Why capitalism

The knowledge problem explains the specific role of private-property market institutions in facilitating economic cooperation. Whether this constitutes capitalism depends on the definition of capitalism one adopts. The substantive question is whether private-property markets lead inevitably to a class-structured society in which wealth accumulates automatically to an elite in a manner incompatible with a stable democratic society. I show that there is no deterministic link between private-property markets and inequality, the level of which is influenced by other institutional factors. Indeed, unavoidable errors are part of the market process. This means investors, although often privileged compared to consumers, cannot rely on receiving a steady rate of return on capital. Consumers influence where productive capital can be most profitably invested. As a result, an idealised capitalism is compatible with justice as fairness.