Corps de l’article

William Kingston’s illuminatingly provo-cative How Capitalism Destroyed Itself is a bibliographically rich and historically munificent treatment of the arguably inherent self-destructive tendency of capitalism. According to its main thesis, the extraordinary wealth generated by the creative energy released by capitalism fuels a cycle of exploitative regulatory capture that elevates financial excess at the expense of technological innovation. The resulting “wealth” lacks a solid basis, manifesting an economic bubble inexorably destined to burst. Forces that generate vast material well-being unleash a political dynamic to sustain preferential treatment that, eventually, undermines the fragile underpinning value of nominal monetary gain. The solution to this paradox lies partly in reformulating the property rights that foster financialization and concentration at the expense of technological dynamism.

Kingston meticulously develops the logic behind the interconnected economic, political and social forces that converge to thrust financial recklessness to the forefront of economic activity. The internal logic lies in the distortion of property rights that initially fostered a massive expansion in economic well-being through concomitant cycles of industrial development. Corporate interests grow powerful enough to capture the political system through lobbying and the resultant institutionalization of economic advantage. A solution to the economic residue of this distortion, which includes a blend of stagnation, rising inequality, and protectionism masked as competitive security, lies in reorienting the nature and distribution of property rights. Therein rests a major strength and weakness of the book, with the latter attributable to the internal destructiveness of capitalist forces.

The book includes five chapters and a provocative epilogue. Chapter 1 is an informative documentation of “What Capitalism Was.” It develops a “’market power’ paradigm” upon which the self-destructive nature of capitalism is based. There are three sources of market power, each of which is institutionalized by the formalization of property rights, which initially serve to stimulate positive growth. The first source of power is market capability, which accrues to “productive assets.” The property right which underlies this source is limited liability, which encourages people to take risks by restricting the scope of their personal liability for misfortune. A second source is persuasive power, which is reinforced by trademark regulations, which essentially insulate entities from competition. This insulation, in turn, deters advancement and innovation. The third and final source of market power is specific in nature, which is embedded in property rights associated with patents. Improperly designed and executed, patents discourage innovation and shift the focus of economic energy away from technology and other factors that have genuine value.

Chapter 2 examines “Where Capitalism Came From,” showing how a religiously motivated work ethic can combine with intelligent property rights to achieve positive economic results. The Cistercians illustrate this practice, creating a “managerial revolution.” However, capitalism, which lived “off the moral and intellectual capital of the Enlightenment,” ultimately “gave free reign to changes in the rules that had earlier disciplined it.”

This brings Kingston to Chapter 3, which examines the capture of market power by the exploitation of property rights that created a privileged class immunized from the forces of competitive advancement. This resembles the Schumpeterian self-destructiveness of capitalism. A natural tendency to restrict competition through the self-interested development of property rights, such as information protection, “produces forces that are against taking up any major potential challenge in… [the dominant corporate] technology…” Accordingly, “[t]hese large firms will possess a great deal of market power of capability because they have invested heavily in pro- ductive assets. Any newly formed firm intent on challenging them cannot have either of these at the outset, and consequently can only rely upon whatever specific market power it can obtain from patents. Since the patent system has been allowed to become primarily a vehicle for protecting chemical inventions, it is correspondingly ineffective for inventions in all other technologies.”

The crowning blow to capitalism’s economic efficacy lies in “The Fatal Capture of Money,” the title of Chapter 4. Limited liability rights given to banks and other financial institutions creates incentives to take extraordinary risks. The ultimate result is a financial system that resembles a giant “Ponzi” scheme. The valueless deck of financial cards is bound to collapse when forces combine to collect invisible assets—to convert the intangible to tangible. The Great Depression and Great Recession result. Economic self-interest captures the system to its ultimate disadvantage. The public interest escapes notice. Private wealth dominates the political process, which further solidifies the distributional inequality of wealth. Wages stagnate and innovation falters far below the optimal. Advancement for the public good is a sideshow.

The final chapter (Chapter 5: “Could Anything Have Saved It?”) represents a noble attempt at normative prescription. Basically, the policy solutions to the inherent flaws of capitalism originate in changing property rights. First, it is important not to grant banks limited liability. Second, information and innovation protections need to be modified to limit their restrictive impacts, shifting the granting of such protections to fostering technology and not financialization. Government needs to promote public-based research and development that develops applicable technologies, modeled after efforts to develop small businesses. Reforms of government need to end the dependency of bureaucracies on private interests and erect a genuinely independent civil service motivated by public good. The resulting growth of economic benefits could be used to distribute wealth more evenly through a Citizens’ Income formula, which resembles President Nixon’s 1969 Family Assistance Plan.

The “Epilogue: The Centre Could Not Hold” is a plausible doomsday forecast, which bespeaks the unlikelihood of any policy solutions emerging under the present system. Indeed, Kingston quotes Judge Richard Posner, who argues that: “The adjustments that will be needed, if the economy does not outgrow an increasing burden of debt, to maintain our economic position in the world, may be especially painful and difficult because of features in the American political scene that suggest that the country may be becoming in important respects ungovernable.” Unfortunately, as Kingston concludes, “the U.S. Supreme Court has made things worse by lifting all restrictions on campaign funding by corporations […]”. If the political process is so intractably captured by private interests, then, there is arguably no escape from the tyranny of such rule, except another system. What that system might be, we are left to guess.