The Good and the Bad of Capitalism

Statement: Capitalism has great productive potential, but because in it, production is for the purpose of making a profit, it often does not meet human needs

The production stage in a capitalist society, according to Carl Marx comprises of the proletariat and the bourgeoisie. While the latter is used in reference to the owners of the production means, the former refers to the working class. The relevance of capitalism cannot be overstated especially when it comes to the efficient utilization of resources. This is more so the case given on this front, innovation and individualism is promoted; hence further optimizing the economic system. Producers in this case also seek to further enhance their returns by increasing output and investing more in innovative initiatives - hence effectively improving the quality of goods and services offered for sale. In the ideal capitalist economy, inefficiencies are eliminated through the inherent operation of supply and demand forces, in which case participants (buyers and sellers) are free to participate in the various activities of an economic nature, guided by their respective self-interests. It was Milton Friedman who once quipped: “a society that puts equality before freedom will get neither…. a society that puts freedom before equality will get a high degree of both.” Capitalism, in essence, breeds economic freedom. Marx was also appreciative of the relevance of capitalism in the realm of innovation (particularly in technology) and continued production. It is, however, important to note that as per the Communist Manifesto, “owing to the extensive use of machinery… the work of the proletarians has lost all individual character, and, consequently, all charm for the workman.” The end results of an optimal capitalism system works against the best interests of the proletariat.

However, it is important to observe the fact that offering products and services for sale above the cost of production effectively works against the greater good. With production being for the purpose of raking in profits, some attain wealth and some seek to further enhance profit making potential. In seeking to further enhance profit making potential, significant discrepancies in wage rates arise and the distribution of money ends up being disproportionate. It is for this reason that wealth disparities vary widely in capitalist economies – i.e. with some living below the poverty line, and others having immense wealth. Thus, in essence, one of the most important attributes of capitalism, i.e. profit potential, ends up working against the said capitalism. Carl Marx deemed the extraction of surplus (using the workers’ labor) to be the primary goal of employers. On the other hand, he posited that wage maximization was the basic goal of workers. It is important to note that surplus is in this case used in reference to that which the employer keeps after the payment of wages. This viewpoint brought about a contradiction of sorts particularly because it was difficult to reconcile the two motivations, resulting in a perpetual conflict. Either way, conflict would arise - and there is no way equilibrium could be attained.

In basic terms, according to the labor theory of value, a specified good’s value is fixed or ascertained not by way of the ability of the said good to satisfy a specified want, but by the labor it takes to procure it. How accurate is this theory? It should be noted that his theory, in essence, ignores consumer preferences. In my opinion, consumer preferences are a key factor in the determination of a specific good’s economic value. The relevance of their ‘vote’ cannot be overstated.