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Economic Reflections

08/07/2016

The problem of inequality in wealth and income, each economic system causes, even if based on ideological dogma of equality, as the Soviet system was.
Most of the economical systems, be it mercantilism, communism, feudalism need deep collaboration between the government (king), and the economic elites. This collaboration by its nature creates those who are close to the political leadership and those who are not and discriminated. The close elites gained certain kind of monopoly, supported by the power of government. While the feudalism had chosen the economic leaders from among the aristocrats, the mercantile system among successful merchants, military leaders, entrepreneurs, adventures.
The communist system kept the monopoly in the hands of the governing body itself. All this systems were very inflexible as to resource division and social and economic mobility, even if mercantilism was more flexible than the rest. So the economic inequality was built in, in the system itself.
The capitalistic market driven system as compared to the other systems mentioned above opened itself to the most skilled and in principle, the government’s task should be support for smooth free competition environment. But this system has its faults too. If the system exists uninterrupted for more than a generation, socially the economic and political elites create a network of mutual collaborators, through the elite schools and social relation of the next generations, and disrupt the lassaiz faire system of competition. Again the inequality grows to unacceptable levels. This is the stage we are heading too in Europe and the US. Usually this stage ends with war or revolution.
The economic dynamics of different economic systems can be easily graduated, from the least pro wealth creative to the most wealth creative and is in perfect correlation with the level of social, economic and political mobility, the economic system enables. The worst economic systems as to the wealth creation are the communistic and the feudal system. It my be surprising that the communistic system is together with the feudal system, if to remember that USSR competed with the capitalistic countries as to its success to create wealth. But the results were far from the plan, and it was not an accident. Monopolization of economic resources, freezing of economic, social and political mobility has to delude the wealth and is anti economic development. As contrary to communism, feudalism did not try to create a economic system of growing wealth, but contrary to that. It rather tried to freeze the wealth and its distribution among the different levels of society.

Naturally the capitalistic free market economy, based on competition and continues fight against tendencies for monopolization of certain segment of the economy is the most dynamic and pro economic growth system. But it has its own problems.
The first one is the advantage it gives to entities that already created capital, while the entrance fee to join the club of the wealthy socially and economically is becoming harder and harder, as the length of period of time without major political disruption grows. In these times can be some new comers, mainly some new technology opportunists or fortunate ones, who are in the right place, in the right time with the right skills.
The other problem of the capitalistic-market economic system is capital’s lust for continuous ever growing yield, while it pushes the system to necessity for ever growing economic output and performance, without consideration, if this economic growth brings additional value to the standard of living of the population or rather reduces it. This results need for increased productivity, that if not in correlation with level of aggregate demand necessarily brings disruption in economic balance, and with it unemployment.
The capitalistic-free market system is based in principle on many competing fragmented economic entities, whose goals are profit and ever increasing market share. This goals many times brings very short term planning to the entity, many times for a one year period, between publishing the annual financial report. Also economic entities put very little attention to global effect their activities cause. This brings the phenomena of neglecting long term ecological impact on environment, or health issues, as in the case of tobacco companies.
Other issue for consideration is the need of the system to encourage continuously consumption not always for the advantage of the consumer, by different tools of deception, like false but mainly dis-informative advertisements, consumers credits, that often brings the consumers to exceed their consumption beyond their needs and means and many others.

The main problem of the capitalistic-free market economic system is lack of built in instruments in the system to put in consideration the long term problems of the human kind, and has no respect to human needs beyond the needs caused by immediate urge to possess and consume.

2 Comments
  1. Very much so, i am working now on a economic model, how to create a steady balanced economy without economic growth. Of course it has to be a system without aggressive sharky capital. Still the problem is how to allocate resources, without to authorize someone, be it with good intention, but who will be necessarily spoiled with time.

  2. Your last paragraph is very interesting. The problem is, the economic system does not leave everything else unperturbed. There are consequences to rampant consumption, but that is for another day.

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