Is the capitalist system fueled by lies when you boil it down? Why or why not?

Thanks for the question Randall. Of course it is. Capitalism is dependent on continuous growth, but it also aims for increased efficiencies — both of these are motivated by a desire to enlarge profits, but the two expectations actually work against each other. If I create a really good product that “sells itself,” and is also durable and easy to maintain, then as soon as everyone who recognizes the benefit of that product (for them) purchases one, I will go out of business. So I either have to a) convince others who do not need or want my product (i.e. who don’t recognize its benefits) to purchase one, b) persuade customers who have already purchased one that they need a “newer, better” model, c) offer additional services and products to augment the original purchase, d) make sure other companies with competitive products can somehow be constrained, e) change the production quality of my product so that it will continually break and require replacement or repair….or some other strategy along these lines. You see the problem? In order for my business to grow, innovation isn’t enough. I have to start being a little…shall we say…deceptive, or coercive, or manipulative, or underhanded. There is really no way around it. And the larger my company, and the longer it remains in the marketplace, the greater such pressures will become. Hence the drive towards monopoly.

But, in most developed civil societies, there are laws that protect consumers to a limited extent, so this limits what my business can do to maintain growth. So the easiest course is usually to lie…to falsely inflate quality, or functionality, or durability, or prestige, etc. It’s called marketing, and it’s how most products and services that have little or no actual value to consumers can become wildly profitable. For example, how many people do you think knew they had “restless leg syndrome” before they were sold a pharmaceutical solution for their “disorder” on TV…? I would estimate that more than 60% of purchases in the U.S. are driven by such artificially generated demand. Which is why the U.S. doesn’t produce very much any more domestically in terms of manufactured goods…the diminishing return on profits as the U.S. market became saturated, and domestic labor and materials costs increased at the same time, became untenable. That’s why companies have had to outsource. And it’s also why the U.S. economy has been “financialized.” It’s much easier to grow profit through speculative investments and consumer debt than it is via manufacturing — because it’s using other people’s money. And once consumers start accumulating debt — or become addicted to stock market or futures gambling, as the case may be — that condition generally persists. Forever. And as real wages have remained flat for many decades, and the cost of living has increased, and people kept being sold things they don’t need…well…we ended up with the main driver of the U.S. economy being speculation and debt maintenance. And how did consumers get suckered into such a situation? Well they were lied to of course, and then given some cheese every once-in-a-while to condition a compulsive reflex to keep buying and investing indefinitely.

My 2 cents.

Comment from Joan Spark:

The way currencies work are the driving force behind the growth demand for the economy.

And as you have noticed, the real economy can’t keep up with that demand, exponential demand to be precise. At best a real economy can do linear growth, which - tadum - produces growth rates that trend towards zero.

This means, as the holder of money have leverage over every other participants in the economy (monopoly, why is another matter) they extract the exponential demand out of a system that at best grows linearly.. which leads to your observation: “..real wages have remained flat for many decades, and the cost of living has increased, and people kept being sold things they don’t need”

Shall I go on?

TL;DR: you’re blaming the wrong guy. Capitalism is not the problem, monopolies under private control which create cronyism are the problem.


You are touching on a larger conversation in macroeconomic theory around aggregate demand, and I would agree that you have part of the picture in view. But that wasn’t really what I was aiming at — which was more microeconomic in focus. There is a lot of ground to cover in AD, and monetary variables are just one set among many inputs. I don’t disagree that cronyism and clientism amplify the preexisting antagonisms of market economies…but they only make them worse, they don’t initiate the problems. It’s like negative externalities, or opportunity costs, or perverse incentives, or moral hazards…these things are already in play, but some conditions have a fertilizing effect.

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