Capitalism’s Fatal Flaw Is Something So Simple, Anyone Can See It

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Capitalism’s Fatal Flaw Is Something So Simple, Anyone Can See It

”Labor is prior to and independent of capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration.” — President Abraham Lincoln in his First Annual Message in 1863.

It is difficult to find figures on Americans’ knowledge of capitalism. A simple Google search of “Americans Understand Capitalism Poll” returns a litany of polls revealing that the under-35 crowd prefers socialism to capitalism, a handful of explainers on Democratic Socialism, and a sprinkling of right-wing freakouts over this movement. What this simple Google search does not return within the first ten pages of results is one single poll measuring whether Americans actually understand what capitalism really is. We have all sorts of polling on our knowledge of other factual topics, like climate change, but after a weekend of trying to find any poll measuring Americans’ ability to understand what kind of system capitalism actually entails, I am stumped as to how to quantify our collective ignorance.

This dearth of knowledge about our knowledge is emblematic of a country which does not question its economic dogma. As Nancy Pelosi, the House Speaker said to a millennial raising this capitalism vs. socialism question in 2017: “We’re capitalists, and that’s just the way it is.”

Even the liberal party in this country is unflinching in its support for an economic system centered around private capital (which has largely aligned with right-wing politics throughout recorded history), and this is where we get into our collective ignorance. We only know what we are taught, and we have plenty of data proving the inadequacy of America’s educational system. The first part of this tweet below is the most common definition of capitalism I have heard throughout my 32 years on this planet, and it could not be more wrong.

What seemingly most people claim to be capitalism is actually just a simple definition of a market (which have existed as long as human labor, goods and services have), combined with the equilibrium price in supply and demand. The equilibrium price is exactly what it sounds like—where the demand and supply curves meet to find a happy medium, and agree on a price that works for all parties.

THAT'S NOT CAPITALISM, THAT'S BASIC ECONOMICS!!!

Sorry for yelling. It's OK if you think this way. We all do at some point because “that's just the way it is.” We're conditioned to think like this in a country built explicitly for white male property owners. What we have been taught to believe is capitalism is simply not capitalism. We are given a description of basic economic principles sold as a fairy tale. There is a very specific (legal) definition to the operating principles underpinning this economic system, and this simplicity that each and every one of us has not only observed, but critiqued, is hidden behind capitalism's constant drumbeat of “buy stuff and you'll be happy!”

From the International Monetary Fund, this is capitalism:

Capitalism is often thought of as an economic system in which private actors own and control property in accord with their interests, and demand and supply freely set prices in markets…The essential feature of capitalism is the motive to make a profit.

Quick note: the IMF mostly got it right, but I removed “in a way that can serve the best interests of society” from the end of the first sentence for reasons you will see below.

Selling your labor for a price you agree to is not capitalism. Buying something is not capitalism. Those simple market machinations have occurred to varying degrees throughout all of human history. While capitalism allowed goods and labor far more movement than its predecessor feudalism did, capitalism is not synonymous with free enterprise, and it is not a coincidence that this system dependent on perpetual profits rose in tandem with the Transatlantic Slave Trade. We are sold a lie about what “private property” truly means in this economic system (as well as America's legal system designed to protect it), and this is where we begin to get into the fatal flaw at the heart of capitalism's theoretical model.

There are essentially two kinds of private property in our economic system: houses and means of production (businesses). Private property is one of the great innovations in human history, because it is a protector of private wealth. Families can store their wealth in a house or business, which can then be passed on to successive generations to build on. For most Americans, a house or small business is the only option to store our wealth. The much larger and more powerful kind of “private property” of the kind that Jeff Bezos owns simply does not apply to the vast majority of us.

While capitalism sells us a decentralized version of itself in theory, look around you. The “mom and pop” stores of lore are mostly gone, and they have been replaced by multinational conglomerates. Entrepreneurship in this country is vanishing, and the excesses of capitalism are to blame. This segment on “corporate consolidation” from Last Week Tonight is one of the best explainers you will find on how we are a country dominated by just a few firms in each and every major industry.

How the Laws of Supply and Demand Create “Corporate Consolidation”

If you had the option to own a $1 million business for free, would you take it?

Of course you would!

Would you pay $1 for a $1 million business?

Definitely!

What about $500,000?

Now this is where we really get into the laws of supply and demand. Half a million for a million-dollar business may sound pretty good in theory, but if the business is going to evaporate in a year, then it’s not great value. What I’m attempting to demonstrate with this line of questioning is that below a certain price point, the demand for private property is infinite. The supply of private property in existence however, is fixed.

When the supply of something is high and the demand for it is low, the price for it drops. When the supply of something is low and the demand is high, the price rises. Many defenders of this economic system will point to the monopolization and oligopolization of our economy as a bastardization of capitalism, but the ologopolist dystopia detailed by John Oliver above is how the system should and does work, according to the laws of the most enduring economic concept in human history.

Take media for example. In 1983, there were 50 companies that owned 90% of all media in America. Right now, that’s down to six conglomerates controlling nearly all major media. Because demand for private property is essentially infinite, the price should steadily increase over time, and that’s exactly what has happened in our economy over the last half-century. The GDP is still growing. Profits are steady. But wages have been stagnant for decades (this is directly related to the previous sentence). People are struggling, and three men own more wealth than the bottom 50% of Americans. The monopolistic malaise surrounding us is a direct result of the laws of supply and demand operating under the rules of capitalism. Even capitalists accept that monopoly is the end-result of a capitalist economic system, which is why capitalists passed anti-trust legislation to break up private property that was deemed too large under the rules of this system that we are taught is “just the way it is.”

Socialists are decried as hysteric utopians completely unmoored from reality—promising outcomes they cannot produce—but the belief we are sold that anchors the base of capitalism is more naïve than anything you will find on Bernie Sanders’ platform. Capitalism essentially weaponizes man’s inherent greed—but it expects us to pursue it only up until a certain point where it becomes harmful (hence the IMF’s naïve “for society’s benefit” line that I edited out of this column)—and then it expects “the free market” to stop the system from doing what the system incentivizes man to do. The moral point where capitalism’s forces should be stopped has never been agreed upon (save for anti-trust legislation that we refuse to enforce anymore), and it’s not clear that a horizon like that is even broadly definable under the laissez faire rules of free market absolutists who control (at least) one party in this country, like the Koch Brothers. Capitalism has no moral center.

Should Boeing be subject to a regulatory hammer on par with anti-trust legislation for cutting corners on their planes that would later drop out of the sky? What is capitalism’s proportional punishment for Johnson & Johnson knowingly putting asbestos in its baby powder for years?

Hell, climate change is projected to cost the world $551 trillion with another 3.7 degrees warming (global GDP last year was $88 trillion) and the literal end of our world is the direct result of our economic activity in a system that requires perpetual growth. How does the free market punish companies which essentially destroyed the bedrock of human civilization? It sure as hell didn’t prevent this destruction of our ecosystem—it incentivized it.

We are sold a fairy tale that capitalism’s “free market” punishes bad actors, but the continued existence and profitability of companies like Boeing, Johnson & Johnson and Exxon is proof that the system does not do this. It is not set up to punish large bad actors, because of the immense amount of power capitalism places in the hands of private capital. This economic system gives both its consumers and its labor very little recourse to right wrongs created by capital, and the innocents afflicted by its collateral damage even less.

The simple fact that there is a fixed supply of private property and an infinite demand for it creates a feedback loop where private property gets more and more expensive over time, and it consolidates more and more power in the hands of fewer and fewer who can afford it. This is the only world that millennials and Gen Z know, so it should come as no surprise that most of us are rejecting it (and it’s not just young folks sick of capitalism, as exemplified by the 55% of women aged 18 to 54 who prefer socialism). The dystopia that is 2019 America is the logical end-result of a capitalist system—a system fatally flawed by the unrelenting greed of man and the eternal truths of supply and demand. That’s just the way it is.

Jacob Weindling is a writer for Paste politics. Follow him on Twitter at @Jakeweindling.

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