Herrmann’s Thoughts on Capitalism

Herrmann (2015) discusses (in German) the history and trajectory of capitalism: capitalism is about the use of technology to augment labor productivity to accumulate capital, not the hoarding of money wealth. It began 250 years ago in Britain. The depressing insight is that there is no guarantee that really poor countries can catch up with the high productivity wealthy countries. The impetus behind economic growth is not low wages, but high wages, because that would encourage labor-saving innovation. A universal basic income could extend the growth model via higher reservation wages (wage below which workers don’t work). But there are still constraints to further economic growth: (1) demographic aging, (2) ecological limits and climate change, (3) monopoly of firms, (4) concentration of income at the top.

The technological primacy in the development of capitalism reveals its strength and its very vulnerability: because augmenting labor productivity pushes people from machine-intensive into labor-intensive, low-productivity, low-wage sectors, innovation, broadly shared gains and economic growth all decrease.

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