With all that’s going on with the economy, I’ve been thinking a lot about money and capitalism. What is money – really? Where does it come from? And what are capitalism’s strengths and challenges?

Here are a few interesting thoughts I’ve found…

The greatest strength of capitalism is its unparalleled capacity for economic expansion.

If you want to see something fascinating, look at this graph.

It shows capitalism’s remarkable ability to increase our standard of living. For example, for almost 200 years, the amount of real income each person in the US makes has increased by an average of 1.7% – year upon year upon year. Or look at China. Income was flat until Mao took over, then it plummeted and recovered. But in 1976 they embraced their own version of capitalism, and since then per person income has been increasing by 6.3% per year.

Over time, the power of compounded growth is AMAZING. In the US, it’s the difference (in 1990 $) between $1,200 / person in 1820 and $32,000 / person in 2006. In China, it’s the difference between $130 / person in 1960 and $7,100 / person in 2008.

It’s why in the US, people now DRIVE to their protests.

At the same time, every great strength comes with an equal challenge.

And the current crisis is exposing capitalism’s root challenge…

The greatest challenge of capitalism is its addiction to economic expansion.

Many people have been asking about the Wall Street blowup, “how could they have been so greedy?” And, “how could they have been so dumb?”

But what is greed? It’s not our desire for more money. It’s an addiction to our desire for more money. It’s desire that’s gotten out of control. And what always comes with addiction? Denial and self-deception. Greed is stupid – literally – because it’s an addiction that causes us to lie to ourselves. Above all else, this crisis was created by an almost ubiquitous level of denial. It was created by the most expensive words in finance, “this time it’s different.”

This addiction isn’t just a problem with the people on Wall Street. Or the people who took out a mortgage they couldn’t afford. Or the people who got up to their eyeballs in credit card debt.

It’s the core challenge of the system itself.

Our entire financial system is based on the root assumption that the economy will continue expanding – that there will be more money tomorrow than there is today. How are we funding our retirements? Through the assumption that money we invest in the stock market will grow, because there will be more money tomorrow than today. How do banks make money? By selling interest bearing loans. And what allows us to take out a loan? Our assumption that we’ll have more money tomorrow than we do today. Why is our government able to create trillions of dollars in new debt?

Because of the assumption that there will be more money tomorrow than there is today.

Notice how much fear there is of the “R word.” Why is a recession so scary? I mean, it’s just the difference of a few percentage points, right? No. It’s the difference between satisfying our addiction to economic expansion, and going in to expansion-addiction-withdrawal.

It’s the difference between the system working and the system failing.

But here’s the thing. Exponential expansion isn’t sustainable over the long term. It can’t be. Our planet has limited resources. Resources that are beginning to be maxed out.

And so this century may be defined in large part by the collision of an unstoppable force – capitalism – with an immovable object – the need for sustainability.

Most of the suggestions I’ve seen for how to work with this dilemma have involved regression to earlier times and ways of being. But I believe this crisis is another example of our race being called to evolve to the next level of consciousness. It’s an opportunity to step forward, not fall back. It’s an opportunity to redefine the way we do business. And it’s an opportunity to redefine the way we do life.

Which leaves me with a question.

What will Capitalism 2.0 look like?

Love and light,
Brian

P.S. Stay tuned for next week, when I’ll be sharing some initial thoughts on this question…

P.P.S. Can you think of anyone in your life who would receive value from these nuggets? If so, feel free to visit http://www.sixfigurepractice.net/give-a-gift.php to give them as a free gift to someone you love.