Monday, February 27, 2012

Why Capitalism is Doomed

Heh -- I love a nice attention-grabbing title. :)

On this occasion, though, it's meant literally. Capitalism is doomed, and what's dooming it is the advance of technology.

Capitalism is an economic system characterized by private ownership of the means of production and the defining of ownership of goods by who owns the capital that is used to produce the goods. That's a fancy and technical way of saying that it's a system designed to facilitate rich people getting richer. As with any economic system, capitalism rests upon government action that sets the rules of the game.

Now, in theory, we have a democracy in this country, so government action must pass public muster. We must therefore recognize that capitalism exists on public sufferance, and at such time as that sufferance is removed, it will cease to exist and be replaced by a different economic system.

Which bring up another question: why was capitalism allowed to exist in the first place? I mean, if you were to go to the average working stiff on the street and ask, "Would you be willing to pay taxes, fight wars, and work like a slave your whole life so a few fat cats can get even richer?" the answer would surely be "Hell, no!" Yet people did support the system for a long time, and there was in fact a good, self-interested reason to do so.

Capitalism depends on a social compact, as does government itself. It's an unwritten compact impossible to enforce legally, but well understood by the people. The agreement went something like this. We allow a few rich people to control the nation's wealth, and to channel a large share of that wealth to themselves, and in return they will arrange things so that just about everyone enjoys rising standards of living throughout their lives and from generation to generation.

For a long time, it worked. The compact was kept, the promise fulfilled. Even during the Gilded Age or the Roaring Twenties, the heydey of unbridled laissez-faire capitalism, the era of trusts and monopolies and robber barons, high demand for labor meant that wages rose steadily. The system seemed to break down in the Great Depression, but it proved fixable by some moderate reforms: government regulations on business and encouragement of labor unions. The golden age of capitalism in America was in the decades after World War II, when high demand for labor coupled with strong unions kept wages high and climbing along with productivity. The rich got richer. So did the non-rich. Rising standards of living for almost everyone kept the people happy with the bargain. Capitalism, with proper controls, worked.

But in order to keep that compact, there is one essential factor. The production of wealth MUST require labor. It must be necessary for capitalists to share at least a nonzero amount of the wealth produced in order to produce the wealth at all. Given that, a labor-friendly government and strong unions can leverage this requirement into sharing of the wealth on an almost equitable scale.

Today, increasingly, we are divorcing the production of wealth from the work that used to be required to produce it. It's increasingly possible now to produce wealth without labor. We are well past the era of dumb machines replacing grunt work; today, sophisticated computer technology is replacing human labor for everything from typing to customer service to movie extras. (I've even seen software that can write articles. I have my worried eye on that, believe me.)

Technology can replace most of the work of lawyers other than actual appearance in court. Technology can replace much of a doctor's work apart from a bedside manner. Technology can replace all the craft of an artist short of true creative genius -- and I'm not even sure about that! We still have work in this economy: really high-paying professional work requiring advanced education, and really low-paying service work requiring nothing but a warm body and work ethic. But the middle-ground, decent-paying work that used to comprise the majority of the labor force is rapidly disappearing. We are fast approaching the time when the only jobs left are those too complicated to be worth the effort of automating, and those too low-paying to be worth the expense of doing so.

(A side note on outsourcing. As a practical matter, outsourcing is certainly a problem, but only because ridiculously cheap labor is available, so that it is more cost-effective to employ that labor than to automate the work. If for some reason the source of cheap labor abroad were to evaporate and the jobs had to be brought home, they would not stay here long, but would be replaced by machines as soon as practicable.)

Under these conditions, capitalism fails of its promise. The social compact on which its existence depends is broken. It no longer provides rising standards of living for most people. And that means the sufferance of the people is being withdrawn. It's already happening.

There is no way to restore the demand for labor that allowed its success in the past. Automated production is superior to labor-dependent production and the former will drive the latter out of business, so even if we were to adopt the most labor-friendly legislation imaginable, the problem would remain intractable. As long as we depend on wages paid for work to distribute wealth -- and capitalism entails that dependence -- we have lost forever a system that can promise rising standards of living for most people throughout their lives and from generation to generation. Instead, for most people, as long as capitalism remains in place, things will only get worse.

And that is unacceptable, and will not be accepted.

And that is why capitalism is doomed.


  1. pretty obvious you have no idea what the differences are between capitalism and corporatism, but hey...youre a brainwashed ignorant progressive, so it comes with the territory.

    1. Actually, those that want to draw that distinction, I've found, are all free-market purist ideologues for whom "capitalism" is a utopian word rather than something objective. I'm using the standard definition here: an economic system in which the means of production are privately owned (for the most part) and organized on a for-profit basis, with ownership of the goods produced accruing to those who own the capital used to produce them. It does not imply a totally free market in the impossibly utopian libertarian sense, and so what you refer to as "corporatism" is one form of capitalism. I do agree that that's the form we have now, and have had for a long time.

      "Capitalism" in the sense you mean it is something that has never existed, never can, and never will. So it's true that "capitalism" in the sense you mean is not "doomed" -- being a fairy tale, the question simply doesn't arise.

    2. It is pretty clear that you have no idea what corporatism and capitalism are. And, you have no understanding of the fundamentals of economics.

      Corporatism is people coming together as a group that shares a common goal. Corporatism exists in all economic systems, whether it be capitalism, communism, fascism, or socialism.

      The word your are not aware of is monopoly and oligopoly, the formation of companies with excess market leverage. It occurs due to market imperfections.

      What you have is an idealized vision of the perfect free market, something that does not exist in nature. A truly free market with perfect information and competition that exists in the excess of thirty suppliers and consumers does not exists.

      In our modern democracy, anti-trust laws have made monopolies illegal. It has yet to define what an oligopoly is, by law, and make them illegal. Never the less, we are well aware that oligopolies set prices above the natural free market level, and exert political influence to assure that they maintain their place in the market.

      Before one can speak of economics, especially the free market, one must understand the fundamentals.

      I recommend "Introduction To Economic Analysis", R. Preston McAfee,

      It has a chapter on market imperfections.