man in suit corroded, capitalism

Capitalism is Bad for Business

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While listening to Candace Owens on Russell Brand’s podcast; the last piece of a puzzle I’ve been curious about for years clicked into place. 

Brand repeatedly made the case that the current incarnation of rapacious capitalism needs a certain degree more taxation and regulation so that the worst off in society can be better looked-after. He repeatedly points out that Western society’s prioritisation of consumerism and profits over all else is generating misery and resentment, putting a strain on people’s mental health, and fueling xenophobic and racist bitterness.

Candace Owens, on the other hand, makes the case that people who get up in the morning, work hard, take risks, and innovate should not be penalised with taxes to fund a safety net for the weak. This, she argues, will disincentivise performance. What would the point be in striving for excellence in business or your chosen profession if any of the surplus gains from that excellence are to be confiscated to feed the less hungry and less motivated in society?

Listening to them debate crystallised for me the fact that the left has a blind spot in its right eye and the right has a blind spot in its left eye.

These blind spots are causing them to talk past one another without realising it.

The reason debates about economic equality, social mobility, access to opportunity, capitalism, socialism, and politics are bogged down in stubborn, circular quagmires is because most people, on both ends of the political spectrum, see capitalism and commerce as the same thing. Parsing them out could unlock the way forward. Not parsing them out seems a surefire way to prevent any agreement being reached across the political spectrum.

Commerce Vs Capitalism 

Despite there being many overlaps and interdependencies; let’s say for argument’s sake that commerce involves the production, sale, and trade in goods and services. This is often referred to as the ‘real economy’. This is the world the majority of us that “get up early and work hard” live in.

Let’s distinguish this from Capitalism which concerns the financial economy, or, put another way, the pursuit of investor returns (often called ‘Capital Gains’ by the academic wizard wannabes).

Even more simply put: Capitalism is the way in which money earns more money with little or no work required of the person who owns that money (although, like with any gamble, their investments are at risk). Capital is just a form of wealth that earns for its owner and usually takes the form of tangible assets such as property or a company (this is where there is an overlap between capitalism and commerce), or financial assets such bonds, shares, holdings of currency, commodities such as oil or gold, or less tangible financial assets such as complex derivatives or product patents.

Commerce is roughly as old as recorded history itself. The later-stage first farmers appear to have been the first humans to trade with one another over 5,000 years ago in the fertile crescent region we now know as the Middle East. For as long as we produced surplus to what we needed, we sold that excess in markets. As things developed further, the demand, and therefore supply, evolved for specialists and skilled tradespeople who could work with metals, furs, wood, or pottery. And so the trade in services was also born.

On the other hand, there is much debate about when and where Capitalism originated. One of the leading contenders are the Dutch exploration ventures that raised money from investors to find riches in America and Indonesia in the 1600s. If the ship sank or got stranded, the sailors drowned and the investors lost their money. But if the ship came back laden with spices or gems, the investors would claim the majority of that value after paying off the crew of the ship. This is a useful and simple way to understand what economists call the capital/labour split. For any venture; someone must put up the money and someone must do the work. Both need to be compensated fairly. A key question is: do the sailors deserve enough gems just to feed themselves for a few weeks or enough to be able to start investing in future ventures themselves? The capital/labour split is the way in which the spoils of business get divided up between the people who do the work and the people who put up the money for the venture. It is one of the most important and, sadly, one of the least discussed components to debates between the left and right. 

Another popular claim to the beginning of capitalism is the insurance industry in medieval Italy. It also emerged to service the seafaring and exploration industry. The funny thing about buying insurance is that it is a reverse lottery. Spending a fiver a week on the lottery is seen as wasteful. Spending a similar amount to insulate against something that is as unlikely to happen but much more consequential as winning the actual lottery is sensible! (technically; you’re gambling that the feared disaster will happen). These early capitalists knew how to prey on the fear of loss. By building up a kitty that pays out in cases of accidents, using probability mathematics that take account of the both likelihoods and the magnitudes of potential payouts, and charging premiums that cover these potential payouts plus some added on for administration costs and profitability. Insurance was, for me, the first historical specimen of earning money purely off of money.  

Either way, it looks like Capitalism is at most 500 years old, or about one-tenth as old as Commerce.

Now that the distinction has been made, it’s fair for us to say that Capitalism needs Commerce but the reverse is not necessarily true.

While investor money can accelerate a business’s maturity by kitting it out with the spending muscle to acquire better talent, vehicles, equipment, or offices, a business can be capable of surviving without it. 

Capital however, traditionally must piggy-back on commerce in order to earn a return. 

For the most part, when all the fancy stuff is said and done, the financial sector must put capital into an enterprise that is commercially successful and profitable if it is to deliver investor returns.

The logjam that is stopping the left and the right from being able to find a sensible middle ground is down to the fact that Capitalism has a monopoly on Commerce in people’s minds. After all, looking for monopolies is what Capitalism does. 

Incidentally, one of the many indicators of how different the two things are is that competition (a feature of Commerce) is often held up as a benefit of Capitalism, despite the fact that Capitalism fights tooth and nail to stamp out even the slightest potential for competition

Financialisation: Everything and Everyone Is a Gambling Chip 

The Western World is still in —  and hopefully close to the end of —  a cycle of economic thinking based on the work of Milton Friedman. His theories were cherry-picked (many of his more progressive ideas were conveniently ignored) by the Reagan and Thatcher regimes in the 1980s to justify and legitimise a lurch towards outright ‘free-market fundamentalism’. The suggestion was that politicians and civil servants get out of commerce’s way and not hinder the commercial economy’s progress with obstacles such as taxes and regulations. In reality, the most far-reaching element of these economic policies was the promotion of shareholder value above everything else in society. When you decide that the most important thing in a society is that people be able to invest in something and sell it for a higher price, it has the effect of turning everything and everyone in that society into a gambling chip: companies, property, even people. We call this effect financialisation. Think of any financial instrument as a gambling chip; it is something you can buy in the hope of either selling it at a higher price or earning a dividend or rent off of without having to work. 

The point of this piece is to focus on how Capital and Commerce are not the same, but it is worth mentioning a quick aside here: housing is particularly financialised, with supplies of housing being kept artificially scarce in cities throughout the world in order to keep the prices of property and the rent yields on property as high as possible. The fact that property is so unreachable for most, so that the capital-owning classes can make as much money as possible from their money, is what is driving so many into nationalistic anger or political extremism. Most people who think they’re angry because they hate foreigners (the extreme right) or people with careers, property, or businesses (the extreme left) are actually angry about this. 

They were sold a story about being able to work or study their way to a modest, middle-class life, when in fact they are on a hamster wheel generating money for the asset-owning class. As we saw in the 1930s and 1940s, political and nationalistic extremism is extremely bad for business.

Back now to how financialisation can be directly detrimental to business. There are plenty of observable cases where shareholders and boards have installed and tasked CEOs with boosting the share price in the short-term by cutting all costs, including on research and development, to artificially boost profits, and, by extension, the share price, allowing investors to sell their shares at a return and leave behind a company that is worse off for these shareholder-centric decisions having been made. Several companies have missed out on years of product research and development so that shareholders can take as much money out of their investments as possible. It shows how a company can be used as an investment instrument at the expense of the company itself.

Financialisation shows how capitalism can be a completely different game to commerce. While commerce is looking for profits so that the employees and entrepreneurs in those firms can get paid, finacialisation is looking to report profits so that the share price goes up or so that shareholders can earn dividends off their shares.

This is thought to be the biggest driver of CEOs getting paid an average of 70 times more than average employees (in 1965 it was 25 times more) – with the ratio being somewhere between 250 and 300:1 in the USA. Boards pay executives obscene amounts to keep delivering the goods for investors at the expense of everything, and everyone else.

Applying this same principle to the biggest cost centre that most firms have — staff remuneration — begins to explain why people earning well over the average wage can still struggle to live a modestly comfortable life.

To think back to the analogy with the Dutch exploration ventures to the new world, the sailors are getting less and less and the investors are getting more and more of the cargo.

Receding Buying Power and Deflation

Another term that economists and financial academics love to bandy about so that they sound more wizard-ey is ‘real wages’. In plain English, it simply means the level of disposable income or buying power in the economy. Without getting too technical, you need to take account of the prices of the things we need to live — the biggest of those things being housing — in addition to average or median wages to get a reasonable picture of buying power. Focussing on the straight number of Euro/Dollars/Yen people are paid (known as nominal wages in Hogwarts) masks buying power that has stayed where it is or even slid backwards since the 1970s. The average US wage in 1970 was a much smaller number than it is today but the gap between that average wage and the price of an average house at the time was much smaller. It could be argued that HR Law, while claiming to strike a fair balance between the interests of workers and capital, has checkmated the power of organised labour

The triple effects of shareholders squeezing firms to keep wage costs as low as possible, combined with the use of property to also generate maximum returns, and with the need for low and middle income earners to use debt (lent to them at interest by capitalists) to finance modest middle-class lifestyles (as seen on The Wonder Years), amounts to a financial three-man spit-roasting of everyone not in possession of capital assets. 

This strangulation of lower and middle earners’ buying power is bad for business as it leads to sluggish, deflationary economies. The overall level of demand is depressed because the general level of disposable income is weak.

Even the European, US, and Japanese injections of vast amounts of cash into their economies to keep them lubricated (Quantitative Easing) has extremely limited effects on this deflation. The channels dug into the fabric of society causes that money to flow upwards out of the economy into the hands of Capital as soon as it is pumped in. And because the wealthiest save more and spend less of what they earn, much of that cash is not circulating throughout the economy again. 

In light of this, if it weren’t so tragic, it would be comical to hear the capitalised class whinge about how so few investment assets (outside of Tech Stocks – who, incidentally, often stay private for much longer now so that they can tell Wall St. to fuck off) offer strong returns today because demand is too low. They already have all the money. It’s reminiscent of a child tantruming because they want mutually exclusive things.


Thomas Piketty describes phenomena he calls Ownership or Proprietary Societies.  In these kinds of societies, ownership of assets is the highest existing power. 

Under feudalism, lords had the right to distribute justice on the (sometimes vast) lands that they owned. This usually meant that right or wrong was determined by the whims of a given lord, with little or no codified or consistent rule of law.

The French Revolution took away the nobility’s right to exact justice on the inhabitants of their land holdings and transferred that power instead to an entity that we take for granted today but was relatively new at the time: the centralised nation-state. But the revolutionaries of the time struggled to imagine a fairer way to distribute capital (most of which was land at the time) and so endorsed the status quo. They rubber-stamped the nobility’s hold on the capital that was seized by military force, or granted by a monarch to one of their warrior ancestors any number of centuries beforehand. 

Many of the native North American tribes were puzzled by Europeans’ notions of ownership, especially when it came to land. How could a person draw imaginary lines on maps and claim ownership of land that was there for millions of years before they were and would be for millions of years after they died? 

Just because our culture has this idea baked into it doesn’t mean it can’t be arbitrary and strange. 

Piketty contends that the Western World since the 1980s is a ‘neo-proprietary’ society. Some of the most lucrative capital assets in our society are patents. Just how justified is the total private ownership of patents or intellectual property? A large part of what contributes to their development is the educated scientific talent churned out by publicly funded schools and universities. Businesses can only operate in publicly-owned and funded nation-states that provide a secure and stable environment in which to operate. Might the taxpayer have a right to at least a portion of these assets?

Not only do the capital-owning class use their wealth to influence the political system to restrict access to assets, but they also puppeteer policy in order to manipulate the economy so  that the prices of their own assets stay as high as possible. And when these practices are criticised, the capitalists cry that this criticism is ‘anti-business’.

This is not business, it is financial feudalism. And it’s bad for business because, again, it dampens demand by sucking wealth upwards out of the economy into the hands of capital, from where it’s less likely to circulate back throughout the economy. 

Of course, I’m not advocating for an end to the concept of ownership, but if we were capable of even thinking about or questioning the basis on which we justify it, we might be able to design a system of ownership where privileges are more closely linked to deservedness. 

When Norway discovered oil in its territorial waters in the 1960s it went on to establish a sovereign wealth fund in 1990 that made every Norwegian citizen a beneficiary of the state’s energy industry. This stands in stark contrast to the Anglo-Saxon mentality of selling off the state’s resources to private interests. It is a good example of how we might imagine a different approach to ownership of wealth-generating assets. 

The Great Derivative Decoupling – Where’s the value? 

I’ve mentioned earlier that business can survive without a financial sector but that, for the most part, Capital needs to piggyback on Commerce to earn returns on its investments.

An arguable exception to this rule is a class of phantom assets that have a very tenuous link with the underlying realities of the business on which they are based: Derivatives.

In plain English, they are a class of asset that allows investors and traders to agree and bet on future movements in the prices of commodities or assets. A call option allows an investor to profit off a future price increase, a put option allows an investor to profit from a future price decrease. Think of it as an extra layer of gambling on top of the real, actual prices of assets where two parties can make a bet with one another about what’s going to happen rather than trying to profit off the stock itself. 

One class of derivative — forwards and futures — allow the producers and purchasers of real commodities such as wheat or cotton to shelter from and smoothen out extremely volatile price changes that could ruin one or the other. If the market price of cotton falls too low, the producer could be ruined. If the price climbs too high, Fruit of the Loom could be ruined. They can reach a mutual agreement to put upper and lower limits on the purchase/sale price to shield both parties from ruin. This seems fairly benign, but doesn’t that make a mockery of the free-marketers’ worship of price as dictated by supply and demand that’s supposed to ultimately deliver the fairest price for the consumer? I actually think something like this — that helps companies that do real business — to avoid being damaged by the volatility of markets is a good thing and helps protect jobs, but it is worth pointing out that it contradicts the narrative that the free market should be left completely to its own devices as it is in itself a form of market manipulation whatever way you slice it.

Warren Buffet has referred to derivatives as “financial weapons of mass destruction”, nowhere has this rung true than in the Debt-based derivatives. These ‘assets’ either repackage existing loans to sell-off to other investors or allows a third-party financial institution to be paid a fee for guaranteeing a loan between two other parties. I’ll come back to how dangerous these have proven to be.

The point, for now, is that all this activity is extremely far removed from business. It is literally making money off of moving money around. Where is the value exchange? How could you possibly call this business? 

The Tail Wagging the Dog – Are You Having a Bubble? 

“Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill done.”

– J.M Keynes, General Theory of Employment, Interest, and Money. Chapter 12.

Another huge fact that helps demonstrate how capitalism and commerce are not the same things is what the wizards call the ‘price mechanism’. In plain English, it means that depending on how scarce or abundant a resource is, combined with how much or how little demand there is for that resource, the interplay between supply and demand causes a natural, self-correcting phenomenon that always delivers the fairest and most rational price.

If the price is too high and people aren’t desperate enough for it, the price will have to fall if the merchant wants to sell it. If the price is low, the merchant can’t get enough of it, and people are desperate for it, they can raise the price and people will still buy it if they have the disposable income. 

At the core of this idea is that high prices tend to discourage demand. In commercial markets for goods and services, it’s probably fair to say that this is broadly true. 

Capitalism though, it all about buying things that you believe are going to be worth more tomorrow, next week, month, or year. For this reason, it can be said that the price mechanism is inverted in asset markets. Climbing prices increase demand for assets rather than dampening it. This is what causes asset bubbles. Like in a Ponzi scheme, every tranche of cash that flows into an asset increases the price of that asset.

For this reason, so much real wealth, often generated by hard graft and real commerce, can flow into these speculative financial markets only to be destroyed when the bubbles pop and the prices of the assets collapse. 

In the more frightening species of debt-fuelled bubbles, investors are able to borrow against the combined value of the assets that they hold. If their property holdings are worth €15m, and they can borrow up to 40% of the worth of their holdings, they can borrow €6m. If they buy another €6m worth of property with that credit, they can then borrow €8.4m or an extra €2.4m. And that’s without even factoring in how those properties can skyrocket in value, against which they can keep borrowing @ 40% of the value of their holdings. This is how asset bubbles spiral out of control. If a price collapse occurs, the debt value is fixed but the asset value is wiped out.

The 2008 crash destroyed $7 trillion (seven thousand billion) worth of real-life wealth that had been ploughed into assets in the hunt for returns. It devastated the real economy by causing a massive reduction in the amount of disposable income circulating throughout the real, commercial economy.

Alasdair Macleod points out that there is currently over $640 trillion (six hundred and forty thousand billion – or a head-spinning 7.4X the planet’s GDP) of wealth tied up in the global derivatives market.

It’s all just a financial video game, but it’s bad for business because it can pull the real economy down with it when it crashes.

None of this is to argue that the financial sector or derivatives trading should be abolished. But a start would be knowing the difference between business and capitalism so that they can be looked at properly and administrated in such a way that this doesn’t happen.

Capitalism Embedded in Commerce 

As I’ve already mentioned, Capitalism hides inside Commerce. It embeds itself inside and camouflages itself against a background of normal workers and entrepreneurs trying to eke out a living by offering value to others in the form of work, skills, expertise, products, or services in exchange for payment. 

But capitalism is extractive, not transactive. Its core mission is to try to not return any value in exchange for the payments it withdraws, or at least to try to return as little value in return as possible.

When the left criticises capitalism, the right defends commerce. The conversation often plays out like this:

The Left: Capital is sucking all of the wealth upwards out of society and is making our economies sluggish and unhealthy. Maybe it’s not that good an idea to allow Capital to take so much of the winnings.

The Right: People need to be able to get up in the morning to go to work or start businesses and get rewarded for the value they create.

Sometimes this veering from discussing Capital to defending Commerce is done as a cynical distracting play, but I believe it is more often caused by a Blind Spot that both ends of the political spectrum suffer from.

The Saruman Effect 

The Left is extremely foggy when it comes to understanding the problems with Capitalism. 

The greatest difference between the centre and the left is that the centre realises that entrepreneurs are workers, too. Something that alienates a lot of workers and small business people from voting for the left in greater numbers is the left’s occasional bad habit of lumping all private property owners, people with corporate careers, or small business owners in with capitalists who make their money purely off of their money. Owning a house, working for a large company, or being an entrepreneur does not make you a fat-cat.

There seems to be, on average, poor standards of economic and financial literacy on the left. I call this ‘The Saruman Effect’. 

In Tolkien’s Lord of the Rings, Saruman was originally a white wizard (good guy) who thought that he could best defeat the dark arts by studying them in order to be able to defeat them from the inside. His studies of these dark arts eventually consumed and converted him, however. 

I would suggest that there are two possible elements to the Saruman effect. The first is that, as they learn, many left-leaning freshman and sophomore economics/finance students may become more and more tempted to use their knowledge to try to enrich themselves. The second is that the more extreme elements of the left often seem to feel that it’s distasteful to understand economics and finance – this may sometimes have the effect of alienating the economically and financially literate from the left.

Either way, there seems to be some undervaluation of economic and financial literacy on the Left that does not serve its aims and desired outcomes well.  

The Meeting Point 

From the 1940s to the 1980s in Europe and North America, The left and right (conservative democrats and social democrats) saw one another as colleagues with whom they disagreed rather than enemies.

There was a compromise in place in the West whereby the returns on capital would be partly restricted so that enough of the spoils of business went to low and middle earners to make modest middle-class lifestyles as accessible as possible. Policymakers reasoned that if most people could afford to form households and start families they were less likely to join extremist, nutcase fascist and communist organisations.

The great compromise of those decades after the Second World War was based on the realisation that the political polarisation and extremism of the 1930s and 1940s devastated the world as Fascism, Communism, Imperialism, and Liberalism clashed in a war that claimed 75 million lives, 40 million of whom were innocent civilians.

The levels of hatred across the US political spectrum now are reminiscent of Europe in the 1930s. And Europe itself seems to be bending in that direction too. This trajectory started in the 1980s with the deregulation of finance and the removal of restrictions on the returns on capital.

No one is saying that capital doesn’t have its place – but it needs to be put back in its place. It is too dominant in the overall economic mix.

It’s not that difficult to imagine a system where people are allowed the freedom to work or to sell their goods and services at the market without an overbearing state taking too big a cut at the same time as a state that acts as a referee on capital.

Capital needs to be tamed (regulated or taxed) when it’s becoming too dominant, having an adverse effect on people’s access to opportunities, or restricting the ability of those without capital to make their way in the world. 

The compromise that could be offered to the right is that in return for greater taxes and regulations on capital, the state could get out of the way of workers and entrepreneurs and let them keep far more of their hard-won earnings. It’s a matter of the government picking on someone its own size. Of course, this is prevented by capital’s outsized influence over politics.

This is an idea that even Owens and her followers on the slightly further right should be able to get on board with for two reasons: they hate globalisation and they hate unearned income.

Global Capital is what is behind the globalisation of supply chains and the migration of manufacturing labour to lower-wage jurisdictions like China, India, and Vietnam. Remember, all Capital wants is for its investments to grow. It has zero interest in jobs, business, or “making America/Britain/Armenia great again”.

Unearned income tends to mean that someone else has done the work for that money. How can the right hate unearned income in the form of welfare payments and not hate it in the form of returns on capital? Especially when those returns are based on underpaying workers? The US is experiencing a particularly nauseating phenomenon known as ‘the working poor’. It is Capital’s over-rewarding that leads to this disgusting situation that shouldn’t even be possible. In purely monetary terms, the returns on capital place far greater burdens on the shoulders of workers than welfare payments do. Pointing this out is not anti-business, it’s pro-business. 

There is one economic tool that expresses this meeting point between right and left. At the same time very libertarian and very equitable, it’s based on leaving the producers of value the fuck alone. The idea is to let the value creators keep as much of their rewards as possible, while at the same time restricting Capital’s ability to skim an unfair or disproportionate amount off the top of the spoils of Commerce. It is the economic teaching of Henry George.


The most important idea that Georgist economics is based on is a concept called ‘rent-seeking’. Economic rent is slightly different to rent as most of us understand it. Think of it as any income that is unearned, undeserved, or based on an arbitrary or contrived privilege, and that isn’t justified by any costs or exchange of some value in return. 

Two of the best examples of Economic Rents are motorway/turnpike tolls and the old per-minute charging of telephone calls. 

Once a company has built a road and charged tolls on it for long enough to have made back 10, 20, or 50X what it cost to build that road, what exactly is that company’s privilege to keep collecting that toll based on? Nobody’s saying they shouldn’t be allowed to recoup the costs or even make a profit from the project, but where does it end? Isn’t the tender awarded by the state (which is collectively and legally owned by citizen taxpayers) in the first place? 

Even though we were used to it at the time, per-minute phone charges had absolutely no deserved justification or cost base to which they can point to explain why they existed. 

This is the essence of rent-seeking, the only justification for extracting that wealth is that you are in a position to.

Why does Capital have a right to take such an outsized amount of the fruits of people’s labour? Because it is in a position to.

Economic Rent is Capital’s favourite kind of income for obvious reasons. Aside from the risk of potentially losing the investment, it is money for nothing. 

If we placed more taxes on capital gains and this rent-seeking, Mark Knopfler income, we could leave workers and entrepreneurs alone and tax them far less.

It could, of course, be designed in such a way that successful and self-made business people are allowed to retain enough of their capital that they are able to have a very comfortable and early retirement, but not so much that it is undeserved and damaging to the wider economy.

Capital is the Pharaoh, Commerce is the Israelite 

Under the financialised economic regime we’ve lived under since the 1980s, it’s become a common observation that you don’t get rich by working. You must invest yourself into wealth. Another way of thinking about this is that you need to make your money, not your work, earn for you. But the reality is that when Capital is earning for you, it means that the rewards of someone else’s work or creativity are flowing into your pocket.

There is a thin membrane of filament in our society somewhere around the $1-$5m mark that, once broken through,  seems to allow people to retire and enjoy the fruits of everyone else’s (below that level of income or wealth) labour.

I don’t have the arrogance to pretend to have the solutions to this situation, but I do feel I can see something that is being obscured by the way we talk about Capitalism and Commerce as if they’re the same thing.

If we aren’t able to see and mentally grasp the problem we have no hope – separating out capitalism and commerce is the first thing we need to do. 

Originally published on Blind-Spots June 3, 2020.

The big disconnect between left and right. Capitalism hides inside of Commerce. This shrouds the problems with Capitalism. Sometimes one missing piece of a puzzle can change the entire picture. BlindSpots seeks to fetch those pieces.

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