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Capitalism: Market Failure - Essay Example

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Capitalism: Market Failure Customer Inserts His/Her Name Customer Inserts Grade Course Customer Inserts (31, August, 2011) Introduction In 20th century, broadly speaking, two major economic systems were in place throughout the world, capitalism and communism…
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Capitalism: Market Failure
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"Capitalism: Market Failure"

Download file to see previous pages In communism people do not have a right to private property and state intervenes in the economy regularly. There are many subsets of both capitalism and communism but mainly these two economic systems exist. The economic crises of the 20th century have caused many people to think differently about capitalism and many reservations are raised. In this paper we will critically evaluate whether market failure is the inevitable consequence of capitalism. We will discuss both pro capitalist and anti capitalist arguments in order to critically evaluate the above statement. Capitalism: An Overview The roots of capitalism lie in mercantilism which was prevalent between the 16th and 18th century (Burnham, 2003). Mercantilism was basically a system that was based on profit seeking trades. Adman Smith in the 18th century gave the basic tenants of capitalism and his ‘invisible hand’ theory became popular (Buchan, 2006). Adam Smith argued that markets can balance themselves and there is no need for government intervention. Capitalism became widely accepted in the 20th century and many countries had capitalist economies. Now we will discuss the arguments in favour of capitalism. Pro-Capitalist Views Economists who argue in favour of capitalism generally base their argument in freewill. ...
This is only possible if people reap the fruits of their hard work. Innovation, according to this view will only prosper if people are encouraged with reward (Cantwell & Santangelo, 2000). Capitalism offers encouragement and monetary incentives and this in turn motivates people to innovate. The argument that capitalism encourages innovation is quite ponderous because people do get motivated by incentives. It is human nature to work for profits and capitalist economies allow profit seeking behaviour. Opportunity for Social Mobility People also get an opportunity in capitalistic society to move forward and attain a higher social position. Free market mechanism allows anyone, who is willing to work hard enough, to grow socially and financially. There is room for a person to improve his or her life style and living standards under capitalist economies. This argument explains the importance of freedom in human life. Human beings need freedom to live a healthy and satisfactory life therefore they should have freedom in their economic life as well. Government therefore should not intervene in matters of economy. Other economic systems do not allow social mobility (Fitzpatrick, 2002) therefore capitalism is to be preferred. Consistent with Human Behaviour It is argued that capitalism is consistent with human behaviour therefore it cannot lead to market failure. Markets are made by people and if a system is in placed that are consistent with human behaviour and nature then it cannot fail. Fighting and surviving is the way through which human beings have survived since their ancient times so this makes it clear that it is human behaviour to fight in order to survive. The same principle if applied to the economic ...Download file to see next pagesRead More
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