Problems of Capitalism Enterprises in capitalism as Adam Smith and Karl Marx knew it were typically individual proprietorships. There were few corporations, and probably none in the modern sense, in Smith's time. Smith regarded corporations as hangovers from feudal times, and saw no future for them. This early form of capitalism was proprietary capitalism. One problem for proprietary capitalism is that these individual enterprises seldom got very large, by modern standards. This meant that many projects that could have been useful and profitable could not be undertaken by capitalist firms, because the projects were too large -- there were no enterprises large enough to afford them. Modern corporations came into existence to finance and administer these huge projects -- canals, railways, telegraph and telephone systems, gas and electric power distribution. (Nevertheless, government carried out the large-scale projects in many capitalist countries). The corporations became more predominant, transforming proprietary capitalism into corporate capitalism.
The collapse of world markets in the period 1930-1940 threatened to destroy capitalism entirely. After some delay (and in the context of world war) governments stepped in to support capitalism by various means of regulation, controlling money supplies, and government expenditure. Thus, market capitalism was transformed into government-managed capitalism. Sometimes called a "mixed economy," because it relies largely on markets but partly also on government to direct the economy, this system has been predominant during the second half of the twentieth century. Conservatives deplore this, and there have been conservative governments pledged to return to pure market capitalism, from time to time, in most major capitalist countries. But they have been unable or, perhaps, finally unwilling to do it. No matter how ideologically committed, governments have not yet been willing to let markets find the way, fail if they would, and let capitalism be destroyed by the failure. But more than that -- in the conditions of the 1990's, it is hard to see how a pure market capitalism could exist at all. To move toward a more pure market capitalism, it has been necessary to privatize, reform regulations, and manipulate interest rates -- some of the largest government initiatives in the history of capitalism. But perhaps the future will be different.
Problems of Capitalism 