The Case Against Capitalism

Very much is said in favour of Capitalism, not least the military when they are opposing countries that adopt different economic system (e.g. Soviet Union, North Korea, 1980s Afghanistan, Cuba, Venezuela etc). But also the financial sector when they are seeking to profit. There are many people who benefit from Capitalism, and these people are made very powerful by it. Not surprisingly we are surrounded by the "case for." But what is the case against, and who is making this case if the powerful are making the case for?

Who is making the case?

In Marxism the case against is made by the working class. If the capitalists own the industry and profit from it, the working class are the people who the capitalists employ to operate their machines. Working class have little power, are dispensible and depend entirely upon capitalists to supply them a living. By contrast the capitalists get to make all the decisions, can protect themselves to the bitter end and always have the sale of capital to fall back on when they face debts, or when they need to raise money (e.g. share offerings). Creditors like capitalists, and capitalists have a lot of freedom. Workers have none of these securities and when they run out of employment and money the next stop is the street. It is a very unbalanced and unfair system.

But you don't need Marxist Class Theory to make the case against Capitalism, you don't need to be Marxist or Socialist to make the case against Capitalism.It is not a party political thing. It is simply a scientific and factual thing that Capitalism doesn't work for everyone, and anyone can make this case (even the Capitalists!).

Certainly though the Marxists have a point. Capitalism is about ownership and the benefits of owning lots of things. But we have seen very rich people lose all their wealth through extravagance and poor management. What sets a Capitalist apart is that they make their wealth work for them. I have heard it put like this: in capitalism you turn your liabilities into assets. And this depends upon the inequality within the system.

What is Capitalism?

To illustrate. If I have a car then I will be using it for the most part. It will cost me money, and I will need to work to get the money to run that car. However if I can buy a second car that I don't need then I can rent this car out to someone who needs it. This way suddenly a car becomes an asset and I can make money from it. But I am not actually "making money" I am simply positioning my capital in the market so that someone who needs it will be prepared to pay me to use it. But of course this depends upon the other person not having a car of their own. This may be because they are in town for a weekend and it's just convenient to hire a car. But it might be that they cannot afford a car, in which case I am expoiting their poverty. I have no figures on the relative balance of convenience to need, but in housing for example everyone needs a home. Certainly people travelling for work will rent just to be near work, but they will own a home somewhere. But no everyone owns, and I believe in fact the majority rent. Not for convenience but because they are too poor to buy. It means that the owners of those houses (the people with more housing than they need) are getting a steady stream of income from those who have less housing than they need. This at root is Capitalism: it is the movement of money from those who do not have to those who do have. It is the opposite of the myth of Robin Hood - and indeed this myth may well have emerged as an antidote to exactly this observation by the dispossed that the wealthy benefit from the poor, but not the other way around. In the example of houses of course, even those who own houses are victims of capitalism because most will end up paying back twice the cost of their house to the mortgage lender so the banks are getting a steady stream of income from people who were too poor to buy their property in cash (who is!).

Who benefits from Capitalism?

So we see that Capitalism in its very conception is flawed and built upon inequality. Now the "case for" spends a lot of time trying to instill in people's minds that really it is the poor who benefit from the rich. Ideas like "trickle down" have been invented, and the rich are always tasked with "creating employment" and entrepreneurs are applauded for creating jobs. But this is like the myth of gambling. If gambling really worked then the gambling halls would all go bankrupt. I always argue if you must gamble go to the poorest looking gambling hall, because they are ones who make the smallest profit, and so hand out the most money. Likewise if Capitalism really benefitted the non-capitalists then the Capitalists would all be poor monks in sack cloth. Well not quite: what if Capitalism benefitted everyone but benefitted the Capitalists most? This in fact is the argument.

Serfdom & Hayek
Capitalism we are told makes everyone rich. It just makes the Capitalists very very much richer than the non capitalists. For this reason it is better than any other system, all of which don't solve the problem of poverty. So essentially the poor are told by the Capitalists, don't worry about our extreme wealth and power, you are better off than you would be without us. A kind of catch-22 for the poor.

Well there is one profound piece of truth in that: we should always appreciate what we have. But the Capitalists don't like that! While they want the poor to accept their situation at the bottom of the pile, they do want them to strive to do better because this is the motivation that will get them into employment and turn the cogs of the industry that the capitalists own. If the capitalists aren't monks in sack cloth, the non-capitalists most certainly must not be else the economy would stall and the capitalists would lose their wealth. So Capitalism also depends upon the poor seeking wealth, but not so much that they topple the system (criminality or revolution). Of course this is another myth, the rich perform the majority of crime in the society precisely because they are more powerful. The poor simply don't have the power to commit much crime. I'm often putting the case against war in the blog. The poor can just about mount a bank-robbery killing a handful, while the rich (capitalists) can mount a full scale military invasion killing millions (World War 2 case in point)! I don't advocate any violence what so ever, since all action that seeks to harm is evil and can achieve absolutely no good. You cannot make gold from dung. You must start with gold.

But is it true that people are better off under capitalism? Common examples are the revolutionary communist countries Soviets, China, Cambodia and these are compared with the incredible wealth of the West. South Korea is compared today with North Korea as a archetypal example of the power of capitalism to bring prosperity. For many people case closed. But there are many problem here. Firstly USA is a global super power, inheriting a global empire from the UK, the world speaks its language and uses its currency. Whatever its economics was it would be very wealthy like Rome. We would expect US/UK to be wealthy on this ground alone. Add to this that the revolutions that founded US happened in the 18th Century around the time the French had their Socialist revolution. All the failed countries quoted as examples of what happens if you don't adopt capitalism had their revolution in the last century! This has a bearing on their prosperity too. Korea in particular was destroyed during the 1950s conflict that sort to recover the country from Japanese occupation and which turned into American occupation. The South has flourished under patronage from the American Empire including military support and open doors into trade with the Empire. The North by contrast has no open trade, and spends a vast proportion of its GDP on defence against the worlds top military Empire. The fact that North Korea has managed to become such a formidable military force by itself is surely evidence that its economics does work. And a country being able to defend itself from invasion is the definition of freedom. Nazi Germany is another example. Its system of Fascism and state run corporations with slave camps (sweat shops in modern parlance) was an economic miracle that the whole of the world was very happy to do business with. This all famously changed when Germany began to want greater control in Europe something other Empires were not happy with. Its a book s worth to discuss the releative merits of economic system, but I only wanted to illusrate that the story is far from complete, and the sources of Serfdom are actually more complicated than even Hayek is aware.

Machines
The big unwritten story in the history of wealth of course is machines. People are fools who would like to attribute all the wealth of the world to particular politics and economics. It is machines and technology. Whoever discovered fire changed the world. Whoever discovered the plough changed the world. Whoever thought to tame an animal and harness its power changed the world. Whoever invented the boat changed the world. Same for invention of language, time and many other incredible inventions that had nothing to do with either Capitalism or Socialism. And then the big one: the mill. Originally water powered and then steam powered. Proponents of Adam Smith would like to say that Capitalism was what designed his pin factory. But of course this pin factory was in place when he studied it. It is in fact a feature of the definition of tools and machines that they do the same task again and again and again very fast and accurately. As a result you build a factory as a sequence of tools with end products of pone process feeding into the next. Very naturally you get division of labour and specialisation. No economic system is different: this has nothing to do with Capitalism.

If you look at oil consumption versus food consumption in the UK you will see that 99.998% of all useful energy (that is turned into work) is consumed by machines and humans consume only 0.002% of the energy. After the AI revolution humans will be virtually irrelevant to the economy. This is not Capitalism, this is the power of machines to do work. This is what makes us so wealthy.

Slaves
 All civilisations have been built on slavery. We aren't often reminded of this but the Classical world of Plato and Socrates was supported by 10 slaves for every Athenian citizen. Roman empire famously was built on slavery - indeed part of the reason for its conquests and expansion was to supply the slave trade. British empire was built on Slavery and most famously the US empire was built on slavery. USA is not the result of Capitalism but of savery! What ended slavery in the West was the arrival of steam engines. It was simply more economical to set up a factory of machines than to employ slaves. And that trend has only progressed. Altho there is still a huge market for slaves because AI is still too expensive.

I wonder then whether the myth of Capitalism as the source of wealth, is a necessary myth because it can be used to hide the more murky reasons for our wealth.

Ownership causes Inequality

One problem with machines is that they are capital and are owned. At least humans cannot be owned (under the Geneva Convention of Human Rights at least). This means that they are perfect for capitalism. Why employ a human that you cannot own, when you can employ a machine that is yours and all that is makes is yours. Machines mean that capitalists are not just limited to owning houses and land like in the very old feudal days now they can own the productivity of factories. And when they want to invest they can build new factories and gain the returns on that.

The argument for Capitalism is that capitalists seeking returns on their capital are motivated to build factories and to supply more produce to market increasing choice and driving down prices. That is certainly a win for everyone. But of course this is only necessary because the system gives them the wealth in the first place. It is the same as someone with an extra house putting that house on the market and a homeless family moving in. That is great for the family, but only necessary because the capitalist ended up with more houses than they needed in the first place. Equally if the capitalist has too much money and they build the unnecessary house and rent it out to a homeless family, an apparent win for everyone but only possibly because the capitalist had too much money in the first place. And with the rental set up they will gain even more money so it does nothing to stop them having too much money. Its a system which gives people with too much, ever more and the apparent win is that it forces them to share this excess but at a cost so that those without much pay them and reward the capitast for their excess. This is the source of inequality.

So far from generating wealth, capitalism ensures that this wealth falls into very particular hands, and the everyone else much pay the wealthy rent to get access to this wealth.

Cost of Inequality and Relative Wealth
Now we come to the crux and the social costs of capitalism. It has been said already that people are given an argument (unjustified like all the pro-capitalist propaganda) that: all people do well under capitalism, even though some do much better than others. From this we are expected to conlusde that everyone is therefore better off. But there is a spanner in the works here. Wealth is actually relative not absolute. What this means is that if you pay everyone less they will be happier than if you pay everyone more but make it unequal. This was even demonstrated in a study on Capuchin moneys by Dr. Sarah Brosnan.

As an aside I wondered if there is a limit to this. At some level surely people will be just uphappy even if they all have the same. Well actually no. If everyone is going to the gallows together then it is tough but they are happy. Absurd we might think. But we are all going to the gallows right now since everyone dies. And if you study your religions properly you will see that there is nothing to be unhappy about in this. But imagine that a class of people could afford immortality: suddenly how pitiful the rest of us would seem! This is relative wealth.

So suddenly Capitalism turns out to be the very worst system possible, and the arguments we have been fed are exremely dubious.

Suddenly a whole wealth of data makes sense.

From a World Bank report on Crime & Inequality

Gini measures inequality. I did this research myself some years back and found that Gini coefficient correlates better than any other metric against social ills. Poverty does not correlate at all well. It is not whether you are poor that makes you mentally and phsyically unwell, it is that you perceive yourself as poor relative to others that does the damage.

Our World In Data has a graph of changes in global mental health.

This is showing global mental health from 2016. What is most striking is that the countries which stand out are the English speaking British and American Epire countries. These are the countries of Capitalism, progressive economics and politics so what could be wrong? Well if this analysis is correct it makes sense. People might be most wealthy in these countries, but more people feel poor and that is what counts.

It also makes sense of the Easterlin Paradox. Indeed many things which don't make sense when we try to force the world into the Capitalism dogma box suddenly make sense when we open our eyes to the truth of capitalism as I hope to have made a start at cracking here.

Social Mobility

Another myth is that Capitalism increases social mobility. I live in the UK and come from the generation who weredaily bombarded by Thatcher on how free market would increase opportunities and social mobility. A generation of people looked forward to getting their feet on the rungs of the wealth ladder and making something of their lives. But its not true, what happened is that the economic boom fell into the hands of a select few and the rest have ended up living in debt to achieve their dreams.

Great Gatsby Curve from Wikipedia artcle of same name

Countries with high inequality (capitalist countries) have the lowest social mobility. It is logical. If money is power, and the more money you have the more you can leverage to gain even more then the powerful, not the poor, will be the most likely to become even more powerful.

Conclusion
Not everything above I'm sure is correct, but the purpose is to show that idea that Capitalism is a simple closed dogma that mankind suddenly stumpled across like a nugget of gold is nonsense. It is a system like any other and needs proper criticism of its failings of which there are very very many.