Profit: The Cause of Crisis in Capitalism

In this paper, we show that the main reason for the recurring crises is integrated into the very foundation of capitalism. The reason lies in the fundamental premise of capitalism that capital must yield profits. This premise demands a constant growth (e.g., 2% per anum) of a real economy. Such growth is exponential. Sooner or later, this premise yields lack in demand and lack of natural resources, resulting in economic crises, wars, and ecological catastrophes. In this context, the profit gained from financial capital represents the greatest problem. All money, including newly created money, is loaned for interest, which means that interest must be paid for all the money in circulation. However, this demonstrates that the debt arising from interest cannot be repaid, which is the main reason why all the countries in the world are in fact in debt, with the public debt ranging from 75% to 260% of GDP. A profitbased economy has built-in positive feedback. As is well known in system theory, systems with positive feedback are unstable, meaning that a profit-based economy is also unstable. The only way to establish a stable, sustainable and fair economic system is to slowly start reducing profits and begin building an economy that is not driven by profit. The first steps that we can take in this direction are to establish better education, to increase social security, and to reform monetary system, including reform of the banking system and progressive taxation of profits. The latter is especially vital in this respect as progressive taxation not only reduces the adverse effects of profit on the general economy but also introduces negative feedback into the economic system, thus stabilizing it in the long run.