Problems of Capitalism

Readers Question: Also, what is it really meant by a flawed capitalism?

Related to Question on what caused Wall Street Crash? 

I have not actually heard of the term ‘flawed capitalism’ before. However, I can imagine it refers to the examples of market failure we often witness in a Capitalist economy.

Problems of Capitalism include:

Irrational Behaviour

E.g. People ignore economic fundamentals but get caught up in speculative bubbles. Stock market boom and bust of 1920s is a classic example. American housing market in 2000s is another


The benefits of  Capitalism are rarely equitably distributed. Wealth tend to accrue to a small % of the population. This means that demand for luxury goods is often limited to a small % of the workforce

Monopoly Behaviour

A free market allows firms to gain monopoly power and exploit customers, through charging higher prices. Firms often gain monopsony power and pay lower wages to workers. For example, in the nineteenth century American rail-roads often exploited their monopoly power in setting higher prices.


In a free market, factors of production are supposed to be able to easily  move from an unprofitable sector to a new profitable industry. However, in practice this is much more difficult. E.g. a farm worker who is made unemployed cannot just fly off to a big city and find a new job. He has geographical ties to his birthplace; he may not have the right skills for the job. Therefore, in capitalist societies we often see long periods of unemployment and recession.

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