Jesús Fernández-Villaverde, one of the few economists in the world equally at home solving stochastic dynamic optimization problems as with  sociological theory and history, has an excellent series of twitter posts on capitalism and modernity.

JFV:  I have been reading (and re-reading) a lot of social theory.

What strikes me is that most critics of “capitalism” (whatever “capitalism” might mean, and regardless of the value of those critiques) are really critics of modernity, understood as the organization of society around technology, formal institutions, and rational criteria.

I teach the economic history of the Soviet Union and socialist China, and all the pathologies (pollution, reliance on fossil fuels, inequality, depersonalization, consumerism, alienation, you name it) that you can find in a poor neighborhood of 2026 Philadelphia appeared in the same way, or even more, in a factory in Leningrad in 1970 or on a collective farm in Jiangsu in 1978.

Critics seem to lack a vocabulary (or, if you prefer, a cognitive framework) for distinguishing “capitalism” from modernity. For example, people everywhere tend to link personal relationships to displays of consumption. There are likely deep evolutionary reasons for this. De Beers did not invent spending a lot of money on a useless engagement ring: it rode a pre-existing disposition into a particular form of consumption. Couples in Leipzig in 1982 were as interested in conspicuous consumption as those in Chicago in 2026. Talking about “Love and the Cultural Contradictions of Capitalism” misses the point completely.

Of course, you can try, as some of the more perceptive Trotskyists did, to argue that the Soviet Union or China were not truly socialist countries, but this is just a lazy application of the “no true Scotsman” fallacy, and, consequently, their complaints failed to gain much traction outside some departments of cultural studies.

But this is not just a matter of poor analytic skills, as bad as those are. More importantly, it means that 99% of the policy proposals activists put on the table to correct the problems of “capitalism” are doomed to fail because they do not understand where the root cause of the phenomena they complain about lies.

I see this at the university. Do you think the corporation you deal with is self-serving and incompetent? Wait until you need to deal with the Graduate School at a private Ivy League university. The incentive problems (asymmetric information, career concerns, lack of timely feedback, pressure toward conformity) that cause dysfunction in the former are even more pronounced in the latter because of the absence of a profit motive, the sharpest disciplinary mechanism.

At a very fundamental level, Marx got modernity wrong; Weber got it right. Time to spend much less time with Marx and much, much more time with Weber.

Here’s the second post:

Many readers yesterday asked for more concrete examples of what I have in mind regarding the distinctions between features inherent to modernity and those inherent to “capitalism.”

Imagine we have a functioning socialist commonwealth. For simplicity, I will call it the SC.

Imagine also that this SC aims to provide state-of-the-art medical care to its citizens. This is not about superfluous consumption. It is about the desire to provide good preventive care, adequate treatment, palliative care, and so on.

Soon, you realize that you need the scientific-technological complex that develops advanced mRNA vaccines and, even more importantly, the industrial capacity to produce tens of millions of doses at short notice when a new virus arrives or an old one mutates. These are sophisticated processes that involve coordinating millions of individuals with diverse knowledge, skills, and personalities.

But it does not stop there. You will need to produce thousands of MRIs, scanners, FLASH radiotherapy machines, and all the bewildering array of equipment you find in a top hospital.

And I insist: wanting to be treated with the latest oncological equipment if you get cancer is not frivolity. It is a deep human desire that a good society (any society, really) should attempt to provide.

How are you going to accomplish all this? An SC does not want to use private property, so it relies on some form of public property. But public ownership is not the main issue. The real issue is that the SC would need to organize large bureaucratic organizations. Without them, it cannot develop and deploy vaccines, MRIs, scanners, and the rest. The need to scale is the key mechanism at play, not who owns the property.

And, because of their scale, these large bureaucratic organizations will suffer the type of problems that critics of “capitalism” attribute to “capitalism.” The organization will be impersonal and alienating, and inefficient due to career concerns, asymmetric information, conformity effects, and internal politics.

Moreover, because resource constraints hold in every human endeavor, some claims for medical treatment will be denied. The SC will not have enough resources to satisfy every medical demand (and medical demands are, for all practical purposes, unlimited), every demand for education, every demand for the environment, and every demand for this or that worthwhile cause. Sorry, yes, scarcity will always be with us, with or without AI.

Patients whose requests for medical treatment are denied will be particularly annoyed because the SC is built on the idea that such events cannot happen. At least in a “capitalist” society there is someone to blame (the “capitalist”).

Those who deny the need for large bureaucratic organizations are living in a fantasy world. I am pretty sure the day they are told they have prostate cancer, they will run to their closest large bureaucratic organization for treatment.

Those who deny the problems of large bureaucratic organizations, and how deeply irresoluble those problems are, have not seen how not-for-profits work. I have never seen more acrimonious fights than within not-for-profit organizations, where some shared sense of the common good unites members. The fights are fierce precisely because profits play no role.

I have been reading about these issues for nearly 40 years, and I have seen plenty of proposals to address the problems of large bureaucratic organizations. A favorite among many is “participation” or “more democracy” within the organization. No, sorry, more “participation” or “more democracy” only makes things worse. Yugoslavia taught us that you cannot run a large bureaucratic organization based on democratic participation (well, you only need to know some basic economics; Arrow’s impossibility theorem, anyone?).

Large bureaucratic organizations are essential to modern life, and they are full of problems, with or without “capitalism.”

This is what Weber understood and what Marx, who had an incredibly naïve view of the future, never grasped. Weber saw that bureaucracy is not a feature of “capitalism” but the institutional form modern society uses to coordinate large-scale tasks under rational, impersonal rules. Hospitals, ministries, armies, universities, and, yes, corporations all converge on the same form because it works at scale. The iron cage is not capitalist. It is modernity.

The third excellent post on whether capitalism created modernity which criticizes Quine and the analytic-synthetic distinction (!) is here.