Why Capitalism Is a Volatile System
Capitalism is the quintessential modern economic system, and it has been largely responsible for the huge production of wealth over the past couple centuries within the context of the developed world. And yet, it is also clear that widespread economic disparities persist at both the national and global levels, and that capitalism seems to be only making these disparities worse. The raises the question: why is capitalism not working in the way that it was supposed to work?
This sample short essay will attempt to formulate an answer to this question. The main argument that will be made here is that there are two main reasons for the current situation. The first is that capitalism is an inherently volatile system; and the second is that economic regulations often end up producing unintended consequences.
To start with, it is worth turning attention to the complex view of capitalism developed by Marx and Engels. A key point made by Marx and Engels is that capitalism is premised on a kind of perpetual revolution:
“Constant revolutionizing of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones” (16).
This is part of why capitalism has been so successful at generating capital, or producing raw wealth. On the other hand, however, it is worth considering the fact that the dynamism of capitalism itself may be why it fails to produce social equality: the latter is a more static value or status quo of affairs, whereas capitalism is fundamentally about shaking things up and generating more and more wealth. This can also end up leading to the ongoing polarization of wealth, since capitalism’s key driver has to do with the raw production and not necessarily the equal distribution of wealth.
In a way, then, it could be suggested that capitalism is working the way it’s supposed to, and that this in itself is part of the problem. Marx and Engels have a complex analysis of why capitalism, almost by its very nature, tends to produce the polarization of wealth. For present purposes, let us consider the common example of how one generally needs money in order to make money.
If a person has a million dollars, then he could invest this in ways—for example, in stocks or real estate—that will allow the money itself to do work and make more money. On the other hand, if a person is broke, then he has no option but to sell his own labor for money, which often proves to be inadequate for saving up money to the point that the money itself can be used to make more money. If having money is a precondition for making money, then it is easy to see how this dynamic could trigger a positive feedback loop, where the rich get richer and the poor get poorer.
Modern governments have often attempted to put regulations into place in order to ameliorate some of the more serious effects of the polarization of wealth produced by capitalism. Such efforts could include the implementation of progressive tax codes, as well as the development of large social safety net programs. Regulations, however, often have the unintended effect of undermining the actually good effects of capitalism. For example, a progressive tax rate could have the effect of stifling innovation; and raises in the minimum wage could lead employers to do away with reliance on human labor altogether.
Moreover, it is worth considering the fact that money is power, and that private companies with huge resources could actually benefit from regulations, as they could hire the lobbyists and lawyers needed to co-write the relevant legislation (Goldberg 284-316). For example, a huge ranching company could sponsor legislation that imposes onerous restrictions that the company itself may not have trouble meeting, but which would run the company’s littler competitors out of business. Regulations can thus have the effect of undermining the natural dynamics of the free market, giving the ultra-wealthy an even further edge through their co-option of governmental power.
In summary, the reasons for the current situation produced by capitalism are: one, capitalism is an inherently volatile system that tends toward to the polarization of wealth; and two, regulations meant to address this social problem may have unintended consequences that may just end up making the situation even worse. This raises hard questions about the legitimate role that the government should play in attempting to limit the extremes of capitalism.
For example, regulations could have the effect of controlling monopolies and thus ensuring that the market remains free; or, they could have the effect of unintentionally granting governmental legitimacy to some agents and thereby forcing other agents out of the market. There are no easy answers here, and it is quite certain that the way forward will be a messy one.
Goldberg, Jonah. Liberal Fascism. New York: Crown Forum, 2009. Print.
Marx, Karl, and Friedrich Engels. Manifesto of the Communist Party. 1848. Web. 28 Jul. 2017. .