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Basic Problems of Capitalism — The Tragedy of the Commons

Market forces induce the over-exploitation of common resources

Panoramic shot of heard of sheep grazing on the green meadows with mountains in backdrop
Shutterstock photo ID: 1707542734, by Peter Kolejak

The basic problems of capitalism

This is the second in a series of articles about the fundamental problems of capitalism.

These problems are intrinsic to the nature of capitalism. They cannot be solved by market forces.

These problems are:

  • The tragedy of the commons.

  • Unequal wealth distribution.

  • Exploitation of workers.

  • Exploitation of consumers.

  • The merging of corporations leading to monopolies.

  • The political influence of the corporations.

Conservatives and libertarians argue that these problems can be solved by the raw market forces of capitalism: the invisible hand.

I want to analyze these problems, one by one, to see if this is true.

Sheep pastures

A small village of shepherds has pastures in common. Since the shepherds are highly individualistic and greedy, they all try to raise more sheep than their neighbors. As the result, the pastures are overgrazed and the sheep starve. The shepherds are ruined.

This actually happened in the Sierra Nevada of California. Big flocks of sheep were brought in to graze on the rich meadows of the sierras. They promptly destroyed them, causing the native bighorn sheep and deer to starve and wreaking havoc on the entire ecosystem. The shepherds just moved the sheep to other meadows, extending the damage. The government banned grazing sheep in the mountains, but the shepherds knew the intricate geography of these high mountains and refused to leave. Ultimately, the army had to be brought in to dislodge them. But, by then, irreparable damage was done to this fragile ecosystem.

One of the shepherds was John Muir. Witnessing the damage done by the sheep started his environmental activism.

These are textbook examples of an economic problem called the tragedy of the commons. When a certain resource is held as a community property, greed and competition drive individuals to disregard the common good and use as much of the resource as they can. Whoever wants to take care of the common good makes less profit, while cheaters benefit.

Over time, competition drives those that try to take care of the common good out of business, in favor of the exploiters.

The cod fishery of the North Atlantic

Here is another example. There used to be an enormous cod fishery off the coast of Newfoundland in the North Atlantic. Fishermen from Spain, France and Portugal discovered it and sailed across the Atlantic to get the fish. To keep the fish from rotting during the long traverse back, they salted it. To this day, salted cod is a traditional dish in Spain and Portugal.

Salted cod kept so well that it was used to feed the armies during the endless European wars.

The North Atlantic cod fishery lasted until the 20th century, when it collapsed.

A similar threat exists for fish in international waters, where fisheries cannot be regulated.

Even the coastal fisheries of poor countries get poached by factory fishing boats from rich countries.

Planet Earth

Ultimately, there is one resource common to all Humanity: planet Earth. The current climate crisis shows that the ‘invisible hand’ of capitalism will exploit it until its destruction.

When it comes to the health of the planet, nations have to join forces to create laws to regulate the exploitation of oceans, the composition of the atmosphere, and other key systems for the well-being of the planet. An international system able to enforce these laws against pariah states is necessary.


There is no way that market forces can self-regulate to avoid the tragedy of the commons.

Consumers are too uninformed, powerless and poorly organized to do anything about it.

Any corporation that tries to take care of the commons will lose money. Eventually, it will be taken over by corporations dedicated to mindless exploitation.

As in the example with the shepherds, the ultimate disappearance of the common resource will mean the ruin of the corporations. Unfortunately, modern corporations have a limited time outlook. It’s years, even months.

Plans for the future are limited by the human lifespan. Few people care to do something when they will not live long enough to see the outcome of their efforts. And those idealistic few are certainly not the CEOs of big corporations.

Unfortunately, changes in the environment occur over very long timeframes. A hundred years is an eye blink. Changes in global weather patterns usually take tens of thousands of years. We are forcing a global climate change on Earth in barely a hundred years. It’s way too fast for the biosphere of our planet to manage it. And yet, few of us will live long enough to see its full consequences.

As it happened with the sheep in the California sierras, the only solution for the tragedy of the commons is for the State to use its power to regulate the use of common resources.

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