What are the strengths and weaknesses of American capitalism ?

Karl Marx was all praise for the economic achievements and accomplishments of capitalism. That ecology perhaps is most appropriately applicable to the American economy. Indeed as Berle correctly observed, “Its aggregate economic achievement is unsurpassed. Taking all elements including human freedom into account, its system of distri­buting benefits, though anything but perfect, has left every other system in recorded history, immediately far behind.”

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From the very beginning the American economy has been an eco­nomy of inexhaustible abundance—a hind of plenty. It has become a land of autos, automats and automation. With 6 percent of the world’s for population, the United States accounts for about one-quarter of the world’s industrial output. With 7 per cent of the earth’s surface, the United States has more than one-third of the world’s surfaced roads, and two-fifths of world’s motor vehicles. In the air, about one half of all miles flown by non-military aircraft are by American planes, one-third o f world’s college students and professors and one-quarter of the world’s institutions of higher learning are in the United States.

Before we make an attempt to evaluate the American eco­nomic system we should remember that it cannot be complete and final, because of its dynamic and evolving nature. Capitalism of today differs from the capitalism of yesterday. The various institutions of capitalism of the yester-years have undergone a process of evolution and modi­fication. This process is still going on. This makes any attempt at evaluation of a difficult task. However we may analyze below certain in­dicators of economic performance in the American economy.

Strengths of American capitalism

1. Rising national income :

The National Income or the Gross National Product of a country is usually regarded as a yardstick to measure an economy’s performance. The GNP purports to measure the total production of all goods and services within a year. Hence it may be presumed that a rising GNP is an indicator of growing material affluences. Judged by the criterion of economic growth and productivity, the American economic record of the past three decades is quite im­pressive.

2. Rising standards of living :


A good objective measure of the performance of American Capitalism is the constant rise in real income per capita. The American attitude has always been influenced by abundance, bigness, and affluence. Emerson remarked “Man is born to be rich”. In the economic theology of America growth was considered as God. By the turn of this century Bishop William Lawrence identified ‘Godliness’ with riches.

He remarked “The great today of the American people are marching upward in prosperity. From rags to riches, from filth to cleanliness, from disease to health, from bare wall to pictures, from ignorance to education, from narrow and petty talk to books and music and art, from superstition to a more rational religion, from crudity to refinement.” By the turn of the century abundance was not only an American assumption. It was an American reality.

3. Flexibility :

Another major strongpoint of the American economy adaptive nature. Throughout its history, the American economic system has been a flexible one. It has an uncanny capacity to mould its institutions and processes with changing needs and situations. Being a vast country with rich resources, the U.S. successfully overcame all difficult situations. It has withstood the strain of all political and economic crises, being a resilient system.


To cite a few examples, in the U.S. the corporate form of business organisation is a recent development. But corporate business today encom­passes more than 95 per cent of manufacturing activity. The corporate system today has been smoothly incorporated in the American capitalist system. Similarly, the institution of private property has undergone vast changes in keeping with the needs of the hour. Once private property in­cluded only tangible goods. But today it consists of a number of intangible possessions and contractual rights, deemed to be essential for the efficient functioning of a complex economy.

So also many capitalist institutions have been modified and transformed beyond recognition through drastic legislations, state regulations and court decisions. American capitalist institutions truly have passed through an amazing process of evolution. Today although individual initiative and private enterprise constitute the mainsprings of productive activity, yet the various social controls on busi­ness operations have brought about such vast institutional changes which were unthinkable a hundred years ago.

Evils and weaknesses of American capitalism

1. Inflation :

Inflation is considered as a serious economic problem in any economy, due to its adverse social, ‘political and economic conse­quences. The U.S. has not been immune to this problem, For example, in
between 1900 and 1958, the consumer price level increased by four times. But till the middle of the sixties, the: annual’ rise in the price level was flow and gradual During the seventies inflation assumed serious proportions. Today most Americans consider inflation’ to be one of the worst national problems.

Before the fifties inflation did not. occur during: a period of recession. But during the seventies, a peculiar phenomenon developed. One could perceive the co-existence of a very high, rate of inflation, along with unem­ployment. This is an unusual economic phenomenon in the American economic history. For example 1975. in the midst of a double digit inflation rate we find an unemployment rate of about 9 percent. A new word stagflation has been coined to describe air economy plagued simul­taneously by rising unemployment and rising prices.


Until recently, stag­flation was considered to be the theoretical unlikelihood. But in an economy dominated by monopoly practices prices may be held constant or even raised, when demand in falling. In the. American economy of the seventies, as the ability of the manufacturers, to restrict production goes unchecked, prices can be raised, automatically.” The inevitable conse­quence is ‘stagflation”. Stagflation multiplies scarcity must for those who have suffered scarcity most of the past-working people especially those in the lowest income brackets, with further bias against women, non-whites and youth.

Coming to inflation, in 1968, the annual rate of inflation was percent. In 1970, the rate of prices rose by 5.9 per cent and by 1975 the rate of price. He was about 12.5 percent. The consumer price index, rose by 6.73 percent in 1977 and in 1978, the rate was 10 percent. In 1979 also the rate averaged 8.9 percent.

The measures taken by the Federal Reserve Board in the recent years to contain inflation have not borne fruit. Gaiter Administration’s anti-inflationary strategy has not proved to be a great success. Under Reagan Administration in the recent years the rate of inflation has slowed down. Today it is around 3’7 per cent.

2. Monopoly and concentration of economic power :

Till the 1870’s the U.S. industrial structure was characterised by large number of small enterprises among whom there was perfect competition. From 1873 until 1890’s, the merger movement took place as a consequence of which many firms were combined under one ownership and control. In between 1897 and 1905, more than 5,300 separate manufacturing units came under the control of 318 big and very powerful business units.

The impulse or tendency towards merger, present in the American economy, went on un­abated and reached its highest peak in 1968-69. The merger movement assumed three forms—horizontal mergers, vertical mergers and conglo­merates. The merger movement in the sixties brought even traditionally small business under the control of powerful giants.

In course of time, in addition to the concentration of economic power was added the centralization of control. In 1972, the 500 largest industrial corporations controlled about 65 percent of industrial sales and about 75 per cent of industrial profits and about 75 per cent of indus­trial employment. The top 500 corporations controlled just under half of the entire G-N.P. Thus the concentration of the economy is continued where the bulk of power is centralised in the hands of a small percen­tage. The assets of the top 500 industrial corporations was $ 486 billion in 1972, The assets of the top 10 companies was $ 109 billion. The profits of the largest of 10 were $ 10.3 billion after taxes, in 1971 which ‘was 20 per cent of all corporate profits.

Monopoly capitalism is a system consisting of giant corporations. American capitalism carried within it the seeds of monopoly, from the earliest times. As has been already discussed, in the U.S. die competi­tive stage of capitalism gave way to monopoly capitalism by the early 20th century. A small segment of the capitalist class, in the form of monopoly capitalists, emerged who owned and controlled the big mono­polistic enterprises. In the initial stages there were severe industrial warfare among the oligopolists. But at last every field a few battle rested giants survived. A tendency or rather a compulsion arose whereby small enterprises had to yield to big enterprises, big enterprises to poly and monopolies: to super monopoly.

Gus Tyler mentions “concentration of ownership he has beep increasingly more concentrated, right after World War II, the top 100 firms accounted for 23 per cent of value added in manufacture, two decades later, the figure rose to 33 per cent. The monopoly trend becomes even more apparent when examined industry by industry In aluminium three firms control one hundred per cent of the market, three about 95 per cent, in synthetic fibres, four share about 90 per cent in glass, four share 90 per cent, in electric bulbs three share about 95 cent, in copper four share about 85 per cent in Cigarettes four about 80 per cent, in typewriters two about 80 per cent in rubber tyres three about 95 per cent and soap and detergents the same.

Conventional economic theory tells us monopolistic practices lead to staggeringly high profits, corruption, graft, discriminatory prac­tices and output control etc. In the monopoly economy the market forces are enfeebled to the point of death. In the U.S. in spite of government regulation, monopolistic tendencies have not been curbed.

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