As a dog that regularly bites, it is fair to say we have a love-hate relationship with capitalism. This lends itself to endless back-and-forth articles that run the gambit from evil capitalism as the source of all modern problems, to capitalism as our salvation, to the obnoxious greed is good capitalism.
The central conundrum is not whether one view is right or wrong. Rather, what underlies capitalism to generate such disparate views. In other words, what exactly is capitalism, what drives it and how?
The dark side of capitalism
Many view capitalism as the cause of most social and geopolitical ills, excesses and abuses. To be sure, the list of real problems connected to capitalism is a long one, and the respective deleterious effects indisputable —
inequality and poverty, job loss and homelessness, abusive labor practices and poor working conditions, dangerous products and predatory lending, expropriation of resources and environmental degradation, displacement of indigenous populations and cultures, disease and death, etc.
What adds insult to injury is this era’s “greed is good” culture. A ruthless, selfish, corrupting and contemptible form of capitalism. A culture made easy to understand with the Wall St. abuses and excesses connected to 2008 financial meltdown.
The fact is that evidence for all the problems above are visible everywhere — if one wants to see it. Moreover, these problems have a long, sordid history that was worse than most recognize or acknowledge. This points to the need to enlarge the context used in assessing what underlies capitalism.
In this larger context, it is hard to dismiss the unfairness, inhumanity and destructiveness capitalism has left in its wake. So it is easy to see why capitalism has been branded an ugly stain on civilization.
Thus, the fundamental questions need answering are about what underlies capitalism:
- Source of capitalism’s ugly character?
- Is capitalism inherently bad?
- What exogenous forces are at work and the consequences?
Ideological interpretation of capitalism
For more than a century, people used the ideas of Karl Marx as a counterpoint to capitalism. In particular, his analysis of capitalism and its role in the unfolding story of civilization. Note that his analysis is separate from the distorted and corrupted 20th century political manifestations of his ideas.
Central to his analysis was the view that the economic system was an evolving system, which by definition is always changing. More importantly, the overall systemic changes in an evolving system always reflect some underlying directionality.
This issue of directionality is important because, despite what many think, Marx did not believe capitalism itself was inherently bad. In fact, he explicitly stated that it had significantly improved civilization and life over the previous medieval feudal economic system. Thus, capitalism was only another transitory economic stage in a larger sequence of civilizational development.
In this respect, he correctly noted that, like all prior economic system stages, the capitalist stage would eventually exhaust itself. Moreover, this would lead to the emergence of a new — “post-capitalist” — economic system that started a new stage of civilization’s development.
Post-capitalism is an important idea that is both logically and obviously true.
In fact, it could not be otherwise.
For various reasons Marx (and especially those who sought to implement his ideas politically) made two fatal analytical errors. First, he misdiagnosed the underlying source of the economic system’s overall directionality (i.e., class conflict). This led directly to his second error, whereby he mistakenly jumped to the conclusion that there was only one possible post-capitalist outcome.
Non-ideological interpretation of capitalism
While we could philosophically split hairs or play semantic roulette, the reality is that there has always been a capitalist economic system in some form. That said, it is clear that the modern, Adam Smith stage of capitalism emerged and evolved in tandem with the industrial revolution.
Further, despite its traditional usage, Adam Smith’s “invisible hand” reflects a typical evolutionary process. For example, in biological evolution the invisible hand drives the coevolving interplay between genes, phenotypes and the environment to optimize the ecological “fitness” among the competing species.
In the case of capitalism, the invisible hand drives the coevolving interplay between wealth creation, creative destruction and the social-political environment to optimize the ecological fitness among competing economic activities.
Metaphorically, the invisible hand in capitalism is like river flowing downhill and eventually finding its way to the sea. What is important is that, as the river’s flow gets closer to the sea and the end of its journey, the convergence of tributaries optimizes the force of the overall water flow, which can create a complex and unstable turbulence in the flow’s final downstream path.
Similarly, as capitalism gets closer to its end, the converging tributaries of competing economic activities optimizes the overall force of capitalism, which creates a complex and unstable turbulence in its final downstream path. It is this turbulent complexity and instability that is acutely visible as social, economic and environmental ills, excesses and abuses and increases confusion about the pros and cons of capitalism itself.
Ultimately, of course, capitalism will exhaust itself and reach the sea — the end of its lifespan. The result will be the emergence of a post-capitalist economic system in some form. Short of a civilizational apocalypse, this is a certainty. That should make the complex and unstable turbulence ahead en route prior to the emergence of this new system our central concern.
In this respect, contemporary political systems have no applicable precedent as to how best to navigate the turbulence in transition to a post-capitalist economic system or implement such a system. So, as capitalism evolves ever faster toward its end state, it is reasonable to expect political systems, which are also evolving systems, will become exceedingly complex and unstable. That is bad.
What makes capitalism bad
What makes any economic forecasting effort far more complex and challenging than it might otherwise be is how the political environment impacts capitalism.
The simple fact is that politics regularly places a “fat thumb” on the economic scale to modify the environment. These modifications then ripple through the economic system and alter the requirements for ecological fitness (i.e., wealth creation and creative destruction).
This brings us back to both Marx and Adam Smith.
Central to Marx’s analysis of capitalism was the role of economic elites. In particular, their ability to influence, manipulate and distort capitalism through the political system with the aid of political elites. The result was to advance interests of both sets of elites over that of the general public’s interests.
While this nexus of political and economic elites has been the norm throughout history, a century before Marx railed against it in the context of industrial capitalism, Smith had emphatically noted that this nexus was inherently pregnant with deleterious effects. That, if unchecked in any way, this nexus would invariably distort and corrupt capitalism. For example:
Smith warned of the collusive nature of business interests, which may form cabals or monopolies, fixing the highest price “which can be squeezed out of the buyers”…. [T]hat a business-dominated political system would allow a conspiracy of businesses and industry against consumers, with the former scheming to influence politics and legislation….[T]hat the interest of manufacturers and merchants “…is always in some respects different from, and even opposite to, that of the public…[Thus, t]he proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.” Thus Smith’s chief worry seems to be when business is given special protections or privileges from government.
Thus, analogous to ecological survival of the fittest, political and economic elites both view their reproductive success (i.e., wealth creation versus creative destruction) as dependent on altering the “environment” to enhance their respective advantages. And, of course, this occurs thousands of times each year, as it has every year for centuries.
Surely this does not come as a surprise to you. But this is what makes capitalism bad and results in the dark, ugly side we all find so offensive.
Ironically, despite all the overwrought and overheated rhetoric about governmental threats to free-markets, business, free trade, tax and regulatory concerns, the reality is far different. Public interest threats are easily contained because all economic interests tacitly collude against them.
The real threat is internecine ecological war. That is, the zero-sum competition among different economic interests to win the support of political elites and modify the political environment to advantage one economic activity over others (e.g., coal vs. oil vs. gas vs. renewables). The general public interest is simply expected to adapt to whatever environmental change results from this war.
Thus, regardless of ideology and rhetoric, when we look closely at the ills, excesses and abuses described above, almost everyone can be traced to the nexus of political and economic elites modifying the political environment to do or not do something. Said differently, the problems we find so offensive now are not due to capitalism per se. Rather, it is our reliance upon antiquated and dysfunctional political systems. That is bad.
In the context of the U.S. political system, this elite nexus emanates from the founding constitution, various judicial decisions, and or the transition from politicians holding of office as a civic duty to one as an upwardly mobile career.
The irony is, of course, that had the fat thumb of politics been in service of the general interest, it is likely that what makes capitalism ugly would have been significantly mitigated, yet capitalism would be at least as robust as it is now. The lone difference is that economic interests would have been adapting to a general interest environment, not the reverse.
The good part of capitalism
Again, some form of a post-capitalist economic system is inevitable. Indeed, numerous luminaries — Peter Drucker, Milton Friedman, Alvin Toffler, Eric Drexler, Murray Bookchin, Diamandis and Kotler , for example— stated long ago that capitalism would ultimately lead to some form of a post-capitalist and or “post-scarcity” economic system.
But, again, no one knows what a post-capitalist economic system might actually look like or how it would operate. Everyone does agree, however, that the outcome will be an epic event of historic proportions.
What is clear about any post-capitalist outcome is that the success of civilization has always been predicated on technological advancement. Regardless of what we are talking about — fire, the wheel, currency, augmenting physical or intellectual labor, computers, space exploration, etc. — the end result of technological advancements has always been the same — to move civilization forward by making life easier, better, and reducing scarcities.
Societies progress mainly by creating, assimilating, or adapting [technologies]….Because technological innovation in society is on a whole irreversible, the arrow of time in history is consistent with the arrow of time in physical and biological realms of evolution…[It’s an] evolutionary progression toward more dynamic and autonomous systems…through correspondingly more complex social structures. [Laszlo & Salk]
Ironically, what tends to be overlooked or discounted in the development of civilization is how the economic and technological systems were always two sides of the same coin. That there is a symbiotic relationship between technology and capitalism.
Said differently, the invisible hand underlying the directionality of the economic system’s evolution is technological advancement. Moreover, this symbiotic relationship is now a single, self-actualizing coevolving system that has grown ever more tightly coupled with modern capitalism.
Thus, contrary to the traditionally framing, capitalism is not about supply and demand, buyers versus sellers. That is simply about margin compressing cash flow. Rather, it is about ever more capital chasing ever more technological innovation to modify the social environment in favor of greater wealth creation.
Consequently, the invisible hand now means certain technologies advance faster than others. It also means creative destruction is visited upon any economic activity or older technology that gets in the way and fails to adapt accordingly.
Therefore, the one thing we do know about any post-capitalist economic system is that technology will play a central role. Again, this should not come as a surprise to you.
Navigating the turbulence
At this stage in the evolution of capitalism the creative technological destruction of most manual and physical labor is fast approaching its end state. Consequently, the wealth creating focus of technological innovation has shifted to the creative destruction of intellectual labor (e.g., knowledge work) in the form of autonomous systems.
Together the creative technological destruction of physical and intellectual labor means ever fewer jobs as time goes on. That is a fact. Despite all the reassuring scenarios grasping at agrarian or industrial job creating analogies, essential facts are being missed or ignored:
- There are only three workforce economies — agricultural, industrial, and service (e.g., from hospitality to knowledge).
- Jobs lost in agricultural and industrial economies were primarily related to physical labor.
- While majority of U.S. workforce was once in agriculture, then in the industrial sector, today the total percentage of workers in both combined is around 10 percent and falling.
- Unlike past workforce transitions, where there was new economy to migrate jobs into, and sufficient generational time to complete the transition without major socioeconomic chaos, neither is true now.
More to the point, the primary source of wealth creation in the accelerating technological arms-race is autonomous systems. This represents the final stage in the evolution of capitalism — its exhaustion — as an economic system. Thus, given the uniqueness of our transition to a post-capitalist system, the result could easily be widespread economic dislocation far more disorienting, rocky and painful (i.e., ugly) than most imagine.
This brings us back to the political environment and two key considerations: money and the political system itself.
Money makes the world go around
In the long run these new autonomous technological systems will reduce, and eventually eliminate, most scarcities and thus, are inherently deflationary. But the near-term transitional dislocations must be mitigated somehow. In short, what will people do for money once traditional wages and income are effectively gone?
To most people’s surprise, we have already gotten a sneak preview of what this movie might look like. Specifically, what we saw in the 2008 global financial meltdown with governments globally creating (i.e., digitally print) — literally overnight and out of thin air — some $16 trillion.
While the political claim was that this money went for asset purchases (e.g., stocks, bonds, and real estate) from certain economic elite interests, the fact is the assets acquired at that time were essentially worthless. Nonetheless, the “instant virtual money” created successfully altered the environment and was fully negotiable.
While a solid argument has been made that governments directed this instant virtual money to the wrong parties and assets, the lesson from this experience is clear and critical to appreciate. Namely, that the economic system’s functioning is less about the source of money (e.g., earned income or profits) than the fact that the system just needs money to keep circulating.
Said differently, money is simply a human artifact. Traditionally, a universal metric used for the exchange of goods and service in situations of scarcity. But the proliferation of autonomous systems means the economy is heading toward a post-capitalist system with dramatically less scarcity. In this context, as an artifact, money still has utility as a “cultural” metric of exchange whatever its manifest form (e.g., crypto-currencies).
Therefore, by controlling the amount of “virtual” money in circulation and how it is allocated, there are endless ways to conceive of and design a new environment for a post-capitalist economic system that employs this artifact efficaciously for the well-being of all. Idea for a universal basic income is only one example.
Can you hear me now?
The more interesting aspect of the technological arms-race for autonomous system is the emergence of “virtual personal assistants.” These are computer systems you talk to instead of type, click or touch to get information and knowledge.
What is especially noteworthy is that the mainstream success of this technology is contingent on being able to deliver reliable information to people in any and all environments — on-demand. This means that machines talking to us and giving us unreliable information hinders mainstream success.
Therefore, the importance of mainstream success is that it will augment human knowledge on-demand. This holds the potential to reduce education and knowledge gaps dramatically and globally make everyone smarter virtually overnight. (Full disclosure, this is what my company provides.)
These “ambient” virtual personal assistants augmenting our knowledge are especially important because, in the final analysis, the political system is an information processing system. Thus, with the approaching end of capitalism and ever more people spending less time in traditional career work, many can and will be inclined to direct their additional time and cognitive surplus to restructuring the political system and our socioeconomic environment. If so, this could well be a positive near-term development that should benefit the longer-term transition to a post-capitalist economic system.
Long and winding road
The bottom-line truth is that
- Capitalism today is cruel, destructive and offensive no matter how one looks at it.
- Capitalism is not, however, inherently bad or good and no worse that prior economic systems.
- As always, the nexus of political and economic elites in political systems is what creates the real ills, excesses and abuses ascribed to capitalism.
- Capitalism, as an evolving system, is nearing exhaustion and its final stage.
- The invisible hand in capitalism is accelerating civilization toward a post-capitalist economic system.
- There is a symbiotic relationship between capitalism and technology that underlies the evolutionary direction of the economic system.
- Wealth creation is now about autonomous technological systems and creative destruction is about the end of traditional jobs.
- Money is an artifact that can be detached from capitalism in service of a post-capitalist system.
- Virtual personal assistants will augment human knowledge and could restructure political systems.
Therefore, the most basic truth is that there is no reason love or hate capitalism, only agnostic acceptance. Saying this does not justify the ugly, dark or bad aspects of capitalism. Rather, it is simply an acknowledgement of the fact that the capitalist economic system is all we have, and as such the only way we all get what we need and want in the end — which is near.
Said differently, at this point in our civilization’s evolution, capitalism is approaching the end of its lifespan as an economic system. Thus, it is the shortest route to a post-capitalist, and probably post-scarcity, economic system.
The bad part of capitalism, and the real source of what makes it ugly, is the nexus of political and economic elites in the political system. Unfortunately, if this situation continues, the symbiotic wealth creating relationship between political and economic elites is certain to make our journey to a post-capitalist system far more painful than necessary.
Thus, what is missed by most detractors and supporters of capitalism and or technology is that this elite nexus is inhibiting the exploration of a new and better political system. This, more than capitalism, is what creates and sustains the social and geopolitical ills, excesses and abuses we all find offensive and detrimental.
What we truly need is a new political model. One that creates an “environment” that would encourage the emergence and growth of a symbiotic relationship between humanity at large and our autonomous technological systems in preparation for a post-capitalist world. A new invisible hand underlying the direction of the coming era of post-capitalist evolution.
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In any case, may you live long and prosper.