Skip to content

Capitalism’s ‘Fatal’ Flaws (three core concepts)!

June 12, 2014

American Capitalism started shortly after our Revolutionary War with Britain (1776 is a logical starting point). Americans desired an economic system where ‘private property’ was at the core of the system. Private property and individual ownership of economic goods was part of our desire as Americans. Adam Smith codified our philosophy with his book called ‘The Wealth of Nations’ which also was published in 1776. Smith’s views can be summarized as follows:  Adam Smith revolutionized economic theory with his 1776 work ‘An Inquiry into the Nature and Causes of the Wealth of Nations’. He proposed rules governing labor, supply, and demand; and describes division of labor, stockpiling of wealth, lending, and interest. Smith also discusses how economics can lead to opulence (wealth) and prosperity. Wealth of Nations also offers a defense for free-market capitalism as the best system for personal ‘freedom of choice’. My summary of Smith’s core concepts:

1.  Standards of living are determined by the productivity of workers.
2. Productivity of workers is greatly enhanced by specialization (see the famous example of the pin factory).
3. Greater specialization is possible only if the market size (customer base) grows. Thus, government laws (and regulations) which prohibit growth of the market process hurt specialization, and thereby keep living standards from rising. Smith opposed laws that restricted trade or created monopolies. Private property was at the core of American Capitalism.
4. Productivity of workers is enhanced by raising their wages (as productivity increased).
5. Productivity of workers is enhanced by publicly funded education (public schools which advance his market concepts).
6. The role of markets is exquisitely analyzed by Smith. Self-interest (his fundamental concept) leads people to carry out private activities that lead to social betterment, as if by an “invisible hand”. Self-interest (not greed) is primarily the mover of Capitalism.
7. The role of government must be limited and restrained. Big government is anathema to free market processes!
8. Money is a ‘thing’ of value which people view as foundational for trade and exchange. He supported gold/silver as money!

We have now lived under a general economic system which is called Capitalism for some 238 years. What are the THREE major flaws (fatal flaws) which this philosophy has revealed during this history? I would summarize these fatal flaws…as flaws which derive from the concept of ‘private property’. Let’s think seriously about THREE concepts of Capitalism which emerge from our desire for ownership and possession of private property:

1. the concept which we call ‘value’ and/or ‘value in exchange’ (what is it and from where is it derived)

2. the concept which we call ‘money’ and/or our ‘medium of exchange’ (what is it and from where is it derived)

3. the concept which we call ‘currency’ and/or our ‘unit of legal tender’ (what is it and from where is it derived)

What we need to recognize is that the first concept (called ‘value’) started out as being viewed by people in the marketplace as an objective concept. In other words, most people perceived ‘value’ within items of production (value was viewed as a ‘thing’). The concept of ‘intrinsic value’ was than invented to apply to our chosen money items (silver and gold). This was also viewed as a ‘thing’. History has now revealed, however, that this concept of ‘value’ is really a subjective concept of our consciousness (mind). It is not objective (a thing) and this reality (its subjectivity) reveals ONE fatal flaw of Capitalistic philosophy.

The second concept of Capitalism (which is fatally flawed) is the idea that ‘money’ derives from Nature as a natural product (an item within our space/time universe). I have listened to countless pundits (in recent years) espouse this idea that gold is money and that it is a universal money for everyone. This idea is fatally flawed as (in reality) money is nothing more than an item from Nature which is ‘invented’ within the marketplace as a proxy for value. History shows that there have been many forms and items of money (from sea shells to today’s imaginary cyber dollar). Any unit that is invented by man can work for a time period (if people have belief/faith in the unit). Tulip bulbs worked for a period of time! Our flawed cyber units are still working!

The third concept of Capitalism (which is fatally flawed) is the idea that a ‘currency’ is equivalent to physical money. In reality, all currencies are political creations which derive from our non-physical consciousness (our subjective mind). In other words, money (as invented) and a currency (as invented) are different creatures within Capitalism. Money originates because of the subjective nature of the concept called ‘value’. We need to invent money to serve as our proxy or substitute for this mysterious concept called ‘value’. Once we invent money, we than can create a ‘valuation’ mechanism by inventing a currency unit. Our currency unit serves as the ‘tool’ for valuation of all assets, goods, services, activities which we invent under our Capitalistic system.

Give some thought to these THREE fatal flaws of Capitalism (all which emerge from our desire for ‘private property’). Value, money, and currency emerge from this desire to own and control our possessions (called ‘private property’). What we now need is a new economic system for our planet. I do not support historical Capitalism, Communism, Socialism or any other ‘ism’. We need to think in terms of people first, then individual freedom, and then productivity, growth, and prosperity. What we have today is a CONTROL system operated by elite administrators for select sectors of our global economy! And this CONTROL system is now mostly computer driven. Machines RULE over people. Is this the best that we can devise? I think we can do better! I am:


2 Comments leave one →
  1. Marianne Ferrari permalink
    June 13, 2014 7:36 am

    In grammar school, I was taught that money was invented because it was cumbersome to trade physical things, whose values did not easily match up. Money’s key quality is that it is fungible, that is, we can print money in different denominations, to make it much easier to pay each other for things we want, or need. In the case of printed money, it is also much more easily transported than heavy metals, like gold.

    All of this made perfect sense, to me, at that time. Now, I also understand the flaws of the money system. But, as with our very governmental system, the money system absolutely depends on the honor of those who administer and use that system. Without honor, as we have seen, such systems are doomed to collapse. Ben Franklin said he gave us “a republic, if you can keep it.” The same goes for the money system.

    Author Chet Shupe writes that, not only money, but mass society,itself, is an impossibility–that ALL human civilizations are doomed in the very way you describe. He proposes that we return to living on the land, WITHOUT all the comforts and possessions we are so accustomed to. He believes human beings, as a social species, are meant to live in small groups of not more than 30-50. The key to life, for humans, he says, is that we can only be happy when living in a situation of complete interdependence with each other. He envisions a world with NO MONEY, and NO GOVERNMENT. And he makes a forceful case that, only in a world of this kind, can humanity ever reclaim the intimacy that our society so glaringly lacks.

    I fervently hope that Chet Shupe is wrong, because I like the concept of private property. The concept of private property includes more than things. Most importantly, it includes ownership of your right to life. But humans need more than life. Humans were not born with claws, great strength, thick fur to keep us warm. It is intrinsic to humanity that we need THINGS. That implies ownership, thus private property. So I believe that this concept cannot be abandoned, or we will be doomed in another way.

    Don, you disappointed me, by offering no solution. Perhaps you were deliberately soliciting the opinions of others. But I was expecting you to make a stab at it. Perhaps, there IS no other answer, which brings us back to the need to find a way to make money and private property work, despite their flaws. We need to create an alarm system that will alert the public as soon as people begin treating that system with anything less than honesty and honor. Perhaps, we need to change the way we educate our children, stressing such qualities as honor, honesty, much more than we have come to do.

    Finally, let’s be honest: Human beings are flawed. We fail at perfection. It is probably intrinsic to humanity that the stability of every system we ever create will be highly perishable.


    • June 13, 2014 10:22 am

      Thanks for well presented response to my outline of Capitalism’s fatal flaws.I have a solution but we would need to get spiritual in our discussion. We would need to get deeper into the human condition. D


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: