In the previous two entries in this trilogy, I discussed the difference between capitalism and the economy.
They are not one and the same. Capitalism is not the economy.
Capitalism is merely a method for allocating resources in conditions of scarcity. Capitalism deals with issues in manufacturing, production, the provision of services, consumption, and the distribution of profits and income.
The generation of wealth in capitalism is a byproduct. It is a main philosophical tenet of capitalism and it is embedded in its structure.
But one should not confuse capitalism with the economy because the economy has many other dimensions and facets that have nothing to do with capitalism or with communism or with socialism or with any other ism.
All these isms are about allocation. There's a limited amount of land. There's a limited amount of money. There's a limited amount of land. There's a limited amount of money. There's a limited amount of machinery. There's a limited amount of capital.
This has to be somehow distributed among people and groups of people.
Capitalism tells us how to do it.
So, I suggest that you watch the previous two videos on this topic. You can find the links in the description, and the description is still under the video. Last time I looked, click on these links, watch the videos, and then come back to this one, because this one concludes the trilogy.
Today I would like to discuss capitalism as a form of pathology.
The pathology is embedded in capitalism.
Capitalism, like everything else, has been created by human beings. And human beings have their own eccentricities, idiosyncrasies, mental health of the absence of mental health, predilections, proclivities, fears, wishes, hopes, dreams, emotions, cognitions, all these feed into the organizing principles of daily life and, among other things, of the economy and of allocation within the economy.
So capitalism is not this God-given philosophy which is exempt from human foibles and human shortcomings.
Capitalism is just a reflection of who we are for better and very often for worse.
Let's start with the fact that capitalism is a religion. It's a religion because at the core of capitalism, there's a fantasy.
Now this fantasy, exactly like in other religions, this fantasy is shared among the adherents and the worshippers.
People who believe in capitalism, people who swear by capitalism, people who hope that capitalism can live them from poverty, people who want to get rich quick, people who support capitalism is a way to organize society and the economy and relationships among people in communities.
These people believe in the core central fantasy of capitalism.
Exactly as we have a fantasy in organized, institutionalized religions, this fantasy is God.
In capitalism, the fantasy is called the market.
The free market in capitalism and the price signal in free markets. These are the core shared fantasies of capitalism.
They are fantasies, of course, because they're not real. They're not real.
There is no such thing as a free market.
Markets are not free. Markets are not free because there are always power asymmetries between people. Not two people are equal. The minute people are not equal, the market is not free. And so by definition, markets can never be free.
Similarly, the belief that prices signal information, contain information that somehow mysteriously, through an invisible hand, regulate the market, this belief is counterfactual and is a fantasy.
Prices do contain information, of course, but a huge part of this information has nothing to do with the market, with valuations, with inputs, with outputs and so on and so forth.
Markets and prices are actually psychological entities, not ontological ones. They are not real. They are not as real as a table or a smartphone.
They are symbols. They are abstracts. They are organizing principles, they are explanatory principles.
In other words, the market and the price signal within the market, these together constitute a philosophy, an ideology, which is highly debatable and definitely counterfactual.
When we rely in our daily affairs, when we rely on a philosophy or an ideology or a set of principles that are divorced from reality, that are counterfactual, not factual, we call it in psychology a fantasy.
And this is what capitalism is. Capitalism removes us from reality, is divorced from reality, impairs our reality testing.
If I were less charitable than I naturally am, I would have said that capitalism is a major scam, a deception.
But I'm not going that far because I don't think capitalism is malevolent or malicious or evil or wicked in its nature.
I simply think that it's a form of self-deception involving symbols and ideas in a conceptual structure that regulates relationships between people, relationships of production, of consumption, and of the distribution allocation of resources and the resulting wealth.
Now, we are creatures made of dreams. We sacrifice our lives for narratives and for symbols. People die for symbols painted on a piece of cloth called a flag.
So I am not disputing the efficacy of capitalism.
Because capitalism is a narrative, it's a piece of fiction, it's a story, it has a lot of power, because it manipulates, it's concerned mostly with the manipulation of symbols. It has motivational and intentional powers.
So capitalism is a way to obtain outcomes, to reach some accomplishments, to realize some goals, to self-actualize.
And in this sense, so is religion, and so is science, and so is any other human activity which is concerned with abstracts and symbols.
We, as I said, are motivated by words, by language, where creatures of language and capitalism is just one such language.
But is it a good language? Is it a language that yields outcomes or leads to the accomplishment of goals that are beneficial to us? Is it what we call in psychology a self-efficacious system or organizational principle?
So let's have a look at some of the issues.
One of the main tenets in capitalism is the belief that productivity is crucial. Growth is ineluctable and essential.
And so capitalism is concerned with increasing productivity and enhancing growth infinitely. And at any cost, for example, environmental costs.
Now, this combination of productivity and growth leads to short-term thinking. Thinking that is concerned with the here and now, the bottom line profits at the end of the quarter, or if we are far sighted at the end of the year.
No one sees beyond this nose because everyone is focused on raising productivity and growing.
Growing in order to raise productivity. Raising productivity in order to pay higher wages in order to consume in order to grow in order to increase productivity. It's a cycle.
Now, many people would say it's a virtuous cycle, and in some respects it is.
For example, it leads to an increase in the standard of living, but it's also a vicious circle.
Because the costs associated with an infinite increase in productivity and growth are hidden. They're invisible.
For example, in our financial statements, we measure everything. We measure how much furniture we have. We measure how much money we have in the bank. We measure profits. We measure inputs. We measure outputs.
But we don't measure the costs. For example, we don't measure the costs in terms of the environment. We don't measure the cost in terms of our health. We become sicker. The more we work, the more alcoholic we become, the sicker we are physically. And we don't measure that.
Have you ever seen a financial statement that discusses heart attacks or strokes? Have you ever seen a financial statement that discusses happiness or lack of happiness? Have you ever seen a financial statement that incorporates the outcomes of disintegration of families and communities because everyone is working too much and too hard? Have you ever seen a financial statement that includes pollution, pollution of fresh water, pollution of air?
No, none of these costs are included in financial statements. These are the hidden invisible costs.
But they are the only real costs because capital is fiction. Capital is not real. Capital is symbols. Electronic symbols. There's nothing there.
If you go to a bank, 90% in the best case, usually 95%, of the balance sheet of the bank is fiction. There's no real money there. Not gold, not silver, not even notes and coins. There's nothing except electronic spreadsheets in the computer.
Capital is not real. Pollution is. Divorce is. Drug abuse is. Mental breakdowns and burnout. These are real things, yet none of them is reflected in the financial statements in capitalism.
And so the addiction to productivity, growth, the short-term bottom line, a form of grandiosity, we're becoming bigger all the time, we're becoming more profitable on the time, we're becoming richer all the time, that's grandiosity.
This is a pathology built into, baked into capitalism.
Let's review another facet of capitalism.
Wealth, hard work, frugality. These are considered basic precepts, pillars of the Protestant work ethic.
The belief is that if you follow these Protestant values, if you work hard, if you're frugal, you're not spent thrift, and if you accumulate wealth, then you're virtuous, you're chosen by God, literally, you're blessed by God.
The Protestants believe that rich people are blessed by God and poor people are cursed, cursed by God. And I'm kidding you not. This is known as the Protestant work ethic.
This is narcissism. Protestantism is the earliest form of narcissism. It's the belief that if you happen to be wealthy and rich, it's not because you were lucky, it's because you are superior. It's not because the confluence of circumstances allowed you to become rich and wealthy and powerful, but it's because you were chosen by God.
Of course, clearly this is narcissism.
So today there is a backlash.
While Protestantism and especially Puritanism regarded rich people as blessed by God, virtuous by definition, today we regard rich people as crooks, as liars, as manipulators and thieves.
So there's a backlash against the Protestant values. Today these are regarded as vices, not as virtues.
This backlash is indicative that something is profoundly wrong with capitalism.
Because had capitalism truly resonated with the human mind and with human nature, there would have been no such backlash.
Capitalism created the conditions for mass envy, for massive anger, for rage. Capitalism provoked, in the vast majority of a population, negative emotions, negative affects.
This is a strong indication that capitalism got it wrong with regards to human psychology and human nature.
Alienated and estranged, huge swathes of the population. No organizational system, no method of allocating economic resources and wealth can survive if it alienates, estranges and pisses off the majority of the population.
These things don't go together. There's no consensus and no solidarity when the way things are conflicts with the way you are, with your essence as a human being. This is an inhuman system. And human beings react to it badly.
Now, one of the main features of capitalism, especially industrial capitalism and post-industrial capitalism, what is known as state capitalism, is inflation.
There's never been inflation in human history until the 18th century. The price of bread remains stable for well over 200 or 300 years in Europe.
Inflation is a new feature and clearly correlated with capitalism. Inflation is a disease of capitalism, exactly like recessions and depressions, which are also byproducts of capitalism.
But inflation is unique because inflation penalizes the poor and rewards the rich.
Poor people suffer disproportionately from inflation. Rich people benefit from inflation because it erodes the value of their debts and the credits they have taken. When they repay these credits and debts, it's with a devalued currency. Inflation erodes the value.
On the other hand, rich people have financial assets and financial assets appreciate with inflation.
Poor people suffer because poor people spend most of their income on consumption.
And so when there's inflation, poor people are penalized and rich people smile all the way to the bank.
Not only inflation, when there is any disaster, economic disaster, medical disaster, natural disaster, political or geopolitical disaster, war, for example, the rich benefit.
Capitalism is a catastrophic system in the sense that it benefits from catastrophes.
Some economists like Schumpeter calls it creative destruction. Capitalism moves through cycles of destruction and reconstruction, or destruction and construction of something new.
But destruction is built into capitalism.
Look what happened during the COVID-19 pandemic. The rich got insanely richer. The yield, the return on the wealth of rich people during the pandemic has never been higher, while of course poor people suffered horribly.
Capitalism rewards the rich and especially rewards the rich in times of trouble and crises. So the rich have a built-in incentive to provoke crisis.
For example, war is very profitable.
No less than the President of the United States, Eisenhower, warned against the military industrial complex, against the rich, provoking wars on purpose, or benefiting from war, in a way that gives them an incentive to continue wars indefinitely.
Now, this is built into capitalism. This is not something, this is not an alien feature that is unrelated to capitalism. It's built into capitalism because capitalism, as I said, is a mechanism of competing for scarce resources.
The amount of resources is limited. So we have to fight for these resources. It's a zero-sum game. Anyone who tells you that capitalism is a win-win situation is a rich guy who is in interest to brainwash you.
The American dream is a fantasy, a nonsense, that keeps the masses peaceful and quiet. Otherwise, there would have been a guillotine in every square in the United States.
And the rich know this. So they're selling you on this nonsense.
But the truth is that capitalism is a zero-sum game because resources are finite. There's only so much land, period. Even money cannot be multiplied indefinitely.
Because if you multiply money, you erode the value of money.
And so everything is limited.
And because it's limited in scope and in quantity, we have to fight for it.
Capitalism is about the conflict for scarce resources, the war for scarce resources.
Capitalism, therefore, is about war, about conflict, about aggression. It's an aggressive way of allocating resources.
And anyone who denies this has never been in business. Believe me.
Now, one of the byproducts of the rise of capitalism, capitalism started its ascendance in the earliest 13th century and more seriously in the 16th and 17th century.
There was a transition from Mercantilism to commercial capitalism, Adam Smith, and then to industrial capitalism and then to state capitalism.
There are various phases in the development of capitalism.
But capitalism always colluded, conspired with, and collaborated with politics. There is no capitalism without politics.
Now, all kinds of theoreticians, for example, the Austrian School of Economics would tell you that it is possible to have capitalism without any involvement of the state or without any collusion or collaboration or conspiracy with politicians.
That is utter nonsense. There hasn't been a single year of capitalism in the past 400 years without the involvement of politicians and the state or the equivalent of the state. None.
Capitalism started off when countries such as the Netherlands and Britain granted monopolies to specific enterprises like the East India Company. That's how capitalism started. Monopoly is granted by the state.
Wages were regulated. They were not allowed to rise. The state was heavily in bed, in cahoots with the private sector from the very inception of capitalism.
And this has not changed until today.
The state, politicians more precisely, create safe havens for capitalism, secure bases, regulatory sanctuaries, within which capitalism can operate with impunity and with immunity.
This incestuous relationship between capital and politics has never been severed, and anyone who claims that there used to be a utopia with free market capitalism, unencumbered by any political processes, involvement, is lying to you. That is not the truth.
It is true, however, that the overt involvement of the state as a state has grown dramatically in the past hundred years. That is very true.
But it has grown dramatically because capitalism kept failing. The Great Depression was a failure of capitalism. The Great Recession was a failure of capitalism.
And every such cycle of failure of capitalism increases the role, involvement, and intrusion of the state.
So capitalism is guilty that the state has grown metastatically. Capitalism is guilty that the state is taking half of our income.
It is the guilt of capitalism. It's capitalism is to blame for this because capitalism is a highly inefficient and imperfect system which keeps failing time and again without fail.
You can rely on one thing only in capitalism. The next bust, the next depression, the next collapse, the next recession, the next economic disaster. This is the only thing guaranteed in capitalism.
Of course, no one can survive like this. So the state enters the bridge. The state tries to remedy the situation somehow.
And each time the state keeps growing, because programs pile upon programs, institutions pile upon institutions, until the state is everywhere.
But I blame capitalism for this, not the other way around.
Capitalism is an embodiment, at least philosophically, and definitely in schools like libertarianism and high economics and so on, capitalism claims to be a kind of representation of Darwinian natural selection, survival of the fittest within the economy and within society.
So capitalism is Darwinism in economics. That's the way they see it.
But had evolution worked like capitalism, we would not have been here.
Evolution is infinitely more successful than capitalism. Evolution has many blind alleys, many discarded experiments, of course, but it's a highly efficacious system. Evolution is a highly efficacious method of improving the stock. It's a form of embedded eugenics, actually, while capitalism is a bloody mess, simply a bloody mess.
And that's perhaps because evolution was designed by God, while capitalism was designed by humans, if you believe in God.
So capitalism has market failures. Capitalism has boom bust cycles. Capitalism has problems to supply some basic public goods.
For example, defense. For example, education. For example, health care.
When these public goods are privatized, when we hand over these public goods to the private sector, they collapse.
So capitalism is not a panacea. It's not an answer to all our needs and all our activities and all. It's not a total system. It's very limited.
And our problem as humanity is that we have adopted capitalism as a solution to all problems.
There's a problem in education, capitalism. There's a problem in healthcare profits, capitalism. There's a problem in electricity, providing electricity, or broadband, capitalism.
There's a problem in electricity, providing electricity or, you know, broadband, capitalism.
Sometimes capitalism works, sometimes, and I would even say often, capitalism fails.
It's nowhere near evolution or Darwinian principles. It's where maybe when it grows up, but right now, capitalism is chaos in the worst sense of the word, and leads us astray time and again, very much like democracy, by the way.
One of the major problems in capitalism is that capitalism is in denial.
The core narrative, the core speech act of capitalism is to deny.
When you present capitalists or the adherence of capitalism or capitalistic theoreticians and scholars, or the average person in the street who has been brainwashed into supporting capitalism, when you present them with incontrovertible evidence of the failures of capitalism, what they do is not confront these failures and somehow try to disprove the argument.
They deny. They simply deny.
There are externalities, external shocks, external developments, and these externalities challenge capitalism and capitalistic systems time and again, and yet capitalism turns a blind eye as a matter of policy.
Capitalism denies these externalities and pretends that all is well.
And this leads, of course, to catastrophic outcomes.
Externalities can be anywhere. It could be a pandemic. It could be an asset bubble. It could be finance, international finance mismanaged. It could be a sudden development, geopolitical development, a war, right? There are thousands, literally, thousands of types of externalities.
And capitalism supposedly is a flexible, malleable, transigent system which can cope and adapt on the fly.
But rather than do this, capitalism simply denies the externalities until there is such a massive shock and collapse that cannot be denied anymore.
Example, the Great Depression.
And then capitalism transforms metamorphosis, there's a metamorphosis and capitalism becomes something else.
For example, the New Deal, Theodore Roosevelt's New Deal, and later variants of Euro-socialism, their attempts to adapt capitalism to changing externalities and trends, but they were belated, and they were reluctant, these changes and these attempts to adopt capitalism.
The first reaction of capitalism was to deny that there's any problem whatsoever, and then it took 10, 20, 30 years to recover from the effects of this denial and the crashes and depressions and horrendous devastation that came.
Capitalism very often destroys capital much more than it creates, for example, in 2008 and 9. There was a destruction of capital that far exceeded anything capitalism created.
So we need to realize that no single system has the answer. There's nothing like THE answer.
Every system, and that includes socialism, communism even, Marxism, every system, brings to the table some ideas that are useful, some ideas that are idiotic, some ideas that are counterfactual, some ideas that are implementable, some ideas that are highly idealistic and utopian, some ideas that are dystopian.
We should never discard a system of thought or a philosophy just because of political reasons. We should review everything that humanity has ever come up with and then create a synthesis, amalgamate things, borrow concepts from here and from there, concepts from socialism, combine them with concepts and ideas from capitalism, and create a synthetic environment which could cope with exigencies, vicissitudes, vagaries and ups and downs and cycles.
If we stick to a single method of operation, we are doomed to fail.
And this is something Darwinian evolution never does. Darwinian evolution is about experimentation. There are no taboos in Darwinian evolution. Evolution uses everything available.
And so should we, especially as the world is becoming more and more haphazard, more and more volatile, more and more risky, less and less predictable. And I would even say less and less rational.
We need to have a look at all the isms on the table and borrow those elements which fit us best at this specific moment in history. This is adaptation.
I would like to discuss two additional issues.
One is the issue of equity, also known as income inequality.
Now there are numerous studies that have shown that rich people lack empathy compared to poor people. Poor people are more empathic than rich people. That's a fact. Indisputable in multiple studies.
Okay, fine, no problem there. Empathy is supposedly not a part of the economic system.
Wrongly so, but okay, that's the situation.
Still, income inequality is a major problem.
Because income inequality demonetizes the economy, bleeds it dry.
A lot of this money is invested in non-productive enterprises or remains dormant or stuck in financial assets. The money velocity is impacted by income inequality.
Additionally, there are social costs in terms of social unrest, etc.
Now, people point at the standard of living. They say, we have so many things nowadays that our predecessors did not have. I have a smartphone. My grandpa didn't have a smartphone.
That's of course idiotic. We don't measure economic progress by how many things you possess.
And if we did, it would always be relative.
When wealth increases, it should increase in a way that somehow lifts all boats, albeit not equally.
Inequality is essential to the functioning of any economy.
This inequality creates motivation. Motivation creates emulation. Emulation creates imitation. Imitation creates production and consumption.
So it's the engine. Inequality is the engine.
But when inequality reaches monstrous proportions, when a typical manager in a company makes 300 to 1,000 times the wage of a laborer when the 1% own more wealth than the lower 67%.
Something has got to give.
And I'm not talking now about morality and fairness and distributive justice and forget all this.
I'm being hard-nosed right now. Realpolitik, as the Germans calling.
This is unsustainable. And it's unsustainable not only because of human envy, which is something which we should take human psychology into account. Economics is a science of human psychology. We even have a branch called behavioral economics.
So envy is a danger, it's a risk. We should take it into account.
But even if we put envy aside, I mentioned the problem of demonetization, non-productive investment, waste of resources, and so on so forth.
The rich, this is such a small group, that the amount of wisdom in this group is bound to be much less than the amount of wisdom outside this group.
You heard of crowdsourcing, crowd wisdom?
There's no crowd. The very rich are not a crowd. There's about 10,000 people there so it's a huge danger to humanity and a huge danger to the proper functioning the liquidity of the economy including in the financial system.
And the solution is, of course, not to democratize wealth, not to grab it from the rich and distributed to the poor.
The solution is to change the incentive system in capitalism and to place emphasis on other means of production, other inputs, to rearrange capitalism so that people are rewarded not only in relation to their inputs, for example, their work, not only in relation to their skills, but also in relation to the general growth of the economy.
People should have a stake. People should have a skin in the game.
When the economy grows generally, they benefit, even if this benefit cannot be traced directly to any specific input or contribution.
And this is not happening now. Only the rich benefit this way. Only the rich become richer even when they spend all day long on the beach.
Even when there's no input, no contribution, no work, nothing, the rich keep getting richer by the minute.
And this is wrong. This is wrong. The system has gone awry. It's dysfunction.
And the final thing I want to discuss is the involvement of the state, of judiciary, of regulators, and so on so forth.
And I mentioned that capitalism started this way.
Before the period, before the 18th century, before Adam Smith, capitalism was mercantilist. The state was actually in partnership with the private sector, granted monopolies to the private sector, and so on so forth. So we're just going back to the pre-Adam Smith period, but there is a debate here.
Did Adam Smith describe any reality or was he the progenitor and originator of the shared fantasy at the core of capitalism?
My opinion is that Adam Smith was daydreaming, hallucinating. I have no idea what he's talking about. I read all his books. I have no idea what he was talking about. He was not describing any real economy.
Marx was much more realistic than Adam Smith. Marx was much more updated and involved in, he knew what he was talking about.
Adam Smith is describing an ideal, a fantasy, a utopia of how capitalism should work, but never ever did. Never. Not even for one day throughout human history. Did we have an Adam Smithian economy or capitalism? Never.
So it's wrong to divide it to after Adam Smith and before Adam Smith.
Because capitalism has always been in bed with a state, with regulatory agencies, with the judiciary, with institutions, always. Capitalism has never been divorced from the state or from communities or from politics. This is a myth, absolute myth.
And Adam Smith realized that he thought, let's put it this way, he said that this is wrong, that capitalism should not be obliged to participate in activities which are not economic, that capitalism should not be influenced by non-economic considerations such as politics, he thought this situation, he thought the situation as it were at the time, was wrong.
And he came up with an alternative, the hidden hand of the market, allocation via the price signal, the division of labor. These were his ideas for a pure, unadulterated, ideal form of capitalism that never came to be ever, not before Adam Smith, not after Adam Smith, and definitely not today, when the state is anywhere between one-third and one half of the economy.
So no point to talk about Adam Smithian capitalism, where free agents conduct free trade and free exchange of goods and services in an environment that is unencumbered by any other consideration, not by the state and not even by human psychology.
Capitalism supposedly leverages greed. Greed is human, but it ignores all the rest of human psychology.
For example, it ignores the fact that human beings are irrational. They are not rational agents. This is the work of quite a few psychologists in economics. Many of them won Nobel prizes for economics. They discovered economics is a branch of psychology. I've been saying it for 30 years as well. Economics is a branch of psychology.
And yet capitalism pretends that with the exception of greed, there are no other human faculties, human features, human obstacles, human psychology. The human mind is reduced to a single feature. Greed. Nothing would stand in the way of greed, says capitalism.
Yet another fantasy, yet another counterfactual statement.
And so this is what I want you to think about, to consider at the end of this video.
Capitalism as you think you know it has never existed. Capitalism as it exists is very, very, very flawed. Requires immediate modification because it keeps leading us astray into major disasters. It's been doing it for at least 400 years.
Same criticism can be applied to democracy, also an exceedingly flawed system that led us to the likes of Adolf Hitler.
Something is wrong in the liberal edifice, which is comprised of capitalism and democracy.
The founding fathers of the United States, the wisest of men, knew this. And the constitution and other founding documents reflect their aversion to democracy and their version of capitalism which was mitigated pro-social.
So maybe we need to travel back in time and consult with them.
As things stand right now, we are doomed.