The gist of the problem in my mind is that the closer one is to the source of money (central banks, the Federal Reserve, etc) the more he or she is able to profit from leverage, until the leverage becomes so high that it dwarfs whatever contribution to society that person makes. Whereas the people who are furthest from it survive merely by their own efforts. This video does a good job explaining the origin of money and capitalism:

http://www.hitrecord.org/users/jeffpeff

So what’s happening is that the people who are sitting on vast quantities of wealth, say in the fossil fuel industry, or mining, agriculture, fishing, etc are able to write IOUs and maintain control of their resources in the meantime to compound themselves.

But people who have nothing but the sweat of their brow are unable to obtain capital, because their IOUs can only be cashed in at a speed of 1:1. So people instinctively don’t extend them credit, because they aren’t willing to wait potentially forever to get paid back.

As overall wealth increases, one would like to see individual leverage increase too. So for example if the net worth of the world doubles, people should be able to borrow against the new wealth that’s been created. But the frequent outcome of capitalism is that leverage reaches runaway positive feedback for people at the source, while the majority of the population on the outskirts becomes mired in day to day survival.

So most of the stuff we generally hear about how low taxes stimulate the economy or whatnot are rubbish because they merely raise the slope of the line from top to bottom. If we want to talk about getting the economic gears turning, then we have to start with giving people at the bottom more leverage so they can multiply their efforts.

For a concrete example: one of the key ways we went wrong since the 80s was compound interest. There are other kinds of loans, for example underwriting, where someone buys a horse with the understanding that they will pay back two horse’s worth of grain. They only have the lifetime of the horse to make it happen. If it doesn’t happen, the lender is out a horse and the borrower is out the several years of life it took to fail in the venture. This idea that upon failure the borrower must then also pay back the original loan is nonsense. The lender relies on the fruit of the borrower’s labors to eat (that is, unless he or she is willing to stop lending and eat horses). The price of that free lunch is risk. There used to be codes of dignity, where if people tried hard and failed, the community helped them try again. But if people let their horse die of thirst, they would get thrown in jail. But now we’re so disconnected from one another that these codes have been reworked into “incentives” which don’t accurately reflect how human beings begin ventures by lending or borrowing capital. We accept the reality that 6 billion people in the world are essentially paying compound interest without questioning why we’ve chosen a system like that among many.

I’m thinking that a possible (and probable) alternative to capitalism in the 21st century is going to be non-capital based leverage. So for example if you can install a solar panel on your roof and not have to pay your electric bill, you’ve just increased your leverage by the amount that you used to pay for electricity. The same could happen with food, transportation, even education. I can easily imagine a point where most goods and services are provided through automated means and the average person would have the leisure time and affluence of say, a millionaire today. I use that as a litmus test whenever I hear new ideas in economics or politics and find that generally the approaches being pitched are contrary to what would help everyone across the board.