Nature of Capitalism? Self-destruction

Today I spoke with a group of friends and the topic of capitalism arose. One of my friends posited that capitalism was not compatible with monopolies. I laughed because capitalism is essentially about the allocation of privately held capital and in that process it is all about monopolies.

Capitalism is an inherently problematic system because it allocates private capital to extract returns. Competition is built into capitalism because private capital is plural. Capital is allocated to the highest prospective returns. Initially these allocations are generally made to areas of limited competition. Like the person who first stands up at an event, the view is great. Soon enough, high returns invite others in a "monkey see, monkey do" world and the view is degraded. The brutal truth is that capitalism always competes to zero profits.

Just as profit-seeking behavior and competition is inherent to capitalism, so is "monopolistic" behavior. Monopolies prevent capitalism's obsessive self-destruction. For this reason, water and electric utilities are often for-profit, but highly regulated. Every area of capitalism is either protected in some monopolistic behavior or it is in the process of self-liquidation.

Capitalism extracts value for society by facilitating productivity. But this productivity is not the goal of a capitalistic enterprise. Its real focus is similar to that of every non-profit enterprise: just staying in business. In the early periods, before competition shows up, for-profit enterprises try to show how much they can do for a consumer. As time passes and the excitement builds, these same enterprises try to make themselves sustainable. This is the monopoly building phase and is an essential component of a business. It must exists in some form. Finally the monopoly phase builds a culture of extraction and "doing to the customer." Inevitably these excess profits sow the seeds of future destruction. In a reversal of Napolean Hill's famous quote, it might be said that "Every benefit, every success, every triumph carries with it the seed of an equal or greater adversity."