The Economic System of Capitalism

Rooted in American society is capitalism. It is an economic system characterized by private ownership of the means of production, and is, according to Karl Marx, fundamentally unsustainable. The driving force of capitalism is competition between firms, each firm competing with all the other firms in its product market for the most market share. Firms acquire market share by producing the most desirable products or offering the most desirable services, and by cutting costs and augmenting their products and services they will maximize their profits.

Generally, there is no limit to how many firms can rise in any given product market, so this constant state of competition keeps firms from obtaining too much market power, which keeps prices fair. However, the consequences of modern capitalism are abundant throughout society: corporations are dominating the marketplace at the expense of small businesses, the environment is being used as a tool for human consumption, laborers are working long hours for low wages, income is being disbursed unevenly among the classes—which are becoming increasingly polarized—and business executives are profiting while middle-class Americans suffer.

Capitalism was intended to be a system that assures everyone an equal chance to attain the American dream, but has instead created deep societal inequality. Efficiency is the goal of any economical system, and capitalism seeks to maximize efficiency because anything less than a perfectly efficient market will generate at least some degree of waste and misery within society. Despite this. Karl Marx proposed the theory of immiseration, which suggested that, under capitalism, profits will rise faster than wages.

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This seems to be an unintended trend of modern capitalism and a side effect of the pursuit of cost efficiency. When a corporation ships jobs overseas, it is attempting to reduce the cost of labor by utilizing the labor force in less developed countries where there are little or no labor regulations. By cutting the wage expense, the corporation reaps higher profits, but the payoff does not go to the employees but almost exclusively to its executives and shareholders.

As a result, the macro economy may be adversely affected from international enterprises because corporate greed inevitably leads to lower wages and fewerjobs within the states. So, even on the pursuit of maximum efficiency, there is bound to be waste and misery with capitalism as the driving market force. The household economy of the nineteenth century was dismantled by the onset of capitalism, which itself was being propelled by the industrial revolution. As markets developed, farmers and planters became businessmen, trading their homemade products with each other in the marketplace. The westward expansion of the United States created distance between farms and plantations, and as a result, the economy needed to change in order to remain efficient; and so canals were created to combat the increasing shipping expenses of goods between marketplaces.

Next, turnpikes and railways were built, and the industrial revolution took off. Factories were built in cities, where mass production took the place of household production because of the factory’s drastically better efficiency. The more hands in a factory, the more output that factory would be able to produce, and the lower the marginal cost per unit was. During the industrial revolution, immigration into the U.S. ramped up, as well as migration within the U.S. as people flocked to urban centers in order to find work, which further strengthened the hold capitalism had on our society. Capitalism, according to Marx, is an unsustainable economic system. It creates a fundamental divide between two groups of people who are constantly at odds with one another: the bourgeoisie and the proletarians. The bourgeoisie are those who control the means of productionithey are executives and shareholders—and the proletarians are the people whose only marketable asset is their capacity for work.

According to John Cassidy in an essay he wrote about Karl Marx, “this split is too rigid…but there is no doubt that the biggest winners, by far, during the past two decades have been people who control the means of production” (Cassidy). The fall of the household economy and the rise of the industrial age in America gave birth to modern capitalism, and ever since the very first innovators put their minds together (Samuel Slater and Moses Brown, for example, who paved the way for textiles factories and spinning mills in America in the nineteenth century), the bourgeoisie class was on top and had control of the market mechanism. Capitalism provides us with commodities, both essential and nonessential, basic and luxurious, at fair prices. It provides consumers with abundant choices, prevents large scale bureaucracy, and has potential to keep our economy healthy and fruitful.

However, its negative features should not be overlooked. It creates classes and, sometimes, class warfare, unevenly distributes wealth, flourishes under limited labor and environmental regulations, and its burying the middle class. According to Carol Heim, “eliminating negative features of capitalism while preserving positive ones is not a simple or straightforward matter”. Capitalism is a system that is built off the pursuit of efficiency, which invariably leads to corporate greed and income inequality, but it is the system that pioneered America’s economy since the nineteenth century. Karl Marx argued that this system, despite pursuing maximum market efficiency, was unsustainable and bound to fail, but contemporaries to Marx, like Carol Heim and John Cassidy, argue that the system is not altogether bad, just needs some work. Efficiency is critical to an economic system because it limits waste and misery in society, but it is unwise and, perhaps, selfish to pursue these ideals at the expense of our environment, our working class, and the global economy.