History UsefulNotes / Capitalism

* Adam Smith: Wrote ''The Wealth of Nations'', laying the philosophical foundations of the capitalist system. What Smith actually referred to with his "invisible hand" metaphor is ''not'' the same as how the metaphor is often used today. Instead of saying that an "invisible hand" will correct market failures and that regulations are thus unneeded, he was saying that international trade would not harm domestic production because the "invisible hand" of home bias would lead people to invest in their own country. That one time he used the metaphor was stretched well beyond his original meaning. He was also more suspicious of the wealthy and corporations than is often mentioned, even giving his support to a progressive taxation system that lessens the burden on the poor. He also believed that the British colonies would be better off as independent and trading partners with the Crown, and he also realized that the administrative and protection costs of these colonies would ultimately be greater than any profit they managed to bring the Crown.

The essential feature of Capitalism is the incentive to make a profit. As Adam Smith, the father of modern economics, said: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” Both parties need to voluntary exchange to have their own interest in the outcome, but neither can obtain what they wants without addressing what the other wants. It is this motivated self-interest that can lead to economic prosperity.

* '''Property''': less production due to risk of theft, freedom of individuals or companies to steal.
* '''Contracts''': less consumption due to suspicion, freedom of powerful individuals or companies to dictate terms to others.
* '''Bankruptcy''': less lending and investment due to increased risk.

** There is debate on what counts as stealing. Supporters of Capitalism believe that using or taking property of someone else without permission is stealing, whereas socialists only believe that using or taking "personal possessions" of someone else is stealing. Anarcho-Capitalists would go further and add that the enforcement of taxes is also stealing.
** There is debate as to what someone can actually own, such as intellectual property. Supporters say that as it was made by someone, the idea belongs to the creator. If creators did not own their own ideas other people could steal them and use someone else's ideas to make a lot of money at the expense of the creator. For example, if Alice were a small businesswoman who discovered a way to manufacture cars more efficiently, Bob, who already has a big business and thus all of the infrastructure in place, could take Alice's idea and apply it to his own plants. Now Alice has payed the R&D costs for the research but Bob is the one making the money on her idea. Opponents say that the reason we have property in the first place is to manage finite resources and define property as "something one person owns to the exclusion of other people owning it." For example, if Alice owned a pencil Bob could not use that pencil without first taking it from Alice. Ideas, on the other hand, are infinite, that is one person can have it and someone else can use it without diminishing the first person's utility of it. For example, if Alice owned a book and Bob copied it onto his own paper, both of them can still enjoy the book.
* ''Providing Public Services'': Some things, such as well-maintained roads and clean air are considered almost impossible for an individual person or organization to make a profit from because property rights are near impossible to enforce on these things. The government however can pay for these things with tax money, which they can force everyone to pay. Whether they ''should'' do this is the subject of debate among the many different schools of economic thought. See below.

* ''Regulating Monopolies and Oligopolies'': Producers make the greatest amount of money by selling their products at the highest prices consumers will 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. Governments can break up monopolies to artificially create competition, or allow monopolies to continue to exist . Keynesian and Behavioral economists agree that it is extremely important that sectors with "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 minimize wasteful activity.

** There is debate on what counts as stealing. Supporters of Capitalism believe that using or taking the private property and personal possessions of someone else is stealing, whereas socialists only believe that using or taking the personal possessions of someone else is stealing. Finally, anarcho-capitalists would go further and add that the enforcement taxes is stealing too.

* '''Contracts'''. Governments define what and on what terms legally-binding agreements, including the act of buying/selling, can be made between people or organisations.
* '''Bankruptcy'''. Governments define what happens when a debtor person or organisation is unable to meet its obligations to creditors.

* '''Property''': less production due to risk of theft, freedom of powerful individuals or organisations to steal.
* '''Contracts''': less consumption due to suspicion, freedom of powerful individuals or organisations to dictate terms to others.

[[folder: Divisions]]
Capitalist economists are divided on how governments should exert control over legal markets:
* ''Enforcing Property Rights'': Stealing is wrong. Not only is theft generally agreed upon to morally damaging to the individual who steals, and causes suffering to those who are stolen from, but widespread theft (such as the looting that occurs in riots) creates massive market inefficiencies, and thus widespread theft would be a market failure. According to capitalists, if someone desires a product they should pay the agreed-upon price. Fraud is considered a form of stealing (as theft by trick) so it would fall under this.
** There is much debate on what counts as stealing. Supporters of capitalism believe that using or taking the private property and personal possessions of someone else is stealing, whereas socialists only believe that using or taking the personal possessions of someone else is stealing. Finally, anarcho-capitalists would not only agree with the former, but also go further and add that enforcing the collection of taxes is stealing too.
*** There is even some debate as to what someone can actually own, such as intellectual property. Supporters say that as it was made by someone, the idea belongs to the creator. If creators did not own their own ideas other people could steal them and use someone else's ideas to make a lot of money at the expense of the creator. For example, if Alice were a small businesswoman who discovered a way to manufacture cars more efficiently, Bob, who already has a big business and thus all of the infrastructure in place, could take Alice's idea and apply it to his own plants. Now Alice has payed the R&D costs for the research but Bob is the one making the money on her idea. Opponents say that the reason we have property in the first place is to manage finite resources and define property as "something one person owns to the exclusion of other people owning it." For example, if Alice owned a pencil Bob could not use that pencil without first taking it from Alice. Ideas, on the other hand, are infinite, that is one person can have it and someone else can use it without diminishing the first person's utility of it. For example, if Alice owned a book and Bob copied it onto his own paper, both of them can still enjoy the book.
* ''Providing Public Services'': Some things, such as lighthouses, well-maintained roads, and clean air are considered impossible for an individual person or organization to make a profit from because property rights are near impossible to enforce on these things. The government however can pay for these things with tax money, which they can force everyone to pay. Whether they ''should'' do this is the subject of debate among the many different schools of economic thought. See below.

* ''Helping Out In Recessions'': The free market naturally goes through ups and downs. What you can do without abolishing capitalism outright, which isn't an option for the overwhelming majority of economists, is make the ups last as long as possible while making the downs last as little as possible. If the economy is bad enough, the government can either print more money or increase spending to boost the economy. It is an agreed principle of economics that these government actions ''can and will'' cause economic expansion, but whether they should is debated by the left and right. (See different schools below.)
* ''Regulating Monopolies and Oligopolies'': Producers make the greatest profits by selling their products at the highest prices consumers will 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. Governments can nationalize 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. Keynesian and Behavioral 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 minimize wasteful activity.

* ''Banning Products'': Markets will produce whatever people are willing to pay for even if the product isn't good for society (think fast food, or cigarettes). In these cases, government intervention is the only way to stop production and consumption of them. This creates the black market problem however, such as in the case of illegal drugs. Thus, whether banning the creation of certain products should happen is, again, hotly debated.
** Related, but not as direct as outright banning are quality and/or safety Regulations. Things like requiring seat belts and airbags in automobiles, making sure your food is safe to eat, the water and air aren't polluted, and that things are what they claim to be is the floor of this, and it can get far more complicated. Even more than banning, where to draw the line on regulation is '''hotly''' debated between left and right.

* '''Monopolies'''. Governments define how powerful a person or organisation can be.

* '''Bankruptcy''': less lending and investment due to suspicion.
* '''Monopolies''': freedom of powerful individuals or organisations to dictate terms to others, potentially including the government itself.

* Supply-side economists such as Thomas Sowell advocate for an economic system that would cut taxes and eliminate regulations. 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. Supply-side lost support in 2008 after the collapse was blamed on deregulation, although it still has its supporters, such as political commentator [[Creator/BenShapiro Ben Shapiro]].

->''"Well first of all, tell me: Is there some society you know that doesn’t run on greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? ... The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus. [[UsefulNotes/AlbertEinstein Einstein]] didn’t construct his theory under order from a [[ObstructiveBureaucrat bureaucrat]]. Henry Ford didn’t revolutionize the automobile industry that way. In the only cases in which the masses have escaped from the kind of grinding poverty you’re talking about, the only cases in recorded history, are where they have had capitalism and largely free trade. If you want to know where the masses are worse off, worst off, it’s exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear, that there is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by the free-enterprise system."

'''

[[/folder]

'''Key Capitalist Thinkers and Their Ideas (In Chronological Order of Appearance)'''

'''Schools Of Thought'''

* Supply-side economists such as Thomas Sowell advocate for an economic system that would cut taxes and eliminate regulations. 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. Supply-side lost support in 2008 after the collapse was blamed on deregulation, although it still has its supporters, such as political commentator [[Creator/BenShapiro Ben Shapiro]].

* ''Regulating Monopolies and Oligopolies'': Producers make the greatest profits by selling their products at the highest prices consumers will 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. 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. 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 minimize wasteful activity.

* 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. This economic model lost some populariry after Pinochet's rule in Chile. Much of the economy during that time consisted of boom-bust cycles and critics of the system were persecuted in the country.

* Supply-side economists such as Thomas Sowell advocate for an economic system that would cut taxes and eliminate regulations. 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. Supply-side lost support in 2008 after the collapse was blamed on deregulation, although it still has its supporters, such as political commentator Ben Shapiro.

* Carl Menger: Introduced the theory of Marginalism and the Subjective Theory of Value. Léon Walrus and William Stanley Jevons made similar discoveries at roughly the same time, but Menger's work is considered the most complete. The 'Marginal Revolution' heralded the end of the acceptance of the Labor Theory of Value outside Marxist circles and with it the decline of Classical Economics, to be superseded by Neoclassical Economics.

* Milton Friedman: Probably the second most important economist of the 20th century. 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. 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.
* Robert Solow: Found that economic growth comes not from adding more input (labor and capital) but through advances in technology. Another notable contribution is the introduction of the Neo-Classical growth model, also known as the Solan-Swan growth model. He is a Neo-Keynesian (see below).

* Keynesians or New 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, 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]]. Although out of fashion for much of the 80s and 90s, when monetarism was in full swing, these days Keynesianism is arguably making something of a comeback thanks to the ongoing financial crisis which began in 2008. Many economists have been making the argument that the recession was caused by a lack of government oversight and deregulation (their opponents vehemently deny this and claim government intervention was the root of the problem) and have supported strong regulation and deficit spending as a response. Ben Bernanke, head of the US Federal Reserve, was a prominent supporter of this view, as is Paul Krugman today.
* 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.

---

->''“Well first of all, tell me: Is there some society you know that doesn’t run on greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? ... The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus. [[UsefulNotes/AlbertEinstein Einstein]] didn’t construct his theory under order from a [[ObstructiveBureaucrat bureaucrat]]. Henry Ford didn’t revolutionize the automobile industry that way. In the only cases in which the masses have escaped from the kind of grinding poverty you’re talking about, the only cases in recorded history, are where they have had capitalism and largely free trade. If you want to know where the masses are worse off, worst off, it’s exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear, that there is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by the free-enterprise system.”

-->--Milton Friedman

->''“Well first of all, tell me: Is there some society you know that doesn’t run on greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? ... The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus. Einstein didn’t construct his theory under order from a [[ObstructiveBureaucrat bureaucrat]]. Henry Ford didn’t revolutionize the automobile industry that way. In the only cases in which the masses have escaped from the kind of grinding poverty you’re talking about, the only cases in recorded history, are where they have had capitalism and largely free trade. If you want to know where the masses are worse off, worst off, it’s exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear, that there is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by the free-enterprise system.”

->''“Well first of all, tell me: Is there some society you know that doesn’t run on greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? What is greed? Of course, none of us are greedy, it’s only the other fellow who’s greedy. The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus. Einstein didn’t construct his theory under order from a bureaucrat. Henry Ford didn’t revolutionize the automobile industry that way. In the only cases in which the masses have escaped from the kind of grinding poverty you’re talking about, the only cases in recorded history, are where they have had capitalism and largely free trade. If you want to know where the masses are worse off, worst off, it’s exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear, that there is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by the free-enterprise system.”

Capitalism is an economic and political system in which a country's trade and industry are controlled private individuals, rather than the state.

'''Definition'''

Capitalism is a political-economic system in which private individuals and groups are allowed to own and profit from 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.

* 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 JustForFun/OneOfUs: He specifically 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.

* Carl Menger: Introduced the theory of Marginalism and the Subjective Theory of Value. Léon Walrus and William Stanley Jevons made similar discoveries at roughly the same time, but Menger's work is considered the clearest and most complete. The 'Marginal Revolution' heralded the end of the acceptance of the Labor Theory of Value outside Marxist circles and with it the decline of Classical Economics, to be superseded by Neoclassical Economics.

* Henry George: Noted the inefficiency of private landowners benefiting or suffering from public developments that altered the value of land. (For example, a near-worthless piece of land skyrocketing in value as a city grows around it, through no work or influence of the private landowner.) Advocated that changes in the value of land should be socially distributed through a Land Value Tax, which would disregard the value of any man-made buildings, infrastructure, and improvements on land. His philosophy, which came to be known as Georgeism, is popular among environmentalists and green-politics activists. His most important work is ''Progress and Poverty: An Inquiry into the Cause of Industrial Depressions and of Increase of Want with Increase of Wealth: The Remedy'' (shortened: ''Progress and Poverty''). His works paved the way for the ides of a progressive income tax (the more you make, the higher a rate you pay in income taxes)

'''The Rational Consumer'''

In 'Classical Economics' it is assumed that every person and corporate entity is a rational entity which always:

* Makes completely or equally informed decisions.
* Makes rational decisions about what and whether to buy or sell in accordance with a combination of their personal finance and a limited set of desires.
* Values owned and unowned property with equal monetary values equally (see above).

Actual people and corporate entities:

* Vary wildly and unpredictably in their level of access to information.
* Make semi-rational and semi-impulsive decisions about what and whether to buy or sell given their broad and shifting set of desires, which often take precedence over their personal finance.
* Value owned property drastically more than unowned property, even when they are of equal monetary value (see above).

* Keynesians or New 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, 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]].
\\
Although out of fashion for much of the 80s and 90s, when monetarism was in full swing, these days Keynesianism is arguably making something of a comeback thanks to the ongoing financial crisis which began in 2008. Many economists have been making the argument that the recession was caused by a lack of government oversight and deregulation (their opponents vehemently deny this and claim government intervention was the root of the problem) and have supported strong regulation and deficit spending as a response. Ben Bernanke, head of the US Federal Reserve, was a prominent supporter of this view, as is Paul Krugman today.
* 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.

Governments exert control over legal markets by creating and enforcing laws. These laws must govern:

* ''Helping Out In Recessions'': Recessions are viewed as a natural consequence of capitalism. The free market naturally goes through ups and downs. What you can do without abolishing capitalism outright, which isn't an option for the overwhelming majority of economists, is make the ups last as long as possible while making the downs last as little as possible. If the economy is bad enough, the government can either print more money or increase spending to boost the economy. It is an agreed principle of economics that these government actions ''can and will'' cause economic expansion, but whether they should is debated by the left and right. (See different schools below.)
* ''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.
* ''Regulating The Money Supply'': Money is the lifeblood of a capitalist/market economy. If the amount of money circulating in the economy is higher than the demand for money it will cause inflation. If the amount of money circulating in the economy is lower than the demand it will cause deflation. Modern-day Austrians[[note]]Austrian here refers to a school listed below[[/note]] like Ron Paul do not believe the government should do this, but even among right-wing economists the need for the government to have a monetary regime is widely supported. (To wit, the person who has used the central bank in the US to increase the money supply most is Ben Bernanke, a Republican.)

* David Ricardo: Came shortly after and formulated the basis of trade theory by noticing the difference between comparative and absolute advantage. Absolute means a nation can simply produce ''more'' in a given time period, but comparative means that a nation can produce ''more of one type of good relative to another type.'' Very few nations have an absolute advantage in trade, but having a comparative advantage in something is very useful (imagine that Brazil grows pineapples, Iceland catches cod and they trade with each other. Both parties benefit because of their specializations).
* Alfred Marshall: Discovered the concept of ''Supply and Demand'' and lent more credos to the invisible hand. His methods of quantifying the benefits of production and consumption are the basis of welfare economics. His most important work, ''Principles of Economics'' (mercifully, that's the full title) was the leading economic textbook for a very long time.
* Henry George: Could be seen as among the first left-leaning capitalists. He believed in general that people had property rights, but that nature was sacred and belonged to all people equally, and thus advocated public ownership of land. Without getting too technical, he also saw common ownership of land as a way to decrease poverty. His philosophy, which came to be known as Georgeism, is popular among environmentalists and green-politics activists. His most important work is ''Progress and Poverty: An Inquiry into the Cause of Industrial Depressions and of Increase of Want with Increase of Wealth: The Remedy'' (shortened: ''Progress and Poverty''). His works paved the way for the ides of a graduated income tax (the more you make, the higher you pay in income taxes; the lower, the less).

* 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 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 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.

* 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 capitalism 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.

* Institutional Economics: Developed out of Thorsten Veblen's work. Studies the interactions between institutions and how that produces an economy. The earlier strain of this is considered Heterodox.
** New Institutional Economics: Much like Neo-Keynesians (see below), institutionalists were able to regain a lot of respect within the greater establishment by incorporating neoclassical analysis (to make that simple, "incorporating neoclassical analysis" generally just means taking a macroeconomic school and rooting it in the microeconomic basics).
* 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, 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]].

->''"As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention."'''
-->--'''Adam Smith'''

Like its competitor UsefulNotes/{{Socialism}}, Capitalism is an [[UsefulNotes/{{Economics}} economic model]] which governments implement to enable people to work for access to scarce goods and services. Unlike Socialism, Capitalism allows people to own and profit from 'Capital'. The more Capital one owns, the greater one's access to goods and services - and lesser or non-existent one's need to work to access them.

As with Socialism, the strict division of Capitalism's economic from its social and political aspects is a FalseDichotomy: Capitalism is an economic system, so by definition it cannot exist independently of human society and its politics.

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.

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)

'''Government maketh Market'''

->''"It is manifest that, during the time men live without a common power to keep them all in awe, they are in that condition which is called war, and such a war as is of every man against every man. [...] In such condition there is no place for industry, because the fruit thereof is uncertain [...] and, which is worst of all, continual fear and danger of violent death, and the life of man solitary, poor, nasty, brutish, and short."''
-->-- '''[[UsefulNotes/TheEnlightenment Thomas Hobbes']]''' ''[[http://www.bartleby.com/34/5/13.html Leviathan, Chapter XIII]]'' (1651)

In Hobbes' anarchic 'State of Nature' there is no government, so there is no market. Markets exist because governments create and sustain them.

->''"The existence of a free market does not of course eliminate the need for government. On the contrary, government is essential both as a forum for determining the "rule of the game" and as an umpire to interpret and enforce the rules decided on."''
-->-- [[https://en.wikiquote.org/wiki/Milton_Friedman Milton Friedman]], ''The Relation Between Economic Freedom and Political Freedom'' (2002)

Governments create and sustain markets by creating and enforcing laws. These laws must govern:

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.

'''Government maketh Market: minutiae'''

Capitalist economists are divided on how government should define the market:

*** There is even some debate as to what someone can actually own, such as intellectual property. Supporters say that as it was made by someone, the idea belongs to the creator. If creators did not own their own ideas other people could steal them and use someone else's ideas to make a lot of money at the expense of the creator. For example, if Alice were a small businesswoman who discovered a way to manufacture cars more efficiently, Bob, who already has a big business and thus all of the infrastructure in place, could take Alice's idea and apply it to his own plants. Now Alice has payed the R&D costs for the research but Bob is the one making the money on her idea. Opponents say that the reason we have property in the first place is to manage finite resources and define property as "something one person owns to the exclusion of other people owning it." For example, if Alice owned a pencil Bob could not use that pencil without first taking it from Alice. Ideas, on the other hand, are infinite, that is one person can have it and someone else can use it without diminishing the first person's 'ownership' of it. For example, if Alice owned a book and Bob copied it onto his own paper, both of them can still enjoy the book. It has also been studied multiple times as to whether or IP laws help innovation, with most studies actually showing neutral or negative effect.

** 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.

* ''Bailing Out Companies'': Some companies are considered "too big to fail" . If they go under, their suppliers may have to lay people off or go under as well because of the lost business. The unemployed workers now have less money coming in and this could affect demand in other markets. In situations like this the government can step in but this is very controversial. Opponents saying doing this prevents companies from learning from their mistakes and enforces the behavior that required the bailout in the first place, however, the people most often proposing a bailout are also the people most likely to support regulations that would prevent further occurrences of that "bad behavior". Bailouts are actually a wide variety of fiscal practices, ranging from a simple loan from the government to short-term nationalization of the firm. (IE, the government owns the company for a certain period of time.)

'''Types of Capitalism'''

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.
* '''Social Liberal/Social Democratic''': a strain which believes that governments should structure the market to prevent the capitalist class from inheriting wealth or acquiring it through means other than work, it holds that market actors acquire wealth which matches their ability to bargain with other actors as much as it does their objective value and efforts. Advocates the shortest possible copyright-patent ownership times which produce a return on the product's development. Adherents believe that this strain is compatible with meritocracy and democracy. Other strains disagree on the latter count.

* Always buys at the lowest possible, and sells at the highest possible, price.

[[ViewersAreGeniuses The Rational Consumer is completely rational and always looks for the best, lowest price before buying a product that they want if buying it will make them happier than having the money needed to buy it.]] The mathematically simple individual and small scale 'microeconomic' interactions which use The Rational Consumer are then substituted into mathematically complicated functions which describe 'macroeconomic' interactions - which were used to govern the world's economies from the 1970s until the Great Recession of 2008.

Unfortunately, actual people and corporate entities:

* Buy/sell not just at the lowest/highest price, but at a perceived 'fair' price.

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.

'''Invisible Hand'''

In very general terms, demand for products tends to result in their supply. When a sector of a market is well run and competitive, there is also a vague tendency for supply to increase or decrease to meet demand.

An important concept at economics' inception in the 18th-19th centuries, The Hand was later discovered to be closer to an elbow - with imperfect dexterity, strength, and reach. The extent to which governments should compensate for the hand's shortcomings is a matter of some debate, with some arguing that the hand should be replaced (Marxists) and others that it should be supplemented by government (Socialists and Social Liberals). Others still contend that there are no (big) problems with The Hand, or [[JumpingOffTheSlipperySlope that fixing The Hand's problems inevitably leads to a Marxist-type Controlled Economy]] (Classical Liberals/Neo-Liberals).

'''Supply and Demand'''

All economic activity is the product of the abstract factors of demand and supply. These manifest themselves as the physical actions of consumption and production, respectively.

Prices are determined by demand and supply, of which demand is more important. High demand allows sellers to sell products for high prices. But if there isn't high demand for a product, sellers have incentives to raise demand for that product (e.g. advertising), reduce production, (as a last resort) lower prices, or some combination thereof. However, for when modelling general activity it is often simplest to assume that prices are determined solely by the relationship between supply and demand.

Or in short, higher demand for a product causes the price to go up. Lower supply of a product also causes the price to go up. Less demand for a product can cause the price to go down. Higher supply of a product can likewise cause the price to go down.

The level of supply is determined by the sellers and the level of demand is determined by the buyers. If there are many sellers of the same product and many buyers of the same product then determining prices is a bit like determining the weather. Individual sellers of a product have no control over the price of a product because if seller A cuts back their supply Seller B will increase their supply. Seller B is losing money over the reduced prices but is gaining money from selling the extra inventory.

'''Market Failures'''

Market failures are sectors of the economy where Invisible Hand simply does not work, and tendencies within economies as a whole which prevent the smooth functioning of the Invisible Hand without government intervention.

One sector of the economy where the market consistently fails to deliver cost-efficiency is that of public goods. These are goods such as infrastructure, education, and healthcare which benefit the economy as a whole and everyone in it - but which it is unwise or inefficient to buy or sell in the conventional sense. Another factor is that of externalities, where economic activity benefits or harms those who are not involved in it. For instance, schooling benefits and pollution harms society as a whole.

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.

* Adam Smith: Wrote ''The Wealth of Nations'', laying the philosophical foundations of the capitalist system. You probably remember in high school reading about how he argued against regulations and for the free market, and that his main contribution was that an "invisible hand" would correct market failures and guide all resources as efficiently as possible as long as everyone acts in their self-interest. Contrary to how history books tell it, however, Smith actually was in favor of government regulations, but only if they benefited the worker rather than the wealthy. Additionally, what Smith actually referred to with his "invisible hand" metaphor is ''not'' the same as how the metaphor is used today. Instead of saying that an "invisible hand" will correct market failures and that regulations are thus unneeded, he was saying that international trade would not harm domestic production because the "invisible hand" of home bias would lead people to invest in their own country. That one time he used the metaphor was stretched well beyond his original meaning. He was also more suspicious of the wealthy and corporations than is often mentioned, even giving his support to a progressive taxation system that lessens the burden on the poor. He also believed that the British colonies would be better off as independent and trading partners with the Crown, and he also realized that the administrative and protection costs of these colonies would ultimately be greater than any profit they managed to bring the Crown.
** Anti-Capitalists use him in the same way that Creationists use Charles Darwin- A lot of quote-mining and even misinformation
* David Ricardo: Came shortly after and formulated the basis of trade theory by noticing the difference between comparative and absolute advantage. Absolute means a nation can simply produce ''more'' in a given time period, but comparative means that a nation can produce at ''less of a cost.'' Very few nations have an absolute advantage in trade, but having a comparative advantage in something is very useful (imagine that Brazil grows pineapples, Iceland catches cod and they trade with each other. Both parties benefit because of their specializations).

* 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, 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...
** Post-Keynesians: According to Keynes biographer Lord Skidlesky, this school is the closest to Keynes' thinking.
** 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.

'''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]]''.

* Values potential gains and losses equally.

* Value all present-day, past, and future gains or losses equally.

* Are ''far'' more fearful of losses than they are motivated by potential gains (see below).

* Value present-day gains or losses ''far'' more than they do future or past ones.