In the previous Flatland essays, I attempted to establish that the mind is not a blank slate. Rather, human behavior is mostly governed by unconscious motivations and filters whose existence can be inferred by close, unbiased observation of how humans actually behave. In this context, this view implies that capitalism itself is not a wholly arbitrary construct. Human "ideas" or "innovations" in the socioeconomic realm—outside of predictable technological innovations—are heavily constrained by human nature. Some things can be invented out of whole cloth (new technologies) and some things can't (new socioeconomic arrangements in large, complex industrial societies).

Let's begin with a description of the human economic frame of reference as we observe it in the modern world. Any economic system will vary according to the nature and extent of its embedding in and control by the society in which it operates. There are large differences in how the economy actually works in various countries. Even the most politically repressive countries incorporate markets, however stunted and inefficient they are.

So one could enumerate de facto differences in how the economy works in Japan, or in the United States, or in Russia, or in China, or in the EU, and so on. Superficial differences aside, we want to understand the essential human economic frame of reference which can be observed everywhere.

It appears that any modern human socioeconomic system E is subject to the instinctual constraints listed below. We will see how capitalism stacks up as we go.

Necessarily, E works as follows:



it incorporates growth in its assumptions if growth is not otherwise constrained by political inequality, or lack of resources, energy or expertise. Prima facie, and apparently without exception, capitalism exists to foster growth.

it serves to maintain political stability. This is accomplished by enabling a significant proportion of society's population to prosper if political power (inequality) does not prevent it. Capitalism clearly does this. It is an open question as to what share of the population satisfies this criterion (10%? 15%?) in liberalized, industrial societies.

it presupposes and justifies (rationalizes) inevitable inequality in the distribution of wealth and income. Capitalism does both. (See the first Flatland essay here

it gives expression to human self-interest. Capitalism does this by being incentive-based.

it relies on and encourages technological innovation, assuming significant barriers to innovation (e.g., resources, energy, expertise) do not exist. Capitalism includes technological innovation in the central concept productivity.

it gives expression to human self-centeredness and thus allows humans to exploit the natural world without restraint. Capitalism does this by relegating all damage done to the natural world to a catch-all bin called externalities.

Capitalism appears to be a "natural" socioeconomic arrangement in the sense that it satisfies all these constraints. It would of course be foolish to suppose that some specific version of capitalism is a direct product of human nature. Nonetheless, we do not observe any modern socioeconomic system which violates one or more of the constraints above.

There is an obvious problem with this description relating how the human economic frame of reference is expressed through capitalism: can we observe the instinctual constraints listed above independently of capitalism itself? No, we can not. Does this imply circular reasoning or vacuity?

Not necessarily. A hypothesis can be formulated based on the description above. Here it is:

A socioeconomic system E will be "successful" only if it satisfies all the constraints listed above. Let's call that case N (the natural human economic frame of reference).

We can define "success" in two ways, weakly and strongly:

The weak version — if a socioeconomic system E arises in the future which violates one or more of the constraints listed above, it will eventually fail and revert back to some version of N .

The strong version — no socioeconomic system E which violates N will arise in the future.

A "good" model (hypothesis) does two things: 1) it makes testable predictions about the future and 2) explains (i.e., is consistent with) the past. (Climate models work the same way, which is universally misunderstood by those who criticize them.)

This hypothesis (strong version) rules out future socioeconomic arrangements which fail to satisfy all these constraints (e.g., "steady state" economies or minimum guaranteed incomes). A socioeconomic system, however defined in theory or carried out in practice, will eventually fail in these cases. The weak version acknowledges that relatively short-lived political "accidents" can happen, and did happen in the past, so they may happen again in the future.

Those political "accidents" took the form of 20th century socialist states which now reside in history's dustbin. We might, at a minimum, define a "decent" society as Marxists did, namely, a society which seeks to eliminate, or at least defuse, great wealth and income disparities. Although such a society violates only two of the instinctual constraints listed above—inequality and self-interest—that contradiction is more than sufficient to rule out a "successful" socialist society. And that is what history demonstrates.

There is also some question as to whether socialist societies failed with respect to growth and prosperity. Communist China liberalized its economy (though not its political system) because only some version of capitalism, even a limited one with some degree of central planning, could provide the required growth and concomitant prosperity in wealth and income to a significant share of its people, thus laying the groundwork for political stability as defined above...