The Fable of Capitalist Efficiency:

The human race is told hourly that “capitalism” is the most efficient way to manage economic resources. Due to competition, enterprises have to use their inputs very sparingly to hold prices down. Of course, this refers to “markets,” not “capitalism.” Capitalism is the rule of oligarchy, not the free market. Oligarchs have amassed such power that they charge rents, not prices. Further, they don’t respond to markets, they create them.

Thorstein Veblen developed an entire theory on capitalism and waste. It is an inherently wasteful system because human beings are not mere calculating machines. Most consumer spending is wasteful because most of it is emulating others with money. Like so many others, the “Titans” of industry are identical to the barbarian conquerors of old, just, in this case, using economics rather than swords. Their behavior is identical. Darwin, not Smith, is the main theorist of modern capitalism. Today, consumer spending is in the hands of women, upwards of 80 percent. While the methods might be rational, the ends and purposes are not.

Veblen’s (1899) Theory of the Leisure Class is a work taking economics out of its isolation and making it part of social theory. Its principal thesis is that, once civilization matured so that a minority was able to remove itself from production, the ruling class developed. The leisure class is both this ruling class and the power elite.

For example, this class existed in feudal Europe. Here, class divisions were strict and a group of families were able to be free from direct labor and become a warrior aristocracy. This became the “leisure class” of the day and, since they did not produce, they lived from those who did. It is not just that one class was freed from manual work, but that this class redefined “work” itself.

From there, those in the ruling class were able, through their own social influence, to give their own work the title of “honorable,” while manual work became “base.” In the evolution of culture, this ruling strata developed as the idea of private property did. Tribal societies were generally not stratified, but, once settled agriculture took over, a ruling class emerged. This class, through a near-monopoly on wealth that they did not create, crafted a culture that justified their rule. That consuming without working was indicative of a superior mind. The ignorant must work while the superior take the work of others (Veblen, 1899: 41)

The possession of property became the basis for respect externally and self-esteem internally. Wealth becomes a sign of superiority through the ostensible mode of acquisition. Once acquired, property then gets one noticed and given respect. Others are just from the anonymous masses. The point of the book therefore, is to argue that having more property than others is not just an economic fact, but a mental one as well. Those considered wealthy are seen as being more cultured, wise or just more devious than others. Whether capitalist, feudal or slave-holding societies, the rich are seen as those who have emerged victorious over rivals and therefore, are the legitimate ruling class.

The problem is that this ruling class then considers itself truly superior by virtue of its wealth. What begins as military conquest ends in idleness for the wealthy who are not required to add value to anything. They only consume it. While this is largely passe today, the mass mind, since it associates property with superiority, seeks to gain wealth for itself. Wealth takes on magic qualities in that, once gained, the possessor now has wisdom bestowed on him.

In order to illustrate and confirm one’s own power in the eyes of others, high levels of consumption are needed. For example, automobiles in America are culturally significant. There are many brands and makes, all of which will accomplish any task of transportation. However, cars are not about transportation. The Lexus is assumed to be higher in quality than a Toyota Camry, regardless of its identity in every practical respect. It is of “higher quality” because it is more expensive, and the “Lexus” idea symbolizes upper class life. It is also wasteful, since the Camry is less costly. The production of a Lexus is wasted effort since it exists only to satisfy the status demands of a certain class (cf. Veblen, 1899: 81 and Goss, 1999: 47-50).

In other words, products are valued not for their benefits, but by how one product distinguishes the person from others. This is an invitation to envious comparisons. Conspicuous leisure is similar in that it is the non-productive consumption of time. Studying the works of Plato or playing the piano are examples. Few in life will need these skills. Yet, to do this is not merely wasteful (economically speaking), but is also a requirement of fulfilling class obligations (Veblen, 1899: 52).

All of this strongly implies that the market economy is defined not so much by efficiency or responsiveness to real needs, but ostentatious extravagance and envious comparison. In other words, waste and inefficiency. Competition is not an economic mechanism, but is hard-wired into the human brain from centuries of social struggle and justifies domination.

In modernity, this takes several forms. For Holt (1998), it takes the form of methods or processes of consumption. The higher classes today view themselves as critical, cosmopolitan and secular. By contrast, those of the lower classes are consequently conformist, regional and religious. Whether this is true, or if these labels even describe anything of value is not essential. That they are “cultural” types is. The upper class consumer sees herself as an individual, while her lower class competitors are part of a herd (Holt, 1998: 2-5).

Goss (1999), in analyzing the Mall of America, is more critical, arguing that the leisure class in America is completely fraudulent. All their social ideas, norms and images are false. This is shown by the fact that an authentic life has been projected onto products (Goss, 1999: 46-50). Commodities, not people, create the sense of fullness. Therefore, using the example above, a poor man who wins a Lexus in a raffle will see himself as successful based on this fact alone. He is “accomplished” and of the “upper class” based on the fact that this commodity has the image of upper class culturally stamped on it.

At the beginning of modernity, consumption patters generally followed the view of Veblen. Not only did the wealthy have the opportunity to “order” the new world of consumer goods, but the lower classes sought status by emulating them. While Kwass (2003) is dealing with 18th century France, this can easily be applied to 2014 America. Two centuries ago, ostentatious consumption was criticized as wasteful. Yet, given the power of the new rich, this did not last. Soon, it was money that decided this and all other issues. Consumption, far from being extravagant, was a “spur to production” (Kwass, 2003: 88).

It was socially useful and therefore, was a good thing. This only reinforced the fact that the greater the consumption and the more expensive the goods, the more socially “useful” one became. If there is an identity of interest and conceptualization over two centuries, at least in essence, then Veblen’s argument will remain true until and unless classes are abolished.

Capitalism today is the rule of the spectacle. One can go far beyond Goss’ Mall of American example. The resources wasted on non-essential things at a time of profound crisis shows how inefficient and wasteful this system has become. For example, The Boom, a Belgian music festival, features the creation of an entire town. The 2015 “castle” took over a year to build. How could those resources have been used? Did they really need a castle and a real town for people to enjoy music?

The Barclays Center is home to the Nets and New York Islanders. It broke ground on March 11, 2010 and opened on September 28, 2012, costing over $1 billion. With it’s elaborate oculus roof and a massive interior screen, Barclays turned out to be an impressive stadium, but also an impressive waste of scarce resources. There is no market requirement for any of these things. It’s a symbol of dominance and oligarchy – it is the system proving it can waste resources in the midst of dire poverty.

Located in Minneapolis, the US Bank Stadium broke ground on December 3, 2013 and opened on July 22, 2016, costing $1.1 billion. The stadium has a seating capacity of 66,655 and, of course, is the home field for the Vikings. It will host the Super Bowl in 2018 and the NCAA Final Four tournament in 2019. With incredible architecture, 60 percent of the stadium’s roof is transparent, being the largest such roof in creation. There are also five 95-feet high pivoting glass doors that open to a three acre plaza and an amazing view of the Minneapolis skyline.

Even the hardcore Viking fan has to admit this is a massive waste of labor and money. Minneapolis is drowning in debt. It is considered one of the world’s most dangerous cities. In 2013, Moody’s downgraded the city’s credit rating. Where was the demand for these amenities? Where was the mass petition for a transparent roof? And this at a time of the city’s decay.

In movies, Avatar cost $420 million to make. The Lone Ranger, $275 million. Harry Potters always cost over $200 million not including actor salaries. This, as the nation cannot pay its bills and the overwhelming majority of its citizens owning nothing. The average American owes far more than he owns, meaning that he doesn’t own anything. A mortgage is not ownership of a house, its rent paid to the bank. The average NFL team makes over $250 million per season. These men produce nothing of value.

The original cost to build Disneyland in 1955 was $17 million. The cost of adding just the Radiator Springs Racers attraction to Cars Land at Disney California Adventure was almost $750 million. This is for a single amusement park ride. Is this efficient?

Actor Eddie Murphy purchased Rooster Cay, which is part of the Bahamas, for $15 million in 2007. Mel Gibson bought Mago Island in Fiji for $9 million in 2005. Johnny Depp has a place in the Bahamas called Little Hall’s Pond. Celine Dion owns Île Gagnon off Quebec. Billionaire Larry Ellison owns 98 percent of Lanai, the sixth largest Hawaiian island. Sir Richard Branson bought Necker, in the British Virgin Islands, for a paltry $180,000 back in 1979. None of these are useful in any way. They are wasteful, ostentatious forms of self-congratulation that proves Veblen right.

Mariah Carey spends $100,000 a month ordering exotic flowers from around the world to where she happens to be. This is as much a moral question as an economic one. It is a blatant waste of scarce resources perfectly consistent with the market system.

Glace Luxury Ice Co in California produces perfectly square ice cubes for “minimum dilution and maximum cooling.” Hand-carved and completely clear, these cubes are sold in bags of 50 and each bag costs $325. Thousands more stupid and wasteful forms of elite spending can be discussed here. Are these a rational use of resources?

These purchases represent irrationality, destructive spending and capitalism’s failure. No system can produce millionaires who create nothing and then spends this money on non-productive and wasteful objects. This is a massive amount of capital taken out of the system. Capital that, by the way, is produced by those who never see it. In Estimating the Economic Surplus, we read

In general, the largest part of waste [in the business process] is associated with the process of selling the output of business. This includes much of such expenditures as advertising, market research, expense account entertaining, the maintenance of excessive numbers of sales outlets, and the salaries and bonuses of salesmen. Closely related are outlays for such activities as public relations and lobbying, the rental and maintenance of showy office buildings, and business litigation (Phillips, 1966).

Billions of dollars a week are spent on advertising and lobbying. Massive campaigns are erected and celebrities paid off. The tons of food wasted in a single day is evidence of the absurdity. About half of all produce in America is thrown away. Wasted food is the largest component of all landfills. Supermarkets will throw away a orange or apple that has the lightest blemish. Because food has to “look good,” any slight deviation in appearance leads the produce to the garbage.

Capitalism wastes resources. New product lines are introduced with very minor changes. Consumer electronics contains “planned obsolescence.” Less than 20 percent of all investment in the USA is productive. The rest is towards “financial products.” Currency trades alone absorb about Capitalism even wastes money. In the United States, less than 20 percent of all investment is directed to the actual production of goods and services whereas more than 80 percent is invested directly in financial products.

Advertising budgets are almost entirely wasteful. Pampers has the highest in the US at almost $10 nbillion a year. Then Gillette at $8 billion, Chevy at $5 billion, Ford at $4.3 and Coke at $4 billion. All of these products are very well known and don’t require advertising.

The UK Guardian reports that the privatization of rail led to destructive and wasteful practices. The state run mainline rail service requires fewer subsidies and uses inputs more sparingly than all the remaining 15 privatized rail companies (Wrenn, 2011).

In the same article, the state-run UK health service is cheaper than the privatized services in the US. Health care spending per person is far higher in the USA than in the UK, with inferior results. Japan spends less than half per person than the USA, yet enjoys an average life expectancy close to 80. Cuba has a superior life expectancy and a lower rate of infant mortality than the USA at a much lower cost per person (George, 2011).

There is not a shred of evidence that states private ownership is inherently more rational or efficient than state ownership. Concerning Britain, Robert Millward states,

On the new evidence, the British total factor productivity growth record in most of the nationalized industries was significantly better than that of their U.S. counterparts and better than that in the whole of the British economy. To be more specific, the average annual rate of total factor productivity growth from 1950 to 1973 was higher in Britain than in the U.S. for airlines, electricity, gas, and coal… The proposition that privatization in Britain led to an improvement is contradicted by a comparison of these figures with those for 1973-1995, when the growth rates for airlines, gas, and electricity were lower… The state enterprise in Britain compared favorably in productivity growth with comparable sectors in (the more privately owned) U.S. industries and with the privatized regimes which followed in Britain (Millward, 2011).

The Millward essay here comes from a book challenging the doctrine that private sector investments are inherently more efficient than the state sector. The truth is, they are not. He reminds us that after the Second World War, most British industry was in state hands, leading to a massive postwar boom. Privatization has led to mass unemployment, monstrous inequality and extraordinary exploitation.

Capitalism is neither efficient nor rational. The specific definition of these terms don’t matter – they fail on all counts. The gains of capitalism go to the unproductive – bankers and middlemen, not producers, inventors or entrepreneurs. Capital mobility means that a firm can hold an entire community hostage. It can demand low wages and regulations or they’ll walk – destroying an entire area and showing the moral compass of its managers. They demand tax breaks and subsidies in this “market” system or they will relocate somewhere else that will indulge them. They invest in slave labor regions, then sell the product back to the “home” country at pries just below that of domestic producers, thus pocketing an immense, wasteful and irrational profit.

“Labor saving devices” mean more labor for the workers that remain. Imagine a company that buys a machine that can do the work of its 10 employees twice as fast. This means the firm can fire half and keep the rest at the same price. Production will rise and the profits go to the owner not only in labor savings, but in the increased efficiency of the new mechanism. The device has gutted a company without lowering the level of workload for employees. That means these “labor saving” devices permit owners to demand more and more production from fewer and fewer workers. JM Keynes predicted almost 100 years ago that technical developments will lead to a 15 hour work week. This sort of prediction can exist only in an isolated environment where individuals are seen as “rational.” Rather, it just meant more production with fewer workers. Everyone loses but the owners.

The rational and intelligent thing to do is keep the 10 workers on with a lesser workload. It’s a win-win for everyone. Employees are much happier, society benefits and the owner sees no change at all in his prices or costs. However, since the competition will not do this, the owner is forced to cut labor costs to the bone.

But rather than allowing a massive reduction of working hours to free the world’s population to pursue their own projects, pleasures, visions, and ideas, we have seen the ballooning not even so much of the “service” sector as of the administrative sector, up to and including the creation of whole new industries like financial services or telemarketing, or the unprecedented expansion of sectors like corporate law, academic and health administration, human resources, and public relations. And these numbers do not even reflect on all those people whose job is to provide administrative, technical, or security support for these industries, or for that matter the whole host of ancillary industries (dog-washers, all-night pizza deliverymen) that only exist because everyone else is spending so much of their time working in all the other ones (Graeber, 2016).

One would think then, that five workers would remain, since the machine cuts labor time in half. In modern America, without strong unions and “at will” employment, the truth is that only four workers will remain, since salaries (rather than hourly wages) permit workers to be worked 80 or more hours a week without violating labor laws. The whole concept of a “salary” was to exploit workers without gaining the ire of the Labor Department. The few decent jobs left in the US mean that there are few alternatives. The owners can do as they please. In the US, wages for male workers has dropped well over 35 percent since 1975. This is as productivity per worker has skyrocketed. Where does the surplus go?

Efficiency is a myth and a fable. The point of capitalism is to render labor totally isolated one from other, with no social ties to avoid organization. It is to work employees past endurance so as to squeeze more productivity per worker. Capitalism is an oligarchy where the short term control over markets and resources is the sine qua non of success. Markets are created, not followed.

Capitalism is absurdly inefficient and wasteful. To only look at the process of production is to see with one eye shut. As always, social science is not permitted to ask why these processes exist, since this is a moral question. One can murder many people in a highly efficient and cost-effective way. This is nothing to celebrate. The uses of technique are more important than technique itself, but its the one area social science cannot talk about.




Phillips, Joseph D. (1966) Estimating the Economic Surplus. Appendix to Paul A. Baran and Paul M. Sweezy, eds, Monopoly Capital. Monthly Review Press: 379–80

Wrenn, MV (2015) Immanent Critique, Enabling Myths, and the Neoliberal Narrative. Review of Radical Political Economics 35(3): 271–79

Goss, J. (1999) Once-Upon-a-Time in the Commodity World: An Unofficial Guide to Mall of America. Annals of the Association of American Geographers, 89(1): 45-75

Holt, DB (1998). Does Cultural Capital Structure American Consumption? Journal of Consumer Research, 25(1): 1-25

Kwass, M. (2003). Ordering the World of Goods: Consumer Revolution and the Classification of Objects in Eighteenth-Century France. Representations, 82(1): 87-116

Veblen, Thorstein. (1899) The Theory of the Leisure Class: An Economic Study of Institutions. Macmillan

Graeber, David (2016) Why Capitalism Creates Pointless Jobs. Evonomics.

Williams, C (2017) Capitalist Economies Create Waste, Not Social Value. Truthout Journal

George, S (2011) Capitalism and Waste. Transnational Institute Online Papers

Amatori, F, R Millward and PA Toninelli, eds (2011) Reappraising State-Owned Enterprise: A Comparison of the UK and Italy. Routledge

Matthew Raphael Johnson

Matthew Raphael Johnson is a scholar of Russian Orthodox history and philosophy. He completed his doctorate at the University of Nebraska at Lincoln in 1999. He is a former professor of both history and political science at the University of Nebraska (as a graduate student), Penn State University and Mount St. Mary’s University. Since 1999, he was the editor (and is presently Senior Researcher) at The Barnes Review, a well-known renegade journal of European history. Dr. Johnson is the author of eight books. Six are from Hromada Books, "Sobornosti: Essays on the Old Faith;" "Heavenly Serbia and the Medieval Idea;" "Orthodoxy, Autocracy, Nationality: Lectures on Medieval Russia;" "The Ancient Orthodox Tradition in Russian Literature: "The Foreign Policy of Mass Society: The Failure of Western Engagement in the Middle East;" and "Officially Approved Dissent: Alasdair MacIntyre’s Strategic Ambiguity in His Critique of Modernity." And two published by The Barnes Review, "The Third Rome: Holy Russia, Tsarism and Orthodoxy;" and "Russian Populist: The Political Thought of Vladimir Putin."

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