The Problem with Capitalism

stock-photo-68899959-cracking-dollar-symbolIn a previous post, I offered a simple and flexible definition of capitalism:

Capitalism is the idea that ownership, in and of itself, entitles the owner to the work of others, combined with the idea that ownership can be bought and sold.

This definition of capitalism ties together all of the various forms of capitalism we’ve seen in the last five centuries — such as mercantile capitalism, industrial capitalism, and financial capitalism — and connects it to the European feudalism from which it developed. But this definition does something else, as well: it clarifies the central flaw in capitalism.

Ownership entitles me to profit from the work of others; I can then use that profit to purchase more ownership, which entitles me to even more profit.

This is what engineers call a positive-feedback loop, or an amplifier. Its natural function is to amplify wealth.

Capitalists also believe in proportional amplification: that their returns on investment should be proportional to their investment. If they buy two houses and rent them out, they should see twice the profit they would see if they buy one house and rent it out. This seems only fair.

Proportional gain and exponential growth are, mathematically, the same thing. So capitalists believe in the exponential amplification of wealth.

This is more than just an arbitrary expectation: it is actually the moral center of capitalism. The argument goes something like this.

“Yes,” the capitalists say, “we are getting wealthy, extremely wealthy. And well we should: for every $166 that we gain in wealth, the poorest people in the world, the non-producers, the parasites, the bums and the wasters, get one dollar in an improved standard of living. We’re doing all the work, taking all the risks, and the poor are getting this dollar for free. For absolutely nothing. So just shut up and show a little gratitude for the better, wealthier life we are bringing to the whole world.”

This is how capitalists view themselves and what they are doing. They are improving the world, and they should not be asked to “give back” anything, because everyone is already getting the benefits that their efforts bring. Railroads. Automobiles. Computers. Every dollar they invest into exponential economic growth benefits everyone, and that benefit — like their fortunes — also grows exponentially.

If they “give back” through taxes, that money does not go into the exponential growth machine. It’s wasted on handouts. That slows down the exponential growth of the $166 to which they are entitled, of course, but it also slows the exponential growth of the $1 that goes to the rest of the world.

Getting themselves rich, according to the capitalists, is the fast track to eliminating all poverty through economic progress. For them to pay taxes is, in their view, an  immoral use of money that would be better spent getting them rich and promoting economic progress for the poor.

This is the theory of “trickle-down.” The rich get richer. The poor get dragged up with them, whether they participate, whether they even want to be dragged up. A rising tide lifts all boats.

Now, for capitalists to experience sustained exponential growth of their wealth in this vision of progress, the economy as a whole must also grow exponentially.  When economists pronounce that the United States showed a “healthy growth” of 2% last year, with the expectation that it will grow at least 2% next year, and again the next, they are affirming the exponential growth of the US economy.

Even if we limit the number of capitalists in the world — let’s say that only the richest 500 people in the world are allowed to practice capitalism — the global economy must grow exponentially in order for economic progress to proceed. Even if we cap the exponential growth of these 500 fortunes at some arbitrary amount — say, one percent — the global economy must grow exponentially.

This is the mathematically unavoidable consequence of exponential growth.

Suppose, however, that the economy stops growing exponentially — it might still be growing, simply not exponentially. In that case, the exponentially growing gains that capitalists continue to draw from their investments would be taken out of an economy that did not keep up with what they are taking out. That wealth has to come from somewhere — which means, ultimately, that the capitalists’ growing wealth comes at the expense of other people’s wealth.

This is generally called theft.

With global exponential economic growth, capitalism arguably provides the greatest economic good for everyone. Without global exponential economic growth, capitalism becomes a form of theft.

The core problem with capitalism is that sustained exponential growth is not, and cannot be, sustained in nature.

This is self-evident. An exponentially growing economy is a doubling economy. With a “healthy” annual growth of 3%, the economy doubles every 24 years. That means we must eat twice as much beef, use twice as much gasoline, buy twice as many cars, build twice as many houses, stay in twice as many hotel rooms, watch twice as many movies. All economic activity must double: from Ambulances to Zambonis. Any economic activity that falls behind this brutal doubling pace requires that other activities more than double, or that new economic activities be spawned, to take up the slack.

Then, in another 24 years, the economy must double again.

A more modest 2% annual growth takes 36 years to double. It’s exactly the same problem, on a slightly extended timetable.

We live on a finite planet. It doesn’t take long for the exponential growth of resource exploitation to hit the bounds of the earth.

When people argue that this just isn’t true, their arguments generally fall into three categories: technology, the information economy, and the idea of “getting off this rock,” or migration to other planets.

Before I touch on these, I’d like to deal with the first and most specifically human of all approaches to this problem: denial and intellectual dishonesty.

I’m going to tag the professional economists, here: they have covered up the impossibility of sustained exponential economic growth with bad accounting, and a vague concept called “wealth creation.”

Let me illustrate with an example. Building a paper mill creates paper, but it doesn’t create wealth: it transforms natural wealth (trees, water, chemicals) into human wealth (paper). Humans value paper over trees, just as magpies value shiny objects over dull objects, so people consider a paper mill to be something that creates wealth. However, natural wealth exists in its own natural economy — we call it an ecosystem — of which humans are also a part, and upon which humans depend for air, water, food, and other more subtle necessities of life. In this natural economy, paper is considerably less valuable than trees, and paper mill effluent is downright destructive. So if we want to say that a paper mill creates (human) wealth, we need to acknowledge that it does so by destroying (natural) wealth.

The destruction of natural wealth is completely ignored by economists as an “intangible.”

This is irresponsibly bad accounting — robbing from Peter to pay Paul, but never keeping track of what was stolen from Peter, or even acknowledging Peter’s existence — covered up by the specious idea that wealth is being created out of nothing, which is not only untrue, but obscures the obvious question of what happens when Peter goes broke.

Now, trees grow back, and in the long run, every ream of paper ends up in a landfill which, in a few thousand years, will become a new forest. So in the global picture, we could state the following general principle:

Wealth is never created or destroyed. It is only moved and transformed.

The issue is in the transformation, because some transformations are — on any practical human time scale — irreversible. Burning petrofuel is one of these irreversible transformations. Fishing a species to extinction is another. It’s quite possible to exhaust the carrying capacity of an ecosystem and disrupt it fatally — to destroy its natural wealth completely, at least on any time-scale of interest to the human species. It’s possible to kill a forest. It’s possible to kill an entire planet. One way to guarantee that will happen is to use bad accounting to write the natural economy completely out of the economic equation, and then consider exponential growth of the one-sided human economy a “moral imperative.”

This is exactly what capitalism does.

There’s nothing new or even uniquely human about this, of course. Most organisms exploit their ecological niche to whatever extent they can, and they often render the ecosystem they rely upon uninhabitable. The phytoplankton species that gobbled up most of the atmospheric carbon dioxide millions of years ago and polluted the air with its waste product, oxygen, killed off its entire microscopic civilization, leaving only a fractional, gasping remnant of its former glory. That opened the door, of course, to oxygen-breathing life, such as our own human lives.

Countless human societies have done the same thing, on a smaller scale, and those societies were forced to either migrate elsewhere, or starve to death. We see plenty of archaeological evidence of both. We don’t get a free pass just because we have delusions of being God’s Little Helpers.

Indeed, a warning against ecocide is one reading of the story of being driven out of the Garden of Eden in the Christian Bible.

There is an important shift of awareness that happens as soon as we recognize the existence of a natural economy, and the fact that our human wealth creation depends upon natural wealth destruction. This shift of awareness raises the question of how capitalism even took root, much less lasted as long as it has.

Surely the fact that capitalism has been so successful is clear evidence that everything I’ve said so far is wrong?

The question is answered by looking at when capitalism took off: the year 1500 is the turning point, in round century numbers. What happened in 1500? Simply this: the European discovery, conquest, colonization, and exploitation of what they called “the New World,” the North and South American continents: an almost unimaginable repository of easily-accessed natural wealth. Timber. Silver. Gold. Rubber. Maize. Fertilizer (guano). Space, vast empty space for an expanding population, space left in the wake of European diseases that wiped out as much as 95% of the indigenous populations of the Americas, leaving two essentially empty continents to exploit.

The problem now, of course, is that the New World has become the Old Americas. The silver mines at Potosí are played out. The Colorado, California, and Yukon gold rushes are over. The US steel belt has become the rust belt. The vast stands of old-growth timber are only a shadow of what they were. The rich fishing-grounds have become oceanic deserts. US oil fields are dry. The various colonies the Europeans spawned around the world during their colonial phase to “develop” (exploit) resources have all flattened in growth, and can no longer keep up with the demand for exponential growth.

The capitalist fuel tank is pushing Empty, and there is nowhere on Earth left to conquer.

Some people say that this is defeatist nonsense. They say that technology will save us. Some think that technology can actually keep up with exponential demands: those people simply don’t understand what the word “exponential” means. Those who do understand the word, however, will still argue that the eventual end of capitalist growth is years, generations, or even centuries down the road due to potential advances in technology.

So let’s talk a bit about technology.

People have been developing technology to fight resource shortages since long before we were homo sapiens. Technology is hardly a new concept. Even crows and ants develop technologies to gather resources necessary to their survival.

However, there’s a general thing about technology that people seldom appreciate: our new technologies typically extract more wealth from the natural economy than the technologies they replace, just to sustain the same level of resource exploitation.

Now, it is possible to develop win-win technologies, where both human and natural wealth are increased. But none of these win-win technologies can give us the exponential growth we demand under capitalism: their growth curve is generally an asymptotically-slowing growth toward a maximum steady-state limit, which could be called the “carrying capacity” of the technology. Permaculture, for instance, improves the soil as we farm it. But it can only improve the soil to a certain maximum carrying capacity, after which you can’t enrich the soil any further, and you can’t increase your crop yield without destroying the balance and extracting natural wealth from the soil.

So capitalism can’t really use win-win technologies to support its exponential models, and doesn’t normally develop them. It turns, instead, to extractive technologies that can be (temporarily) scaled up on an exponential curve at an ever-increasing cost to the natural economy, to fool us into believing that our human economy is once again growing at a “healthy” exponential rate. Then extraction hits its peak, and we need a new and more damaging extractive technology to extend or replace the old.

Up until recently, we’ve been able to do this and quietly collude with the economists in ignoring the natural economy, simply because the natural economy was so vast compared to the size of the human economy. It was, after all, only a few decades ago that we said, “The solution to pollution is dilution.” That was on the tip of every civil engineer’s tongue. It’s what they were taught in college.

No one teaches that any more, because every new technology is beginning to show almost immediate, and global, feedback. We invent DDT, and entire food chains are poisoned and begin to die out within decades. We invent CFCs, and the Earth’s protective ozone layer starts to break up. We improve corn yields, and then honeybees drop dead in large enough quantity to cause concern about the future of agriculture itself. We build cars, and polar ice melts. We make the desert bloom, at the cost of draining ten-thousand-year-old aquifers.

When our technological fixes start to immediately reflect back off the limits of the planet, we’re very close to the end of all technological fixes — and therefore, the end of growth capitalism that depends on technology to keep feeding it with an exponentially increasing supply of resources.

Now, it isn’t impossible that a technological “silver bullet” is just waiting to be developed, that will kick the can down the road another few centuries or even further, such as the so-called “cold fusion” process I’ve written about here and here. But this really underlines my point: for capitalism to continue operating, it pretty much needs a technological miracle. Sustained exponential growth being what it is, even a miracle is only a temporary (and surprisingly short-term) fix.

Technology isn’t going to solve this problem. It will only delay it.

Then we have this concept of the Information Economy, an economic model based on information rather than goods, dealing in products which don’t require raw materials to produce. It’s not quite true that they need no raw materials, but that’s a quibble; the real problem with the Information Economy is Bishop Berkeley’s question from philosophy: if a novel is written in a sea of novels, but no one has time to read it, does it really exist? Certainly it doesn’t turn a profit if no one buys it.

Again, this is a matter of bad accounting. The critical resource in the information age is people, more specifically, people’s attention, which is a finite resource. As each of us becomes more desperately involved in using our attention to produce an exponentially growing corpus of “content,” we certainly don’t have time left to read anyone else’s content, much less pay for it.

Unless, of course, human population continues to expand exponentially. But people are not information: they require space, food, water, and air. Population will not continue to expand exponentially.

The Information Economy isn’t going to solve this problem.

Finally, there’s the idea that if we can just “get off this rock,” our problems will be solved. We can find another New World somewhere out there in the darkness of the Final Frontier.

I’ve explored the mathematical problem here, and the physical problem here. Even if we solved the physical problem — and that isn’t impossible, though it requires physics no one has yet proposed, much less demonstrated — the mathematical problem is still intractable. No matter how fast we expand through space, the need for exponential economic growth backs us into exactly the same corner a handful of centuries down the road.

Space travel isn’t going to solve this problem.

Capitalism is built on a completely false premise: that wealth can be created out of nothing, and can sustain exponential growth. In reality, capitalism creates human wealth by destroying natural wealth, which we need as humans to survive. Exponential growth of the human economy means exponentially increasing destruction of the natural economy, and we’ve already reached a scale where our depredations have global consequences.

Capitalism is driving the human race toward extinction.

In a subsequent post, I’ll write about some of the changes we’re already seeing in capitalism as it tries to adapt to this reality.

This entry was posted in General.

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