You are on page 1of 4

PRINCIPLES OF ECONOMICS Qn. What are the supportive arguments you will raise favouring capitalist economy?

The present age of LPG- Liberalization, Privatization and Globalization- the existence of the capitalism is very significant. In my opinion capitalism will accelerate the development of an economy. We, ourselves are the example of enjoying the fruits of privatization of our country via new economic policy-LPG. From 1991-92 after the economic reforms our economy lifted by the merits of capitalization / privatization of public owned or state owned undertaking. The GDP, rage of inflation wholesale and consumer price index, foreign capital investment, foreign trade etc. will shows the effect of capitalism. Capitalism is the very simple form of economic organization where the Government does not play any significant role. The responsibility of maintaining and running the organization lies mainly with the private entrepreneurs. The basic central economics problems what, how, and for whom (Prof.Samuel)- are handled by the private entrepreneurs. The entrepreneurs are guided by their own self interest. The Govt. does not interfere with their activity. The Got can not direct them to produce or not produce anything. They are not required to get any licenses, permits etc. They can produce anything; they can sell this commodity at a time and a place of their own choice etc. As the economy is based on free private enterprise and Govt. does not interfere, this type of system is also known as market economy or market system or laissez faire system. In short a capitalist economy or free enterprise economy is one which the means of production viz., land, labour and capital are owned and managed privately. In capitalism the above phrase what, how and for whom is lead by the private sector. That is the Govt. has no power to interfere at every stage of the following three questions. 1. What goods and what varieties should be produced, and in what quantities should they be produced. 2. How should they produce? 3. For whom are these goods and services produced or who will consume them? India is a mixed economy, where consists the features of capitalism and socialism. As a mixed economy, India gives importance to the merits of capitalism. The following merits of capitalism are very important to the development of a country. 1. Large scale production and newer and finer varieties of goods. 2. Increased productivity. 3. High standard of living

4. Automatic working without no interference or direction from the top. 5. Maximum satisfaction to consumers. 6. Proper utilization of resources. 7. Protection of fundamental rights like right to property, transaction of property etc. 8. Reward according to the ability of entrepreneurs and workers. 9. Helps to change- flexibility to accept any favorable change in economy. 10. Encourage economic development. To know deeply about the merits of capital of economy, we should know the characters of it. The following are the main nature of a capitalist economy. 1. The Right to Private Property It means that the society provided the owner with the right to acquire, to keep, to use exclusively and to dispose valuable things at one likes. In this system one can purchase the asset as his private property. And he can keep it, use it exclusively and dispose it of as and when he likes. Subject to the general restriction and regulation imposed by the state, the owners of the property are free to utilize them in any way they deem fit. Here the private property is a legal right, this is protected by the law of land. The chief merits of private property are the pride and pleasure of ownership and consequently personal interest in the property, initiative to put it to the best use etc. It is correctly said The magic of property turns even, sand into gold. 2.The Right to Inheritance: It means the transfer of property of person to his heirs after this persons death. Each ext generation inherits the property from the out going generation, and the family continuous to be identified with that property. The right of inheritance is and essential condition for the existence of private property and accumulation of wealth by private individuals. 3. The Right of Free Enterprise: In a capitalist economy, the Govt. allows freedom of action to all the economic units. A consumer is free to spend his income on whatever goods and services. He chooses to buy and consume. A producer may make his living when, where and in whatever he desires. He may use his energies alone or combine them with others in a partnership, a company or some other type of economic organization. The capitalism enjoys a number of economic freedoms. Free choice of consumption determines the nature and volume of goods and services which should be produced. The economy produces goods and services to satisfy the wishes and preferences of the consumers. Thus freedom of choice of consumers and freedom of production are basic to capitalist economy. Any individual is free to start any business he likes or exploit any new invention or process he can secure. Freedom of enterprises also implies that a person is free to invest his savings in what ever industry he choose or in what ever forms he wants to keep it.

4.Competition: One of the main character of free enterprise is the existence of perfect competition. The competition means rivalry between the participants in the market. The greater the number of participants, ie., the buyers and sellers , the more intense will be the competition. Since free enterprise is allowed, competition is generally hard and intense. Here the competition exists among seller or producers of similar consumer goods to attract consumers, among buyers to obtain goods to satisfy their wants, among workers to get job, among employers to get investment funds, among savers to seek channel for investment of their savings, competition plays of vital role. Competition must be maintained if exploitation is to be avoided and prices to be maintained at cost levels. Competition is necessary to keep individual initiative which makes for maximum efficiency. The production and sales at a lowest cost should be done only through competition. The competition serve as regulator and reducer of prices as an incentive to improved productive efficiency, as a guarantee that we shall get what we want and as a protector of freedom of production. The competition compels every producer to be efficient and economic. Thus a constant and continuous effort made to maximize efficiency in production. 5.Profit Motive: Free enterprise and competition are made possible by the existence of the profit motive. The entrepreneurs are free to change any price; they would normally be expected to fix such prices as would yield them maximum profits. But at the same time if in the production of some particular commodity the profit margin is large, new entrepreneurs will be encouraged to produce this commodity, ie., competition will increase. All the entrepreneurs get redy to assume risks because they are attempted by the lure of profits. The profit motive encourages productive activity, enterprises and risk taking. It determines the character of business and economic activity, for resources will continuously shift from less profitable uses. 6.Price Mechanism: In this system all the goods and services carry price tags with them. It consumers find that goods are priced too high, they may not purchase them, and if they find that the goods are priced low they may be tempted to purchase larger quantities. Similarly demand for those factor- Services will be less whose prices are less. In this way a whole system of prices prevails in which hundreds and thousands of goods and services are sold and purchased. Price mechanism refers to the process by which the price is determined through the interaction of the forces of demand and supply. In a capitalist economy, consumer is the king. He express his choice of goods through the price, he is willing to pay for goods. 7.The Role of Government: In this system, the Government can not intervene in the economic actions of the individuals; consumer, producers and investors are free to take their own decisions and act accordingly. The Government only

ensures stability and sees to it that no outside force influences the economic organization. The Government will interfere only at the time of national emergencies like war or business depression. From the above we can sum up the MERITS OF CAPITALIST ECONOMY as follows. I. The system is characterized by flexibility and adaptability. The system has always adopted itself rapidly to the changed environment. II. In this system the market mechanism works as a decentralizing force against the concentration of economic power. Economic power gets concentrated when individuals or groups of individuals acquire monopoly control over some lines of production. Market mechanism assumes that all those avenues of production that assure profits will attract new entrepreneur and thus prevent the concentration of economic power. III. The countries that have been practicing this system have recorded stupendous increases in per capita income and standard of living. This I indicative of the growth potentials of the system. IV. In capitalism, a variety of new consumer goods are developed and advanced to the stage of large-scale production. V. Private enterprise has brought forth enterprising ability and energy. The lure of profit always creates and supports new entrepreneurial ability. VI. Individual liberty, economic and otherwise enjoyed by the people in the capitalist economies is unparalleled in the world and is the secret of its success. VII. The dynamic process at work within this system revolutionizes the economic structure from within, destroying the old one and creating a new one. This is what has been known as the process of creative destruction. VIII. Full utilization of the productive services has been made in the capitalist economies due to technological progress. To sum up, a capitalistic system with its emphasis on private enterprise encourages better utilization of available human and natural resources and there by leads to a faster rate of economic growth. Even it has some demerits; I will prefer capitalism as a means to development of modern economy, which already favors Liberalization, Privatization, and Globalization.

You might also like