Capitalism Has Run Its Course. What Comes Next?
Humanity is reaching a crisis point. The old systems that once delivered undreamed of economic growth are breaking down under the weight of their own success as we reach the end of the frontier of expanding markets. Globalism, meanwhile, is exacerbating the problem, diminishing the globe to a mono-culture dominated by a few all-powerful players.
The last century has categorically proven that socialism has nothing useful to offer as a potential solution to these problems. People must have a reason to strive each day, and by human nature that reason is personal gain, whether material or spiritual. Yet capitalism is also silent, offering only more of what brought us to this point.
Capitalism and socialism, the twin peaks of our political paradigm, have become insufficient for the age and ideologically unsound. They must be replaced by fresh solutions and a holistic society based on mutual difference, individual talent and common purpose, whereby all political relationships are personal again and none remote or general.
The lure of ‘something for nothing’ is hard to resist. For centuries, mathematicians and scientists were intrigued by the notion of a perpetual motion machine: a wheel, globe, screw or similar contraption that could turn endlessly. Claims to have cracked the problem brought notoriety and acclaim.
As early as the eighth century there was talk of a ‘magic wheel’ in Bavaria that spun endlessly, although the first properly documented perpetual motion machine was the work of a 10th century Indian mathematician and astronomer named Bhaskara II. He described a wheel which could run endlessly through the careful balancing of vials of mercury around the rim.
A few centuries later, Leonardo Da Vinci was sceptical that such a thing could be created, yet remained intrigued, investigating machines that were said to give perpetual motion during his lifetime. Although they came to nothing, it didn’t stop him sketching a number of devices he thought might be able to provide free energy.
As the Age of Wonder took off, attempts came thick and fast, ranging from Johann Bessler’s attempt, illustrated above, to a variation on Archimedes’ Screw that used balls to rebalance and keep the screw spinning, to self-blowing windmills, to a ‘perpetual vase’, to ‘Cox’s timepiece’: a clock that was said to be a perpetual motion machine but in fact uses atmospheric variations to drive the mechanism.
By 1775 it was becoming clear that no such thing could exist, and the Royal Academy of Sciences in Paris announced that the Academy “will no longer accept or deal with proposals concerning perpetual motion.”
Within the following century, the laws of thermodynamics were firmly established. It was demonstrated that that energy cannot be created or destroyed, only transformed; that the more energy is transformed, the more is wasted; and that a closed system will fall increasingly into disorder. As a perpetual motion machine would violate these laws, that put the matter entirely to rest.
Yet the idea continued to grip people. In 1812, Charles Redheffer opened a house in Philadelphia where he placed what he claimed was a perpetual motion machine. A fascinated populace flocked to see it; some sources claimed he charged up to $5, others that he let women in for free. Bets of up to $10,000 were placed on its authenticity. The hoax fell apart when Redheffer lobbied the state for money to build a bigger version of his machine. In response, an official was sent to investigate the machine and took his son along with him. The son, Coleman Sellers, spotted that the machine was a fake. Rather than confront Redheffer, father and son commissioned a local engineer, Isaiah Lukens, to build a machine based on Redheffer’s but with the mechanism concealed within a seemingly solid design. Redheffer was so overcome by seeing his machine apparently working for real, he immediately offered them money to buy it. Sellers and Lukens demurred, but spread news of the hoax around town.
Undeterred, Redheffer moved his scam to New York, again placing his machine in a house for public access, and again, people flocked to see it. Unfortunately for him, one of those people was Robert Fulton, an engineer who is best known for developing the first commercial steamboat. He immediately understood that the machine was not genuine and confronted Redheffer. After some back and forth, Fulton made Redheffer an offer: he would try to discover the machine’s energy source, and if he could not, he would pay for any damage done. Under pressure from the crowd, Redheffer agreed and Fulton immediately got to work, ripping panels off the wall by the machine. There he discovered a catgut cord. Following it upstairs, Fulton discovered an old man eating a crust of bread with one hand, turning a crank with the other. The crowd set to smashing up the machine and Redheffer was run out of town, never to be heard of again.
We like to think of stories like these as amusing products of a more credulous age. Yet we, in our own, are just as easily taken in, if not more so.
Solow’s perpetual motion machine
The post-war generation of Westerners is arguably the luckiest cohort of humans the world has ever seen, for one simple reason: their lives coincided with the most rapid expansion of wealth ever enjoyed on this planet. Take, for example, this chart of GDP growth in the UK across the 20th Century, taken from a House of Commons briefing paper:
While Britons had it pretty good, enjoying a four-fold increase, others had it even better: per capita GDP rose by 5½ times in Germany and the USA, 6 times in Canada and France, 7½ times in Italy and 14 times in Japan.
While all of us enjoy the benefits of this wealth boom to this day, it was during the 1950s that the everyday changes in people’s lives were most noticeable. In America, the economy grew by a staggering 37% during that decade. By the time they were celebrating New Year 1959/60, the median American family enjoyed 30% greater spending power than they had a decade previously. Families flocked to the new suburbs that were springing up with all the promise of ease and convenience that they held. It was in those years that the modern world as we know it was born.
Economists, too, were dazzled by this newfound bounty. While some sought to argue that it could be transient, that the economy might well be carefully balanced on a knife-edge, ready to fall one way or the other at any moment, an MIT economist by the name of Robert Solow disagreed. In his 1956 paper A Contribution to the Theory of Economic Growth, he argued that growth is an outcome of three interlocking factors: capital, provided by workers through the investment of their savings; labour; and technology. Through mathematical modelling, he showed that these three factors will always return to a state of equilibrium, delivering a constant steady-state of growth.
The following year, in his paper Technical Change and the Aggregate Production Function, he further demonstrated that about half of economic growth comes from capital and labour, with the remainder coming from technological innovation. It is thanks to Solow that governments invest so heavily in technology and innovation with the intention of fuelling economic growth. Solow was awarded the Nobel Prize for Economics in 1987, the National Medal of Science in 1999, and the Presidential Medal of Freedom in 2014. His theories remain at the heart of global economic policy to this day.
Unfortunately, however, what Solow had modelled was the economic equivalent of a perpetual motion machine. The only difference between his hoax and Redheffer’s was that, thanks to his elegant deployment of algebraic equations and soothing words, Solow was able to dupe not only the public but also governments around the world — and to keep the ruse running for a lot longer. Of course, unlike Redheffer, it’s also likely that he had duped even himself.
You Cannae Change the Laws of Physics!
Environmentalists have long argued against perpetual growth on the grounds that the planet is a finite resource. In 2011, for example, David Graeber, an anthropologist sometimes referred to as the ‘anti-leader’ of Occupy Wall Street wrote: "There is very good reason to believe that, in a generation or so, capitalism itself will no longer exist — most obviously, as ecologists keep reminding us, because it's impossible to maintain an engine of perpetual growth forever on a finite planet."
The common answer to this observation is that technology is making our use of resources more efficient, allowing us to get more from less. In addition, we are primed to expect perpetual growth and perpetual advancement of civilisation by enlightenment thought, which sees history as a ceaseless and inevitable march toward utopia. If our planet can no longer meet our resource needs, there’s always asteroids, or the Moon, or Mars.
But while exiting the planet would certainly solve a resources problem (although not for petrochemicals, which are the products of life on this planet), it won’t provide the other two requirements for growth: capital and labour. Any humans living on the Moon or Mars will have to come from Earth, and all the technology they take with them will have been bought and paid for here on Earth.
In a recent discussion with Lex Fridman, Jordan Peterson shredded a paper released by the consultancy firm Deloitte. The paper contended that, in order to avoid catastrophic environmental damage, we must control both the environment and the economic system — “whatever the environment is,” he scoffed.
“You know, ‘The environment.’ I don't even know what that is. That's everything. [People say] “I'm concerned about the environment.” How is that different than
saying “I'm worried about everything”? How are those statements different
semantically?”
We modern humans like to think of ourselves as existing outside of nature, of being the absolute masters of our own destiny, but of course that’s impossible. We all live in the world, we are all subject to gravity and biology, and our closed systems must adhere to the natural laws too, or they rapidly come apart.
By definition, globalism, even the kind that expands out into the solar system, turns the economy into a closed system.
The Capitalist Ponzi Scheme
Capitalism requires capital (obviously). Capital is money that is being used not to purchase or to save, but to invest in the hope of making more money in profits at some point in the future.
In his book Capitalism: A very short guide, James Fulcher explains: “the investment of money in order to make a profit [is] the essential feature of capitalism”. Acknowledging that speculators have long invested to make a profit, even before the existence of the system we'd recognise as capitalism, he further describes Capitalism proper as a state in which "the whole economy becomes dependent on the investment of capital,” adding “this occurs when it is not just trade that is financed in this way but production as well.”
Marx described the capitalist system using the equation: M-C-M’ (note the apostrophe by the second ‘M’), in which M is money used for investment, C are commodities, and M’ is investment plus profit. In other words, the capitalist system, as Solow also described, requires workers to take a portion of their wages and invest them. The investment is used to finance the production of goods and services, and the resultant profit drives growth.
Bill Blackwater notes in his essay Why do Capitalist Economies Need to Grow? (which I thoroughly recommend reading in full): “Here we find the overwhelming driving force behind growth: that’s the entire point of it. Business is in business to make money. There are plenty of charities, and small businesses which are happy simply to tick along in a steady state and pay themselves a steady wage. But on a large scale and across the economy as a whole, the point of economic production is to make more money than you started out with; and not just to do that once and get out, but to do so on a continuing basis. Given businesses as a whole want to do this, then the economy as a whole has to keep growing.”
This, then, is Solow’s perpetual growth machine: workers invest their wages, goods are made, profits come back as dividends and more wages, workers reinvest. What Solow missed, however, was this: just as a machine can’t use the energy already within the machine to drive further motion, so an economy can’t use the capital within the economy to drive growth. When workers use their wages to buy goods, businesses are only getting back what has already been paid out as wages. Furthermore, just as a certain amount of energy is wasted as it is converted, capitalism inevitably wastes a certain amount of capital in the form of speculative investments that don’t pan out, and as surplus stock that is written off. The apostrophe in M’ can’t be coming from within the system, as you can’t get more of anything out than you put in, whether it’s energy or capital.
One might argue that it comes from human labour, but if that were true, economies would have been growing steadily under free trade systems before capitalism came along. Instead, what the data shows is a steady state. As G. Edward Griffin points out in The Creature from Jekyll Island: “in ancient Rome, the cost of a finely made toga, belt, and pair of sandals was one ounce of gold. That is almost exactly the same cost today, two-thousand years later, for a hand-crafted suit, belt, and a pair of shoes.”
Growth in a capitalist system, like the energy in a machine, has to come from somewhere external. So far that ‘somewhere’ has been provided by emerging markets, population growth, and debt, both public and private. But we have now reached a nexus point of collapse.
Selling to emerging markets subsumes them into the capitalist ponzi scheme, which is how we ended up with globalism. But on a finite planet, that game has an end point. Sooner or later, all the emerging markets will have emerged, closing off that line of growth. Judging by the prevalence of smart phones in the hands of the ‘refugees’ pitching up on Europe’s shores, that point is not far off.
Population too is forecast to take a significant downturn. Geopolitical analyst Peter Zeihan recently appeared on Chris Williamson’s podcast, where he predicted that the global economic system is about to collapse because of a population implosion.
“The worst in the world is China, he said. “They've been in the process of updating
their data over the course of the last couple years and they're now starting to
publicly admit that they over-counted by 100 million people. […] So our best guess is that China only has 1.3 billion people now. The population probably peaked more than
10 years ago; by 2030 there will be more retirees than workers; and by 2050 the entire population of China will have dropped below 650 million. […] So the Chinese system collapses this decade for sure, assuming nothing else goes wrong and there's plenty other competitors to put the bullet in China's head.”
And of course we’re all aware of the eye-watering amounts of debt we’re staggering under, and the inflation that is now underway thanks to government money-printing to cover it.
But, you might ask, what of technological advancement? After all, Solow’s own model predicted that half of all growth would come from technology, not capital or people.
Well, as Robert J. Gordon explained in his 2012 working paper Is U.S. Economic Growth Over? we seem to be getting diminishing returns on technological advances. “There was virtually no growth before 1750, and thus there is no guarantee that growth will continue indefinitely,” he says. “Growth in [Britain and the US] gradually accelerated after 1750, reached a peak in the middle of the 20th century, and has been slowing down since.”
Gordon identifies three Industrial Revolutions: the introduction of steam power and railroads between 1750 and 1830; the introduction of electricity, the internal combustion engine, indoor plumbing, communications, entertainment, chemicals and petroleum from 1870 to 1900; and the introduction of computers, the internet and mobile communications from the 1960s to today. Of the three, the second was the most significant in terms of economic growth. Gordon suggests this is because it made the most difference in people’s way of life, but those differences — urbanisation, the release of women into the workplace — could only happen once.
“Even if innovation were to continue into the future at the rate of the two decades before 2007, the U.S. faces six headwinds that are in the process of dragging long-term growth to half or less of the 1.9 percent annual rate experienced between 1860 and 2007,” he concludes. “These include demography, education, inequality,
globalization, energy/environment, and the overhang of consumer and government debt.”
In other words, Solow’s perpetual growth machine has run out of steam.
The End of Capitalism… but what’s next?
Capitalism, then, has run its course. There is no such thing as a perpetual growth machine, yet without growth, capitalism stalls. But if capitalism has failed us and socialism is obviously a dead end, where else can we turn?
I believe that the answer was hinted at in Griffin’s factoid on gold price stability. We need to return to what came before: not capitalism, but free trade.
We humans are goal driven, we need purpose in our lives to make them worthwhile. For most, that purpose comes from personal achievement; making something or doing something that brings a positive reward. Capitalism has allowed humanity to flourish because it retains that feature; it is failing because it augments it with the use of capital to drive growth. Yet it is possible to strip away the capital requirement and retain the free trade element.
Of course, the Big Winners in the capitalist system won’t like it. They, of course, have long been aware that this is coming, which is why they’re attempting to engineer a Great Reset to keep the show on the road. But for the average working man, who is currently being fleeced to squeeze every possible drop of growth out of the system before it finally collapses, the end of capitalism truly will be liberating.
I began this essay with the Mission Statement of The Center for Individual Sovereignty and Local Governance. Don’t Google it, it doesn’t exist yet. A friend and I are currently working on setting it up as a think tank to examine the problems that we’re currently experiencing, and find a path out of them that doesn’t envolve enslaving humanity. If you would like to know more, or to be part of our effort, you can drop me an email at donna.rachel.edmunds@gmail.com.