An economic system does not have to be expansive—that is,
constantly increasing its production of wealth—and it might
well be possible for people to be completely happy in a
non-expansive economic system if they were accustomed to
it. In the twentieth century, however, the people of our
culture have been living under expansive conditions for
generations. Their minds are psychologically adjusted to
expansion, and they feel deeply frustrated unless they are better
off each year than they were the preceding year. The
economic system itself has become organized for expansion, and if
it does not expand it tends to collapse.
The basic reason for this maladjustment is that
investment has become an essential part of the system, and
if investment falls off, consumers have insufficient incomes to buy
the consumers' goods which are being produced in another
part of the system because part of the flow of purchasing
power created by the production of goods was diverted from
purchasing the goods it had produced into savings, and all the
goods produced could not be sold until those savings came back into
the market by being invested. In the system as a whole,
everyone sought to improve his own position in the short run, but
this jeopardized the functioning of the system in the long run. The
contrast here is not merely between the individual and the system,
but also between the long run and the short run...
http://real-world-news.org/bk-quigley/11.html#31
...The third notable feature of the whole development is
closely related to this special nature of capitalism.
Capitalism provides very powerful motivations for economic
activity because it associates economic motivations so closely with
self-interest. But this same feature, which is a source of
strength in providing economic motivation through the pursuit of
profits, is also a source of weakness owing to the fact that so
self-centered a motivation contributes very readily to a loss of
economic coordination. Each individual, just because he is
so powerfully motivated by self-interest, easily loses sight of the
role which his own activities play in the economic system as a
whole, and tends to act as if his activities were the whole, with
inevitable injury to that whole. We could indicate this by
pointing out that capitalism, because it seeks profits as its
primary goal, is never primarily seeking to achieve
prosperity, high production, high consumption, political power,
patriotic improvement, or moral uplift. Any of these may
be achieved under capitalism, and any (or all) of them may he
sacrificed and lost under capitalism, depending on this
relationship to the primary goal of capitalist activity—the pursuit
of profits. During the nine-hundred-year history of capitalism, it
has, at various times, contributed both to the achievement and
to the destruction of these other social
goals...
...In the course of time the central fact of the
developing economic system, the relationship between goods
and money, became clear, at least to bankers.
This relationship, the price system, depended upon five
things:
the supply and the demand for goods,
the supply and the demand for money,
and the speed of exchange between money and goods.
An increase in three of these (demand for goods,
supply of money, speed of circulation) would move the prices of
goods up and the value of money down.
This inflation was objectionable to bankers, although
desirable to producers and merchants.
On the other hand, a decrease in the same three
items would be deflationary and would please bankers, worry
producers and merchants, and delight consumers (who obtained more
goods for less money). The other factors worked in the opposite
direction, so that an increase in them (supply of goods, demand for
money, and slowness of circulation or exchange) would be
deflationary.
Such changes of prices, either inflationary or
deflationary, have been major forces in history for the last six
centuries at least. Over that long period, their power to modify
men's lives and human history has been increasing. This has been
reflected in two ways. On the one hand, rises in prices
have generally encouraged increased economic activity, especially
the production of goods, while, on the other hand, price
changes have served to redistribute wealth within the economic
system...
http://real-world-news.org/bk-quigley/02.html#5
