Crowdfunding: a Socialized Response to Capitalism

Topics: Capitalism, Patent, Joseph Schumpeter Pages: 4 (1599 words) Published: April 25, 2012
Melanie Harmon
Social Theory
Fifth essay, prompt 2
Final Draft
Crowdfunding: A Socialized Response to Capitalism
In the debate between capitalism and socialism, proponents of capitalism often argue that the profit motive is necessary for innovation. Investing capital in new types of goods is inherently risky, because the good may not bring in a profit if the market doesn't care for it, and the entrepreneur may go bankrupt as a result. However, this risk is necessary, they say, and therefore so is the possibility of high profits in order to incentivize innovation. (1) In this paper, I will attempt to counter this argument by explaining why the possibility of high profits is not necessary to drive innovation, and may even be harmful to it. Then I will present an example of a more socialized alternative to this model, and explore possible implications of it, namely that the ideas of socialism and historical materialism have yet to outlive their usefulness for describing society. In a capitalist system, the market dictates what is produced. Culturally established goods, such as laptops, cars, and shoes, have a steady demand, and so those things are steadily produced. However, an entrepreneur may have an innovative idea for a good that is not currently supported by the market, but might potentially be once it is introduced. He might have invented a new gadget to fill a need that he perceived. However, in order to begin producing it, capital is necessary. Whether he already has this capital saved up, or he has to take out a loan, the initial investment is the riskiest one. If he produces his gadget, but for whatever reason nobody wants to buy it, or not enough people buy it, then he cannot keep his production running. In other words, if the market price due to demand falls below the marginal cost of supply, then profit is impossible, and the entrepreneur will stop producing the product. This in itself is good for society, because it ensures that only products...

Cited: 1. Litan, Bob, Ph.D. Transition to Entrepreneurial Capitalism. 2007. Ewing Marion Kauffman Foundation. (
2. What 's Fueling the Tech Patent Bull Market? Knowledge@Wharton. September 14, 2011. (
3. 2011: The Stats. Kickstarter Blog. January 9, 2012. ( the-stats)
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