What is Capitalism? Capitalism, economic system in which private individuals and business firms carry on the production and exchange of goods and services through a complex network of prices and markets (Peterson, 2005). Although rooted in antiquity, capitalism is primarily European in its origins; it evolved through a number of stages, reaching its zenith in the 19th century. From Europe, and especially from England, capitalism spread throughout the world, largely unchallenged as the dominant economic and social system until World War I (1914-1918) ushered in modern communism (or Marxism) as a vigorous and hostile competing system. The term capitalism was first introduced in the mid-19th century by Karl Marx, the founder of communism. Free enterprise and market system are terms also frequently employed to describe modern non-Communist economies. Sometimes the term mixed economy is used to designate the kind of economic system most often found in Western nations. The individual who comes closest to being the originator of contemporary capitalism is the Scottish philosopher Adam Smith, who first set forth the essential economic principles that undergird this system. In his classic An Inquiry into the Nature and Causes of the Wealth of Nations (1776), Smith sought to show how it was possible to pursue private gain in ways that would further not just the interests of the individual but those of society as a whole. Capitalism has also returned to its roots, in the free market, and many defenders contend that the problems capitalism encountered were due to a loss of faith in the free economy. The Principles of Capitalism Private Ownership Private ownership of property “…human beings are most effectively motivated by self interest (Sargent)”
In economics, this means that individuals
should be free (free market) to pursue their interest (profit). Private ownership of the means of production is the most fundamental of the institution of capitalism, along with freedom and the pursuit of material self – interest. It underlies the division of labor on private ownership of the means of production is based on the very nature of the gains provided on the division of labor (Reisman,1990). “In order for a person to act and produce on any significant scale… they must hold wealth separately and independently from one another (Reisman, 1990)…” The Effects of a Free Market Goods will be sell cheaply as possible Jobs will be created The entire economy will be stimulated and grow, producing a higher a higher standard of living to everyone. No legal limit on the accumulation of Property No legal limit on the accumulation of property For capitalist, liberty is founded on private property. The right to hold and use property is the key to functioning in the free market, and thus any attempt to limit property holding hits of the whole system (Sargent). The amount of property and money held by individuals directly affects the amount of money they spend (Sargent). The amount of individuals spend directly affects the amount of industry can produce; the amount of industry it can produce affects the amount of number of people it can hire; the amount the industry can hire again affects the amount of money available to be spent by individuals for the products of the company. Free Market – No government intervention in the economy The Free Market – no government intervention in the economy No government No government intervention/regulation in the economy because it destroy the capitalist system, and, hence, individualism and liberty. Economic freedom promotes political freedom because it separates economic power from political power and in this way enables the one to offset the other.
With economic freedom, the relationship
between the government and centers of economic power is rather like the checks and balances system within the government. There is a free market toward the establishment of a uniform rate of profit on capital invested in all different branches of industry The uniformity-of-profit principle is what keeps the production of all the different items directly or indirectly necessary to our survival in proper balance. In a free market there is a tendency toward the establishment of a uniform price for the same good throughout the world. In a free market there is a tendency toward the equalization of the price of a good in the present with the expected price in that good in the future. In a free market there is a tendency toward an equalization of wage rates for workers of the same degree of ability. What is The Role of the Government? Government is a social institution whose proper function is to protect individual from initiation of force. it exists to make possible an organized, effective defense and deterrent against the initiation of force (Reisman, 1990). The Profit motive The profit motives provides powerful incentives for the steady expansion and improvement of production and, at the same time operates to keep the relative size of all the various industries and occupations in proper balance (Reisman, 1990). The profit motive is what balances the demand and supply of each product and ensures the most rational and efficient distribution of each product over space and time – among all markets that compete for it- and its delivery into the hands of those individuals who, within the limits of their wealth and income, need or desire most (Reisman 1990). The profit motive ensures the most rational and efficient allocation of capital and of every type of labor and material among its possible alternative uses, and makes the economic system respond to changes in economic conditions in the most rational and efficient manner possible (Reisman, 1990). Thus, the profit motive is what prevents any sort of “anarchy of production” and, instead creates economic order and harmony who comprise the economic system Thus, Capitalist believes that the profit motive drives people to succeed and create wealth (Sargent). Critics of Capitalism Result of Capitalism… extremes of wealth and power, the power such wealth gives its owners over the political processes,
and the extreme inequality between
employer and employee (Sargent). Sources: Reisman, George (1990). Capitalism: A Treaties on Economics. James Book, Ottawa Illinois. Fin…