Let us look briefly at some reasons for capitalism’s inherent instability.
Capitalism’s Unstable Markets
The fact that markets are fundamentally unstable means that capitalist societies will always remain too volatile. We have no evidence to indicate that this will ever change, because markets themselves are inherently instable (it is their inherent instability which gives them life).
Market prices have a tendency to be constant (if the equilibrium price is within a predetermined range), while prices of financial contracts (credit markets and so forth) tend to be unstable. This instability makes markets highly subject to manipulation and corruption. What is more, this instability leads to instability in society generally.
If your wages are going up, but your wage bills are going down, or vice versa, this could lead to unemployment. If a business’s profits are going up, but the costs are going down, or vice versa, this could lead to bankruptcies. If a business raises prices, but the demand keeps buying, it could lead to price inflation. The instability of the market is thus the foundation of many crises in our economy. The other critical problem is how markets are structured.
Bad market structure
All of modern society is built on two systems, one for consumption and production, and one for investment.
The consumer system operates in the traditional way. In modern markets, it is possible for one company to dominate. A single company, which does not have to comply with legal mandates (and hence pay out benefits), can dominate much like a monopoly. This gives it extraordinary powers to set prices, which in turn raises prices on all the products, causing everyone to feel the impact, until one or a few of the companies ends up on the verge of bankruptcy. That is why it is so important that all the different industries or trades-unions all participate on a level playing field in our economy.
The production system operates in two different ways. First, individual firms and individual investors are able to cooperate and work together to produce the kind of goods or services consumers are looking for. These enterprises, called competitive firms, have a strong incentive to maximize profits. They have little incentive to maximize wages or benefits, because the only people who benefit from those policies are shareholders. Those shareholders can sell their positions to anyone who is willing to pay a high enough premium.
The second option is for companies to become non-profits, in which no profits are paid out to management. This is usually done when there is a monopoly in a market or when the industry is highly regulated, such as health care. This option provides a way for labor to organize and bargain with management to help provide its workers with benefits. The workers have more power in these systems because they have fewer options to move elsewhere for higher wages or better benefits. The first alternative is what we are calling capitalism, the system in which corporations are considered a kind of entity with rights. The second is the market system, in which corporations are “free-market entities” with the right to operate as they wish. In the free market system, workers are not protected from exploitation, and corporations enjoy the freedom to exploit workers. These two systems are generally considered interchangeable, if they are being used to describe two different kinds of capitalism.
There are many alternatives in this world, but the most common political models are capitalism and socialism: class rule, capitalism; or, the free and egalitarian distribution of goods and services, socialism. The society should make the right choice. The alternative we face is between a class of exploiters who run our societies — or we all choose collectively to change society.
In a world where so much is at stake, we need to act immediately. But when people talk about “acting,” they often mean “doing,” the idea being: “I’m going to do something to solve my problem, which will save my life.”. But instead of starting protests or revolutions, the first change is on our thinking: we should invest in knowledge first, then invest in massive dissemination of ideas and engagement strategies, and only then, with a strong and well-founded community, begin to act. This is how we can migrate from an unstable system to a stable one; after all, stability is only possible if we build a system on solid foundations.
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