HOW WILL IT END? For centuries even the most sanguine of capitalism’s theorists have thought it not long for this world. Smith, Ricardo, and Mill pointed to a “falling rate of profit” linked to inevitable declines in agricultural productivity. Marx applied the same concept to industrial production, suggesting that the tendency to replace workers with machines would lead to a chronic and insurmountable lack of demand. Sombart saw the restive adventurousness of capitalism as the key to its success—and, ultimately, its failure: though the appearance of new peripheries had long funneled profits back to the center, the days of “stout Cortez” had ended and there would one day be no empires or hinterlands to subdue.
Schumpeter was the gloomiest of all. He opened a chapter titled “Can Capitalism Survive?” (in his Capitalism, Socialism, and Democracy) with the definitive answer, “No. I do not think it can.” Inspired by Marx, he imagined that the very success of capitalism—the creation of large enterprises through continuous innovation—would lead to profound fatigue as innovation came to be merely routine, and the bourgeoisie turned its attention toward the banalities of office life: “Success in industry and commerce requires a lot of stamina, yet industrial and commercial activity is essentially unheroic in the knight’s sense—no flourishing of swords about it, not much physical prowess, no chance to gallop the armored horse into the enemy, preferably a heretic or heathen — and the ideology that glorifies the idea of fighting for fighting’s sake and of victory for victory’s sake understandably withers in the office among all the columns of figures.” He foresaw a world in which intellectuals, a marginalized and unhappy lot, would turn their discontent into politics and lead the discontented castoffs of capitalism toward socialism.
These predictions, however, failed to describe what was actually happening with capitalism in the 20th century. By the 1980s people had turned toward a different proposition of Schumpeter’s: that competition “from the new commodity, the new technology, the new source of supply, the new type of organization” was the source of dynamism in a swiftly growing economy. For Schumpeter, the crises of capitalism were signs not of the system’s debility but of its secret health. Business cycles were zesty, violent guarantees of continued growth. Monopolies were only temporary and could be broken up by the “perennial gale of creative destruction.” When in the 1960s and ’70s the otherwise impregnable position of American industry was broken by competition from Germany and Japan, Schumpeter seemed prescient. The response of corporations in the 1980s—enormous mergers, leveraged buyouts, union busting, corporate raiding, mass layoffs, and upward redistribution of wealth—seemed almost to be taking his words as prescriptive.
But while the economy has been dynamic, it has not been healthy. Several crashes later, the gloom has returned, and the signs of autumn are once again most recognizable in the pronouncements of free-market capitalism’s erstwhile boosters. In the past year, many have taken up Larry Summers’s remark that we have entered a period of “secular stagnation,” marked by persistent and slow growth worldwide. Fiscal austerity is general, taxes remain low, and debt levels continue to rise—which means that Western countries, by selling treasury bonds to the rich through capital markets, are actually paying their elites in bond yields to avoid having to go through the politically impossible process of taxing them. Absent any political recourse to countercyclical fiscal policy, central banks in the US, the Eurozone, and Japan have kept interest rates low and pumped trillions of dollars of fiat money into the financial system, keeping banks and dot-com companies liquid and driving the rich to put their money into the condos now flooding Manhattan, all while leaving median wages pleasantly low. It’s kept things humming along, but not much more than that. Fear courses through the veins of the free-marketers, who recognize that all is not well with the system they love.