May 7, 2021

May 7, 2021

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How Capitalism Dies

by | May 4, 2021 |

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We may well be witnessing the end of capitalism, and in this article, I want to describe both how and why it is dying. Before I do, however, I need to define what exactly capitalism is.

The word ‘capitalism’ is a derogatory term. Several theories coined it, but the word did not become popular in the English language until 1867 when Engels and Marx’ Das Kapital was translated into English.

As Marx described it, ‘capitalism’ is a system based on the acquisition and concentration of capital. One popular saying today is that capitalism is a system that puts ‘profits ahead of people.’

What sayings like ‘profits ahead of people’ ignores is that the profits go to people. Workers get paid – pay is profit. Business profits either go back into the business, or they go to stockholders. Most stockholders are pensions and 401Ks, which are, of course, people’s retirement accounts.

The notion then that capitalism puts ‘profits ahead of people’ is absurd. It is more accurate to say that under capitalism, people profit.

As for the acquisition and concentration of capital, that’s true to a point, but whereas Marx looked at this as a one-way street, with each dirty capitalist getting a bigger and bigger piece of the pie until a handful of people have everything, in reality, capital is acquired and concentrated for specific purposes – usually to start or expand a business – and then wealth is distributed to employees, other businesses, and stockholders (which are, again, mostly retirement accounts). Wealth is also distributed to customers, who buy things not because they are forced to, but because the things they buy make them better off.

To truly understand what capitalism is, we also need to understand what an economy is.

Google defines the word ‘economy’ as “the wealth and resources of a country or region, especially in terms of the production and consumption of goods and services; careful management of available resources.”

Note that the definition of ‘economy’ has nothing to do with money. Money is nothing but a measuring stick we use to gauge wealth. Money can store wealth, making the transfer of wealth more efficient, but money itself is not wealth, and as such, when the government prints money, it creates nothing.

An economy is the totality of everything people do that causes either the production, transference, or consumption of goods and services.

Pretty much everything we do causes either production, transference, or consumption of goods and services. Even when we sleep, we cause wear on a pillow, a set of sheets, and a mattress. Eventually, we will have to replace those things, so even when we sleep, we are consuming products.

An economy is the totality of everything we do. One might say that the people are the economy, or to be more precise, the ‘economy’ is all of the people within a society and everything they do.

Adam Smith is often called the ‘father of capitalism,’ which is an interesting moniker, considering that his seminal work, The Wealth of Nations, never used that word. The full title of that book (technically two books) is An Inquiry into the Nature and Causes of the Wealth of Nations. This full title is illustrative: Adam Smith was not inventing a form of economy, but was describing one.

Another economist, Thomas Malthus, wrote An Essay on the Principle of Population in 1798 – 22 years after Adam Smith’s Wealth of Nations. Thomas Malthus’s essay makes it easier to truly understand Adam Smith’s book, so though he wrote later than Smith, I will describe his work first.

Thomas Malthus noted that for all of human history, populations had always grown faster than food supplies, even in good years. He noted too that around the world, 90% of the population lived in absolute squalor (90% of the English population lived in conditions not materially improved from those of a Roman slave). 1% of a population lived in opulent luxury, and about 9% represented a middle class – those who made and sold goods and services the 1% needed to live in the opulence they enjoyed.

Thomas Malthus

Thomas Malthus

Whereas Malthus suggested that this paradigm would always be true going into the future, Adam Smith’s inquiry into the Wealth of Nations noted that there were two nations on Earth where food supplies were growing faster than populations. To Adam Smith, the fact that wealth was growing faster than populations in England and the United States (technically still the colonies when he wrote Wealth of Nations) was one of the most important things that had ever happened in human history. He wanted to describe exactly why and how it was happening, in the hopes of replicating those changes, to improve lives around the world.

Adam Smith never used the word ‘capitalism’ to describe the miracle he was inquiring into. It is worth noting that he did not write Wealth of Nations until conducting seventeen years of exhaustive research.

Capitalism then, which is more properly called ‘free enterprise,’ ‘private enterprise,’ ‘the free market,’ ‘individualism,’ or ‘laissez-faire’ (French for “allow to do”), is two things:

  • The economic system that made it possible for the 90% of the world population that had never before had enough food to survive, to not only survive, but to grow rapidly in wealth, and
  • The economic system that emerged when serfdom and slavery no longer existed, such that people were free to utilize their productive capabilities however they wish.

Someone is going to argue that the United States had both slavery and free markets at the same time. This argument ignores the makeup of the United States during that era. The United States was a federalist system in which certain powers were performed by the Federal Government, but in which the vast majority of powers were held by the individual states (or the people). Each state was largely sovereign, and in fact, people would often refer to their states as “the Sovereign State of….”.

The United States did not have a free market economy prior to the Civil War. New York did. New Jersey did. Michigan did. Virginia did not, and nor did any of the other slave-holding states. The free states were free markets, and the slave states were practicing a particularly barbaric form of serfdom.

Note too that all of the per capita GDP growth in the United States has occurred only in free states for all of its history. There was no per capita GDP growth in the antebellum South, but rather the Antebellum South followed Malthian rules, where 90% of the population was never more than one bad harvest from starvation.

The North was not following Malthian rules, but was following the form of economy Adam Smith described – an economy of freedom.

Now that we have looked at what capitalism is, we can look at how it dies. It is dying in Europe and the United States, even as it continues to grow in other parts of the world even as it continues to end extreme poverty (what Malthus described 90% of the world population as living in) around the world.

A poor people don’t have a lot of time to worry about being poor. They are too busy surviving. As such, when true freedom emerges in a poor country, the 90% who are suddenly no longer serfs go along with it, working for whoever pays them the most with little or no complaint. Being paid is better than not being paid, and being paid more is better than being paid less.

Over time, as the wealth of the everyday worker grows, some of the time that the everyday worker used to spend working will be spent on leisure instead.

As the wealth of the everyday worker continues to grow, and as the everyday worker has more and more leisure time, suddenly something emerges in the everyday worker that had not been there before: envy. And what is envy? If we look at the definitions of ‘greed’ and of ‘envy,’ they are essentially the same thing, except that greed is what we call it when someone who already has something wants more of it, whereas envy is what we call it when someone who does not have something covets what someone else has. Both greed and envy are the same basic emotion.

As wealth grows, so too does political power. If we look at England, as one example, the Magna Carte was originally intended only to force the King to share power with other members of the nobility. Knights wanted in too, and over time, as wealth grew throughout the rest of England, power was eventually shared with everyone through England’s Parliament. The same basic pattern has been repeated all over the world.

As the middle and working classes garnish more power, it necessarily comes at the expense of the rich, and since there are more poor (and middle class) than there are rich, there are always going to be those who are tempted to use Democratic means to simply take from the rich.

Alexis de Tocqueville

Alexis de Tocqueville

In some cases, it may make sense to take from the rich. If someone became rich through ill-gotten means, perhaps some form of restitution is in order. This kind of thing is, however, best handled in court systems, where the specifics of each case can be looked at and examined in detail.

Politicians can often gain political support by offering to give restitution without requiring people to prove their individual cases of harm. These politicians can claim to be working for the ‘downtrodden victims’ of society, and in addition to playing on the heartstrings of envy, they can also try to breed guilt within the upper and middle classes.

Alexis de Tocqueville warned us of this, saying, “A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy.”

In our case, our Constitution gave us some protection, making us a Republic rather than a Democracy. As long as the government’s powers were held in check by the Constitution, the government could not provide largess to the public out of the treasury. Today, we are no longer really a Constitutional Republic, as though we have a Constitution, those currently in power don’t pay any attention to it.

Democrats, of course, claim to believe in a ‘living document’ interpretation of the Constitution, but what that means is that the Constitution says what they want it to say, independently of its wording. That’s the same as there not being a Constitution, so for as long as Democrats are in charge, we have none. Should Republicans take over again, they’ll pause our slide into an unconstitutional Democracy, but Republicans never get rid of any of the largesse Democrats create.

For most of America’s history, we have oscillated between periods of government growth and periods of economic growth. Overall, our economy has grown fast enough to pay for new levels of government spending, but now, in less than 100 days, Joe Biden has promised more than $10 trillion in additional spending, and that is on top of the $27 trillion in debt we already owe. This is at a time when we were already running trillion-dollar deficits.

Will our economy be able to grow enough to make all of this spending affordable, or are we going to change the basic framework of our economy such that we go into a death spiral? Joe Biden and Kamala Harris promise to build a nation of ‘equity.’ In other words, goodbye capitalism, and hello the government being the provider of all things.

If Joe Biden and Kamala Harris keep that promise, our economy will go into its death throes, and though like the Titanic immediately after the ice burg, our economy may still look safe to those on board, sinking will be inevitable.

Being the most racially diverse country on the planet, America is also often divided along racial grounds, with racial minorities told by politicians that they are owed something.

Those who are driven to champion the causes of the supposedly downtrodden and oppressed generally don’t go into business school, or into engineering or physics. The champions of the oppressed tend to ‘study’ things like Feminist Studies, and Critical Race Theory, where they are ‘taught’ of all the kinds of supposed oppression they can then fight against.

Today, these people are taught that there is nothing more oppressive than capitalism.

There will always be 40% of the population who just want to be left alone, to live their lives in apathetic bliss. Because of this, if 40% of the population can be made to believe that freedom is the cause of oppression, they will outnumber those who want freedom by a margin of 2-1. With the forces of renewed serfdom controlling the electorate by a margin of 2-1, it’s game over for capitalism – hence the saying, “Enslaved people dream of freedom, whereas after a few generations a free people dream of chains.”

Much of Europe has already passed the inflection point where staying free is not possible. Canada seems to be heading back to serfdom as well. Covid-19 has become a catalyst for change, with the word ‘equity’ replacing the word ‘liberty’ as the government’s watchword.

Capitalism is not dead, and not by a longshot, but in the Western world at least, it appears to be on its death bed. The American people, were we smart, would be wishing it a speedy and miraculous recovery.

Wallace Garneau

Wallace Garneau is a two-service military veteran, with four years in the United States Marine Corps Reserve, and four years in the US Army. He has twenty-three years of experience in process improvement roles, having served as the E-Commerce Manager, IT Manager, and Director of Business Systems for a variety of medium to large manufacturing companies. Wallace holds a Bachelors of Science from the University of Phoenix, and an MBA in Lean Manufacturing from the University of Michigan. Wallace is currently finishing a Masters of Science in Lean Manufacturing, at Kettering University.

Wallace is a published poet and essayist, and recently finished his first book - The Way Forward: Lean Leadership and Systems Thinking for Large and Small Businesses.

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victor mascolo
victor mascolo
2 days ago

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