the life cycle of capitalism
This discussion about capitalism will argue that the economic law of economies of scale MUST result in ever fewer, ever larger corporations over time. Furthermore it will be argued that this is in fact what has happened in America over the course of the past 200 years.
Capitalism, has a natural cycle due to economies of scale.
We are told today by the people in charge, that the success of America is due to the long term embrace of laissez-faire free market capitalism. The phrase is French, and it literally means to “let do” and more broadly it implies “let it be” or “leave it alone”. According to the origins of the words, it means “allowing industry to be free from state intervention”. M. Le Gendre famously replied when the mercantilist minister asked how the French state could be of service to the merchants, “Laissez-nous faire” (‘Leave us be’, lit. ‘Let us do’).
Yet today, the US government owns the majority of the housing in the United States through the ownership of the largest mortgage institutions. The Government is the largest US employer. The Government owns the automakers. It bails out large so called “too big to fail” corporate entities with the citizens money. So this is not “hands off” or “let it be”, this is the exact opposite of that which is direct ownership or financial interest while being financed by the taxpaying citizens.
“And the banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place.” – Senator Dick Durbin 2009
According to the literal definitions of words, what has happened over the course of the past 200 years in America is that the United States used to be laissez-faire free market capitalism, but it has moved far from that, almost to the other extreme which is in this case fascism or a corporate/government merger. A very few, very large corporations, banking interests and powerful special interest groups are in control. It is however still being called today what it used to be, in a convolution of terms.
People in America today all shop at the same mega retailers, they consume their media from a handful of corporations, satellite radio beams from coast to coast instead of local programming, shopping malls look exactly the same anywhere in the US, mega global restaurant chains span the globe.
This mincing of words has left a lot of people confused. Capitalism means competition but more importantly it means hands off. It means letting large bankrupt entities fail. Many US citizens would gasp at the notion that the US has decayed into Fascism and yet do not understand the fundamental definitions and concepts behind the words. Recent polls have shown that when the public et al is asked how they feel about capitalism, they say they don’t like it. What they are really saying however is that they don’t like what this is. What this is, is fascism. It is exactly the opposite of what it is called using the definitions of the words, and the definitions of words are the only thing we have to go by.
What a mess.
So how did we arrive at this point? The economic law of economies of scale states that if you are a larger entity, and if you can buy and produce in larger quantities, then your marginal cost of production will be lower. Simply stated it means the larger you are, the lower your cost of production and the more competitive you are.
Because of this economic law, what happens over time is that competition favors the larger entity. You didn’t see mom and pop hardware stores invading the landscape in the US and putting out of business Home Depot and Lowes, did you? In fact, it was quite the opposite, wasn’t it? The fact is that in every avenue of competition, there have become ever fewer, ever larger players over time. As they have grown in size, they have bought increasing influence and political power and have erected barriers to entry to new competition. The banking institutions have become so large and powerful that they are immune from failure. They now have the ability to draw on the people’s future labor to meet their margin calls from speculation. The corporations have bought so much power that the US Supreme court ruled in 2010 US corporations can now make unlimited political contributions. Now the few large remaining corporations have nearly unlimited power because they fund and control the political body directly.
So the fact is that what started out in America as laissez-faire free market capitalism and is still called that today by the people in charge,has slowly and continusouly decayed into something else. The larger corporations have consumed the smaller corporations because of the law of economies of scale. They have bought more power and influence and thrown up new barriers against smaller competition and new market entrants. Now, we are at such an advanced stage in this process that in many areas of competiion there are only two or three players left. In some there are only one. The government, the ultimate corporation, has become the largest.
So, the point of this essay is to say that because of the economic law of economies of scale, capitalism has a natural cycle. It goes from capitalism to fascism. In fact, this was known to be the case over 100 years ago.
“Fascism is capitalism in decay” – Vladimir Lenin – Founder of the Russian Communist Party
To conclude this set of words, stated as a theorem: “Capitalism has a natural cycle and continuously decays into Fascism due to the economic law of economies of scale.” – Craig Harris
By James Kwak
Thomas Frank has a review in the Wall Street Journal (behind a paywall, but Mark Thoma has an excerpt) of Barry Lynn’s new book Cornered, which apparently documents the prevalence and power of monopolies and oligopolies in lots and lots of industries, not just finance.