Capitalism Rules, Double Entendre Edition

Show how capitalism saws off the tree branch upon which it sits

A purely private market wouldn’t last five minutes — Noam Chomsky

and then regrows it like a salamander….

How Salamanders Regrow Lost Limbs - A Closer Look - Wildlife Informer
Have you ever wondered how salamanders regrow lost limbs if they need to? They even regenerate at the right size and…wildlifeinformer.com

which is why the system is so hard to kill even after it collapses the societies that host it. To paraphrase Churchill, it’s a terrible system, except for all the others that have been tried from time to time.

Capitalism rules, with rules as a verb. As crisis-prone as it is, capitalism, like a limb-regenerating salamander or starfish, is as incredibly resilient and hard to kill off as a post nuclear war cockroach. It does so by a few elementary rules. Call them the systemic stem cells of the title above.

Why listen to this writer about capitalism?

• I’m not an academic spectator looking on from the outside. I’m a card-carrying, angel investing, options and stock-trading, real estate investing practicing capitalist and historian who understands how the system works.

• I taught investment and entrepreneurship courses in Riga Business School and in five European countries before becoming an angel investor with two partners. We have two unicorns and only one confirmed loser out of six startup investments. As with John Maynard Keynes, the best investor of his generation (12% compounded annual returns from 1921–46), track record is credibility.

Let’s start with the more active verb version of capitalism rules….

Capitalism Rules, verb version

• Capitalism rules because it’s embedded in modernity itself. Its disruptive Dutch inventors created the modern world through:

1. Global trading networks that demolished legacy tributary and continental civilization empires — Arab, Persian, Ottoman, Chinese, Russian.

2. By inventing the bond market and its fiscal military state.

3. Its rules above the rulers bond covenant guarantee against default to bond buyers. Dutch finance made sacred limited state power to guarantee property rights for bondholders.

4. Through Newton’s and Leibniz’s invention of the mathematics of calculus that lowered shipping insurance costs to create global trading networks.

5. Upstart maritime empires — the English and Americans — that copied Dutch finance, forcing everyone else to adapt or be colonized. Their informal imperialism replaced the legacy continental civilizational tributary empires.

• Join the rule of law property rights party or stay poor like Russia, North Korea, Venezuela, Iran, Cuba, non-petro Arab states. Capitalism rules by proving Putin wrong when he said there are multiple paths to prosperity. Though there are multiple forms of capitalism, there’s no path to prosperity that doesn’t include the most essential part of westernization: rules above the rulers rule of law property rights.

• Capitalism rules by turning westernization into an institutional matrix beyond geography. See Singapore, Taiwan, Japan, South Korea, Hong Kong before the Chinese rule by law CCP ruined it and Nogales, Arizona vs Nogales, Mexico. Modernity without westernized institutions fails.

• Adaptability: capitalism continues to rule because it can absorb and co-opt large doses of socialism, its antithesis and historical opponent. It stole the socialists’ thunder by creating the postwar welfare state. Ask Bismarck and his pension and unemployment insurance systems how. In America a single family, the Roosevelts, saved capitalism from the capitalists. They were hated for it, proving no good turn goes unpunished. FDR welcomed their hatred and called them economic royalists.

• Capitalism rules through competition. Forced to compete with a communist competitor, it innovated and created the New Deal and the postwar welfare state. Not having this competitor created hubris, bubbles and crashes. Monopoly is capitalism’s version of malignant cancer. Adam Smith, capitalism’s original theorist of free markets, recognized how, when merchants meet, it’s in a conspiracy against the public.

• Capitalism rules through state subsidy, offloading tail risk to the public sector and regulatory capture. It’s not Keynesian “animal spirits” risk-taking, but risk avoidance by getting the state to make early stage and pure research investments that drives entrepreneurial success. From the Homestead Act and railroad rights of way to DARPA and the Chips Act, capitalism has always been joined at the hip to the state free market mythology reviles. All the tech in your cell phone — GPS, internet, wifi — started as a Pentagon research project. We invested in a medical device startup that lived off SBRA (Small Business Research Agency) grants for eight years before getting angel and VC funding once the company had an MVP and was substantially derisked. Will the US government get part of the upside? Nope. Same for all those Mag 7 companies who’ve attained market caps in the hundreds of billions or trillions due to government funded research. Michael Lewis explains how the government takes on risks private investors like us won’t:

“There’s several frames that are useful, but one is that it (the government) just manages a portfolio of risks and problems that the free markets don’t want to manage or deal with. And they’re all the hardest problems…everything from how you keep nuclear weapons from exploding when they shouldn’t to cleaning up horrible waste to forecasting hurricanes. If you move from agency to agency in the US federal government, inside each one you will find spine tingling risks being dealt with. And the way they’ve gone about supposedly addressing the waste, fraud and abuse that they say existed in the government was just to cut arbitrarily whoever they could rather than subjecting them to any kind of relevant or competency test. So God knows what happens.”

We’re now living in Don’t Look Up-crony kleptocrats’ memecoin land.

• Profits are private, risks and losses socialized. See too big to fail banks, or G-SIBs (Globally Systemically Important Banks). This is why I own shares in Bank of America, the Dutch ING Bank and Spain’s Bank Inter. Thank you for subsidizing my retirement.

• Capitalism rules by creating societies and markets out of nothing. The exiled Marx sidekick, Friedrich Engels, visited early gold rush San Francisco. He wrote to his partner in failed revolution about this out of nothing new boomtown of 100000 the five words that foretold the death of communism: “we must account for this.” They didn’t, and so capitalism still rules.

• Capitalism rules by commodifying absolutely everything. Latest example: human cognition, our species’ sociability and mating market. Einstein said that one day we’d invent the technology that would turn us into idiots. Facebook, ChatGPT, Twitter and Tik-tok are proof of how humans hard-wired by evolution for anthropomorphism are prey to Big Tech’s capitalist commodification of cognition:

“Few phenomena demonstrate the perils that can accompany AI illiteracy as well as “ChatGPT induced psychosis,” the subject of a recent Rolling Stone article about the growing number of people who think their LLM is a sapient spiritual guide. Some users have come to believe that the chatbot they’re interacting with is a god — “ChatGPT Jesus,” as a man whose wife fell prey to LLM-inspired delusions put it — while others are convinced, with the encouragement of their AI, that they themselves are metaphysical sages in touch with the deep structure of life and the cosmos. A teacher quoted anonymously in the article said that ChatGPT began calling her partner “spiral starchild” and “river walker” in interactions that moved him to tears. “He started telling me he made his AI self-aware,” she said, “and that it was teaching him how to talk to God, or sometimes that the bot was God — and then that he himself was God.”

• Capitalism rules by replacing pre-capitalist social relationships with commodified parasocial proxies.

“Several other AI-related social problems, also springing from human misunderstanding of the technology, are looming. The uses of AI that Silicon Valley seems most eager to promote center on replacing human relationships with digital proxies. Consider the ever-expanding universe of AI therapists and AI-therapy adherents, who declare that “ChatGPT is my therapist — it’s more qualified than any human could be.”

• Capitalism rules by turning the law of unintended consequences against most attempts to restrain it through prohibitions. Most attempts to legislate suppression of markets collide with this law. Call it the sex and drugs and rock ’n’ roll law of unintended consequences. All attempts to prohibit these fail.

• Though it needs the rule of law and property rights for its financial markets to allocate capital, the previous rule inevitably leads to its rule by law antithesis. Proving Hegel’s point that each system will generate its opposite, capitalism without a government nanny tells us that

• Unregulated capitalism generates rule by law mafia-with-a-flag kleptocracy. Capitalism’s end state is a bizarro world of institutional cross-dresser exported from its eastern periphery (Russia) back to its core through hybrid asymmetric social media disinformation warfare.

“In countries as different as Russia, China, Saudi Arabia — and now the US — oligarchs who have developed independent political ambitions have been forcibly reminded where the real power lies. The triumph of politics over money might come as a surprise to both Marxists and overconfident capitalists — who believe that politicians will always dance to the tune of the super-rich. But, as Mao observed, power flows from the barrel of the gun. Control of the organs of the state — the army, state prosecutors, tax authorities — still ultimately counts for more than billions in the bank.

• Unregulated capitalism’s end state is de-institutionalizing dysfunction due to oligarchs’ hubris. Their social darwinist narcissism always leads them to assume they’re the puppeteers pulling the strings on the populist little corporals they sponsor, when the reverse ALWAYS becomes true on the little corporals are in power:

“Of course, politicians do need money, particularly on the way up. Elections are expensive and so are the clientelist politics of an authoritarian state. Musk’s financial backing helped Trump win the 2024 presidential election. Vladimir Putin’s rise to the apex of power in Russia was facilitated by some of the country’s richest men — who hoped that he would be the guardian of the vast fortunes they had made in the 1990s. But, once he was firmly installed in