on the minds of buyers because there, human needs are different regarding climate. You can also see that because of other cultural reasons and religious beliefs, some products have limited demand. In this situation, demand in markets all over the world is unique for some goods and services. But many products and services in local demand have almost the same needs especially in consumption, housing, transportation, education, health, textiles, art, hygiene, beauty products, and the food industry. The original demand creates a zone from which the buyers make their demand. This search for place of demand leads to meet the supply zone too. It means the market is always a place where sellers and buyers meet for exchange of goods and services using money. In some other places of the world, barter is still in use and sellers exchange their goods for other goods. The main point is that the exchange has to happen; buyers get what they need and want, while on the other side sellers get what they need and want. The zone of demand is not limited to one national territory because the world today is an open society where news and mass media send information worldwide. People in different corners of the world get news about products and services that are available on the market. Globalization of the market ensures that the economy does not depend only on local markets but also on the international market. The zone is also organized by some groups such as the World Trade Organization where different member nations regulate the zone of supply and demand of goods and services. The World Trade Organization is still a limited market area that has opened its doors to only some countries of the world.

It limits the full potentiality to include all the cooperators of the market and indeed of the global economy. The new theory of modern capitalism I present in my book will review the system of trade, so that the maximum number of cooperators gets into the market, considering that every human being is an economic cooperator, and every nation is an economic agent for the global economy. Each nation has to cooperate and to act in a global economy Demand displaces itself, increases. If the market of rich country countries seems saturated, Asia, South America, Africa present themselves as huge extraordinary place of consumers ³ It is clear that the idea of worldwide humanized economy does not exclude Asian nations ,it does not exclude South American nations, it does not exclude African nations. Renewing capitalism according to human needs is required, it includes all rich countries of Europe and North America, it includes all poor countries of the world, and it is global. We restructure the conception of demand, humanizing demand it is the matter of all economic agents and it is for all nations of the world and for each human being. I consider every human being since every human being has needs for decent life, it means demand is always present if not effective, but implicit in mind and list of needs of each human being. We have to make demand becomes effective for all and each individual in order to cover human needs. It is not the socialism, but humanized economy, if Ricardo considers capital as way to generate income for the capitalist in order to survive, it means the human aspect of considering survival of life is including in capitalism not only for capitalist, but for every human being who needs goods and services. Demand will be effective for all and then let us consider economy in all its dimensions. The German Philosopher Schopenhauer has clearly defined human being as multidimensional being. Considering human being in all his dimensions means put also economy into the aspect of human being who thinks about its needs and thinks how to get his needs covered and not only get needs covered, but also what to do so that needs be covered, what kind of means human being should use for getting his necessary needs covered. work or consumption, wealth or poverty, mobile technical progress, by enterprise or by the State, the economy is the means of the wheel of the destiny of modernity ⁴.The modernization process of the world and of each nation does not comes from thinking only, but from both think and actions which bring answers to needs of human being. Since we have so many works to do for development of so many places of the world where modernity is almost empty and nothing has been planned for future of modern countries or modern locations where human beings are living. The population of the world has reached today more than 7 billion of people, it means, we have work to do for development of the world. Since every human being is considered as an economic agent, it means cooperation of every human being wherever he is or he lived, it is always a good input for global economy.

Chapter 1.3. The three categories of market of goods and services, labor, and money.

The supply gives answer to demand of goods and services ,the supply gives answer to the demand of labor and the supply gives answer to demand of money. The three markets of economy are the cornerstones of all economic activities. When the Modern capitalism has to give answer to needs of all potential cooperators for growth of economy, it means we consider all three categories of market in economy. I am still in market oriented economy, but we increase and extend the way to reach everybody to become efficient and effective cooperator in market, so indeed for economy. The Principle of Philosophy that we learn from Aristotle, making distinction between efficient cause and the final cause when human being acts means we have the final cause what is new capitalism, everybody should be human with necessary needs wherever he is on the earth, we have to work for modernization of our villages, our rural areas, for non-developed nations. We want to reach this final cause, which is the goal of modernization of the world by economy. The market of goods and services should be everywhere for necessary needs of human being, the market of labor should be everywhere for every human being, the market of money should be available in each countries for creation of capital and credit for promoting entrepreneurship. It is possible to reach this goal; there is a lot of work to do for a better and Modern world. We include all in economy, considering all the aspects of social life of human society, politics and economy should not be enemies, politics should serves economy while economy by its definition is servant of humanity while helping human being to satisfy his needs. Economy is not only for some individuals or people, or some nations, good economy should be for all and all for good economy because doing so economy receive its full definition of being human activities in order to cover and satisfy needs of human beings. The inequality is so high between rich nations and poor nations, but the called poor nations have land and resources, why economy should be bad? It is not the question of being lazy; it is wrong use of capitalism in our world without goal to reach necessary needs of each human being. Making profit for looking maximum profit is the way capitalism is practiced all the time. In fact Karl Marx predicted the crisis of capitalism because of the search of profit, following profit and high profit should bring capitalism at ruin. All the greater economists who have made history in the industrial revolution have in common the spirit to fight against the exploitation of working class people.

The workers should not be exploited and get low salary which is not enough to maintain his life and family. The exploitation of natural resources which are raw materials to capitalism makes poor those countries which have right there in their home countries the natural resources, the capitalist trend of exploitation creates pauperization of so many countries of the world and indeed many people of the world are poor people. The market of goods and labor could be in continuous interaction, the price of labor in term of salary should be evaluated in measures of goods and services which should cover the existence of worker in minimum period of a month, so that the daily needs be covered. Such calculation is possible while every country knows the cost of housing, food, and basic commodities for human existence in order to meet living expenses. The capital is generated from savings, however, every country has initial savings that comes from sectors of economy where resources have been located, it means from one sector we can have capital for starting development process. it is not the lack of the work to do, if we want to modernize or renew our cities and our countries, so that they satisfy better our needs, and generate then new initiatives⁵.The modernization of the world by capitalism is the role of economy, labor is one of the main factor of production in any human economic activity. The crisis of the capitalism today is caused by the bad will to not want to do work for modernization of the world for all and all for modernization considering human aspect in all and for all. Humanized capitalism means, everybody can do something in his life when in he is in good health, the human being is active for production, then he deserves the decent life. The exploitation of workers should disappear; the exploitation of natural resources from poor nations should disappear. Pay well to others so that they get what they need for necessities of decent human life. You win your profit honestly, and others get their daily bread honestly. In this manner all economic agents will be satisfied, in their role as employer and employee, investors and workers. This is economy, win‐win policy; we share the community of needs while everyone get his needs satisfied honestly. There is ethics of business, more than ethics of business; we should also include the ethics of politics and diplomacy. We should so have money that will be well used for investments and then well used investments means demand have created these investments for goods and services in demand which need supply, from demand to output and from output to market of goods and services, from market of goods and services to creation of new investments, it means creation of new jobs is so that the rotation of goods and services in market be related to production. Money circulates. In this cycle the trend of demand will be always high and higher in all the three markets.

Chapter 2.

The Market and the Impact of Demand

2.0. Introduction

The three markets of goods and services, labor and money are connected with the demand. The demand is not only a good sign of booming economy, but also the indicator of needs of products and services by many cooperators, consumers. The demand could create high price of goods and services, for job seekers it could decrease the number of people looking for job. Since I am here developing a new aspect of capitalism, the demand of employment will be less than offering. Many jobs should be available since we have a lot of work to do. Even we face shortage of manpower; the offering for employment comes from the good use of capital that should come for meeting necessary needs of human beings everywhere in the world.

Follow people where they are for modernization of habitat, then people get the work to do. The development of the world comes from local and domestic rural economy. The rural areas have many potentialities since, the majority of population there are unemployed, and the capital that will be invested there should first bring effect and influence in current life of people so that workers benefit from investments and get paid well. From there money will circulate, the income in their hand gives them the purchasing power. It means workers become consumers and buyers for other business, so the demand creates a circle of local and rural business which will become also developed rural area with level of modernity. The modernization of these rural areas comes from demand. First, it is the demand of employment and the impact should be high offering, the next phase would be the demand of goods and services, with impact of high supplies of goods and services in moderated price. The need of capital for new investments will be covered so that the level of supply be always in high level in order to meet the new job seekers. The trend will bring us to full employment with the full output which meets full aggregate demand with impact on prosperity and stability of economy.

Chapter 2.1. The Aggregate Demand and the Implicit Demand of Goods and Services

The main point of the all discussions here about economic development is the demand. When we look to the history of the world, we find that the economy has been booming in the years 1950 until 1973 when we got the crisis on oil supply. Before the Great depression in 1930, the world economy has been in the stagnation. It means the Global Domestic Product was not growing anymore, because the demand of goods and services was low and lower, the effect of demand has always impact on the growth of economy and also on the increasing or decreasing of profit on capital.

The year before the Great Depression, it was not only an economic failure to make progress and to grow. The economy is a science, however any science has the way to make progress and use this way so that we get real to the goal of the object of the science. The object of Economy as science is to study how to increase the growth of the economy. The work of John Maynard Keynes was not only a work of a genius who has given idea for modern macro‐economy, but it was also the way to tell the world that we should think all the time when we act in matter of economy, we should analyze the progress and the steps we take in economy. The General Theory of Keynes was mostly involved with the notion of Effective demand, which means people have money for buying goods and services, and so demand is effective. The Effective demand is called Aggregate Demand which is composed of the total demand of goods and services from a national output of a country. The Global Effective Demand is the total demand of goods and service that the world populations demand from each other among the nations. When demand increases, the output are affected, the output increases.

I am making it clear now from this point where Keynes has given contribution to macro‐economy and sees the limit on his theory so that we understand clearly the demand as factor of rescue to economy even today, but in other way I will present my vision of Modern Capitalism. Let us first see what Keynes said on his contribution to Macro‐economics: "The General Theory emphasized effective demand‐ what we now call aggregate demand. In the short run, Keynes argued, effective demand determines output. Even if the output eventually returns to its natural level, the process is slow at best"⁶. With Keynes the world enjoys the idea of increasing output proportionally to demand. But the demand could not be made without money, when you order something from a business, payment should be made.

Chapter 2.2. Shortage of Liquidity affects Demand

Every business needs its cash flow to be present all the time so that the company continues its cycle of production with financial circulation of money that returns from the sale of goods and services. Shortage of money has really a big impact on the demand when the government, individual or any—body else would not be able to order goods and services because of lack of liquidity. It happened after the Second World War when European countries faced lack of money and goods. The United States of America, was one of the winners of the World War II with a standing economy still stable after the Great Depression, the plan Marshall was in action. The Secretary of State at that time presented the plan for help to Europe, giving money and donations in term of