Saving Capitalism

Neoclassical economics has served us well for nearly two hundred years, a long time for any ideology. The most important assumptions in anything are those which are unstated, and an unstated assumption in neoclassical economics was that technology was static. However, technology is not static, and we are living in a era of ever increasing change driven by technology.

In traditional neoclassical economics, there are two factors, capital and labor, which are combined according to some fixed production function into output. Both capital and labor are treated as a single factor available in any quantity if you are willing to pay enough. The holy grail is market equilibrium where the prices clear: that is at that set of prices firms produce what consumers will buy. It all wraps up with a pretty ribbon, and the real world is a special case.

Unfortunately, the real world is the world in which we live, and these assumptions look increasingly silly. In the long run, capital may all be fungible, but in real life the things which capital controls may be in very scarce supply. Yes, I can build a new factory if I have the time, but I cannot have it tomorrow.

Labor is composed of a large number of skills and abilities, and no amount of education and experience can compensate for some of them. Where it can, it takes time and money. These groups can be very small relative to the size of the world. For example, probably under 1,000 people really understand the technology behind blockchain.