Would you care to share why you think capitalism would prevent an increase in leisure time (even though it has been increasing since the industrial revolution)?
It's actually a quite simple mechanism - people who would want to work 3 days will get replaced by people willing to work 4 days, which will get replaced to work one day more, etc. As long as people actually need jobs to survive, the end result is they work as much as possible within bounds of law. We sometimes forget about it, because IT industry is in it's golden age, with more jobs than suitable candidates. But look at non-specialized jobs like retail, and you'll find everyone working Monday-Saturday in shitty conditions for low pay. They'd be working Monday-Sunday, were it not the long fight against capitalism for leisure time.
Capitalism optimizes for profit, not for human values. Those are becoming increasingly separated nowdays.
There is a finite supply of labor, and we are not anywhere near a level of technology where we no longer have an unbounded demand for labor.
Well, isn't it exactly what's happening? As far as I can tell, in the unskilled job market, like retail or fast food, wages are what they are because anything less is either illegal or makes it better for an employee to stay on welfare.
"Leisure time" was won by unions, collective bargaining and legislation. "The Weekend" only exists at all because of the collective actions of the workforce, not of capital owners.
There is always a trade off between time spent working and wealth. Only through automation can we keep our current quality of life while working less, increase our quality of life without working any more, or do anything between those two possibilities.
Envy and ambition create worst-case nash equilibria for all.
That's simply not true, otherwise we wouldn't be working the same hours at the same adjusted wages as we were 50 years ago despite massive gains in productivity.
A company's increased productivity doesn't benefit the workers, it benefits the owners/shareholders. What do you think the typical factory owner will do when a new assembly line component means he only needs 50 out of his 100 line workers? You're pretty naïve if you think he'll let those 100 employees work 20 hours/week now. No, he'll fire 50 of them and let the wages of the remaining employees stagnate at best since there's more competition for their jobs now. Why? because that's what reduces expenses and improves the immediate share price of his company. Economics 101.
Also, if a shareholder makes more money, they buy more, creating new labor requirements elsewhere.
And your second point is blatantly false. That's the same, tired, rhetoric Republicans have been spewing since Reagan. Owners of companies doing well won't reinvest that into their companies unless there is demand on the consumer side and they don't spend all of that money on consumables like a worker would (since they have to).