Disadvantages Of Capitalism

As discussed in the section on the advantages of capitalism, the consumer has all the power in the economy. Due to the fact that some people will always be able to work harder and be more innovative than others, they will build a stronger position for themselves in the economy. This will eventually lead to inequality of wealth within the economy.

Lack of a proper Government welfare, several disadvantages of capitalism will surface, which are discussed below.

1. Inequality

There tends to be a rise in inequality as benefits of capitalism are not equitably distributed. As wealth tends to redound to a small percentage of the population, the demand for luxury goods is often limited to a small percentage of the workforce, one of the main capitalism disadvantages.

2. Irrational Behavior

People tend to get caught up in hypothetical bubbles but ignore economic fundamentals, leading tom irrational behavior.

3. Monopoly Behavior

Another disadvantage of capitalism is that firms gain monopoly over power in a free market allows and exploit customers by charging higher prices. They often pay lower wages to workers.

4. Immobility

One of the main problems of capitalism is that a free market is supposed to be able to easily move factors of from an unprofitable sector to a new profitable industry. However, this is much more difficult practically.

Because of the inequality of wealth in a truly Capitalist society with no Government welfare great poverty is bound to occur. Leading to homelessness, slums, disease, etc; this will further lead to forced migration. This will expand the problem to bigger cities too. Another disadvantage of capitalism is that there is limited government control.