If there’s one leitmotif in Jacob Hornberger’s commentary at the Future of Freedom Foundation over the years, it’s that unlimited accumulation of capital by the super-rich is the pathway to prosperity. That musical phrase received its latest tinny, tinkling iteration in “The Importance of Capital” (March 13):

I was recently walking through a construction site near my house, where a new townhouse project is being built…. A man was using a gigantic piece of equipment that lifted an entire bedroom section, which must have weighed around 1000 pounds. He then elongated the equipment to enable him to place the section onto the fourth level of the townhouse….

As I was standing there watching this, I couldn’t help but think about the critical importance of capital in a society. Imagine an extremely poor nation, one on the verge of starvation. It wouldn’t have that piece of equipment, which has to be enormously expensive, because no one in that society could afford it….

Thus, the question arises: Why are some nations able to afford that piece of equipment and others like it when other nations are unable to do so?…

Here is how the American system worked. People were free to accumulate unlimited amounts of wealth and decide for themselves what to do with it….

When people were free to accumulate unlimited amounts of wealth, they saved a portion of it. They placed those savings into banks. Banks would lend that money to employers who would use it to purchase tools and equipment, which would make their workers more productive. Higher productivity meant increased revenues for the firm. Increased revenues meant that the firms had more money with which to pay higher wages.

What passes for “economics” on the libertarian Right is nothing but a collection of just-so stories, repeated uncritically: private property arose through peaceful appropriation from the common; specie money was spontaneously adopted as a solution to the dual coincidence of wants; wages are determined by the marginal productivity of labor; and so on, and so on.

We see a string of such right-libertarian just-so stories in the quoted passage above. For starters, Hornberger conflates money capital with physical capital. To be fair, this is a venerable error in his ideological tradition; for example, Mises proceeds from arguing that economic calculation requires market pricing of producer goods to asserting that economic calculation under “Syndicalism” (a capital-letter abstraction that may bear some tangential relation to syndicalism) is impossible for want of a market in firm equity. 

This is closely related to another just-so story: the claim that money capital is a prerequisite for constructing machine capital, and that it is created through the accumulation of money savings which are aggregated and converted into investment capital.

But there is nothing self-evident in this. Physical capital is simply the result of human labor acting on the free goods of nature. In purely functional terms, the entire economy consists of human beings extracting materials from nature, acting upon them with their labor, passing them on to other human beings for further processing, and constantly advancing their production streams of altered raw materials mutually to one another and supplying one another with subsistence goods until consumer goods are distributed. Physically, the economy is human labor acting on nature — all the way down.

Money capital is nothing but a socially constructed set of paper or digital claims to these production streams, and to the right to coordinate them. The fact that large accumulations of capital (those piles of paper claims on the ongoing production streams of workers acting on the material world) are necessary in order to issue credit (which, rightfully understood, requires only a unit of account for coordinating those production streams) boils down, in its essence, to a system whose main practical effect is to make the owners of those piles of paper claims artificially necessary to the economic process — and thereby enable them to collect tribute for the function.

Besides all these conceptual errors, Hornberger makes an empirical one. His dogmatic belief that capital accumulation leads to increased productivity and prosperity has blinded him to the real-world functioning of capitalism over the past two generations. 

First of all, his entire argument about capital accumulation reflects an obsolete mid-20th century understanding of technology. Even in the mid-20th century, the capitalist economy was almost destroyed by the Great Depression as a result of its chronic tendencies toward idle capacity and surplus money capital. The main thing that rescued it was absorption of capital through massive wartime spending, and the destruction of a major part of the world’s plant and equipment in the war. That pressed the Reset button, made possible a generation of prosperity during which the reconstruction of a bombed-out world enabled full employment of capital and labor.

That period came to an end around 1970, when the Western European and Japanese industrial economies had been rebuilt. From that time on, the crisis of idle productive capacity and surplus capital resumed, with resulting growth of the Finance, Insurance, and Real Estate (FIRE) economy and ever larger speculative booms and busts.

The problem was only exacerbated by technological advances over the past few decades, which have drastically reduced the capital outlays required for industrial production. When the rentier classes have new piles of money dumped into their laps, they don’t invest it in expanded production, because much of the production capacity that already exists is standing idle for want of demand.

So although Hornberger seems to be living in a virtual reality constructed from old NAM reels about “our free enterprise system,” here in the real world the economy is experiencing chronic problems because those giant piles of accumulated wealth are too big. They’re so big that their owners can’t find enough genuinely productive activities to profitably invest them in. As a result, private equity and other asset management firms instead buy up existing productive firms and strip their assets as a source of income. 

It’s a dog-bites-man story which we see repeated year after year. The most prominent cases, which have gotten the most media attention — Sears, Toys R Us, Olive Garden, PetSmart, and now Red Lobster — are just the tip of the iceberg. It’s a disease that’s spread to residential real estate management and to most major newspapers of record. One perfectly viable enterprise after another, hollowed out and destroyed — enshittified, to borrow a term from Cory Doctorow — by private equity. 

Contrary to the right-libertarian boilerplate that’s churned out literally every day, capital accumulation doesn’t create new productive capacity — it buys it up and strips it for parts. We’ve long since passed the point beyond which capitalist profit is fundamentally at odds with further increases in productivity; the main sources of profit now are either enclosing existing productivity for monopoly rents, or outright destroying it.