Very nice walkthrough of your cultural assessment of capitalism based on structural incentives. Cultural economics flows from the societal rules that pertain to law and property.
I’m wondering if you see a need to innovate the legal system that supports and attaches to capitalism, either SC or SP.
Your post also calls out the financialization process that can drive inequality. How does the monetary system choice underpin SC vs SP? What rules should govern who can create money? What if a country left income taxes behind entirely and moved to transaction taxes and land (property) taxes to balance state and private fund flows?
I don’t see how the monetary system would impact of culture. Culture affects the objective of capitalism. I define capitalism as an economic system in which capital plays the dominant role, in which specialist businessmen called capitalists seek to grow the stock of either “real” or productive capital, or financial capital (market capitalization). SC culture maximizes the former and SP the latter. It is unclear to me how the monetary system might affect what sort of capital growth is maximized (SC or SP. I note that SC capitalism flourished under the Bretton Woods gold standard, and I believe gold played an important role in its collapse see here https://mikealexander.substack.com/p/nixon-gore-the-paths-not-taken
We may have had something resembling SP culture in the 1920’s, it’s hard to say for certain since I do not have data on stock buybacks or similar operations back then. Inequality was high which is consistent with SP, and I treat it as SP.
We used the gold exchange system then so I conclude that SP can operate under a gold standard. An the SP capitalism we have now is operating under a fiat system. So I think SP operates in different kinds of monetary systems. I am not sure that SC would be stable under a fiat system, however.
As for the alternate tax systems, SP capitalism would be the one selected. These all have the property that executive income has no upper bound. Since option compensation is the lowest choice for the company it seems that without an income tax with high top marginal rates you will always have an environment selecting for SP capitalism.
I appreciate your answer. Sometimes a discussion of overlapping frameworks creates fuzzy edges. The care you take to articulate SC vs SP structural forces is evident.
I agree that the monetary system is not a direct driver of culture. In my opinion, it can influence incentives that drive investment, taxation, and growth policies, which impact economic culture more directly. I look forward to placing this essay in the larger context of your writings. Thanks, again!
Amen. Shareholder primacy is literally the mother of all perverse incentives.
As my namesake implies, we need to, at a minimum, restore the Glass-Steagall Act, ban stock buybacks, and restore the high (70%+) top marginal tax rates that prevailed before Reagan. Yesterday.
Very thoughtful. Your discussion of cultural evolution is solid and articulate. Your discussion of the barriers to change present in the US of the shift from SC primacy to SP primacy is spot on. Love the graphs. Especially the one on top tax rates and executive pay, something I've railed on about for years.
While initially you talk about cultural evolution as something that moves far more quickly than biological evolution, and allows rapid adaptation. Your detailed analysis of the shift from SC to SP shows you also show that there are barriers that can exist to cultural evolution.
Anthropological/archeological data tells us that humans have always resisted cultural evolution from one one form of subsistence to another. While foragers may be quick to adapt cultural changes that enhance foraging, the record tells us that foragers resisted becoming horticulturalists, and that it took massive disruptions of famine and conflict to make that shift. The archeological record shows us that humans had the knowledge and skills to cultivate crops for thousands of years before they were willing to make farming their basic means of subsistence. Moreover, we know that any groups that could continue engaging in foraging successfully did so, even though clearly having the knowledge and exposure to horticultural people. Foraging in the right environment takes far less time and human energy than farming does.
The same is true of the transition from horticulture (hand tool, low intensity farming to agriculture, plow, irrigation and high intensity farming) generally only took place due to violence and force. Again, agriculture takes farm more time and human energy for those doing it (even if it frees some members of society, i.e., those doing the forcing from subsistence labor) than horticulture does.
Modern history tells us that masses of farmers did not voluntarily become industrial workers either. That they were generally forced off their lands (by the enclosure movement in Britain, by war, by persecution, and by poverty), and became refugees whose only option was the cities and industrial work.
Moreover, both history and the archeological record are replete with many examples of societies that died out rather than adapt to major challenges (whether from invaders or climate change). Two popular books of recent decades: Brian Fagan's Floods, Famines and Emperors and Jared Diamond's Collapse collect some of that data in entertain and enlightening books.
My point is that humans are capable of rapid cultural change and adaption to changing environments and threats, but we are by no means guaranteed to do so. Especially when either powerful small groups or large influential groups have much to gain by digging in and something to lose by changing.
Very nice walkthrough of your cultural assessment of capitalism based on structural incentives. Cultural economics flows from the societal rules that pertain to law and property.
I’m wondering if you see a need to innovate the legal system that supports and attaches to capitalism, either SC or SP.
Your post also calls out the financialization process that can drive inequality. How does the monetary system choice underpin SC vs SP? What rules should govern who can create money? What if a country left income taxes behind entirely and moved to transaction taxes and land (property) taxes to balance state and private fund flows?
Again, I appreciate your thoughtful essay.
Thanks!
I don’t see how the monetary system would impact of culture. Culture affects the objective of capitalism. I define capitalism as an economic system in which capital plays the dominant role, in which specialist businessmen called capitalists seek to grow the stock of either “real” or productive capital, or financial capital (market capitalization). SC culture maximizes the former and SP the latter. It is unclear to me how the monetary system might affect what sort of capital growth is maximized (SC or SP. I note that SC capitalism flourished under the Bretton Woods gold standard, and I believe gold played an important role in its collapse see here https://mikealexander.substack.com/p/nixon-gore-the-paths-not-taken
We may have had something resembling SP culture in the 1920’s, it’s hard to say for certain since I do not have data on stock buybacks or similar operations back then. Inequality was high which is consistent with SP, and I treat it as SP.
We used the gold exchange system then so I conclude that SP can operate under a gold standard. An the SP capitalism we have now is operating under a fiat system. So I think SP operates in different kinds of monetary systems. I am not sure that SC would be stable under a fiat system, however.
As for the alternate tax systems, SP capitalism would be the one selected. These all have the property that executive income has no upper bound. Since option compensation is the lowest choice for the company it seems that without an income tax with high top marginal rates you will always have an environment selecting for SP capitalism.
I appreciate your answer. Sometimes a discussion of overlapping frameworks creates fuzzy edges. The care you take to articulate SC vs SP structural forces is evident.
I agree that the monetary system is not a direct driver of culture. In my opinion, it can influence incentives that drive investment, taxation, and growth policies, which impact economic culture more directly. I look forward to placing this essay in the larger context of your writings. Thanks, again!
Amen. Shareholder primacy is literally the mother of all perverse incentives.
As my namesake implies, we need to, at a minimum, restore the Glass-Steagall Act, ban stock buybacks, and restore the high (70%+) top marginal tax rates that prevailed before Reagan. Yesterday.
Very thoughtful. Your discussion of cultural evolution is solid and articulate. Your discussion of the barriers to change present in the US of the shift from SC primacy to SP primacy is spot on. Love the graphs. Especially the one on top tax rates and executive pay, something I've railed on about for years.
While initially you talk about cultural evolution as something that moves far more quickly than biological evolution, and allows rapid adaptation. Your detailed analysis of the shift from SC to SP shows you also show that there are barriers that can exist to cultural evolution.
Anthropological/archeological data tells us that humans have always resisted cultural evolution from one one form of subsistence to another. While foragers may be quick to adapt cultural changes that enhance foraging, the record tells us that foragers resisted becoming horticulturalists, and that it took massive disruptions of famine and conflict to make that shift. The archeological record shows us that humans had the knowledge and skills to cultivate crops for thousands of years before they were willing to make farming their basic means of subsistence. Moreover, we know that any groups that could continue engaging in foraging successfully did so, even though clearly having the knowledge and exposure to horticultural people. Foraging in the right environment takes far less time and human energy than farming does.
The same is true of the transition from horticulture (hand tool, low intensity farming to agriculture, plow, irrigation and high intensity farming) generally only took place due to violence and force. Again, agriculture takes farm more time and human energy for those doing it (even if it frees some members of society, i.e., those doing the forcing from subsistence labor) than horticulture does.
Modern history tells us that masses of farmers did not voluntarily become industrial workers either. That they were generally forced off their lands (by the enclosure movement in Britain, by war, by persecution, and by poverty), and became refugees whose only option was the cities and industrial work.
Moreover, both history and the archeological record are replete with many examples of societies that died out rather than adapt to major challenges (whether from invaders or climate change). Two popular books of recent decades: Brian Fagan's Floods, Famines and Emperors and Jared Diamond's Collapse collect some of that data in entertain and enlightening books.
My point is that humans are capable of rapid cultural change and adaption to changing environments and threats, but we are by no means guaranteed to do so. Especially when either powerful small groups or large influential groups have much to gain by digging in and something to lose by changing.