Actually existing capitalism
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Actually existing capitalism or really existing capitalism is a term used mainly by anti-capitalists to refer to economies that do not fit the ideal definition of capitalism as a laissez-faire free market economic system, but have significant state intervention and partnerships between private industry and the state. More commonly, others refer to a mixture of private and state control as mixed economy.
While most countries rely on the capitalist system nowadays, the vast majority of them use several forms of controls and regulations to avoid economic problems such acute commodities fluctuations, financial market's crashes, monopolies, and environmental protection for example.
Contemporary Marxists claim that several of Karl Marx's prediction of the future of capitalism became true since the government's controls and regulations now play a big part in the capitalists countries economies.
Contrast with Marx's vision of Capitalism
The philosopher and social economist Karl Marx brought many concerns about the future of the western societies with his theories about the capitalist means of production and the division of the society into the working class (proletariat) and the owners of lands and production sites (bourgeois or middle-class).
According to his views, the capitalist system had in its own structure contradictions and these would lead the whole system's crash, giving way for a new labour (proletariat) led government with increased intervention on the economy, which Marx called the socialist system.
The concentration of wealth and growth of inequality
One of Marx's theories is that the capitalist system would allow for a constantly growing concentration of wealth, causing even greater income inequality. This would create problems to the society and lead to the labours' class insatisfaction and unhappiness. In Marx's vision of capitalism, the rich could only get richer and the poor could only get poorer.
Marx went even further, suggesting that the bourgeois class would start using its economic power to make the poor even poorer and more ignorant so that they could use their cheap and hopeless labour force to generate more profits to the capitalists' companies.
According to Marxism, the only way to control the hunger of the capitalist system for profits would be to increase governmental control over the economy to an extreme level in order to secure income equality and society well-being.
However, studies along many years of political debate on socialism have shown that Marx's predictions were not so accurate and that economic freedom has strong relations with positive society indexes. Basically, the more economic freedom a country has, the richer its population is.
The capitalists as wealth generators
Another myth surrounding Marx's theories is that of the labour exploration. He believed that any surplus generated during labour was pure exploitation by the capitalist, the owner of the factories or private properties. According to this principle, it is impossible to the capitalist to generate value without actually working. What is not taken into account but is of extreme importance to the understanding of capitalism is that the profit, or surplus, is not consumed by the capitalist. The owner of the means of production has to reinvest a great part of its profit to stay in business, and he will definitely have to reinvest a lot more of these profits in order to achieve growth. The owners of these means have to chose where to reinvest their money and in the process there is risk involved. Since there is risk involved, capital reserves will also be necessary in order to secure the future of the business. To create this reserve and reinvest money at the same time, the owner of the means of production must save his personal money instead of consuming it for his own needs. The labour force, however, can consume 100% of their salary personally. If the capitalist makes a wrong investment and fails he puts his personal heritage in risk with a chance of losing everything while the proletariat just risk losing their jobs.
Capitalism as an ideology
The word Capitalism was not widely used until Karl Marx coined it in the first volume of Capital. Marx transformed what was otherwise the natural way things happened into a theoretical model controlled by the capitalists. Unlike Marxism, Capitalism is not an ideology, but an economical system. Capitalism is not a system someone thought and developed, but something that evolved naturally as time passed and as the needs of society changed. There is no set "Capitalist" way of doing business, politics or planning economies, and unlike Marx proposed, there can be no contradictions in the Capitalism system as there is no book of rules to follow. What many people call Capitalism is in fact a system based on equal democratic rights and economic freedom.
Economic freedom allows business to grow and wealth to be created, and people will do whatever they need to achieve their goals. If the population democratically decides that it is best for everyone to create a set of rules to prevent the market from creating collusions, cartels or monopolies for example, this is not an anti-capitalist measure, for there is no such thing. It is simply the Capitalist freedom into action. This is how the Capitalist system auto-regulates in order to keep businesses running in the best interest of the population, and not to the interest of the minor leading owners of the means of production.
The chaotic Capitalism
Capitalist countries have had many recurring financial crisis', spreading the belief that the system is bound to failure and instability. Many argue the only way to solve this problem is to increase governments interventions on the economy to regulate it so that it stays in track. Although very polemical, many economists argue that the most causes of market crashes are actually caused by excessive governmental intervention rather than the lack of it.
From the Federal Reserve System creation in 1913, the banking sector in the United States became dominated by bank cartels with government ready to save any bank that went into trouble. The Federal Reserve System also actively fuelled inflation and forced low credit rates as an attempt to boost economic growth. For years, export and foreign trade were unrealistically swollen and when demands started to fall, the whole system collapsed as they needed the inflated rates of production to keep working. Had the Federal Reserve System not intervened in the years that preceded the crash, the 1929 crash would probably had been less severe and not lasted for such a long time.
2008 Banking Crisis
A similar scenario happened in the years preceding the greatest crisis of the 21st century. The United States Federal Reserve had been going through an uncontrolled expansionary cycle since the 1992 crisis. The artificial expanding of credit led to an artificial expanding of business and this cycle is bound to crash at some point. In the 2007-08 crisis, the quick expansion led to an extreme inflation on the real-estate prices (the financial bubble). Many events can trigger a crash reaction, and in this situation it all started with the rise of raw materials. As soon as one bank crashes a chain reaction is started and a great financial recession becomes inevitable.
Mechanisms of self regulation
Although crashes and crisis can have devastating effects on a countries economies, these recessions are in fact a market self-regulation. When a government causes the market to unrealistic expand, some day it has to come back to the "normal" state, the state where money has true, solid basis. As Capitalism is not an ideology but a very versatile and dynamic system, people have the opportunity to learn with their mistakes and make changes so that their errors don't happen again.
- Ludwig von Mises
- Ludwig von Mises Institute
- Economic freedom
- Gini coefficient
- List of countries by GDP (PPP)
- Actually existing socialism
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