Market Economy/Capitalist Economy

There is some confusion among economists and historians about the usage of the word market economy and the term  capitalist economy. It appears that the word capitalist eceonomy is used to refer to some phenomenon that is fairly modern in the sense that it came into being or appeared in the last couple of hundred years and exhibnited mostly in the european economies and more recently in the North American economies. This system is usually associated with the large capital outlays that are necessary tostart or end a business which are essentailly very large entereprises. Also the chief manifestation of this kind of system is the large barriers to entry for new entrants in a business and hence the business power and ability to control and direct business is typically exhibits a trend toward a larger and larger business size inspite of controlling regulations along with the shrinking number of large players.

The term market economy is used to refer to mostly trading economies that show a large number of dealers and businesses that are competing for the customer dollar. There are typiccally few, if any barriers for new entrants into an industry. But the problem is the fact that there is no easy way to determine as to when a market economy transforms into a large capitalist economy. But it is certain that a market economy will eventually transform itself into a capitalist economy. This is a simple consequence of the profit motive. In order to make more and more profit you have to be able to charge a better price and in order to do that you will have to increase the size of your operations and that will make it more and more difficult for competition to thrive due the ever increasing capital requirements for new entrants. This is what Karl Marx was driving at he implied that the businesses will get larger and larger and fewer and fewer in number. And you can see that in the current US economy there are larger and larger companies and they do that via what we call mergers and there is no end in sight.

So what are the consequences for us in the long run?

First the economic power will continue to shift to a smaller and smaller percentage of the total population. And I do not think that is reversible.

Second, most people will only be able to work as workers and not as businesses and the the businesses people will be able ot work will be small local service businesses only and not large manufacturing entities. But as you can see this process can onbly go on so far and in the limit it will tend to freeze at an awkaward status quo. This is because the large corporations can get the price they want only as far as the buying power of the worklers they are hiring and this applies to the federal and other levels of goverment also. So you could only exact so much revneue form the the actual working population as you are doling out to them. But since the motive is profit and the processes are more and more automated a failry small proportion of the population can provide the buying power that the large enterprises want. This has the horrifying consequence that a fairly significant portionof the population will not be able to to be gainfully employed since they will actually not be needed in the production process. It is no accident that the US economy shows a perpetual underemployment and unemployment and it seems to to be stubbnorn and does not seem to yeid to any monetay or fiscal policy. That is a direct consequence of the the way the economy is maturing and the the technological processes in vogue now and constantly changing. It is no accident that a large sement of the population is below the poverty line and the rising legislative wages are actualy hurting the situation and not helping. But the rising minimum wage is of course used as a political tool and is beyond the scope of my discussion. The other factor entering the equation is the off shore production and the US copporations are also using them to increase their profit margins and there is no way to stop that. No matter what legislation is passed there will be ways for the flight of capital. And this exacerabtes the internal economic balance and makes it even more profitable to extract the required maximal price level from a smaller percentage of gainfully employd population of the total population. This ofcourse results in a yet larger number of the unemployed population. It is simply because the corporate players are able to get their required prie from the fewer fully employed persons. To see this argument in actual action consider this:

In the US we have more than 100 nuclear power plants and many other plants and yet the the Kilowatt charge per household or business is way higher than many other countires, even underdeveloped countires. This is simply because there is no need for them to lower prices and to maximise revenue that way. Instead, it is sufficient to get the price level they want via artifcially pegged prices ( the regulatory commissions never ever turn down their requests to increase prices. They will always get away with it. They have very highly paid lawyers and executives armed with all kinds of baffling data on costs and expenses.) You can count on seeing an ever larger power bill. And the beauty is that they boastfully announce the new technological breakthroughs that they are putting in and implemnting and new cost saving billing and other practices but you will never see your bill going down. You wonde who is geting the savings that the new brakthroughs are supposedly bringing about.

So what do you expect to see?

1.   Stubborn unemployment that will not go away and will represent may be between 15-20 million perwsons under employed or unemployed.

2.   People will find ways to do small businesses or sell to each other directly their servises and goods. They are already doing it. Just about evey other American has a side business besides his job. It is simple. That is the only way he can maintain his/her life style instead of getting completely depressed and going on welfare.

3.   There will be permanent under world markets. These are always there and canot be eradicated entirley. People have to eat and these people also have the same profit motive that is causing the imbalance in the first place.

4.   There are other consequences but they are beyond the scope of this analysis.

So if you want to maintain your life style, you will need to find a side business, service or an expensive hobby such as gambling or playing stocks. The only other way to amintain yur life styleif you are an actor/actress or a performer, even a half way decent one will do. But then if you are one of these you would not learn or control your money either since you will have a manager and he/she will cheat and take all your money and pretty soon you will be peniless as usual. This is all because the current tax and price structure is simply not setup to let you maintain a life style that you want.