No guillotines, no purges, no gulags, no noisy ideologues, no sturm, no drang, no heavy-handed five-year economic plans, and no new calendars to figure out.

Capitalism and democracy are supposed to correct mistakes quickly and relatively painlessly. If the voters elect a fool, they boot him out in the next election. If entrepreneurs put up a bum company, it goes broke and along comes a new one with a better business model. By permitting evolution, capitalism and democracy avoid revolution.

So, goes the theory, when you finally get to our advanced level of civilization, history comes to an end. There is no more of it, because there are no more wars and no more uprisings for historians to talk about. And now, with enlightened central bankers like Greenspan and Bernanke at the controls, there are no longer even the booms, busts, bubbles, and depressions that used to mark capitalist economies.

Instead, our modern, globalized American-style society merely grows, responds and adapts to the changing world around it - always getting bigger and better, richer and smarter. It is now one big, flat united Benettoned world - where we all wear the same clothes, think the same thoughts, and hold the same credit cards.

When we were about 10 years old - we recall it quite clearly - we took Thomas L. Friedman's point of view. Capitalism and democracy were systems based on merit, we thought. And since there were more and more people with more and more merits, it was a cinch that everything would get better. Red-brick public schools would churn out more and more graduates. The best of them would show up at the top of the heap as tycoons of business and sage statesmen. Earnest voters, pouring over the Federalist Papers, would have more and better choices to pick. The halls of Congress would be studded with Hamiltons and Jays and Madisons. Natural competition in the economy would always throw up the best, the brightest, and the fastest to the surface...would it not?

At the callow age of 10, it was clear the whole world was bound for better things, and your author meant to keep up with it.

But, more than 45 winters later, when we tune in to find out what has happened, things look a tad different. We look first at our national leaders. Washington, recall, was one of the richest men of his generation, as well as an accomplished military hero. Adams was no slouch as a thinker and statesman. And Jefferson? He was a genius: a scientist, a great architect, a philosopher and an inventor. He designed a new plow, a coding system and even a macaroni machine. And these three people were selected out of a tiny population of just 2.5 million people. We hold our breath and imagine what kind of Newtons, Pericles and Catos would be thrown up, after more than 200 years of improvement, in a society of nearly 300 million! And then, we turn to Washington...and throw up!

What has gone wrong? We look in the White House; we look down both sides of the aisle in Congress and under the seats. What do we see? We see neither a Washington nor a Jefferson. We see not a speck of Adams. Instead, it is a collection of hacks, "has-beens," "never-wases," and puffed-up no-accounts. Then, there is Hillary Clinton!

What could have gone wrong? Of course, we ask the question once more merely for rhetorical effect. We already have the answer. But before we get to it, we turn to our other perpetually self-improving system: American capitalism.

Here, we quote the learned Mr. Friedman's book, The World Is Flat: "The current debate about work going to India, China and Mexico is actually no different from the debate once held about submarine work leaving New London or shoe work leaving Massachusetts or textile work leaving North Carolina. Work gets done where it can be done most effectively and efficiently...it helps because it frees up people and capital to do different, more sophisticated work and it helps because it gives an opportunity to produce the end product more cheaply, benefiting customers even as it helps the corporation."

You see, dear reader, don't worry about the auto industry disappearing from America. Remember, the buggy whip business disappeared, too. Things just get better and better; we have so many more entrepreneurs. We have so much more capital and so much more technology. Of course, our great, dynamic system of capitalism will keep bringing the brightest and the best right up to the surface, right?

Well, then, we have a question: How come the brightest and best among the world's richest people cannot build an automobile at a profit? Oh, we know what you will say: that's old industry...that's a buggy-whip business. Besides, there's no profit in it. But then, here's a question for you: what sort of "more sophisticated" work did it free up the autoworkers to do?

Buggy whip manufacturers went out of business when people stopped using buggies. But look around and people are still driving around in automobiles. We look out our own window just to be sure. Yes, dear reader, the streets of London are buzzing with automobiles. From what we read, there are more automobiles on the road than ever before. Far from going out of business, automobile manufacturers are plunking out more automobiles than ever before. Demand for them is rising steeply, as Asians begin to be able to afford them.

But wait, maybe making autos is such a low-wage business that it cannot be done in North America. Well, if that were so, how come it is being done in Germany and Japan - two very high wage countries? And even if much of the production had to be outsourced to lower-cost areas, how come it was not American entrepreneurs who figured out how to do it? In other words, how come GM and Ford stocks are falling? And how come U.S. real wages are flat or falling?

When the buggy companies were replaced by the auto companies, wages soared. When New England's whale oil companies were replaced by the Pennsylvania and Texan crude oil companies, again, wages soared. When the workshop was replaced by the assembly line...when the teamsters switched from whipping their horses to double-clutching their engines...when the horse-drawn scythe was replaced by the tractor-drawn combine - each real innovation brought soaring wages.

Globalization also brings soaring wages - to India and China, where real wages have doubled in the last 10 years. In America, this new innovation brings lower wages.

What is going wrong?

Bill Bonner, back in London with more views:

*** "Are you saying that capitalism doesn't work?" asked Henry. "Of course it works. If a business doesn't earn a profit, it goes out of business, doesn't it? So, if the automakers don't earn any money, they go out of business, too - don't they? And then, some other business comes along to take their place. Isn't that how it's supposed to work? What's wrong with that?"

"Nothing's wrong with that," we replied. "But that's not at all there is to the story. People think that capitalism is naturally self-correcting, self-improving, and self-healing. To some extent it is true, but there's no system of pure capitalism anywhere in the world - America included. Instead, it is capitalism with chains on its ankles and bribes in its pockets. It works with a money system that is centrally controlled, and it must submit to thousands of rules and regulations.

"But there is something else going on, too, because all institutions degrade and degenerate over time. Just look at what has happened in the Washington. On paper, America has more or less the same government it had two centuries ago. The Constitution is still the law of the land. People still vote for their leaders and can throw them out of office any time they want. What is it that popular democracy actually produces? It produces scoundrels, scalawags and stone-headed mountebanks - all of who have learned to play the system for their own benefit.

"And that is true even in American capitalism. The small mutual fund holder imagines that he is a capitalist. He has no idea that Wall Street takes him for a chump. He puts in his money, but he has none of the control that a real capitalist would have. That's why executives can get away with these outrageous salaries. They've learned to play the system, and the system itself has become degenerate.

"And as an institution degenerates, so do the attitudes and habits of the people who run it. Investors, for example, come to think that they want companies to deliver 'shareholder value' - and deliver it right away. They want the easy money, the fast money. So, they only care about quarterly results and what happens to the share price. That's what those financial news programs on TV are all about. They report the latest quarterly results and then, they watch investors' reactions. If a company doesn't come up with good numbers, investors dump it. Is that capitalism? Well, maybe, but it's of a particular sort. It's a kind of casino capitalism where everyone hopes to get rich, but not by genuine work, investment or innovation.

"The managers - who are rarely real capitalists or real entrepreneurs themselves - have the same attitude. They want to get as much as they can out of the business for themselves and then move on. So, it's no wonder that no one wants to make the hard, long-term investments necessary in order to compete in the auto business. Everybody just wants something for nothing...as soon as possible. The unions want their health and retirement benefits. The executives want their golden parachutes. Investors want the share price to rise. Who really cares about the auto business? So, everyone borrows, spends, refinances; they watch stock prices and want to know how much the house down the street sold for. Save money? Invest for the long term? They wouldn't dream of it.

"And it gets worse. Gradually, the whole society becomes more and more corrupt - everyone has to lie and delude him or herself in order to keep up pretenses."

*** And so, the Exodus of power and money from West to East continues.

This from The Hindu:

"In less than a year, India and China have managed to confound analysts around the world by turning their much-vaunted rivalry for the acquisition of oil and gas assets in third countries into a nascent partnership that could alter the basic dynamics of the global energy market.

"At stake is not just the issue of joint acquisition, although the most important of the agreements signed in Beijing on January 12 during the visit of Petroleum and Natural Gas Minister Mani Shankar Aiyar envisages ONGC Videsh Ltd (OVL) and the China National Petroleum Corp. (CNPC) placing joint bids for promising projects elsewhere. Rather, the prospects for Sino-Indian cooperation across the length of the hydrocarbon chain could pave the way for the creation of an Asian energy market and architecture - an Asian axis of oil - with major geopolitical consequences for the United States."

At its current rate of economic growth, China will be the world's No. 1 consumer of oil in just 20 years. And it's likely to have the highest GDP long before that. Imagine what America's bargaining power among oil-producing nations will be once we're no longer the world's only economic (and military) superpower - when we have to wait in line behind China.

Bill Bonner is the President of Agora Publishing.  For more on Bill Bonner, visit The Daily Reckoning.