5.1 Forced debt during consumption

There are serious doubts about profitability of option A(or B). If there is no other market where overproduction could be placed to achieve profit is possible only through increased consumption of existing consumers and only through their incurring private debt. However, it is questionable why should the existing customers voluntarily take on debt to buy twice as many goods as they were consuming till now. As their needs were satisfied so far, to rely that these will double at the cost of additional debt is not exactly the safest strategy.

Therefor to existing options A,B,C,D we have to add variant AA, which guaratees profit by setting the price the way so that common(used to) consumption can be achieved only through additinal debt. That means the unit selling price will be higher then 1$.

This option has great advantage against original A option where profit is possible (through additional debt) but we cannot be sure that people will take on this debt as their basic needs were already satisfied.

AA represents ultra capitalistic premise of unsatisfied needs which forces employees to take on debt so that they could satisfy their basic needs. 

As this need is really strong there is objective feeling of lack and the people are forced to indebt themselves and the debt is a way how to achieve profit (even just short time). Entrepreneur does not care that it is only short time profit, what counts that there is some profit.  Situation with option AA looks like this:

This is the simplified AA wher we anticipate sales without regard where they would be coming from. It is obvious that emplyees in that economy will be able to spend only 10$. Given that their normal consumption is 10pieces having value 10 x 1,1= 11$, they have strong motivation to take on loan 0.1$ per person(cumulatively 1$).  By comparing wage 1$ with loan 0,1$ it does not look as such a bad proposition as interest(at whatever actual amount) will not represent a big part of their wage and installment looks managabe as well.

Fully split AA looks like this:

Here we clearly see 2 sources of sales: 

  1.  Coming from internal economy, where we are expecting profit 1$, stemming from standard buying power 10$ represented by common wages and loan of 1$, supplementing buyingpower to the level of common needs (10$).
  2. Is expected from external environment, where there are no further production costs and therefore the profit is at the level of sales. In reality this profit is a bit lower because of marketing, distribution costs but these represent only a fraction from sales.

What are the conclusions from the model ?

  • Capitalistic way of doing business which is aimed at achieveing profits can lead and leads to increased productivity, there is no doubt about it.
  • Fact that productivity raises is not a guarantee of actually achieving profit. If all increases in productivity are fully passed to employess as option C shows (change 1 $ to 0.5$), there will be no profit achieved.
  • By zero passing of productivity gains to citizens there is no profit but only overproduction, which represents a wasting of natural resources and is being dumped (price 1$ unchanged – option  A)

If citizens will try to use this rise of productivity in this variant it is possible only through loans, which is not sustainable long term. During repayments there is a significant decline of satisfaction of common needs (expansion, recession) and the interest is not paid at all. During recession the profits created in previous years are erased, as cost of production which is produced is not covered by sales as wages are used solely to repay previous higher consumption.

  • Even those enterpreneurs which will set their prices without passing productivity gains on employess (variant A) will quickly discover that they have problems with overproduction and so there is a strong pressure to set the prices even higher until they reach level which is at least partially compensating unsure profits from external environment. The prices are higher and higher until they reach level AA, where there is not possible to satisfy even basic needs without loans. So the citizens are forced to take on loans and some profit is guaranteed. The overproduction remains and it can or is not placed outside of domestic economy.

In capitalism, in order to achieve profits the prices are eventually set in a way where citizens have very little benefit from increases of productivity gains. The only sure method to achieve profits is to set them higher and higher so as their level is even negating the increased productivity. The accompanying factor is overproduction, which needs placement and that can happen either in domestic economy ( which is possible only through loans) or in external economy where ( if the placement is a success) huge profits are generated.

At least that looks like the plan. But international trade chapter will show us that even that is just a dead end illusion.

The question of overproduction which is often raised in discussions is clearly answered.
If somebody argues that problem is in overproduction and there are excessive capacities build which are generating too many goods which the companies are not able to place which eventually leads to unemplyment  the answer is: Yes, it is the overproduction. But, it is not the excessive capacities !!!

Every level of production is generating the overproduction !

The overproduction is the reason of agregate demand always lacking behind agregate supply because of category of profit, which is causing the AD never to be able to fully cover AS.
Because of this, there is a need of additional resources to supplement AD(loans)  and the prices are desperately being set the way which stimulates taking on loans.