Capitalism should motivate productivity, but it doesn’t. In the U.S. we now have a financial system eleven (11) times the size of production (as a contribution to GDP), according to a presidential advisor. Hence the theory of capitalism does not quite line up with reality.
What we have created is a financial hydrocephalus sitting on top of an eroding base of production. That is a bad thing because:
- Financial arbitrage in violation of free-market principles turns production subprime.
- Finance invests heavily into itself, creating a pretend world filled with elaborate finance schemes, the opposite of the real-world needs of improving production by investing in capital expenditures.
- Finance out of balance with production is non-renewable, creating a highly unstable economy.
But we should not shun capitalism just because we implemented the wrong version of it. Instead, we must base capitalism on the principles of freedom we have failed to define and enforce. Easy as pie, but disruptive to the nervous Nellies of self-absorbed oligarchies.