The Disadvantages of Capitalism in the Economic System

Written by robert allen
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The Disadvantages of Capitalism in the Economic System
Karl Marx expounded on many of the disadvantages of capitalism. ( Images)

Capitalism, sometimes also known as a free market system, is the economic system used in most developed countries, including the United States. Capitalism's advantages include increased production and high efficiency; on the other hand, this system also results in a number of disadvantages, particularly where social welfare and equality are concerned.

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Income Inequality

Because the capitalist system compensates people based on the work that they are able to do, and does not accord all work the same value, serious income disparities quickly arise. In the capitalist system, the ability to direct the production of tens of thousands of automobiles is viewed as more important than the ability to keep drains clean. This income inequality can lead to social unrest as well as sharply unequal distribution of wealth --- the extremely wealthy own yachts and many houses, while the poorest citizens may not even be able to afford an automobile.

Lower Employment Rates

In many socialist economic systems, the desire for equality and the lower efficiency that comes from a planned economy has at least one positive side: high, or even universal, levels of employment. In a capitalist economy, there are systemic benefits to unemployment, and little impetus to make sure that everyone has a job. While this may benefit the economy as a whole, it has serious repercussions for those who are left jobless.


Free-market economies tend to suffer from overproduction for two reasons. Firstly, capitalist economies tend to be more efficient, meaning that a greater number of goods are produced. Secondly, the income disparity means that a low-paid factory worker can create many more goods than he or she would ever be able to purchase. Additionally, because decisions on what to produce are made based on profitability, items that are necessary but don't make money may not be produced in sufficient quantity.

No Guarantee of Welfare

Because business owners are motivated by the desire to make money, it's to their advantage to ensure that their workers are paid as little as possible. This accrues benefits to the business, and eventually increases the performance of the entire economy, but there's no guarantee that the low wages associated with the bottom of the economic ladder will be sufficient for housing, food, health care or other necessities --- to say nothing of education, entertainment or luxury goods.

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