Reading Time: 13 minutes

Many people realize at present that there are problems with capitalism, but opinion is divided on what should be done about it. This post explores the alternatives to capitalism and their problems. The reality is that there are no provably stable economic models today. Centuries of economic studies have failed to provide a theory or model of how economic policies must be chosen to create stability and prosperity. This post also delves into the Vedic economic model and illustrates how that model produces a stable economic system.

Responses to Problems in Capitalism

Let’s start by examining the varied responses to the problems in capitalism. First, there are those who accept that something is wrong with capitalism, but insist that it is still the best system ever invented; so, we have to live with its problems because whatever modification we add to it, will only be worse than capitalism; this type of opinion largely exists in the United States. Second, there are those who think that capitalism is not the best system, and adding something to it—e.g., some socialism—will make it better; this gives rise to some kind of centrist thinking, that is mid-way between capitalistic and socialistic economic models; this kind of thinking exists in Europe, but it sways from side to side. Third, there are pure socialists, who also want communism, in both economic and political terms. Fourth, there are those who support socialism from an economic perspective, but believe that the political system must be democratic; this kind of socialism is distinguished from communism by calling it democratic socialism which prevails in Nordic countries; such a system is politically not communist (i.e., doesn’t centralize ownership of all property) but economically it is still socialist. Fourth, there is the Chinese model in which the political system is communist, while the economic system is given a semblance of capitalism. The below picture captures these positions.

Criticisms of Capitalism

Each of the later four positions (other than the first position, which claims that capitalism is the best system, and despite its problems, we don’t have an alternative), identifies different issues with capitalism.

The centrist position says that capitalism increases wealth disparities, which eventually lead to social, economic, and political problems. The social problems include crime, which invites greater surveillance and law enforcement and burdens the state with policing their people. The political problem is that it gives a few corporations excessive control over the government, whereby the government policies are tuned to favor the rich. Finally, the economic problem is that wealth disparities lead to economic decline as demand drops with growing poverty. Each of these problems—social, economic, and political—then destroys society. To avoid them, we have to keep corporations in check by anti-competitive laws that will help us prevent monopolization, and redistributing wealth through higher taxes on the rich.

The democratic socialism position accepts all of the above, and takes its conclusions a step further in terms of higher taxes, followed by increased governmental involvement in child care, education, retirement care, health care, and oversight on corporations.

The communists say that democratic socialism works when countries are small in population, they have reached a high level of development and prosperity, and the economic disparities within the economy are low. Such a system would not work for developing economies if the populations are large and the economic disparities are high. To develop such an economy, one needs a communist system that nationalizes all property and distributes it centrally. The critics of communism will however tell you that centralized management doesn’t work. It only leads to authoritarian control and distribution inefficiencies as resources don’t reach where they are needed. They will cite as an example the food shortages, catastrophic effects of bad decisions made centrally and then enforced upon everyone, and the absence of economic prosperity after decades of communism. They will argue that the free-market system works much better and grows much quicker.

Finally, a variation of communism advocates decentralized decision-making, although under government control. For example, unlike Soviet Russia, where decisions were centralized in Moscow, in China, the decisions are delegated to governments of each province, which delegate the decisions to the governments of each city, which delegate the decisions to the authorities in each city zone. Essentially, the government is always in control, but the decentralization of decisions makes it better than centralization. The state enables quasi capitalism in that profits earned by citizens are legally the government’s property but the individuals are allowed to enjoy those profits as if they were leased to the individual by the government. By leasing property to individuals, a semblance of private ownership is created, but the property can be taken back by the government at any time as, ultimately, everything belongs to the government and is only leased to private owners.

Free-Market Economics vs. Capitalism

These alternatives to capitalism call into question some fundamental ideas of free-market economics, such as the power in the individual to make free choices, and the private ownership of property, and how that privately owned property is reinvested in the free market system.

To understand these differences, we can begin by discussing the difference between free markets and capitalism. The free market concept is fairly straightforward—each person is free to produce and consume whatever they like, the quantity of production and consumption depends on the demand and supply, which also fixes the prices of the things exchanged in a free market. Capitalism adds to the free market the idea of private property. In simple words, if you have earned something in the free market system by your work or investment, then that property belongs to you—forever. You can pass it to your children, who can then pass it to their children, etc. The government cannot take away that property without paying you a fair market-determined price for it. Thus, the free market and capitalism are not identical concepts; the free market is about free choices in a marketplace and capitalism is about the ownership of property. These two terms are sometimes joined to form the term “free market capitalism”, and most people remain confused about the distinction between free markets and capitalism. They might for example think that opposition to capitalism is the same as the opposition to free markets, which is not the case.

The Notion of Private Property

The problems of capitalism begin with the idea of private property. As some people earn large profits or acquire a lot of property, they gain the power to make the free market less free. This is called market monopolization and through it, capitalism contravenes free markets. To allow free markets to continue alongside the private property, a government that regulates the market and oversees the prevention of monopolies is envisioned. For example, free-market capitalism is now combined with a democratic government that must enact anti-monopoly laws, and tension between capitalism and government intervention is thereby created. The capitalist says: The government is not allowing me to use my wealth unrestrictedly and that is hindering the free market system. And the government says: We have a responsibility to regulate the private players, to keep the market free. This tussle between private ownership and government then leads to other problems. First, the private players try to evade government control. Second, this leads to expansion in government regulation, more intrusive laws, etc. Third, this expanding government exerts more taxes on citizens. Fourth, the government argues: We are taxing the citizens more only because we want to expand, protect, and facilitate the free market system; some agree, others do not.

All the problems of capitalism are associated with the idea of private property. In communism, for example, nobody apart from the government owns any property, and hence they cannot alter the freeness of the free market. Of course, this also means that people cannot be players in the free market, because they have no power for production; at most, they can be consumers. Thereby, the government becomes the producer and supplier for all commodities. As we saw earlier, this leads to many problems; for instance, things that would not be consumed are produced, while things that are desperately needed are not produced. Therefore, a modified version of communism (that is practiced in China) distributes the production decisions, making them slightly more efficient even as it retains legal control over all property which gives the government powers to dictate economic decisions of production and consumption on its citizens.

The centrist and social democratic systems also play with the notion of private property. Like the capitalist system, they allow private property (and the property is not owned by the government), but they exert higher taxes on private property, making it harder to own too much of it. The limitations on private ownership then restrict the power of private players to manipulate the free market. Restrictions on private property reduce the government machinery used in policing, monitoring, and investigating malpractices such as monopolistic and anti-competitive behaviors. Instead, the money is directed toward free education, health care, low-cost housing, etc.

Through centuries of experience, we can say that free markets are not the problem; the problem is private property because excessive private ownership creates social, political, and economic issues. The communists insist that nobody can own anything, or that nobody owns anything but they can temporarily lease property. The centrists and social democrats allow private property but exert higher taxes to reduce property accumulation. And capitalists insist that the government should not restrict private ownership, and keep the taxes on property low while legislating anti-competitive and monopolistic laws to prevent the misuse of private property for manipulating the free market.

The Crisis in Modern Economics

The reality is that legislation to prevent the misuse of private property has always proven inadequate; no matter how many laws are created, there are always loopholes that permit property accumulation, which then enables the owners to influence the enactment of laws that create even more loopholes. The reality is also that when higher taxes are exerted to restrict the accumulation of private property, then this property flees to other countries where the taxes are low or non-existent, thereby leading to complex chains of hidden private ownership that remain obscure to the government and make taxation very difficult. Finally, the reality is that when private ownership is abolished or restricted as leases, then the people have no power; everyone is now powerless in an autocratic government system.

Looking at all these problems, the capitalist says: Even as capitalism may have problems, there is no better system than it. If you try to restrict the private ownership of property, take it away forcibly, or exert higher taxes, then capital will fly to other places. Without capital, production will stop, demand will be unfulfilled, and the economy will decline. However, we know that if unrestricted private property ownership is allowed, then economic disparities increase, the rich corporations control the government, exploit common people, rising poverty then leads to a drastic drop in demand and that eventually leads to an economic decline. In short, there are two extreme alternatives—either the economy collapses due to a drop in supply or a drop in demand. To avoid these alternatives, all individuals must surrender their freedom to a communist government. In the extreme version of a dystopian future, everyone is ruled by a totalitarian world government.

Thus, even as everyone is acutely aware of the problems of capitalism, what needs to be done in response to such problems is not clear to anyone. There is no perfect alternative. Studies on wealth show that disparities are increasing, and the only way to avoid this disparity is to embrace communism. No other system of laws and taxes works because when too many laws and taxes are employed, then capital flees to other countries. And when these taxes and laws are relaxed, then the wealth disparity grows as more private property is accumulated.

Economics Based on Vedic Principles

Having recognized these problems in modern economic thinking, let us now turn to a radically different way of thinking about the economy. Quite like communism, in Vedic philosophy, nothing belongs to the individual because everything is owned by God. Vedic communism replaces ownership by the government with ownership by God. Quite like Chinese communism, where people get a temporary lease, Vedic communism gives each person a lease on God’s property based on their karma. Quite like capitalism, each person legally owns what they earn, and they can pass it to their children. This means that while God can take away their property when their karma is finished, the government cannot. Nevertheless, each person is encouraged to use that wealth in the service of God, such as by giving away the wealth to the most enlightened people in society. If service is performed without any desire for return, the soul is liberated from the cycle of birth and death. However, if that service is performed with the expectation of a material return, then good karma is produced. That karma then makes the person wealthy again. Thus, by using the money in the service of God, such as by charity, the person becomes rich again.

The simple question for a rich person is: I’m wealthy right now, but will I be wealthy in the next life? And the answer to the question is: It depends. If you give away your wealth in charity to the most deserving people, then you will earn the good karma that will make you wealthy in your next life. But if you keep all your wealth to yourself, then, upon your death, you can pass it to your children, but you will also be poor in your next life. The selfish interest of each person is therefore charity. That selfish interest dictates that they pass some wealth to their children, but, to make themselves wealthy in the next life, they must give away most of the wealth to deserving people in charity.

Thereby, taxes are not evaded, because tax evasion will incur bad karma. Likewise, wealth doesn’t fly from one country to another, to be hidden and passed to the future generations, because the resulting bad karma will make one poor in the next life. Thus, everyone takes what they need, saves what must be saved for the future generation, and gives away the rest in charity. As money is given away in charity, there is no wealth concentration, and nobody accumulates excessive power to manipulate the free market. The government doesn’t have to create anti-monopolistic laws and scrutinize its citizens about their anti-competitive practices. And the government doesn’t have to take away private property and centralize its ownership, thereby robbing people of their free choices about where to invest, how much to give away in charity, and how must to save for the future. Everyone is free to do what they want, which is the essence of the free market system.

Since private property is permitted, therefore, the system has similarities to capitalism. Because the wealth is voluntarily given away in charity, therefore, the system has similarities to socialism. Since it is understood that life is temporary and God distributes wealth according to one’s karma, therefore, all property belongs to God and the system has similarities to communism. Charities reduce government oversight, give people freedom, and minimize the need for laws. All the benefits of minimal laws and minimal government exist without their adverse effects. Likewise, all the benefits of free markets, private property ownership, and inheritance exist without their adverse effects.

Selfishness and Altruism

At the heart of modern economic thinking, the contradiction between capitalism and socialism is the contradiction between individual interest and collective interest. However, the theory of karma dissolves this contradiction. Now, altruism is one’s selfish interest. So, if you are rich, then it is in your self-interest to give away wealth. But if you are poor, then you cannot part with wealth anyway. Thereby, self-interest entails that the rich donate most of the wealth in their self-interest, just as the poor conserve their wealth in their self-interest.

As money is donated, it circulates from the rich to the poor, and this circulation grows the economy. As is well-known, an economy grows if wealth circulates. The growth in the economy is proportional to the number of hands through which a certain amount of wealth passes. When charity becomes the mainstay of society, then wealth changes hands more often, resulting in greater economic growth.

Thus, we can analyze the economy from a market dynamics perspective, and say that it is growing because money is circulating faster. Then, we can analyze the economy from a social perspective, and say that it is growing because the wealth disparities are minimized. Similarly, we can analyze the economy from a government perspective, and say that it is growing because the citizens are honest and law-abiding. Finally, we can analyze the economy from a karma perspective, and say that it is growing because the people are performing charities.

As wealth grows by charities, all sociological problems of crime decline; why will a needy person steal if they can ask a rich person for money and get it in charity? As wealth grows by charities, all governmental problems decline; they don’t have to deal with crime, and they don’t have to investigate rich people as they are not evading taxes; also, the rich are not manipulating the government to enact tax loopholes, bribing officials for evading taxes which creates black money, or moving the capital from one place to another to hide their ownership. Thus, not only does society become more moral, but it also naturally removes all sociological, political, and economic problems.

The Spiritual Basis of Society

We can now appreciate why the Vedic system never studied sociology, economics, and politics, as distinct subjects. The reason is that if society is moral, then there is no need for such subjects. They become redundant corollaries of a moral life based on the philosophy of karma and reincarnation. However, if society is immoral, then such subjects are required to show why returning to this philosophy is the only way. Therefore, we can recreate sociology, economics, and politics based on the Vedic system, to show why it is the only workable system.

Modern economic theory was created by pondering questions about the nature of value, substituting value by its market price, then stating that price is determined by supply and demand, and finally asserting that capital can be used to create both supply and demand. To create new economic thinking, we have to go back to what value is, and why it is not decided by supply and demand. For example, even if the demand for Bhagavad-Gita dropped drastically, the value of Bhagavad-Gita would not. Sure, Bhagavad-Gita may not be printed, but it would still be valuable. An ideal economic system is hence that in which the things that are priced higher are those that are truly valuable. While supply and demand can determine prices, the demand must also be changed to desire truly valuable things. This requires us to objectively describe value independent of prices, then tune the demand toward that which is valuable, supply that demand at the lowest possible price, minimize the profiteering, and then give away in charity whatever is not required, or reinvest it things that are truly valuable.

Everything hinges around the meaning of “value”. Things have intrinsic and objective value. And this objective value comes from the philosophy of soul and God, where all that is eternally pleasurable is also valuable. Thereby, the economic system driven by the accumulation of value is not contrary to spiritual pursuits, a moral life, and the various means to advance spiritual attainments and moral actions. If we can rethink the notion of “value”, then we can rethink everything else in economics. This new economic thinking is actually not new.

Sociology, political science, and economics were created in the West because Christianity had no clear idea of these things. Sometimes, Christianity said that it is harder for a rich man to approach God than to pass a camel through the eye of a needle. At other times, Christianity advocated conquests of other lands for political and economic growth. Sometimes, Christianity advocated austerity and sacrifice. At other times, it said that God made the king rich as a result of obedience to His commandments. Under this confusion, priests and kings exploited the common people, praising them for their poverty while accumulating riches and power for themselves. This contradiction made a materialistic foundation for society imminent. Since that materialistic foundation is flawed, it hasn’t produced the promised results. The disparity between the rich and poor, the kings and serfs, existed in the past and it exists today. Even today, the rich and powerful praise the sacrifices of the common people, while they accumulate riches and power for themselves. The irony is that the poor people are satisfied just by praise and recognition by the rich and powerful, and they go on working hard for them.

To come up with a perfect socio-economic theory, we have to reconcile the contradictions between sacrifice and pleasure, prosperity and poverty, and that dualism of opposites can never be solved by looking at the dualistic material world. It can only be solved by understanding the non-dualistic reality. God is the primary non-dualistic reality, and by understanding God, the soul also becomes non-dualistic. This non-dualistic reality is valuable in itself, in contrast to the dualistic reality which is valuable only in relation to its opposite. Thereby, all objective foundations of value must originate in the non-dualistic reality, and from there, even the dualistic reality can be given value–if it aids the progressive attainment of non-dualism. The philosophy of karma and reincarnation is a principle for this progressive path. It aids the formation of a perfect social system even when people are not preoccupied with the transcendental nature of the soul and God.

The ideas of the soul, karma, and transmigration are not just theological differences, to be restricted to religious studies or a temple. They also entail differences in social sciences. Similarly, religion cannot be silent on issues of social organization. Modern ideas of secularism, the separation of religion and state, followed by materialistic foundations for social organization are all byproducts of the ignorance of karma and reincarnation in Abrahamic religions. True religion entails not just transcendence but also a better understanding of this world, and how to live in it peacefully and prosperously. However, we have to know transcendence well enough before we can use it to understand this world. In simple words, the advanced transcendentalist can apply his spiritual knowledge to perfectly explain the material world. And the imperfections of this world can be removed when materialistic or dualistic ideas are replaced by spiritual and non-dualistic ideas.