Capitalism Money Can’t Buy

“For many ages to come the old Adam will be so strong in us that everybody will need to do some work if he is to be contented. We shall do more things for ourselves than is usual with the rich to-day, only too glad to have small duties and tasks and routines. But beyond this, we shall endeavour to spread the bread thin on the butter-to make what work there is still to be done to be as widely shared as possible. Three-hour shifts or a fifteen-hour week may put off the problem for a great while. For three hours a day is quite enough to satisfy the old Adam in most of us!” – John Maynard Keynes, Economic Possibilities for our Grandchildren (1930)

I read “Exponential Economist Meets Finite Physicist” over at Do The Math recently, and the comments to the blog post quite intrigue me. As shown here, the original Limits To Growth from 1972 has withstood the test of time despite attempts to discredit it. The tendency towards denial and excuses is not the focal point of this post here, but rather the tendency among some capitalist fan boys to grant that yes, we are running up against energy and resource limits, but it won’t be much of a problem; the global economy will keep trucking along fine anyway. However, it appears dangerously out of touch with the way the world works.

First up is the general observation that capitalism has always been about capital accumulation. While the plasticity of capitalism has proven to be tremendous, it has been about keeping capital accumulation going. Keynes was a liberal, after all. And this command to accumulate is universal, because if you don’t, you’re out of the game. CEOs may be nice people, but the shareholders want to see results. This command has had led to many beneficial developments, but has also led to many dubious ones (see planned obsolescence) and a callousness towards destroying commons and exploiting natural resources.

This brings us from a more general observation about the inner workings of capitalism to a more specific one: that of the vast majority of money being debt-based. I recommend watching Money As Debt for an easy to understand explanation for how fractional reserve banking works. Since money is debt, more money must be made in order to pay the debt, and so it goes on. At some point the contradiction of massive debt and increasingly shrinking growth must collide. Since the more benign, planned policy of debt forgiveness would appear to be politically impossible, it seems more likely this contradiction will be solved in the unplanned manner of bankruptcies, probably leading to extremely deleterious effects on the global economy.

This also helps explains the political priorities of countries and municipalities. Economists can claim all they want that economic growth actually isn’t about GDP growth, but something more abstract like “utility”. This is at odds with the decision-making processes of almost all countries in the world. The term “capitalist realism” captures this spirit. So-called “jobs” are becoming less and less about useful human activity and more a goal in itself. Public utilities are increasingly about putting place X on the map, with other benefits being secondary. Now, I’m unsure whether a country, or municipality for that matter embarking on a journey towards another economic paradigm would be truly that detrimental in the short term, it’s just that politicians (and their voters, for that matter) are so stuck in that paradigm that it doesn’t even exist on their mental map. Hence why I don’t think much will happen until it’s very apparent that business as usual won’t pan out very well.

We could take the USSR as an example. Achieving developed country status, had economic growth as a lynchpin, and not doing much about its internal contradictions until it was too late, it could serve as a reflection of “our” world. The Stalinist purges and Nazi invasion had produced a political consensus where, while it was a quite inhuman place to live (which I guess the current consumerist wasteland will also look like in hindsight), people were content just so long as things kept improving. And they did, but just a little bit less every year. Going a strong ten percent growth during the 50’s, slowing down to 5% during Khrushchev, 3% during Brezhnev and finally 1%. And then a plateau. Economy is a lot about psychology; if there is no faith in the economic system, it will collapse.

If people realize things aren’t going to improve, their actions will be different. Of course, it’s debatable how strong one could really compare the USSR and any developed country today. Dmitry Orlov however, Soviet-American engineer of some repute, compares the “collapse readiness” of the USSR and the US with each other (most famously here, though he has also written a book about it called Reinventing Collapse about it) and comes to the conclusion that the USSR was far more prepared.

We’re on uncharted waters here, and what worked as a solution in the past (Keynesianism being the most prominent example I can think of, especially because many on the left still embrace it) won’t work in the future. Things seen as good today could turn into a millstone around the neck tomorrow. The original Limits To Growth, written in 1972, predicted economic collapse in the first few decades of the 21st century. While laughed at then, it is increasingly looking more and more like reality.