Originally posted on Quora July 27, 2022
Every open system succumbs to entropy whether physical or social. The only difference is that in the social science it is called anomie/social disorder. Existing capitalism, as opposed to the theoretical construct, is a system of law. Existing capitalism hinges on four monopolies: land, money, intellectual property and regulatory capture all backed by legislation and force of law passed down through multiple generations. Force of law is the bond that holds existing capitalism together. Incorporation and limited liability make production and distribution at larger economies of scale feasible and fiduciary duty sets the incentives for such by law. Buy in is what makes legislation enforceable. If everyone is doing 65 in a 50 speed limit, the law is at best enforced randomly and at worst discriminately but often not at all. The less people buy in to a system of law the less enforceable it becomes. As subversion grows so does the cost of enforcement not just monetarily but in real resources and unlike money which is potentially unlimited real resources are definitely finite. Of course, this is the problem with existing capitalism: the aphorism ‘a rising tide lifts all boats’ isn’t true of all markets because some parts of the economy are a zero sum game. For instance, there is a finite amount of land on which to build residential and commercial accommodations, even in a country as big as the US, but a potentially unlimited growth in demand and money to buy and lease it hence real estate speculation. Homeowner/landlord boats are lifted with rising property values, but renters’ boats do not rise with property values they sink: a higher proportion of renter income is consumed by a sunken cost. This is also true of commercial rents which not only start off much higher for SME trying to compete with multinationals for space but are also often pegged to consumer inflation. Similarly, near zero rates lift the wealth of investors in stock and bond markets with generally higher stock and bond prices at the expense of net savers who earn lower savings rates on the lower end of the income distribution; inflation eats what little purchasing power they have left after paying higher rents. Higher rates of chronic diseases boosts GDP with higher healthcare spending at the expense of higher taxes and insurance premiums and the diseased themselves. No sane person thinks more diseased people makes society wealthier but that is exactly what drives up healthcare spending in the US. 90% of health care spending, which is 20% of the economy, is spent treating chronic diseases mostly caused by consumption of a handful of subsidized cash crop products. Tuition hikes and administrative bloat also ‘grows the economy’ at the expense of perspective students saddled with more debt and a lower probability of higher future earnings. Don’t get me wrong, its still provides the highest return you can earn on any investment but with diminishing returns for the past two decades. I could go on but these handful of examples should suffice. As more people are stymied and left behind fewer people will buy in to the traditional laws and institutions that make up capitalism. Markets and private ownership of some capital goods would probably survive but the laws and institutions that make up existing capitalism would not.