Crises and Contradictions of Capitalism

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 and underemployment, of poverty amidst affluence—continue to mount” (Elwell, 2003, p. 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,” the government has already increased its power substantially over the past century, with more and more centralization and an ever increasing bureaucracy, shown in Chapter 8, “Bureaucratization,” which has increased the level of specialization throughout the country and, indeed, the globalized world. For the State to increase its oversight in the management and distribution of wealth might be the straw that breaks the camel’s back, especially as democratic voters are already chaffing at the overreach of the government in the 21st century. To give them more power and regulatory force would be to go against the wave of populist enthusiasm that saw Donald Trump land in office. The angry voters who are frustrated with the Establishment, the extensive reach of the centralized government, and the waste of funds (taxpayer dollars) in ways that the government itself cannot even account for has made voters unhappy and unlikely to support candidates who want to put Piketty’s ideas into practice.
A more likely outcome is that wealth inequality will continue even as the wealthy class finds ways to hide its money—such as through methods like cryptocurrency. On the other hand, Marx would hold that the contradictions inherent in the capitalist system would lead to a revolution of the working class struggling to obtain more power—a struggle they would eventually win. That does not seem likely at this point, as the power class has all the local, state and national military power on its side. The likelihood of revolution seems less possible than a simple breakdown in society that results in chaos leading to martial law at some point.
At any rate, with the expansion of centralized power at the federal government level, as Elwell (2003) notes, the idea that one can still call today’s system a free market capitalist system seems less and less plausible. The central banks at the international level have helped to create a wealth effect since 2008 by printing off trillions of dollars to prop up markets by buying debt wherever they can find. This is surely a sign of a command economy coming into place—but a command economy whose main interest is in preserving the wealth of the wealthy class, as they are the ones most likely to own equities, bonds, etc. The rise in prices of these markets has been facilitated by centralized powers and their monetary policy—direct intervention—and not by capitalist principles. The capitalist system certainly has its crises and contradictions but they are aided in the extreme by a centralized power whose authority is tied to and legitimated by the wealthy class, as there is no real separation of business and state in the U.S. or, for that matter, around the world.
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