Sliding Back to the Ancien Regime
This is a response to Capitalism, Socialism and Democracy by Joseph Schumpeter.
Schumpeter's basic thesis is that the thing that keeps capitalism from collapsing (why Marx's predictions about the contradictions of capitalism causing it to collapse haven't come true) is that we have innovation and that creates new sources of demand which means that you have areas of productive investment for as long as that keeps being true. If people keep finding new product categories that people want to have (the washing machine and then after that electric lights, the telephone or whatever, etc, etc, smartphones) then you always have areas of productive investment because each new product category is as if you had discovered virgin land that you can then go and develop. Marx's arguments assume that there is basically a finite supply of opportunities. Opportunities are like land, you work the best land first and then the second best is left and so on. Every generation, so to say, is working land that's lower yielding than the land that was already worked, so you have diminishing rate of profit. Schumpeter's argument is that because of innovation it's as if you're creating new land all the time, so you don't have a diminishing rate of profit.
But what happens if the constant train of new markets stops? Schumpeter's scenario that he lays out (writing in the 1940s, during the height of high modernism) is that you'll get consolidation and that consolidation will lead to monopolies and those monopolies will be ripe for nationalization and that's how you get socialism.
All that logic makes sense if you accept two assumptions that I think are false:
Assumption One: High Modernism Forever
The assumption that the culture that existed in the 40s continues to be the culture forever, and that there continues to be deference by the public to elites, which was the case in the 40s but is definitely not the case now.
He writes at length (especially in the "The Sociology of the Intellectual" section, p. 145 in my edition) about how the culture is changing and people are becoming more deferential to authority and people respect science and so on. This hasn't aged very well.
Assumption Two: Capitalism Subsumed the Ancien Regime
The assumption that capitalism subsumed the ancien regime. In marxist jargon this is that capitalism is a social totality. That once we had capitalism the ancien regime ceased to exist and everything got absorbed into capitalism. This is false.
Capitalism is an accretive layer on top of the ancien regime. All the ancien regime stuff is still there! History was not erased when capitalism came on the scene.
You do have the capitalist mode of production. The schematic of the capitalist mode of production is you have markets where demand for goods is, you have distribution channels into those markets, and connected to the distribution channels you have a combination of capital (plant and equipment) and labor, and that whole pipeline is organized by capitalists who collect surplus value from it.
In the capitalist mode of production producers are in competition, so they have an incentive to produce more efficiently, and even under imperfect competition as long as it's not a complete monopoly or oligopoly at least some of those gains turn into more purchasing power for everybody.
This continual improvement means you need to have new opportunities for productive investment all the time because the production you're currently engaged in is continually having its profits squeezed by competition. This is the basic marxist declining rate of profit argument and the reason why marxists think capitalism is destined to collapse.
Capitalism, Socialism and Democracy is a dialogue between Schumpeter and Marx about a) why capitalism hasn't collapsed yet and b) what happens if and when it does collapse.
Schumpeter's argument for why capitalism hasn't collapsed yet is the one I outlined in the first paragraph (the one about innovation creating new investment opportunities).
But these arguments only apply to the capitalist mode of production. You still also have the modes of production from the ancien regime, the ones that capitalism grew on top of instead of replacing.
I'm going to divide the ancien regime into two modes: rents and guilds.
I mean rents in the normal economics sense of the word. Land rents but also rents from any asset for which there is a fixed supply, so that could be certain kinds of natural resources or it could be things for which the supply is fixed by state fiat. For example taxi medallions have a fixed supply, and if you have perfect enforcement of stopping gypsy cabs then owning a taxi medallion gives you the ability to charge rents for the right to drive a taxi. Another example of rents by fiat is patents, if you own a patent then you have the ability to charge rents to producers for the right to produce goods that are covered by the patent.
By the guild mode of production I'm referring to production by trade guilds as it was in the middle ages. You had smiths' guilds and mason's guilds and each trade had a guild. Those guilds were restrictive about who could be members and you basically could only be a member if you father was one. Everyone else could only have whatever service the guild provided done by a guild member or there would be consequences, so the guilds didn't have to worry about outside competition. They also justified this by saying "we have this apprenticeship system and everyone's trained and so on", so the argument isn't just you'd better not have work done outside the guild or we'll club you over the head, but also you'd better not have work done outside the guild or your house will fall down or whatever.
This still exists. Medicine is still like this. Plumbing is still like this. Electrical work is like this. Pipe fitting, etc. Many of these guilds call themselves unions. I don't think they belong in the same category as the teamsters or the AFL-CIO; they're not acting in the interests of labor generally for sure. They're acting in their relatively narrow interests, and the two main interest they have are: a) making sure nobody outside their group is able to compete with them and b) restricting who can be a member of the group.
In some cases making sure nobody outside their group competes with them is done by law. For example, the American Medical Association is one of these trade guilds, and they're deputized by the state where if somebody's practicing medicine and they're not a guild member (they don't have a medical license) they can go to jail. Having a medical license literally means you were granted a license by the American Medical Association, it's not done by a government agency. There's no a government regulator that says "you passed a test or whatever, you're allowed". A private trade guild is, as in the middle ages, given a royal monopoly on who can be a doctor.
Those two categories of production (rents and guilds) are hold-overs from the ancien regime and the capitalist mode of production is an accretive layer on top of them.
If you have limited opportunities for productive investment then you have a diminishing role over time of capitalism and an increasing role over time of guilds and rents. The basic argument for this is the same as Baumol's cost disease, which is pretty simple.
People have a limited demand for stuff. Imagine TVs were free, you didn't have to pay anything to get a new TV. How many TVs would you have? Would you have infinity TVs? No. Would you plaster your walls entirely with TVs? Probably not. Maybe somebody would do that but that would still be a weird thing to do even if TVs were free. You would probably have the same number of TVs you have now, because the thing determining how many TVs you have is not how much money you have to spend on TVs, it's how many TVs you actually want. You can afford more TVs you just don't want more. This is true for most things. If washing machines were free, would you get a second washing machine? If the answer to that question is yes I encourage you to go on facebook marketplace and pick up a free washing machine right now.
There's a limit to how much stuff people want so if you discount new product categories being invented then people have the amount of stuff they want to have and making stuff cheaper doesn't grow the market; people don't buy any more stuff as it gets cheaper. So what happens is that people spend a smaller percentage of their income on stuff, so they have a higher percentage to spend on rents and guild services. There are certain types of rents and guild services that are not optional; healthcare is one of these guild services and housing is one of these rents.
So over time, if new product categories aren't being created, then people spend a smaller and smaller percentage of their money on things being produced by the capitalist mode of production, and a larger and larger percentage on rents and things produced by the guild mode of production. That is a process that will compound over time as productivity increases (innovation on the production side continues and makes production cheaper and more efficient and makes prices drop). So you get a diminishing role of capitalism and an increasing role of rents and guilds.
This is a third alternative picture of the end of capitalism to the pictures from Marx and Schumpeter. Like both of those it's an argument rooted in the declining rate of profit, except the thing you end up with is the ancien regime again! You just have a shift where capitalism becomes de minimis and you're back at the ancien regime! This seems obvious to me and it seems weird that I'm not seeing anyone else talk about this.
This is also the reality that we're currently living through. If you think about your own life, what are the things that you're spending your money on? Housing and healthcare! Those are not produced by capitalism! Capitalism can't produce housing because there's a fixed amount of land and in most places (because of zoning) it's illegal to put more housing units on the same amount of land, and even when it is legal to build that's guild production because of all the laws about occupational licensing for electrical, plumbing, etc, etc. Healthcare is literally controlled by a guild (the American Medical Association). Drugs aren't guild production, because of patents they're rents. If you're developing a drug before the drug is approved you're doing capitalism, but once the drug is approved you flip to collecting rents.
This is the world we're living in right now. Capitalism is actually diminishing. The things that people complain about when they complain about capitalism, usually housing and healthcare, aren't capitalism and the reason they're getting more expensive is because of the decline of capitalism.
