Fate of capitalism

January 15, 2011

“Was Adam Smith Wrong on Rising Real Wages And the Spread of Opulence?”

Around Adam Smith’s time, and even more so in the 1800s, the question of the long run fate of capitalism was much debated. There were, primarily, two imagined outcomes far into the future, one where everyone lived in opulence with ample time for leisure, and the other characterized by widespread misery, a stationary state where productivity gains have been exhausted and population has grown until there are barely enough resources to support its existence. The second, “dismal” outcome was the most common long-run prediction for capitalism.

Today, we hear the same questions and the same debate, particularly as we see wages stagnating for the last several decades. Is this the beginning of a long-run trend toward stagnation, or a temporary blip on the march of technology and progress that will, eventually, help us all? (And there is also the worry that robots will replace humans, the latest of a long history of worries that machines will render humans relatively useless.)

My view is that, absent regulations, corporations act to more money upwards creating lower wages at bottom and higher profits at the top. this is because every manger, given discretion as to which to do, choses to move money upwards. Hence productivity gains accrue upwards and workers never benefit, especially in terms of leisure. Leisure in fact is seen by managers as an opportunity to cut wages rather than as something to be enhanced.

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