Why is it that capitalism seems to have so many structural flaws, so many that economic crises keep coming back, no matter what happens? Well, p
Debt, Growth, and the problem of scarcity
In a capitalist economy, many goods are purchased on credit. The only problem with this is that it gives you debt. Well, isn't debt a good thing? Doesn't accumulating debt and paying it off show that you can handle money and are fiscally responsible? Well, yes. And in a small, contained system, small amounts of debt can work. Unfortunately, though, debt can quickly get out of hand. Here's why: debt requires growth in order to be paid off. When you acquire debt, you don't just pay back the amount of money you borrowed, you must also pay back interest. So, you have to somehow accumulate that extra money. Whether it means your farm is more productive or your business sales increase, you need to acheive moentary growth in order to pay back debt. While this seems to be a benign enough conclusion(I mean, aren't loans supposed to help you start a business which will then grow?), it comes into conflict with another core tenet of capitalism: Scarcity
What is scarcity? Well, according to Investopedia.com, scarcity is "The basic economic problem that arises because people have unlimited wants but resources are limited." Everyone always wants more. Everyone wants the new shiny car and the big house. UNfortunately, not everyone can have that. The problem is that, earth only has so much resources. Okay, but what does that have to do with debt and why are they conflicting? Well, paying off debt requires constant growth, in other words unlimited growth, but we only have limited resources. So how is unlimited growth possible with limited resources? It's not. And therein lies the problem. As long as resources remain limited(which they will), scarcity will continue and that will conflict with debt and arguably the single most structural flaw with capitalism will continue to fester.
erhaps because capitalism itself is rigged to fail? Rigged? To fail? How could one of the most successful economic systems in history, which has benefited countless millions around the world, be rigged to fail? Well, unfortunately, capitalism has a series of structural faults. Here is why:Debt, Growth, and the problem of scarcity
In a capitalist economy, many goods are purchased on credit. The only problem with this is that it gives you debt. Well, isn't debt a good thing? Doesn't accumulating debt and paying it off show that you can handle money and are fiscally responsible? Well, yes. And in a small, contained system, small amounts of debt can work. Unfortunately, though, debt can quickly get out of hand. Here's why: debt requires growth in order to be paid off. When you acquire debt, you don't just pay back the amount of money you borrowed, you must also pay back interest. So, you have to somehow accumulate that extra money. Whether it means your farm is more productive or your business sales increase, you need to acheive moentary growth in order to pay back debt. While this seems to be a benign enough conclusion(I mean, aren't loans supposed to help you start a business which will then grow?), it comes into conflict with another core tenet of capitalism: Scarcity
What is scarcity? Well, according to Investopedia.com, scarcity is "The basic economic problem that arises because people have unlimited wants but resources are limited." Everyone always wants more. Everyone wants the new shiny car and the big house. UNfortunately, not everyone can have that. The problem is that, earth only has so much resources. Okay, but what does that have to do with debt and why are they conflicting? Well, paying off debt requires constant growth, in other words unlimited growth, but we only have limited resources. So how is unlimited growth possible with limited resources? It's not. And therein lies the problem. As long as resources remain limited(which they will), scarcity will continue and that will conflict with debt and arguably the single most structural flaw with capitalism will continue to fester.
Sources:http://www.investopedia.com/terms/s/scarcity.asp