Nine Failures of Capitalism

Capitalism

The term capitalism was originally coined by Karl Marx as a derisive straw-man caricature of the system which allowed the “capital-rich” and exploitive factory owners to abuse and underpay the able-bodied, yet often desperate workers in Victorian England’s First Industrial Revolution.

While the term capitalism was never exactly defined by Marx, and has never been precisely defined since, it was clearly coined to focus attention on the capital accumulation activities of the power elite financiers in Marx’s Victorian England.

Of course, capital accumulation is not always bad.  Because it allows enormous economic endeavors to be financed which would not be possible without such capital accumulation. Such grand endeavors are often good things for all of society, not just for the super-wealthy.

Even avidly communist nations are aggressive capital accumulators.

The Market-Price-Based Commercial Exchange System

The far more important problem with Marx’s term is that it draws attention away from core magic which is inherent in the naturally occurring market-price-based systems of commerce. This far more important good aspect of “capitalism” has been occurring in all human commerce since the dawn of tribal and clan-based societies engaging with their neighbors in any type of trading process.

The magic of the market-price-based exchange system is that it happens automatically. It does not require market teachers or market administrators to occur. People understand the process intuitively because it is a common sense based transaction.

While the market-price-based commerce term is far clumsier to use than the term capitalism, it focuses attention on the core good aspect of market transactions in unregulated markets.

Everyone naturally wants the highest quality item for the lowest possible price, and that is what the market-price-based commercial exchange accomplishes.

The Capitalists Chose to Wear Marx’s Derisive Term as a Badge of Honor

Marx’s term was quickly and foolishly adopted by “the capitalists” Marx loathed. They claimed it as a positive thing.   Of course, they did not focus on their exploitation of the workforce, but rather on the production efficiency and on the economic good and general prosperity it produced for Victorian England.

The plain fact is that the market-price-based commercial system which produced each of the Industrial Revolutions in modern times has resulted in a dramatic general improvement in the standards of living for essentially everyone living in the society involved.

That audaciously board claim includes the arguably exploited working classes and the poor and impoverished classes in those societies.  The poorer classes in those societies are dramatically better off than their predecessors were 3 centuries earlier. 

Of course, in the west, the formation of the labor unions the progressive socialists recommended was an important factor in that success, as has been safety-net socialism of modern societies.

Soviet Central Planners Failed Because They Had No Access to Market-Based-Price Information

The Soviet Communists believed strongly in a centrally planned society. However the hollow promise of central planning is that theoretically it allows the planners to produce a wiser, more efficient and more just economy.

Centralized planning has never, can not, and never will meet any of these outcomes for society. By the Soviet Communist Party forcing centralized planned on the Soviet Union they lost the all important information which market-based-pricing provides to economic planners. That is market-price information.

As a result of that critical information being missing, the central planners had to guess what they and the people wanted and need. Guessing is never “good enough” to make an economy run smoothly. Centrally chosen wage and price controls everywhere and always cause shortages and waste.

What the Soviets were Blind to, the Communist Chinese Saw Clearly

What is even more fantastic is that the Communist Chinese were able to see that Soviet Russia’s failure to understand the value of the market-price-based commercial exchange was the Soviet nation’s fatal nemesis.

Unlike the Soviets, the Communist Chinese understood that Russia’s failure in this area was the ultimate underlying cause of the collapse of the Soviet System.

Ironically, this grand national error occurred while the Soviet Union’s numerous subsistence-providing, and commercially successful black markets were utterly market-price-based commercial systems.

What is still more wondrous is that those wise Chinese Communist Party leaders sagaciously figured out how to allow the market-price-based commercial exchange system to co-exist with their authoritarian communist system of social control.

Deng Xiaoping and his brilliant associates found a way to embed the market-price-based commercial system into their version of Marxist-Leninist-Maoist communism.  In so doing they raised the living conditions of nearly a billion Chinese people our of their extreme poverty and into the middles classes of Chinese society.

The same Deng who ordered the Tian’anmen Square Massacre also introduced and encouraged the economic changes in China that significantly elevated the living conditions of a billion Chinese people.  The Third Industrial Revolution has been the Chinese economic miracle which occurred from 1979 to 2019.

While it is true that the capitalist system has many flaws and it has resulted in many injustices and an ever-growing disparity between the wealthiest and the poorest classes in society, the glaring reality is that the poor in those countries, are living far above the conditions their predecessors lived in 3 centuries ago.

The Facts Ma’am, Just the Facts – The Bad News About Capitalism

Despite the outstandingly good net results that the market-price-based commercial system has produced, capitalism also has some fundamental flaws which its promoters seem hellbent to deny or ignore.

There seems to be scant middle ground these days between the capital-huggers, and the anti-capitalist Neo-Marxist-Socialists on this subject.  Each side seams to focus aggressively on the flaws of their counterparts and a pragmatic, fact-based analysis seams to be anathema to both.

The Posts of This Thread

Follow the links below to explore first an example of the good produced by a particular market-price-based commercial system developed some 500 hundred years ago which I refer to as The Zeroth Industrial Revolution.  Then the links that follow, flow into a discussion of the nine economic failures that have resulted from the capital accumulation aspect of “capitalism.”