Capitalists Who Fear Change

Digital technology is reinventing our whole world, in service of you and me. It’s free enterprise on steroids. It’s bypassing the gatekeepers and empowering each of us to invent our own civilization for ourselves, according to our own specifications.

The promise of the future is nothing short of spectacular – provided that those who lack the imagination to see the potential here don’t get their way. Sadly, but predictably, some of the biggest barriers to a bright future are capitalists themselves who fear the future.

A good example is the current hysteria over 3-D printing. This technology has moved with incredible speed from the realm of science fiction to the real world, seemingly in a matter of months. You can get such printers today for as low as $400. These printers allow objects to be transported digitally and literally printed into existence right before your very eyes.

It’s like a miracle! It could change everything we think we know about the transport of physical objects. Rather than sending crates and boats around the world, in the future, we will send only lightweight digits. The potential for bypassing monopolies and entrenched interests is spectacular.

Here is what Andrew Myers reported in Wired magazine last week:

“Last winter, Thomas Valenty bought a MakerBot – an inexpensive 3-D printer that lets you quickly create plastic objects. His brother had some Imperial Guards from the tabletop game Warhammer, so Valenty decided to design a couple of his own Warhammer-style figurines: a two-legged war mecha and a tank.

“He tweaked the designs for a week until he was happy. ‘I put a lot of work into them,’ he says. Then he posted the files for free downloading on Thingiverse, a site that lets you share instructions for printing 3-D objects. Soon other fans were outputting their own copies.

“Until the lawyers showed up.

“Games Workshop, the U.K.-based firm that makes Warhammer, noticed Valenty’s work and sent Thingiverse a takedown notice, citing the Digital Millennium Copyright Act. Thingiverse removed the files, and Valenty suddenly became an unwilling combatant in the next digital war: the fight over copying physical objects.”

There we have it. The American Chamber of Commerce – the supposed defender of free enterprise – is in a meltdown panic about new technology, determined to either crush 3-D printing in its crib or at least to make sure it doesn’t grow past its toddler period.

In the 1940s, Joseph Schumpeter said that the capitalists would ultimately destroy capitalism by insisting that their existing profitability models perpetuate themselves in the face of change. He said that the capitalist class would eventually lose its taste for innovation and insist on government rules that brought it to an end, in the interest of protecting business elites.

Here’s an example: When books and music started going digital, there was an outcry. How would authors and musicians survive this onslaught?

The truth is that there was no onslaught. It was a windfall for consumers that turned into the greatest boon for music and literature ever. Today, we see how this is working. And not only working, but there are more authors and musicians making money today than ever before.

My best example is the emerging utopia of the Laissez Faire Club. No one could have thought of such a thing a few years ago. Now its burgeoning membership is enjoying the highest-quality literature delivered every Friday for a ridiculously low membership fee. This is the sort of institution free enterprise creates, one that uses imagination and the service ethic to do wonderful things for the world.

The methods could never have been anticipated in advance. Some give away their content and sell their performances. Some have found interesting new methods of distributing content behind pay walls that are affordable and convenient. Authors are starting to self-publish through a fantastic number of venues.

I’ve been touring museums lately, and I’ve begun to realize something important about the long process of technological improvement. Through our long history of improvement, every upgrade and every shift from old to new inspired panic. The biggest panic typically comes from the producers themselves who resent the way the market process destabilizes their business model.

It was said that the radio would end live performance. No one would learn music anymore. With records, everything would be performed one time and recorded for all time, and that would be the end.

Of course, that didn’t happen. Tapes were next, and everyone predicted doom for recorded music, since music could be so easily duplicated (“Home taping is killing music”).

It was the same with digital music: Surely, this would be the death of all music!

And think back to the mass ownership of books in the 19th century. Many people predicted that these would destroy new authors because people would just buy cheap and affordable books by old authors. New authors would starve, and no one would write anymore.

There is a pattern here. Every new technology that becomes profitable causes people to scream about the plight of existing producers. Then it turns out over time that the sector itself thrives as never before but in ways that no one really expected.

The great secret of the market economy is that it embodies a long-run tendency to dissipate profits under existing production and distribution methods. This is how competition works. This is how competition not only inspires improvement, but makes it unavoidable. And this is one reason that so many capitalists hate capitalism.

The process goes like this. The new thing comes along and it earns high profits. Then the copycats come along and do the same thing cheaper and better, robbing the first producer of the monopoly status. Profits eventually fall to zero, and then something even better has to come along to attract new business, earn new profits and elicit new copycats. And the whole thing starts all over again.

I’ve never understood why leftists complain about profits going to capitalists. In a vibrant market economy, profits are the temporary exception to the rule. They accrue only to the most innovative and efficient firms, the ones that serve the consumer best, and the gains are never permanent. As soon as the company loses its edge, entrepreneurial profit vanishes.

Under free market competition, writes Ludwig von Mises, the trajectory of existing production and distribution models is always to reduce profits to zero. For those who want to hang onto profits, there can be no rest. “New and improved” must be an everyday experience. There must be a ceaseless striving to serve consumers in ways that are ever more excellent.

This is why business is always running to government for protection. Kill this crazy new technology! Stop these imports! Raise the costs on the competition! Give us a patent so that we can clobber the other guys! Impose antitrust law! Protect me with a copyright! Regulate the newcomers out of existence! Give us a bailout!

Aside from this, there is a public fear of the new. Otherwise, people would not find the self-interested protests of the existing establishment to be persuasive.

Here is a striking fact about the human mind: We have great difficulty imagining solutions that have yet to present themselves. It doesn’t matter how often the market resolves seemingly intractable problems. We still can’t become accustomed to this reality. Our minds think in terms of existing conditions, and then we predict all kinds of doom. We too often fail to consistently expect the unexpected.

This poses a serious problem for the market economy, which is all about the ability of the system to inspire discovery of new ideas and new solutions to prevailing over problems. The problems posted by change are obvious enough, but the solutions are “crowd sourced” and emerge from places, people and institutions that cannot be seen in advance.

Capitalism is not for wimps who don’t want to improve. If you want guaranteed profits for the few, rather than prosperity and abundance for the many, socialism and fascism really are better systems.

The push to stop market progress won’t work in the end, of course. Technology eventually mows down the forces of resistance. The mercantilists can only delay, but never finally suppress, the human longing for a better life.


Jeffrey Tucker
for Markets and Money

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Jeff Berwick

Jeff Berwick

Jeff Berwick

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