A Short History of Capitalism

Before we consider how to upgrade our economic operating system, it’s worth contemplating how it came to be. Two parallel threads emerge: the decline of the commons and the ascent of private corporations.

When I speak in this book of corporations, I’m speaking of a very special institution: the publicly traded stock corporation. This is an institution with a board of directors, a set of executive officers, and a fluctuating set of shareholders to whom the directors and officers are legally accountable. These corporations have an explicit mission: to maximize return to stock owners.

If an accounting could be made, corporate appropriations of the commons in America alone would be worth trillions of dollars. With one hand, corporations take valuable stuff from the commons and privatize it. With the other hand, they dump bad stuff into the commons and pay nothing. They act this way not because they want to, but because they have to…

Sometime around 1950, capitalism entered a new phase. Until then, poverty was a widely shared experience. People wanted more goods than the economy could provide. Demand, in other words, exceeded supply, and we lived in what might be called shortage capitalism. We could also call it Capitalism 1.0.

In the period following World War II, we shifted into surplus capitalism, or what I call Capitalism 2.0. In this version, there’s no limit to what corporations can produce; their problem is finding buyers. A sizeable chunk of GDP is spent to make people want this unneeded output. And credit is lavishly extended so they can buy it.

This historic shift can be described another way. A century ago, our chief scarcity was goods. It thus made sense to sacrifice other things in pursuit of goods, and capitalism was masterful at doing this.

Today our scarcities are different. Among the middle classes, the top scarcities, I’d say, are time, companionship, and community. Among the poor, there remains a lack of goods, but that lack isn’t due to a shortage of production capacity—it’s due to the poor’s inability to pay. The critical scarcity here, in other words, is income.

Similarly, in the early capitalist era, land, resources, and places to dump wastes were abundant; aggregated capital was the scarcest factor. That’s why rules and practices developed that put capital above all else. In the twenty-first century, however, this is no longer the case. As economist Joshua Farley has noted, “If we want more fish on our dinner plates, the scarce factor isn’t fishing boats, it’s fish. If we want more timber, the scarce factor isn’t sawmills, it’s trees."