In the past 40 years or so productive capitalism has been overtaken by financial capitalism. By productive capitalism I mean the 'real economy' which includes the production of commodities such as manufacturing and services. Financial capitalism centres around money making money and includes finance, insurance and property. How did this happen? The formation of large corporations - monopoly capitalism - at the turn of the 20th century lead to the generation of massive surpluses. Some of this money was re-invested in production but the sums were so large that there simply wasn't enough productive capacity to invest in. Investors had to find other outlets for this money. Hence the massive increase in size of the banking and the financial sector in the later part of the century.
The reason is that mature capitalist economies have been suffering from stagnation for sometime. America was lifted out of the Great Depression by the spending on the Second World War and the postwar boom happened because rising wages allowed people to spend more stimulating demand for goods and services. The problem with consumer capitalism is that it doesn't work if people can't afford to buy products. Since the boom came to an end in the 1970s stagnation has been the norm. The billions sloshing around have been invested in finance and financial products and we have seen a series of speculative booms and crashes, each one worse than the last. We've had the 1987 stock market crash in the US, the Asian financial crisis, stagnation in Japan, a banking crisis in Sweden, the Dot Com boom in 2000 and now the so-called Credit Crunch.
After the Dot Com boom the weak recovery in the USA was dependent on very low interest rates and booming credit, fuelling the house price bubble which began to burst in 2007. We haven't seen the end of this crisis yet by any means. What is going to lead to a recovery? With falling incomes in the USA, mass unemployment and lack of credit - nothing. The only thing that can is another boom - but where is that going to come from? Its no good expecting China to lift us out of this. They have to have a market to sell their products and the USA provided that market, but how is it going to now?
Looking back we can see that the periods of prosperity for ordinary people in the last hundred years or so were aberrations rather than the norm. As capitalists try to squeeze wages further to boost their profits demand will continue to fall leading to further stagnation. The USA is unlikely to be able to lift the world economy out of this stagnant state. The message is that capitalism doesn't work well - even for capitalists. For the rest of us its even worse, and won't ever get better. Meanwhile vast sums of money - trillions of dollars - are chasing speculative gains when they could be spent on useful things like providing all the people on the planet with clean water to drink and adequate housing. Capitalism is an iniquitous and unsustainable economic system artificially maintained by a set of rules which could be changed democratically at any time. Now is the time to make those changes