Where does Wealth come from?

Awesome video. Capitalism is usually associated with the growth of wealth. But it seems much more likely that it was the explosion in machines in the 1700s that changed human productivity.

Capitalism then rode on the back of this huge explosion in productivity and wealth. But wouldn't you expect the opposite? When wealth is scarce you would expect individuals to fight for control of it. But when wealth suddenly becomes plentiful you would expect control to be relaxed.

Wrong! Control is about class. The most significant thing about the explosion in wealth wasn't that it provided plenty, it was that it challenged the social order. Class is about getting access to resources. This is true in animals where "top dogs" get to eat first, or lower dogs eat the scraps from under the table (see Jewish culture in Bible and Prayer of Humble Access). When machines started to create abundance this ancient social order threatened to crumble. So Capitalism was invented to ensure that wealth all flowed to the establishment, who then handed it back in controlled wages. And the vast surplus was free to circulate in banks and stock markets and essentially within the ranks of what had been the landed gentry, that is aristocracy, of the previous system.

So why do Socialist countries fail and people in Capitalist countries enjoy such lavish life styles. One thing to observe is that the West is politically stable. Its revolutions were in the 17th and 18th centuries. It has also commanded a global empire for several centuries. Meanwhile the "socialist" countries are in most cases not even a century old, and in the case of Russia, Vietnam and Germany were utterly devastated by wars when they were trying to get established - the West doesn't tolerate competition! I keep hearing that Hitler had planned a truce after pushing back the borders of the Versailles treaty. There is little doubt WW2 could have peacefully ended in 1942 before any serious fighting and before the Holocaust - but the Imperial West would have struggled with sharing power with a powerful neighbour. Israel would have been formed as it was anyway and 80 million people could have kept their lives. But the West doesn't do deals with those who get in its way - most recently there was Hussein. Never-the-less all these "socialist" countries made spectacular transitions from feudalism to modern machine productivity in just a generation. While compared to the West--which is hundreds of years further down the line--they look impoverished, for the common man, compared to what he had before, things are stratospheric. And why did the Soviet Union fail? Pretty much the same reason that the European Union will fail: people want freedom from bureaucracy. This is nothing to do with economics and wealth.

I would suggest that any system which adopts machines to replace human labour will prosper. Machines are cheaper to run and fix (no salaries, insurance, health costs, no unions), machines are more precise, more reliable and more uniform. For a growing number of tasks they are easier to train. They are easier to reproduce - once you have a blue print you can mass produce machines.

The problem that emerges for economics is then how to get this productivity into peoples' hands. You can't just give it because that would overturn the human class system of privilege. At the moment a system of employment and salary keeps the owners of capital in control and at a distance from the non-owners.

Capitalism isn't all bad. Its great contribution is in "information" flow. When you buy something money finds its way back to the capitalist who made it. This encourages more production. The system has a feed back mechanism that ensures that the system makes the right things. Well "right" from the perspective of the consumer... but the main consumers are the wealthy who are the owners of capital. It may take a smart business man to create a business empire, but he borrows from a bank and it them that own him and who truly prosper. A businessman may declare bankruptcy, which is ultimately covered by the tax payer, but a bank as we have seen will be supported by the tax payer to a far greater extent.

In this modern age of information machines however, where every mouse move and every letter I am typing is being streamed through computers in google and the intelligence services there is no need for markets any more. People know already what the public are thinking and wanting before they even get out of bed. If free-markets were a machine themselves to manage the flow of information about what people could afford to buy, that machine has now been replaced by the internet... and the battle of who takes control of that (whether by a ruling class, whether egalitarian or other) is being fought as I write.

Certainly though it is machines that have caused the sudden massive growth in human productivity and wealth.