Capitalism is not the problem. Capitalism is not the solution.

Always we hear the endless debate: does capitalism (that is, a market-based economic system) inevitably create poverty and inequality?  Or does capitalism inevitably create prosperity?  Should we attempt to ban capitalism, and find another economic system?  Or should we let capitalism run free, and unleash it from the shackles of regulation?

This is all rot.  Capitalism is irrelevant, and the people arguing both sides of this laughable ‘debate’ are – wittingly or not – distracting us from the real problems that we face.

Imagine that a tall building is erected, and it shortly collapses with significant loss of life.  How should we react to this?  One school of thought says that the laws of physics are to blame, that physics inevitably causes buildings to collapse, and that we need new physical laws.  The other side says rubbish, and physics is the answer, physics naturally makes tall buildings stay up, and we simply need to believe hard in physics and stop trying to regulate it.

This is, of course, insane.  Physics neither guarantees that buildings will stand up nor that they fall down.  Physics cannot be denied.  We do not have the ability to change the laws of physics (and likely never will), we cannot break them, but neither does physics lock us into a prison.  Physics sets the rules of the game, but within these rules we have broad latitude. If buildings fall down it is because of specific things that were or were not done, not because of the laws of physics per se.  Physics is as happy with buildings that stand up as with buildings that fall down.

And so with ‘capitalism.’  Market forces cannot be denied.  Things that are scarce relative to the demand for them, will command high values.  Things that are in excess relative to the demand for them, will command low values.  And people respond to incentives.

Now when a population grows rapidly, once there is no longer an open frontier, there are more workers than resources, and wages for the many will fall and profits for the few will rise.  And when a population is stable or grows very slowly, then more often than not there will be more resources than workers, and wages for the many will rise and profits for the few will be limited.  Both situations are completely consistent with the workings of the market. 

The poverty of Bangladesh, the prosperity of Switzerland – both are capitalist economies, and the market is working equally well in both places.  The outcomes are different because of specific decisions the people living there made, not because the market inevitably causes anything.  Capitalism can as easily produce crushing misery as widespread prosperity, depending on how we work it.

Trying to outlaw capitalism by either total regulation (i.e., communism) or no regulation (i.e., neoliberalism) inevitably results in stagnation, because without market forces and incentives people don’t work hard and resources are not allocated efficiently.

Now you may say, wait a minute: how can no regulation result in the same stagnation as over-regulation?  Because they are the same thing!  A capitalist system can only exist with moderate regulation.  No regulation quickly leads to the same over-regulation as communism. 

In the long run, Laissez Faire is Stalinism. 

OK, suppose we get rid of all government regulations.  Now the rich are free to do whatever they want.  Including buying up the government (or creating a new one if the old one was totally wiped out), and bribing public officials, and buying up the news media and the courts etc.  And the first thing they will do is enact onerous, regressive, and complex regulations that will soon come to rival or even exceed the late unlamented Soviet Union, and to wipe out all vestiges of market discipline for the owners of capital.

In the United States there was a brief period of deregulation starting around 1970 (ish).  Laws against conflict of interest, or bribing public officials and university faculty, and forming monopolies, and so on, where either repealed or not enforced.  And the rich progressively began to take over the government.  So now we have trade agreements that are thousands of pages long that regulate virtually everything one might think of.  We have rich bankers now guaranteed bailouts with public funds if they make bad investments.  We have private student loan organizations that are guaranteed their profits by the government.  We have a for-profit health care system whose complex rules would make any Byzantine official’s head spin.  And so on.  Which means that these brave capitalists are no longer doing their capitalist duty of evaluating risk and steering resources towards productive investments.  They are becoming an oriental despotism, ruling over the population in arbitrary fashion, immune to any sort of market discipline.

Capitalism requires moderate regulation or it soon disappears.  Laissez Faire is logically impossible.  An unregulated privately-owned monopoly soon becomes indistinguishable from a state-run collective.

So what’s going on in the world?  Many things, but the failure or success of capitalism is not one of them.  A biggy is the elite-encouraged global population explosion, which is filling up the world and increasing competition for jobs and resources and making wages lower and profits and social power for the rich higher.  But that’s something specific.  Talking about that might result in specific actions being taken to reverse the situation.  And that would never do. 

And so we have these sterile, pointless debates about whether capitalism is intrinsically good or intrinsically evil.  Because these debates will never ever lead to doing anything specific and functional that could affect the real world.  Which is, obviously, the point.