History UsefulNotes / Capitalism

-->--'''Adam Smith'''[[note]]

->''"Wealth accumulated in the past grows more rapidly than output and wages. This inequality expresses a fundamental logical contradiction. The entrepreneur inevitably tends to become a rentier, more and more dominant over those who own nothing but their labour. Once constituted, capital reproduces itself faster than output increases. The past devours the future."'''
-->--'''Thomas Piketty'''[[note]] Piketty, Thomas, ''Capital in the Twenty-First Century'', translated by Arthur Goldhammer (Harvard, 2014) p.571 - first published as ''Le capital au XXI siècle'', 2013 [[/note]]

'''The Central Contradiction: r > g'''

Capitalism kills its hosts.

It does this by exponentially increasing wealth concentration/inequality, which creates socio-economic conditions that promote political rebellion. This is the inevitable, "terrifying" consequence which Thomas Piketty implied when noting that "the past devours the future".

The reason why wealth concentration/inequality increases exponentially is that the average returns to the ownership of capital - the increase in the value of property including companies, shares & bonds, land, factory plant, money, etc - '''(r)''' have always exceeded the average growth of incomes from labour '''(g)'''. When it is allowed to happen by government inaction, or is accelerated by "regressive" (extracting wealth from the poor to give to the rich) policies, this process eventually produces economic stagnation.

Economic stagnation is the inevitable result of growing wealth inequality because economic activity is driven by consumption, and sufficiently wealthy individuals spend relatively little of their income on consumption. Instead, they invest it in growing their wealth. As more and more of the total income of a capitalist market-society is invested in the acquisition of capital, and not spent upon consumption, less and less economic activity takes place until economic stagnation and finally decline result. This delivers a stagnant or declining standard of living for people whose income comes solely or mostly from working.

In the stagnant or declining economy, civil disorder and rebellion is inevitable. The majority's impoverishment gives them a growing incentive to rebel and restructure the system in their own interests, particularly when they cannot survive their present standard of living. Concurrently, the capitalist class' declining ability to extract wealth from the the host society incentivises it to violently cannibalise itself. Capitalists always prey upon fellow capitalists as well as the majority, but as less and less predation can be conducted outside their class then their focus turns inward. As nonviolent avenues of predation generate resentment and are exhausted, violent ones proliferate.

The final blow is often delivered by external shocks such as warfare or natural disaster, which threaten the majority's survival and weaken some capitalists' capacity to defend themselves from others. Rebellions and civil wars resulting from the long-term trend of ''r > g'' and short-term shocks caused by natural disasters and wars were major causes for the disintegration of notable empires including the [[UsefulNotes/DynastiesFromShangToQing Ming]] and [[UsefulNotes/TheRomanEmpire Western Rome]]. TheCycleOfEmpires is a related trope, albeit with a greater focus on the politics than the economics of the rise and fall of civilisations.

Interestingly, UsefulNotes/{{Socialism}} contends that the growing integration of the world economy and the inability of the democratic process to check capitalist wealth-power accumulation means that the inequality and unrest caused by r > g will eventually kill ''[[HoistByHisOwnPetard Capitalism itself]]''.

->''"Wealth accumulated in the past grows more rapidly than output and wages. This inequality expresses a fundamental logical contradiction. The entrepreneur inevitably tends to become a rentier, more and more dominant over those who own nothing but their labour. Once constituted, capital reproduces itself faster than output increases. The past devours the future."'''
-->--'''Thomas Piketty'''[[note]] Piketty, Thomas, ''Capital in the Twenty-First Century'', translated by Arthur Goldhammer (Harvard, 2014) p.571 - first published as ''Le capital au XXI siècle'', 2013 [[/note]]

Capitalism, as defined by [[https://en.wikipedia.org/wiki/Capitalism TheOtherWiki]], is "an economic system based on the private ownership of the means of production and their operation for profit."

Capitalism, as defined by TheOtherWiki, is "an economic system based on the private ownership of the means of production and their operation for profit."

Capitalism is a political-economic system for structuring society in such a way that the individuals of the 'capitalist class' ('capitalists'):

* Own capital/the means of production: the physical, non-human inputs used for the production of economic value, such as facilities, machinery, tools, infrastructural capital and natural capital.
* Hold political-economic power in proportion to their ownership of capital.

* Supply-side economists such as Thomas Sowell advocate for an economic system that would cut taxes and eliminate regulations, leading to more spending from the rich with wealth trickling down to the working class; detractors of this theory have dubbed it “trickle-down economics”, but proponents argue that this is based on a misunderstanding of how supply-side works. This was criticized by many opposing economists as unrealistic, including a right-wing poltician, George H.W. Bush who called it "voodoo economics". Main proponents of this economic system were Reagan (whose brand of supply-side has been dubbed “Reaganomics”), George W. Bush, and currently Donald Trump. Supporters of the system defended it claiming that it lead to the success in the 1980s. Opponents claim that it is the system lead to the early 90s recession, Japanese lost decade, and the Great Recession, claiming that removing the regulations from certain industries like Wall Street lead to them giving loans to people with dubious capacity to repay it if it went bust. Supporters claim that other factors lead to these recessions. Either way, like classical Keyensianism losing support in the 70s, supply side lost support in 2008 after the collapse was blamed on deregulation. It still has its supporters, mainly neoconservatives such as political commentator Ben Shapiro.

* Milton Friedman: Probably the second most important economist of the 20th century. Friedman's ideas have contributed more than anyone else's to the massive stock-market bubbles which resulted in The Great Recession of 2008. Friedman started from the position that government intervention in the economy was an immoral infringement upon the freedom of its citizens, and developed theories which reflected and supported that view. Keynes had determined that the financial sector had to be regulated and restricted in order to prevent it from distorting and screwing up the 'real' economy, but Friedman hypothesized that the financial sector could be harnessed to drive spectacular growth. Friedman believed that if banks were not prevented from making risky loans, then enough of these would pay off that an economic boom financed by debt would result. Once this became or threatened to become a crisis, the government would then loan massive amounts of money to the banks so that the real value of the debts would be wiped out and the cycle could begin again. Friedman was an economic adviser to UsefulNotes/RonaldReagan, and he also highly influenced UsefulNotes/MargaretThatcher and other Neo-Liberal leaders. Basically, he is to Neo-Liberals what Keynes is to Social Liberals and Socialists. Among his most important contributions to economic theory are his "natural rate of unemployment" and what would eventually be called stagflation. [[note]] an economic period of high inflation and rising unemployment, leading to lower growth), saying that trying to prevent one of them will eventually cause ''both'' of them to rise [[/note]] Crucially, he argued that the only tool governments needed to promote growth and prevent depressions was an extremely aggressive use of the money supply ('Monetarist' policy). Though he disagreed with Keynes' methods, he claimed to have been influenced by Keynesian economics and called Keynes' ''The General Theory'' "a great book." He argued that government regulation of the financial sector constituted tyranny and an infringement of 'basic liberties', assuming it didn't outright lead to Commmunism, so he's really popular with Libertarians. He also led to the USA having a solely volunteer military.

The reason why wealth concentration/inequality increases exponentially is that the average returns to the owership of capital - the increase in the value of property including companies, shares & bonds, land, factory plant, money, etc - '''(r)''' have always exceeded the average growth of incomes from labour '''(g)'''. When it is allowed to happen by government inaction, or is accelerated by "regressive" (extracting wealth from the poor to give to the rich) policies, this process eventually produces economic stagnation.

In the stagnant or declining economy, civil disorder and rebellion is inevitable. The majority's impoverishment gives them a growing incentive to rebel and restructure the system in their own interests, particularly when they cannot survive their present standard of living. Concurrently, the capitalists class's declining ability to extract wealth from the the host society incentivises it to violently cannibalise itself. Capitalists always prey upon fellow capitalists as well as the majority, but as less and less predation can be conducted outside their class then their focus turns inward. As nonviolent avenues of predation generate resentment and are exhausted, violent ones proliferate.

The final blow is often delivered by external shocks such as warfare or natural disaster, which threaten the majority's survival and weaken some capitalists' capacity to defend themselves from others. Rebellions and civil wars resulting from the long-term trend of ''r > g'' and short-term shocks caused by natural disasters and wars were major causes for the disintegration of notable empires including [[UsefulNotes/DynastiesFromShanToQing The Ming]] and [[UsefulNotes/TheRomanEmpire Western Rome]]. TheCycleOfEmpires is a related trope, albeit with a greater focus on the politics than the economics of the rise and fall of civilisations.

* Supply side economists such as Thomas Sowell advocated for an economic system that would cut taxes and eliminate regulations, leading to more spending from the rich with wealth trickling down to the working class. This was criticized by many opposing economists as unrealistic, including a right-wing poltician, George H.W. Bush who called it "voodoo economics". Main proponents of this economic system were Reagan, George W. Bush, and currently Donald Trump. Supporters of the system defended it claiming that it lead to the success in the 1980s. Opponents claim that it is the system lead to the early 90s recession, Japanese lost decade, and the Great Recession, claiming that removing the regulations from certain industries like Wall Street lead to them giving loans to people with dubious capacity to repay it if it went bust. Supporters claim that other factors lead to these recessions. Either way, like classical Keyensianism losing support in the 70s, supply side lost support in 2008 after the collapse was blamed on deregulation. It still has its supporters, mainly neoconservatives such as political commentator Ben Shapiro.

* Supply side economists such as Thomas Sowell advocated for an economic system that would cut taxes and eliminate regulations, leading to more spending from the rich with wealth trickling down to the working class; a subset of this theory known as “trickle-down” specifically focuses on cutting taxes for the highest social classes. This was criticized by many opposing economists as unrealistic, including a right-wing poltician, George H.W. Bush who called it "voodoo economics". Main proponents of this economic system were Reagan, George W. Bush, and currently Donald Trump. Supporters of the system defended it claiming that it lead to the success in the 1980s. Opponents claim that it is the system lead to the early 90s recession, Japanese lost decade, and the Great Recession, claiming that removing the regulations from certain industries like Wall Street lead to them giving loans to people with dubious capacity to repay it if it went bust. Supporters claim that other factors lead to these recessions. Either way, like classical Keyensianism losing support in the 70s, supply side lost support in 2008 after the collapse was blamed on deregulation. It still has its supporters, mainly neoconservatives such as political commentator Ben Shapiro.

* Supply side economists such as Thomas Sowell advocated for an economic system that would cut taxes and eliminate regulations, leading to more spending from the rich with wealth trickling down to the working class. This was criticized by many opposing economists as unrealistic, including a right-wing poltician, George H.W. Bush who called it "voodoo economics". Main proponents of this economic system were Reagan, George W. Bush, and currently Donald Trump. Supporters of the system defended it claiming that it lead to the success in the 1980s. Opponents claim that it is the system lead to the early 90s recession, Japanese lost decade, and the Great Recession, claiming that removing the regulations from certain industries like Wall Street lead to them giving loans to people with dubious capacity to repay it if it went bust. Supporters claim that other factors lead to these recessions. Either way, like classical Keyensianism losing support in the 70s, supply side lost support in 2008 after the collapse was blamed on deregulation. It still has its supporters, mainly neoconservatives such as political commentator Ben Shapiro.

* Thomas Piketty: Best known for his book ''Capital in the Twenty-First Century'' which has become #1 on the New York Times Non-Fiction bestseller list. Upon publication it was lauded as the most important book on economic theory and capitalist in the 21st Century by the likes of Paul Krugman, Emmannuel Todd, Paul Mason and several others. Piketty pointed out that inequality is a consequence of capitalism and can be checked and contained by state intervention and wealth redistribution, chiefly a global progressive income tax and restrictions on inherited wealth. Piketty pointed out that over time, when the rate of return on capital (r) is greater than the rate of economic growth (g) the result is concentration of wealth, and rather than trickling down, it merely increases the wealth gap if left unchecked and this leads to political and economic instability. While the title alludes to Creator/KarlMarx and makes countless references to the man in the book, Piketty is firmly in the tradition of classical and Keynesian economics and he argues by means of classical data collection and information tools, chiefly the statistical tools of Kuznets and detailed investigation of the tax records published by the state authorities of France and the United States among others. This makes it the first real case for radical wealth redistribution in the classical-Keynesian tradition, and it is the first to be backed by such a wealth of hard data and achieve such universal academic recognition.[[note]] Most critics of every flavour of Capitalist and Socialist economic school did not understand the book in its entirety. This is readily apparent in many Neoliberal/Libertarian critiques, which accuse the book of being a Marxist tome. The closest anyone has come to a credible critique of Piketty and his argument has been Chris Giles of the Financial Times, whose 'critique' has consisted of pointing out minor (and inconsequential) errors in Piketty's data before presenting his own (very questionable, given that it disproportionately undervalues income for the extremely wealthy) data which claims that the historical growth of wealth inequality was not ''quite'' as bad as Piketty had calculated. However, even this was very far from an actual rebuttal of Piketty's data or conclusions [[/note]] However, academically credible doubts have been raised over whether his self-admittedly utopian solution (a worldwide 'wealth tax' of 2% on all wealth over a certain value) would adequately check r > g even if it could be implemented.

* Paul Krugman: The face of modern Keynesian economics. His is most important contributions have been in trade theory. (He is among the few leftists who are in full support of free trade.) His work fathered both new trade theory, and new economic geography, both of which are ''way'' to complex to begin to explain here. ''Depression Economics'' may be his most popular work, but his most important works are the papers in ''Journal of International Economics'' and ''Journal of Political Economy'' which introduced those two theories, which won him his Nobel prize. For the life of us, we can't find the names of those papers but [[RunningGag rest assured they're overly long and filled with]] [[SesquipedalianLoquaciousness overly complex vocabulary]]. He is identified as a Neo-Keynesian, but [[WordOfGod says he's leaning Post-Keynesian these days]]. Krugman is self-proclaimed to be OneOfUs: He specificall studied economics because it was as close as he could get to studying Creator/IsaacAsimov's Psychohistory from ''{{Literature/Foundation}}''; and even (on a lark) wrote an essay in 1978 called [[http://en.wikipedia.org/wiki/The_Theory_of_Interstellar_Trade The Theory of Interstellar Trade]] in an attempt "to cheer himself up when he was an oppressed assistant professor" in which he hypothesized about how the time distortion associated with traveling at relativistic speeds should affect billing rates for shipping and transportation across interstellar distances.

* Paul Krugman: The face of modern Keynesian economics. His is most important contributions have been in trade theory. (He is among the few leftists who are in full support of free trade.) His work fathered both new trade theory, and new economic geography, both of which are ''way'' to complex to begin to explain here. ''Depression Economics'' may be his most popular work, but his most important works are the papers in ''Journal of International Economics'' and ''Journal of Political Economy'' which introduced those two theories, which won him his Nobel prize. For the life of us, we can't find the names of those papers but [[RunningGag rest assured they're overly long and filled with]] [[SesquipedalianLoquaciousness overly complex vocabulary]]. He is identified as a Neo-Keynesian, but [[WordOfGod says he's leaning Post-Keynesian these days]]. Krugman is self-proclaimed to be OneOfUs and even (on a lark) wrote an essay in 1978 called [[http://en.wikipedia.org/wiki/The_Theory_of_Interstellar_Trade The Theory of Interstellar Trade]] in an attempt "to cheer himself up when he was an oppressed assistant professor" in which he hypothesized about how the time distortion associated with traveling at relativistic speeds should affect billing rates for shipping and transportation across interstellar distances.

* John Maynard Keynes: Keynes was the most important economist of the 20th century, and was the first to develop Macro-Economic policies capable of flattening out the boom-and-bust cycle. He did more than most, if not all, to get the world out of TheGreatDepression. The first capitalist thinker to seriously propose extensive government intervention in the economy, or at least, the first with a serious following (see the Keynesian schools below). Nearly all major world leaders of capitalist countries, whether on the right or the left, use macroeconomic policies that are, to varying degrees, influenced by Keynes' books. Despite his reputation in some circles as a leftist, he was [[CriticalResearchFailure definitely not]] a socialist. Whereas economists before Keynes were more focused on keeping inflation low, Keynes was [[TheGreatDepression obviously more focused on promoting general economic activity]]. He proposed that deficit spending by government could be used as direct economic stimulus to help get economies out of recessions, and believed that regulation should be used to surgically remove and prevent the market failures which caused the last recession. What Smith is to the basic free-market model, and microeconomics, Keynes is to the basic mixed-market model, and macroeconomics. His most important work is ''The General Theory of Employment, Interest, and Money'' (shortened: ''The General Theory'') in 1936. Unfortunately, in the 1950s-70s it transpired that Keynes had underappreciated the role of money in an economy, which brings us to...

* Keynesians or New Keynesians (sometimes called Old-Keynesians): First emerged as followers of Keynes during TheGreatDepression and post-war period. The influence of the Keynesian school and the success of Keynesian policies in practice led the post-war period until the early '70s to be referred to as, alternately, the "Golden Age of Capitalism" and "The Golden Age of Keynesianism". The original school lost support after Keynesian ideas played a key role in the "stagflation" of the '70s as predicted by Milton Friedman (see Chicago School) and after the "Lucas Critique" emerged noting that Keynesianism, as among the first macroeconomic schools of thought, [[CriticalResearchFailure had never bothered to root itself in microeconomic basics]]. However, many [[https://socialdemocracy21stcentury.blogspot.com/2014/04/bob-murphy-on-1970s-inflation.html?m=1 Keynesian economists argue that Austrians are being misleading with this and the quantity theory of money]] and Sub-schools emerged afterwards, including...

* Keynesians or New Keynesians (sometimes called Old-Keynesians): First emerged as followers of Keynes during TheGreatDepression and post-war period. The influence of the Keynesian school and the success of Keynesian policies in practice led the post-war period until the early '70s to be referred to as, alternately, the "Golden Age of Capitalism" and "The Golden Age of Keynesianism". The original school lost support after Keynesian ideas played a key role in the "stagflation" of the '70s as predicted by Milton Friedman (see Chicago School) and after the "Lucas Critique" emerged noting that Keynesianism, as among the first macroeconomic schools of thought, [[CriticalResearchFailure had never bothered to root itself in microeconomic basics]]. Sub-schools emerged afterwards, including...

* Chicago School: Central thinker is Milton Friedman. The Chicago school has been noted for being very supportive of free-market fundamentals, but Friedman's more important contributions were to monetary theory, where he, in essence, supported massive government intervention. In short, monetarists are called so because they believe that the primary way the government should intervene in the economy is through controlling the money supply, and should otherwise be rather laissez-faire.

** Neo-Keynesians: Not to be confused with New Keynesians. Emerged in the '90s as a response to the Lucas critique by finding basis for Keynesian macroeconomics in microeconomics, though unlike other microeconomic-centric thinkers, they assume a number of market failures.\\

* Social Democrats advocate use of the free market where it seems to work and use of government intervention where the free market seems to fail (see role of government above). Whether Social Democrats are considered capitalists, socialists, both, or neither varies from person to person, even among Social Democrats themselves; the prominent historian Tony Judt wrote that "Social Democracy had always been a hybrid; indeed, this was just what was held against it by enemies to the Right and Left alike," and called it "a practice in lifelong search of its theory." Capitalism does allow for government intervention but social democrats are among the people mentioned above who see many market failures to correct.

In the stagnant or declining economy, rebellion ensues. The majority's impoverishment gives them a growing incentive to rebel and restructure the system in their own interests, particularly when they cannot survive their present standard of living. Concurrently, the capitalists class's declining ability to extract wealth from the the host society incentivises it to violently cannibalise itself. Capitalists always prey upon fellow capitalists as well as the majority, but as less and less predation can be conducted outside their class then their focus turns inward. As nonviolent avenues of predation generate resentment and are exhausted, violent ones proliferate.

Over time, this gives the majority strong and growing incentives to rebel and restructure the system in their own interests - particularly when they cannot survive their present standard of living. The capitalist class is also incentivised to translate their economic power into overt political power and become ''de jure'' rulers in their own right.

Peasant and Noble rebellions resulting from the long-term trend of ''r > g'' and short-term shocks caused by natural disasters and wars were major causes for the disintegration of notable empires including [[UsefulNotes/DynastiesFromShanToQing The Ming]] and [[UsefulNotes/TheRomanEmpire Western Rome]]. TheCycleOfEmpires is a related trope, albeit with a greater focus on the politics than the economics of the rise and fall of civilisations. Interestingly, UsefulNotes/{{Socialism}} contends that the growing integration of the world economy and the inability of the democratic process to check capitalist wealth-power accumulation means that the inequality and unrest caused by r > g will eventually kill ''[[HoistByHisOwnPetard Capitalism itself]]''.

-->--'''Thomas Piketty'''[[note]] Piketty, Thomas, ''Capital in the Twenty-First Century'', translated by Arthur Goldhammer (Harvard, 2014) p.571 - first published as ''Le aapital au XXI siècle'', 2013 [[/note]]

->''"The entrepreneur inevitably tends to become a rentier, more and more dominant over those who own nothing but their labour. Once constituted, capital reproduces itself faster than output increases. The past devours the future."'''
-->--'''Thomas Piketty'''

It does this by exponentially increasing wealth concentration/inequality, which creates socio-economic conditions that promote political rebellion. This is what Thomas Piketty meant by "the past [devouring] the future".

* Milton Friedman: Probably the second most important economist of the 20th century. Friedman's ideas have contributed more than anyone else's to the massive stock-market bubbles which resulted in The Great Recession of 2008. Friedman started from the position that government intervention in the economy was an immoral infringement upon the freedom of its citizens, and developed theories which reflected and supported that view. Keynes had determined that the financial sector had to be regulated and restricted in order to prevent it from distorting and screwing up the 'real' economy, but Friedman hypothesized that the financial sector could be harnessed to drive spectacular growth. Friedman believed that if banks were not prevented from making risky loans, then enough of these would pay off that an economic boom financed by debt would result. Once this became or threatened to become a crisis, the government would then loan massive amounts of money to the banks so that the real value of the debts would be wiped out and the cycle could begin again. Friedman was an economic adviser to UsefulNotes/RonaldReagan, and he also highly influenced MargaretThatcher and other Neo-Liberal leaders. Basically, he is to Neo-Liberals what Keynes is to Social Liberals and Socialists. Among his most important contributions to economic theory are his "natural rate of unemployment" and what would eventually be called stagflation. [[note]] an economic period of high inflation and rising unemployment, leading to lower growth), saying that trying to prevent one of them will eventually cause ''both'' of them to rise [[/note]] Crucially, he argued that the only tool governments needed to promote growth and prevent depressions was an extremely aggressive use of the money supply ('Monetarist' policy). Though he disagreed with Keynes' methods, he claimed to have been influenced by Keynesian economics and called Keynes' ''The General Theory'' "a great book." He argued that government regulation of the financial sector constituted tyranny and an infringement of 'basic liberties', assuming it didn't outright lead to Commmunism, so he's really popular with Libertarians. He also led to the USA having a solely volunteer military.

-->--'''Deirdre N. McCloskey'''

->''"The entrepreneur inevitably tends to become a rentier, more and more dominant over those who own nothing but their labour. Once constituted, capital reproduces itself faster than output increases. The past devours the future."'''
-->--'''Thomas Piketty'''

The word "capitalism" was coined in 1854 by the novelist [[Literature/VanityFair William Thackeray]]. Wiktionary holds that the word was a "[[https://en.wiktionary.org/wiki/capitalism Borrowing from French capitalisme ‎(“the condition of one who is rich”); equivalent to capital +‎ -ism.]]" From the 1970s onward, the extent to which the word drew unwanted attention to role of the rich lead to it being rebranded in the English-speaking world in general and northern America in particular:

->''"Let's begin with capitalism, a word that has gone largely out of fashion. The approved reference now is to the market system. This shift minimizes-indeed, deletes-the role of wealth in the economic and social system. And it sheds the adverse connotation going back to Marx. Instead of the owners of capital or their attendants in control, we have the admirably impersonal role of market forces. It would be hard to think of a change in terminology more in the interest of those to whom money accords power. They have now a functional anonymity.''

->''But most of the people who use the new designation-economists, in particular- are innocent as to the effect. They see nothing wrong with their bland, descriptive terminology. They pay no attention to the important question: Whether money- wealth-accords a special power. (It does.)"''
-->-- '''[[https://en.wikiquote.org/wiki/John_Kenneth_Galbraith John Kenneth Galbraith]]''', "[[http://www.thirdworldtraveler.com/Economics/FreeMarketFraudGalbraith.html Free Market Fraud]]", ''The Progressive'' (January 1999)

'''The Central Contradiction: r > g'''

Capitalism kills its hosts.

It does this by exponentially increasing wealth concentration/inequality, which creates socio-economic conditions that promote political rebellion. This is what Thomas Piketty meant by "the past [devouring] the future".

The reason why wealth concentration/inequality increases exponentially is that the average returns to the owership of capital - the increase in the value of property including companies, shares & bonds, land, factory plant, money, etc - '''(r)''' have always exceeded the average growth of incomes from labour '''(g)'''. When it is allowed to happen by government inaction, or is accelerated by "regressive" (extracting wealth from the poor to give to the rich) policies, this process eventually produces economic stagnation.

Economic stagnation is the inevitable result of growing wealth inequality because economic activity is driven by consumption, and sufficiently wealthy individuals spend relatively little of their income on consumption. Instead, they invest it in growing their wealth. As more and more of the total income of a capitalist market-society is invested in the acquisition of capital, and not spent upon consumption, less and less economic activity takes place until economic stagnation and finally decline result. This delivers a stagnant or declining standard of living for people whose income comes solely or mostly from working.

Over time, this gives the majority strong and growing incentives to rebel and restructure the system in their own interests - particularly when they cannot survive their present standard of living. The capitalist class is also incentivised to translate their economic power into overt political power and become ''de jure'' rulers in their own right.

Peasant and Noble rebellions resulting from the long-term trend of ''r > g'' and short-term shocks caused by natural disasters and wars were major causes for the disintegration of notable empires including [[UsefulNotes/DynastiesFromShanToQing The Ming]] and [[UsefulNotes/TheRomanEmpire Western Rome]]. TheCycleOfEmpires is a related trope, albeit with a greater focus on the politics than the economics of the rise and fall of civilisations. Interestingly, UsefulNotes/{{Socialism}} contends that the growing integration of the world economy and the inability of the democratic process to check capitalist wealth-power accumulation means that the inequality and unrest caused by r > g will eventually kill ''[[HoistByHisOwnPetard Capitalism itself]]''.

Failure to create adequate laws will prevent a market from arising, and failure to enforce existing laws will eventually result in CriticalExistenceFailure. This results from the accumulation of too much capital in the hands of the capitalist class, which occurs whenever the market's laws governing property-contracts-bankruptcy-monopolies and taxation policy do not specifically prevent it or are reformed to curb it.

Karl Marx famously asserted that the world's capitalist class would block attempts to correct the wealth concentration of the capitalist system, and that this would make violent world revolution to destroy the capitalist system and replace it with {{UsefulNotes/Socialism}} inevitable. So far this prediction has proven pessimistic, as even the US government was willing and able to disrupt the development of wealth inequality in the period c.1940-1975.

* ''Regulating Monopolies and Oligopolies'': The law of diminishing returns means that companies make the greatest possible profits by selling their products at the highest prices at which consumers can afford to pay for them. Monopolies and Oligopolies don't have to lower prices below this level in order to compete with others, so they naturally charge very high prices. Government can be made to let this to happen in order to maximise corporate profits, or it can be made to benefit the masses: governments can nationalise monopolies and run them free of charge or at a minimal cost to consumers, can break up monopolies to artificially create competition which drives down prices, or allow the for-profit monopolies to continue existing but set acceptable prices and levels of profit. The problem with oligopolies is that they reduces the likelihood that individual suppliers will renege on a deal to keep total supply in the economy as low as possible. The government can regulate these in a similar manner. "Evidence-based" ("Keynesian" and "Behavioural") economists agree that it is extremely important that sectors with so-called "Natural Monopolies" (it is extremely hard to foster competition when actual land control is involved, e.g. road or rail networks) should only contain government-owned or (extremely) heavily regulated monopolies to minimise wasteful "rent-seeking"/wealth-extraction activity.
** As usual, Neoclassical and Austrian School ("theory-based") economists believe that mono/oligopolies should be allowed to operate unhindered to maximise the wealth accumulation of the rich, even though all other Schools believe that they should be nationalised/broken up/heavily regulated to benefit the poor. This is because they insist that whatever the practical benefits of empirical real-world policies which have successfully maximised economic efficiency by nationalising/breaking up/regulating monopolies, ''in theory'' doing this is economically inefficient and should be harming the economy.

Here are the laconic versions of various types of Capitalism. There is a fundamental disagreement over whether or not capitalism is an iniquitous and self-destructive system. The flame wars that erupt over the proper role of the state in creating, maintaining, and guiding/not guiding the market and society are not worth getting into here. It's enough to know that there are deep conflicts between different schools of thought and that at times it seems they can't cooperate on anything bar opposition to total public ownership of the means of production.

* '''Oligarchic-Monopolistic/'Free Market'''': a strain which believes that government should structure the market to maximise the powers and profits of the capitalist class, it holds that all market actors almost always acquire wealth which matches their objective value and efforts. Advocates long-term/lifetime or even eternal copyright-patent ownership. Adherents believe that this strain is compatible with meritocracy and even democracy. All other strains fervently disagree on both counts.
* '''Classic Liberal/Libertarian/'Free Market'''': a strain which believes that government should structure the market to prevent the capitalist class from acquiring wealth through inheritance or acquiring too much market power (e.g. monopolies), it holds that market actors usually acquire wealth which roughly matches their objective value and efforts. Advocates long/lifetime copyright-patent ownership. Adherents believe that this strain is compatible with meritocracy and democracy. Some strains disagree on the latter count.

Actual human behaviour departs so far and so inconsistently from that which is predicted by the ''Rational Consumer'' model that the 'macroeconomic' models which use it are incapable of describing or predicting how the economy works in reality. Still, it is hard to contradict the assertion that Classical Economics ''could'' perfectly model the capitalist economy [[WhyCouldntYouBeDifferent if only people acted like Rational Consumers]] [[ShapedLikeItself and not like, well, people]].

Recently, 'Behavioural Economics' has produced microeconomic models capable of accurately predicting human behaviour by using psychological studies of real people's actual consumption habits (which are logically inconsistent, impulsive, and mood-dependent). It is hoped that this discipline can be resolved with the macroeconomic models capable of accurately describing and predicting how the economy works in reality, which have been produced by using statistics collected from the real world.

Finally, in the wider economy there is a natural tendency towards the formation of monopolies (one party is the sole producer of a good) and cartels (all producers of a good cooperate to set production and prices). The first cause is the drive towards profit: cooperation or merger with rival producers is more profitable than competition. Secondly, larger operations are more efficient. Efficiency begets efficiency until ultimately, the most efficient form of production - monopoly - results. Both monopolies and cartels give sellers the power to dictate prices independently of demand, which the desire for profit encourages them to exercise. Utility companies, which have enormous fixed costs in plants and machinery, are the typical natural monopoly.

Marxists, Socialists and Social Liberals, and Neo-Liberals disagree on what constitutes a market failure. Marxists see them everywhere, considering them damning indictments of the entire Capitalist system and definitive proof of the need for a government-directed economy. Socialists and Social Liberals see many, believing there is much room for government intervention to smooth over the obvious flaws in Capitalism. Neo-Liberals see few or none, holding that Capitalism is a (near-)perfect system which is being failed by present-day human values and society.

Lately, realisations of the true extent of market failures have caused the existence of the invisible hand to become debated by capitalists and anti-capitalists alike.

to:

* John Maynard Keynes: Keynes was the most important economist of the 20th century, and was the first to develop Macro-Economic policies capable of flattening out the boom-and-bust cycle. He did more than most, if not all, to get the world out of TheGreatDepression. The first capitalist thinker to seriously propose extensive government intervention in the economy, or at least, the first with a serious following (see the Keynesian schools below). Nearly all major world leaders of capitalist countries, whether on the right or the left, use macroeconomic policies that are, to varying degrees, influenced by Keynes' books. Despite his reputation in some circles as a leftist, he was [[CriticalResearchFailure definitely not]] a socialist. Whereas economists before Keynes were more focused on keeping inflation low, Keynes was [[TheGreatDepression obviously more focused on promoting general economic activity]]. He proposed that deficit spending by government could be used as direct economic stimulus to help get economies out of recessions, and believed that regulation should be used to surgically remove and prevent the market failures which caused the last recession. What Smith is to the basic free-market model, and microeconomics, Keynes is to the basic mixed-market model, and macroeconomics. His most important work is ''The General Theory of Employment, Interest, and Money'' (shortened: ''The General Theory'') in 1936. Unfortunately, in the 1950s-70s it transpired that Keynes had underappreciated the role of money in an economy, which brings us to...

* Milton Friedman: Probably the second most important economist of the 20th century. Friedman's ideas have contributed more than anyone else's to the massive stock-market bubbles which resulted in The Great Recession of 2008. Friedman started from the position that government intervention in the economy was an immoral infringement upon the freedom of its citizens, and developed theories which reflected and supported that view. Keynes had determined that the financial sector had to be regulated and restricted in order to prevent it from distorting and screwing up the 'real' economy, but Friedman hypothesized that the financial sector could be harnessed to drive spectacular growth. Friedman believed that if banks were not prevented from making risky loans, then enough of these would pay off that an economic boom financed by debt would result. Once this became or threatened to become a crisis, the government would then loan massive amounts of money to the banks so that the real value of the debts would be wiped out and the cycle could begin again. Friedman was an economic adviser to UsefulNotes/RonaldReagan, and he also highly influenced MargaretThatcher and other Neo-Liberal leaders. Basically, he is to Neo-Liberals what Keynes is to Social Liberals and Socialists. Among his most important contributions to economic theory are his "natural rate of unemployment" and what would eventually be called stagflation. [[note]] an economic period of high inflation and rising unemployment, leading to lower growth), saying that trying to prevent one of them will eventually cause ''both'' of them to rise [[/note]] Crucially, he argued that the only tool governments needed to promote growth and prevent depressions was an extremely aggressive use of the money supply ('Monetarist' policy). Though he disagreed with Keynes' methods, he claimed to have been influenced by Keynesian economics and called Keynes' ''The General Theory'' "a great book." He argued that government regulation of the financial sector constituted tyranny and an infringement of 'basic liberties', assuming it didn't outright lead to Commmunism, so he's really popular with Libertarians. He also led to the USA having a solely volunteer military.

* Thomas Piketty: Best known for his book ''Capital in the Twenty-First Century'' which has become #1 on the New York Times Non-Fiction bestseller list. Upon publication it was lauded as the most important book on economic theory and capitalist in the 21st Century by the likes of Paul Krugman, Emmannuel Todd, Paul Mason and several others. Piketty pointed out that inequality is a consequence of capitalism and can be checked and contained by state intervention and wealth redistribution, chiefly a global progressive income tax and restrictions on inherited wealth. Piketty pointed out that over time, when the rate of return on capital (r) is greater than the rate of economic growth (g) the result is concentration of wealth, and rather than trickling down, it merely increases the wealth gap if left unchecked and this leads to political and economic instability. While the title alludes to Creator/KarlMarx and makes countless references to the man in the book, Piketty is firmly in the tradition of classical and Keynesian economics and he argues by means of classical data collection and information tools, chiefly the statistical tools of Kuznets and detailed investigation of the tax records published by the state authorities of France and the United States among others. This makes it the first real case for radical wealth redistribution in the classical-Keynesian tradition, and it is the first to be backed by such a wealth of hard data and achieve such universal academic recognition.[[note]] Most critics of every flavour of Capitalist and Socialist economic school did not understand the book in its entirety. This is readily apparent in many Neoliberal/Libertarian critiques, which accuse the book of being a Marxist tome. The closest anyone has come to a credible critique of Piketty and his argument has been Chris Giles of the Financial Times, whose 'critique' has consisted of pointing out minor (and inconsequential) errors in Piketty's data before presenting his own (very questionable, given that it disproportionately undervalues income for the extremely wealthy) data which claims that the historical growth of wealth inequality was not ''quite'' as bad as Piketty had calculated. However, even this was very far from an actual rebuttal of Piketty's data or conclusions [[/note]] However, academically credible doubts have been raised over whether his self-admittedly utopian solution (a worldwide 'wealth tax' of 2% on all wealth over a certain value) would adequately check r > g even if it could be implemented.

->''"Nor during the Age of Innovation have the poor gotten poorer, as people are always saying. On the contrary, the poor have been the chief beneficiaries of modern capitalism. It is an irrefutable historical finding, obscured by the logical truth that the profits from innovation go in the first act mostly to the bourgeois rich."'''
-->--'''Deirdre N. McCloskey'''