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The crises and contradictions of capitalism originate from the need for more and more expansion at cheaper and cheaper costs that arises in the capitalist system. As Piketty (2014) points out, “there is a tendency for the rate of return of capital to exceed the economy’s growth rate, and this tends to lead to high concentration of wealth”—i.e., the rich get richer while the poor either stay the same or get poorer.
According to Elwell (2013) in Chapter 6, “Capital,” the lack of central planning in a capitalist system is what leads to crises like inflation and depression. Yet, ironically, inflation occurs when a money supply is rapidly increased over a short amount of time—which is something the central bank is good at doing as part of its monetary policy (like quantitative easing). One can notice that the price of virtually everything from housing to stocks has increased since 2008. This is just one example of a crisis, however. The real contradiction and crises stem from the fact that capitalism is ultimately a zero sum game: every competitor is out to best the rest; and that means that getting the most bang for one’s buck is what’s most important. Companies will offshore labor in order to get it for as cheaply as possible (violating all sorts of ethical standards and international human rights laws in the process). The labor force at home is essentially disregarded and “problems of unemployment...
174). The problem is that in a capitalist free market system, there is no control mechanism that requires business owners and companies to work for the common good. Instead they are motivated by self-interest, which is often destructive towards others.
Piketty (2014) states that in order to have better control over the economy and to deal effectively with the financial crises and contradictions inherent in the capitalist system, more information is needed about how the wealthy are using their money, where they are putting, and how they are making use of it—i.e., the ways that they are hiding their money or avoiding paying taxes on it by offshoring it in safe havens: in short, “we need a global registry of financial assets, more coordination on wealth taxation, and even wealth tax with a small tax rate will be a way to produce information so that then we can adapt our policies to whatever we observe.” The solution as far as Piketty is concerned is “a steeply progressive income tax and a global tax on wealth” which is not going to be music to really anyone’s ears because no one likes paying income tax and no one likes having their wealth taxed (DeLong, 2014).
This solution would also lead to an expansion of state powers, and as Elwell (2003) notes in Chapter 7, “State,”…
References
DeLong, B. (2014). Dialogue. Retrieved from http://equitablegrowth.org/equitablog/dialogue-ten-so-far-worthwhile-reviews-of-and-reflections-on-thomas-pikettys-capital-in-the-twenty-first-century-wednesday-focus-march-26-2014/
Elwell, F. (2003). Sociocultural Systems: Principles of Structure and Change.
Piketty, T. (2014). New thoughts on capital in the twenty-first century. Retrieved from https://www.ted.com/talks/thomas_piketty_new_thoughts_on_capital_in_the_twenty_first_century/transcript?language=en#t-107341
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