So many of our political disagreements originate in the definition of our terms. Capitalism is an economic system based on the rationalization of greed to many on the left, the magic potion to unlock the potential of human achievement to many on the right and a rational if limited form of economic organization to those in between.

Within the community of supporters and believers in capitalism there are distinct differences. In one view it is a natural evolution of economic order than is stifled by political objectives and regulations; but in another view capitalism, like democracy, requires an unnatural restraint on human frailties and excesses.

Laissez faire markets may naturally lead to monopolies that subvert the competition that is necessary to bring the fruits of capitalism to the populace. The laissez faire ideology of the Gilded age did not match the reality; industrialists criticized government meddling when it suited them, but sought government protection through tariffs, cartels, and trusts when it served their objectives.

The first wave of capitalism was most notable that it removed political power from economic decisions. The idea of an invisible hand guiding the efficient allocation of resources was a chaotic ideology to rulers including many of our founding fathers. The concept of mercantilism mated large business enterprises with government sanctions often repressed competitive industries that both the protected and the protectors considered wasteful.

Calvinist theology that sanctified work and rejected conspicuous consumption caused profits to be reinvested. The dominant rule of classical economics was scarcity and production was the solution. Capitalism elevated the goal of production above class. The allocation of resources became the domain of the middle class and entrepreneurs. The bourgeois became respected and productivity soared. Economic and political freedom were two sides of the same coin.

The Gilded Age brought great economic growth but failed to address its distribution. Immigration and urbanization drew attention to absolute poverty (distinct from relative poverty), amidst the conspicuous consumption of the successful industrialists. The wealthy class threatened the political as well as the social order. The political equality of the constitution became increasingly irrelevant in a society of great economic inequality.

The Progressive Era addressed these challenges with the income tax (16th Amendment) and the popular election of Senators (17th Amendment), plus the trust and monopoly busting of Theodore Roosevelt and William Howard Taft. The regulatory aim of the Progressive Era was to protect competition from the dominance of monopoly interests, but the economic system was still centered on production. The drive to control monopolies did not lead to further efforts to control the economy. The anti-Trust effort of Brandeis and Wilson was designed to protect competition.

After the Great Depression the emphasis was shifted from production to consumption. John Maynard Keynes and other thinkers thought that we had enough production to satisfy all of our needs and prosperity was just a matter of proper management of the economy. The Great Depression of this thought saw the problem in consumption and proposed government effort to stimulate consumption.

A sharp turn from Calvinist sin, consumption became a social virtue. The ‘paradox of saving’ turned saving from a virtue to a sin. As government debt was justified and even prescribed to promote consumption, consumer debt soon followed. In the new age of consumer debt, the middle-class financed homes, cars and college. This makes them vulnerable in the event of an economic slowdown or rise in unemployment. Much to the disappointment of progressive economists who dreamed that the economic cycle would be tamed by experts we still have recessions. Recessions were painful in the 19th century before we had a Federal Reserve or a social safety net and during such periods wages could drop 30%, but the consumers were also not burdened with levels of debt considered acceptable today.

This second wave of consumer capitalism has raised the standard of living throughout all segments of the economy, yet we still face a stark inequality and a new breed of young billionaires from an internet economy that can scale up dramatically and quickly. Valuable web services can reach billions worldwide in less time and with less money than the construction of a single old technology factory.

Capitalism is more than a mere tug of war between production and consumption. Allocation of resources based on merit rather than rule has caused economic growth, but the driver of economic growth is innovation, new ideas, new products, improvements in old technology, and the creation of tools and networks that provide a platform for new enterprises. Capitalism in the 21th Century is about the competition of ideas.

Competition is both wasteful and efficient. Lots of ideas die, but the new ones that emerge more than make up for the loss. Central planning may restrict competitive ideas, but rarely leads to the emergence of great ideas because central planning is reacting to problems and needs that become obsolete before the ink is dry on the plan.

We fear that IT and machine learning will make a lot of common jobs obsolete. Self-driving cars and trucks will displace millions of workers, but we have a poor track record of predicting how these workers will change and adapt. Every drone has a crew on the ground directing it and using the information it transmits. It may create more jobs for the highly skilled at the expense of the lower skilled, but that does not mean that there will be no opportunities for the lower skilled. It only means that we have yet to discern them.

The greater problem may be social and cultural rather than economic. Transferring money without work creates dependency and from dependency comes guilt, resentment and social disorder.

The third wave is less dependent on consumerism. Because of debt and technology the young are less enamored with big homes and expensive cars. Uber and self-driving technologies may make one of our most expensive purchases obsolete. Netflix will produce 99 movies next year and none are slated to go to a public theatre.

The next wave may change the nature of work and the respect for the work of the less skilled. The desire for human interaction and entertainment may overrule the desire and need for technical skills. Education, arts, and charity may absorb the work of displaced skills. The search for meaning may generate a resurgence of religion, but it may take a form unfamiliar to the traditional sects.

This was the prediction of Keynes and other economists of his time who thought we had licked the problems and limits of production. Consumer capitalism seemed insatiable, not because of greed but because of man’s insatiable need to create and innovate. Luxuries became necessities.

As technology replaces expensive space consuming consumables with apps, consumerism becomes less of an industrial stimulus. Experiences replace stuff.

The third wave is a post-consumer society where wealth is measured in time and experiences rather than real estate and financial products.

There are significant challenges to the institutions that depend on consumption. If the young reduce their consumption to live on less and ‘retire’ early who will fund the social security deficit caused by mismanagement and a low birth rate?

The rate of innovation creates great wealth and greater disparities. These disparities dissipate over time and newer technologies enter first act positions and old ones enter their third act. The artistic act of creativity and discovery may have been the genesis of the FANGS, but their accumulated economic power should not be ignored.

The third wave will be driven by a human desire for fulfillment that is no longer satisfied by base consumerism, if it ever was. While streams of books warn us of the dangers lurking from the disruption of AI, the third wave of capitalism may advance humanity in ways that the first two could never address.