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What’s Next For Capitalism?

  • Written by Syndicated Publisher 375 Comments375 Comments Comments
    February 24, 2012

    Has the centralized nation-state model of global capitalism finally reached its autumn?

    Predicting the end of Capitalism has been a popular pastime since the term was coined. The reason why this particular parlor game is so fruitless is that Capitalism is not monolithic or static–and neither is socialism, the other great ideological umbrella that covers a variety of systems and iterations of State/collective ownership of assets.

    If we take the long-term historical perspective of Giovanni Arrighi in The Long Twentieth Century: Money, Power and the Origins of Our Times, we find that modern global Capitalism has gone through four iterations, each of which saw the dissolution of the old order and the emergence of an even greater source of capital and power. Arrighi has built upon the epic structure created by Fernand Braudel in his three volume history of modern Capitalism, Civilization & Capitalism, 15th to 18th Century, a series I have often recommended here to anyone who seeks to understand the origins and nature of modern Capitalism:
    The Structures of Everyday Life (Volume 1)
    The Wheels of Commerce (Volume 2)
    The Perspective of the World (Volume 3)

    Though we could easily start with Venice in the 14th century (that would make it five transitions), Arrighi begins with the trading/banking powerhouse of Genoa and lists the following expansive iterations that replaced the previous version when it reached the apogee of its particular model and fell into decline: Holland, Great Britain and the U.S.

    What sets Arrighi’s analysis apart is his identification of a “grand cycle” that has not been recognized by other historical models of Capitalism’s development (and oft-predicted impending demise). This is not a cycle of price and scarcity described so compellingly in The Great Wave: Price Revolutions and the Rhythm of History, or a demographic cycle as described in The Fourth Turning or the “S-curve” cycle of over-reach and marginal return described so ably in Overshoot: The Ecological Basis of Revolutionary Change and The Upside of Down: Catastrophe, Creativity, and the Renewal of Civilization, nor is it a Kondratieff cycle of expansion and repudiation of credit.

    Rather, this is a cycle internal to global Capitalism, and in particular the top layer of mobile capital that Braudel identifies as the “real home of Capitalism.” In this view, centers of capital expand beyond the boundaries set by the previous dominant center when the old regime declines in an inevitable “autumn.”

    Each iteration of mobile Capitalism has limits intrinsic to its model, and when those limits are reached, then the regime slides into an S-curve (a simple model for complex systems by Cesare Marchetti) of topping out and decline.

    The question this analysis poses is this: once the U.S. founders on its debt and debauchery of its currency, is this the end of the centralized model of global expansion? Put another way: given that the U.S. empire–commercial, military, diplomatic and financial–already spans the entire globe in a completely unprecedented fashion, is any further expansion even possible?

    No doubt when Great Britain’s empire was at its peak in the late 19th century, an even more dominant expansive iteration did not seem possible. But given the reach of the U.S. model–hundreds of overseas military installations, naval dominance, control of the global currency, etc.–then it is difficult to imagine what future empire could exceed America’s global reach and influence.

    The alternative is a new iteration of global capitalism based on decentralized systems that have detached from the coercive control of any one nation-state. In this view, the disruptive technology is the Internet, which has enabled the flow of digital capital and innovative models beyond the direct control of nation-states.

    We cannot know the precise flow of history over the next decade (to 2022), but we do know the nation-state model of global Capitalism that relies on ever-expanding debt and constant depreciation of the nation’s currency to mask fundamental financial instability and insolvency is doomed.

    There are only two possible end-states to the current model of global Capitalism, i.e. ever-expanding debt (both sovereign and private) and constant depreciation of the nation’s currency: repudiation of the State’s gargantuan debts via default or destruction of the nation’s currency. There are no other end-states, despite all the happy-talk propaganda issued by the Status Quo.

    Perhaps global Capitalism’s next iteration will be a repudiation of the centralized coercive nation-state model of expansion. The limitations of State-issued currency is now painfully obvious, as States cannot resist borrowing money to live beyond their means or printing money to live (at least for a time, until the theft become visible) beyond their means.

    Global versions of bitcoin or a new non-sovereign gold-backed currency may become the currency of capital and trade, a decentralization of power that would enforce a strict financial discipline on nation-states’ borrowing and blatant manipulation of their own currency. Simply forcing nation-states to live within their means by removing the power of the printing press would greatly diminish the power of the nation-state model of global Capitalism.

    Global Capitalism is like an organism in some ways, and the decline of the current model will open space, much like a forest fire clears dead wood and underbrush, for more adaptable, less rigid and coercive models to experiment and develop.

    Images: Flickr (licence attribution)

    About The Author

    Charles Hugh Smith writes the Of Two Minds blog (www.oftwominds.com/blog.html) which covers an eclectic range of timely topics: finance, housing, Asia, energy, longterm trends, social issues, health/diet/fitness and sustainability. From its humble beginnings in May 2005, Of Two Minds now attracts some 200,000 visits a month. Charles also contributes to AOL’s Daily Finance site (www.dailyfinance.com) and has written eight books, most recently “Survival+: Structuring Prosperity for Yourself and the Nation” (2009) which is available in a free version on his blog.


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