The problem isn't scarcity actually. If you have scarcity, "it just works".
It is in fact the opposite. Capitalism fails due to inevitable relative abundance. At some point you reach market saturation. Present abundant resources should be allocated to the future. This doesn't happen. When abundance happens, you no longer need full employment to produce all present consumption needs. However, the principle of hiring the most productive employees and letting them work full time results in the redundancy and unemployment of less productive people, because hiring a single employee has less fixed costs than hiring two employees assuming they both perform the same amount of work. The paradox is that the more productive person is producing the consumer goods of the person that was let go. That unemployed person can't afford to buy his own consumer goods since he doesn't get paid to produce them, because it saves the employer fixed costs. You could think of this as a greedy knapsack algorithm. This algorithm works while there is scarcity, since you can just hire all workers. It doesn't work when there is abundance, since workers have to earn enough income to buy their own products. Note how this relates purely to the structure of the economy. Now the classical objection to this is that the workers who produce but don't consume will save instead, which lowers the interest rate. This is supposed to happen even if the interest rate is already at zero or even negative. The capital market signals that present resources are supposed to be allocated to serve the future. This allows employers to hire the unemployed workers and let them work to satisfy future demand, such as interplanetary travel and colonization of the moon or building pyramids that last more than four thousand years.
It is in fact the opposite. Capitalism fails due to inevitable relative abundance. At some point you reach market saturation. Present abundant resources should be allocated to the future. This doesn't happen. When abundance happens, you no longer need full employment to produce all present consumption needs. However, the principle of hiring the most productive employees and letting them work full time results in the redundancy and unemployment of less productive people, because hiring a single employee has less fixed costs than hiring two employees assuming they both perform the same amount of work. The paradox is that the more productive person is producing the consumer goods of the person that was let go. That unemployed person can't afford to buy his own consumer goods since he doesn't get paid to produce them, because it saves the employer fixed costs. You could think of this as a greedy knapsack algorithm. This algorithm works while there is scarcity, since you can just hire all workers. It doesn't work when there is abundance, since workers have to earn enough income to buy their own products. Note how this relates purely to the structure of the economy. Now the classical objection to this is that the workers who produce but don't consume will save instead, which lowers the interest rate. This is supposed to happen even if the interest rate is already at zero or even negative. The capital market signals that present resources are supposed to be allocated to serve the future. This allows employers to hire the unemployed workers and let them work to satisfy future demand, such as interplanetary travel and colonization of the moon or building pyramids that last more than four thousand years.