With the limitation of 7 transactions/second, 10 minute confirmation times, hour long deposits, and sometimes, transactions that take days, there is a big incentive to create ways to transact off the chain. With inputs.io and soon Open Transactions, it seems there has already been some movement in this direction.
It has been claimed that the block size limit will be increased sometime in the future. But there is already movement to get around the block chain altogether. If a new method of securing transactions can be instant, then the block chain becomes less attractive.
So if enough transactions go off chain, will there still be enough incentive to mine and secure the block chain? or will it lead to fewer transaction fees, fewer miners, less security......
And if the answer is no, that wouldn't happen, I'd be interested in hearing some thought on why, and what would happen if the answer were yes.
The people who want to cap block sizes tend to see it the other way around, because if there's no competition for space in the block, transaction fees stay very low. So the thought is that by arbitrarily limiting the block size, you create artificial scarcity and push up transaction fees. The way they see it the off-chain processors still end up clearing transactions in the block-chain, but the transactions they clear are much bigger, so they don't mind the $1 or $10 or $100 transaction fee.
I'm not convinced that's really what would happen. There are a lot of problems with using off-chain solutions for some of the use-cases that Bitcoin currently covers, not least regulatory ones if you try to do this globally on any scale (even the massively-lawyered PayPal can't operate in a lot of countries, and they need very tedious identity validation procedures in others). Many of these problems are the ones Bitcoin was specifically designed to avoid.
I think what really happens when you try to artificially cap Bitcoin transactions is that everyone sods off to an alternate coin without that limitation, and your Bitcoins become a historical curiosity.