Half a millennium ago,crisis was easy to explain. It was simply too many people too little food. When population grew rapidly or in case of a natural disaster all of a sudden, there was nothing to eat.
Today’s crisis looks very different, we have stores full of food but outside, people are dying of hunger and begging for money.
Something must be wrong with this system.
But this is the very system that also brought a rapid growth in innovation and technology, caused globalization, increased a country’s GDP disproportionately and improved the living standards.
So , the natural question to ask is , who’s this heroic antagonist or villainish protagonist ?
I’m pretty sure that we’ve heard this word a lot might be in the News headlines, might be in our 10th grade Economics textbook. Though we’re familiar with this word, we might not know what exactly CAPITALISM means.
According to Wikipedia “Capitalism is an economic system based upon private ownership of the means of production and their operation for profit. Characteristics central to capitalism include private property, capital accumulation, wage labor, voluntary exchange, a price system, and competitive markets.”
Basically in a capitalist economy, decision-making and investment are determined by every owner of wealth, property or production ability in financial and capital markets, whereas prices and the distribution of goods and services are chiefly calculated by the Supply and Demand concept. Capitalism is not only an economic ideology, it’s also a political philosophy .
It is an economic system in which transaction between private parties are free from government intervention such as tariffs, subsidies etc. It exists in various forms and perspectives depending on the extent of government intervention and other social policies.Out of all “Laissez-faire” is the purest form of capitalism also known as “Free Market Capitalism” which has 0 government intervention while the government formulates social policies in “Welfare Capitalism” or has too much interference in “ State Capitalism”.
Capitalism is highly criticized economic philosophy, maybe because of the failure in many situations in history. It’s even highly praised because of the value it created till now.
Features of Capitalism
The peculiar features of Capitalism are as follows:
No Government Interference:
Under capitalistic economy, government does not interfere in day-to-day economic activities. This means producers and consumers are free to take decisions.
Here prices are determined by the interaction of demand and supply which makes this system efficient as redundant supply and neglected demand is supervised
In this economy private property is allowed. All means of production like machines, implements, mines and factories etc. come under private property.
The best product survives the competition in Capitalist economy. All the enterprises compete to make the best product hence bringing out innovation
The maximisation of profit is the main motive of the producer. Profit guides the production in this type of economy.
Creative Destruction :
Joseph Schumpeter, one of the greatest economists of all time wrote “Creative destruction“ as an essential factor in Capitalism in his economic theories.
Example : The Netflix Effect
Let us take a modern day example of creative destruction, “Netflix” which is one of the most disruptive application has demolished a lot of industries such as Video Tape and Disc Rental Industry, Traditional Media Companies etc and has improved the technology enormously. Capitalism mimics Darwin’s endless struggle of evolutionary biology: Survival of the fittest.
Criticism on Capitalism
The central argument against capitalism is that it creates inequality between social classes and it’s significantly exploitative. Let’s see few comments against capitalism with examples:
Karl Marx ,”The Father of Communism” in his book Das Kapital claims that capitalism centres profits and wealth in the hands of few who use the labor of others to gain wealth.
Similarly John Maynard Keynes, a British economist postulated that the concentration of money in capitalism can lead to the creation of monopolies or oligopolies which might lead to oligarchies (government by few) or fascism (the merging of government and corporations with monopolistic power).
Standard Oil and Mr.John D. Rockefeller:
Adjusting to inflation Mr.John D. Rockefeller’s (1839–1937) net worth is around $400 billion and he is considered to be one of the richest man of all time ( to give a perspective ,net worth of Mr.Jeff Bezos is around $110 billion at the time of writing this blog) is a perfect example how capitalism destroys the equality in the society and how his company being a monopoly used its status.Standard Oil have been permitted to take the destructive, anti competitive actions (rebates, “predatory pricing”) that made it possible for them to acquire and maintain their stranglehold on the market. This lead to aggregation of economic power — the power flowing from advantageous contractual arrangements and vast economic resources that enabled it to destroy the economic freedom of its competitors and consumers.This gave rise to antitrust laws, trade union movements, and legislation to protect workers.
The Eternal Debate : Capitalism Vs Socialism
Capitalism and Socialism are two contrasting philosophies in economics. The chief arguments in the Socialism vs. Capitalism debate are about economic equality and the role of government. Socialists believe economic inequality is dreadful for society, and the government should be responsible for diminishing it(Centrally planned economy). On the other hand, capitalists believe decision-making and investment should be determined by every owner of wealth, property or production ability in financial and capital markets, whereas prices and the distribution of goods and services should be determined by supply and demand(Free market economy).
Why is Capitalism better than Socialism ?
1. Freedom and Opportunity: Capitalism grants individuals the freedom to buy what they want,and an opportunity to create what they want and live the lives they aspire without government intervention.
2. Productivity: In a free market society, the only way businesses can succeed is through supply and demand.Better the product,more the demand.Hence it pushes the companies to maintain the quality.
3. Innovation: Capitalism breeds innovation. This survival of the fittest policy creates innovation because everyone wants to be the creator of the latest good. With innovation comes a higher standard of living for the average person.
Why is Capitalism not better than Socialism ?
1.Creation of Class division: Socialism means the elimination of these class barriers and the organisation of production and resources to enable all people to live fulfilled lives and to ensure environmental sustainability.
2.Inequality: The Rich have an advantage and exposure in the market.The domination of the monopolies in the market shows the dissent for new entries.
Stock Markets : An application of Capitalism
A stock market is the aggregation of buyers and sellers of stocks, which represent ownership claims on businesses; these may include securities listed on a public stock exchange as well as those only traded privately. So, surely it must share some correlation with the economic philosophy of Capitalism, in fact an application of it where equity and private ownership play an important role, the price mechanism is done by supply and demand. Today, there are very few countries without stock market and they can be found around the world and there’s no denying the global importance of stock markets. Every day, trillions of dollars are traded on stock markets around the world and they’re truly the engine of the capitalist world.
Originally published at finecoiitg.wordpress.com on May 30, 2018.