The death of capitalism

How did it die? Where do we go?

Mike Meyer
Oct 26, 2018 · 8 min read
“silhouette of wind turbines during sunset” by Anna Jiménez Calaf on Unsplash

by Mike Meyer

Language is inherently political. Weaponizing words on a given topic effectively destroys the natural evolution of meaning. Whether we say weaponized or politicized the topic ceases to be supportive of discussion and becomes frozen in meaning. That meaning then has less and less to do with reality and becomes useless except as an time bound object in a cultural archeology. It becomes simply a club with which to beat people who refuse to accept the ossified meaning of the term.

It is broadly understood that capitalism as a social, political, and economic system is dead. Thirty years ago capitalism, in the form of market economies, was recognized as the weapon that had killed the USSR and it’s central planned, pseudo Marxist economy. Between those two political points capitalism as a system died. What caused its death in the wake of its greatest success? And what does that mean for the post capitalist world?

These questions would normally lead to a long presentation on economic history with a major dose of western political history. That is not my point here.

The biggest problem on a broader scale is the normal human tendency to dyadic classification or black and white thinking. When we say capitalism is dead do we mean really dead or only partially dead? Might it be temporarily comatose and able to recover? Those options are usually ignored in favor of simplistic thought.

Let’s look at the death of capitalism from the perspective of evolutionary change. In the weaponized world of the early 21st century both capitalism and socialism have become crude rocks to be thrown at people in hopes of scoring a knockout. Which they never do. There is a reason for that.

Capitalism’s success

To keep this readable let me take a very high level view of the last four hundred years of, primarily, western history. Capitalism came out of Renaissance Europe with the rediscovery of double entry bookkeeping.

This made it easy to keep track of the relationship between revenue and costs for a specific product or process. This produced a clearer understanding of profit as the excess of revenue over costs in production of objects or completion of an expedition. For instance an expedition to Southeast Asia to acquire pepper and bring it back to Europe of sale.

Profit, when retained, becomes capital that can be used to pay for more materials or to fund another expedition after all the pepper has been sold and eaten. A demand for more pepper could be addressed with an expedition funded from the capital that resulted from the first expedition.

That, in an amazingly small space, is both the economics and history of capitalism. From this process it becomes possible to efficiently fund and track the growth of material wealth. In fact this process shifts the focus of a project, an expedition to Java for pepper, from pepper to growth. This years profits can capitalize two expeditions next year and four the year after. That growth is more important than one shipload of pepper.

A very short historical aside: The Portuguese and Spanish made it to Southeast Asia first in search of pepper but they did not do capitalism. Hence they saw Mexico and South America as much more important because of silver and gold. Wealth to them was having tons of silver in the basement. That didn’t produce a new focus on the future nor on a process.

The break to capitalism came with Dutch and then British joint stock companies (the Dutch East India Company and British East India Company) that sold shares in spice expeditions to capitalize them. They distributed the profit based on ownership and retained part of the capital to grow. From this came market economics as a component of what we know as capitalism.

In summary, the success of capitalism over four hundred years has transformed the world. Vast fortunes have been made and lost and the rising tide of wealth has raised all ships. This is not to be confused with something called ‘trickle down economics’ which we know does not work. The reason for that is that raising all boats over a long period of time is a result of social infrastructure being built to enable capitalist ventures. The mass of people make money but dependent on many other variables they may not make much at all individually.

What changed?

Things change over time. Animals, people, and systems start out fresh then mature and then get old. If other things don’t change then things can be stable for long periods of time. Eventually change happens.

The rise of capitalism and market economics, as noted above, shifted participating societies from static to future orientation based on growth of capital. More is good and with more you can build and do more. You can hire more people and sell them more things. This is self justifying and produces self sustained growth.

In mature capitalist societies basic needs are met. How well these needs are met is not an aspect of capitalist systems. The system is based on continuous growth of capital because that is what it does. But what about when all the basic needs are met?

This presents a problem and we need to distinguish between capitalism and market economics that are part of the system. You can Google ‘free markets’ to review that information. Open markets are a natural way to set pricing for required goods and services. It works very well for societies with limited resources. This feeds into the capitalist process by offering opportunities for profit by meeting the needs (demand) for things that are in short supply in a society.

In a perfect system, which is what economists prefer, everyone is ready to buy everything that they need at the lowest price possible. Things that are in short supply become expensive providing potential profit and capital incentives to supply that need.

Markets are rarely free or open. Capitalism seeks to maximize profit by locking down suppliers and/or by monopolizing markets. If I’m the only one with bread for sale you will pay what I charge. Everyone understands this or should. As a result public rules need to be put in place (public rules means government acting on behalf of the total population) to control the market so someone doesn’t monopolize or cartel things by price fixing.

Without too much detail capitalist systems work great in wide open places with many natural resources to be exploited by capital investment. It doesn’t work well where larger issues prevail, as in needing to conserve resources because of planetary limitations or unforeseen results of full growth production such as global warming.

At the same time the nature of capitalism rewards capital with more capital. If you have lots of capital in this system you will generate much more. This leads to financial manipulation and that is a whole other bucket of worms. So lets just say that great wealth is created but this wealth moves inevitably to those with great wealth. Unless the system is managed to correct for this.

In short there was a long period, well four hundred years if you consider that long, when capitalism was the answer for the questions of the time. Once the problems from industrial and capitalist growth began to become dominant issues capitalism had no means of changing to address those issues. Those issues raised questions that capitalism could not answer.

The rise of democratic socialism

As I said at the beginning the tendency of people is to be dyadic and make everything either black or white. Reality in this universe is infinite shades of grey between the black and the white. Schrödinger’s cat is neither dead nor alive but in a superposition pending other action in the environment.

Capitalism’s structural limitations were generally understood a long time ago. One hundred fifty years ago Karl Marx brilliantly laid out those structural problems and attempted to define a system that would eliminate them. That was the origin of socialism based on the well being of each in society.

Perhaps the problems that resulted can be seen as attempting to build something white to capitalism’s black. The end result, due to a series of historical variables, led to the USSR that moved quickly to nationalist authoritarianism in the name of one group while benefiting a different group. The end result was very similar to capitalism. Those with power acquired more power and the system did not limit that.

From the first half of the 20th century and after the rubble and bodies were cleared away capitalism was exactly right for massive rebuilding and growth. The maturation of capitalism was treated differently in Europe where both systems originated. Moderate socialism combined with open markets produces a democratic form that is better designed to address capitalist excesses while reserving public control of goods and services that are essential to human well being. Neither system could work alone without great suffering and abuse.

The general European model, to the extent that there is one, has been a shifting balance between public control and ownership in the socialist vein with market and capital acquisition in the capitalist style. This has shifted through various stages. Up to now the greater weight has usually been capitalist and market based systems with an overlay of socialist systems to provide for human well being and to handle intangible quality of life issues that are totally irrelevant to capitalist systems.

The post-capitalist and post-socialist stage

Things are changing quickly again and in ways never before experienced. Growth cannot be a primary focus. In order to manage our planetary resources and, more immediately, to manage our climate to prevent disaster we need to develop a stable and controlled, that is a sustainable, economic and political model.

This would seem to call for a more socialist oriented planetary culture to achieve sustainability while assuring a more equitable distribution of our limited resources. Both traditional capitalism and traditional socialism were based on full speed exploitation of the planet and people to achieve unlimited growth. That was clearly unsustainable and is now deadly for our species.

After four hundred years of capitalist development and one hundred fifty years of socialist development with the most successful nation states on the planet in the last fifty years as hybrids of these, we have a lot to work with. The key is to not throw either baby out with the bathwater.

We have working market based systems that have increasingly required strong public management to maintain non-market benefits as well as human well being. These are proven components but they are probably not adequate for us now. We need planetary management of growing planetary problems. We need more help to do new things. We need to move past our emotion based reactions.

Human limitations and emotional problems have crippled us repeatedly in all our political and economic systems. We are developing an answer for that with our Machine Learning and massive data collection tools.

We know that the original socialist model assumed centrally managed production and growth without market tools. We know that capitalist open markets achieve much higher growth and efficiency but with unacceptable distortions in asset distribution and without any means of managing critical, essential goods and services.

Balancing both old systems with new learning model AI tools should be able to allow us to improve life, redistribute assets for all humanity, and maintain the ability to innovate and build new services. We all need to admit the mistakes and failures of the old in order to build the new.

If people aren’t able to do that maybe AI systems will.

Mike Meyer

Written by

Educator, CIO, retired entrepreneur, grandfather with occasional fits of humor in the midst of disaster. . .

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