Two Types of Free Market Philosophies - Essay Example

Exam1 Question Two types of free market philosophies The laissez-faire free-market philosophy isa doctrine suggesting that an economic system should allow people to act as they please without government moderation of intervention. According to this philosophy endorsed and widely supported by Adam Smith and John Stuart Mill, the economic system should only be driven by market forces. The philosophy assumed that individuals who pursue their personal desires contribute most effectively to society and the role of the government is to uphold order and keep away from meddling with personal initiative. On the other hand, the competitive philosophy suggests that in a competitive market, the government establish rules that sponsor full and free competition. The competitive philosophy is proposed by its supporters, both as a solution to economic problems and also in moral stipulations: as a ground for freedom, where ideas and ventures are allowed space to thrive. These notions have lately been benefiting from an extraordinary influence. In every society, the government is the sole lawful method of coercion. Forms of government coercion like taxation promote the competitive goal of philosophy, and the higher the burden imposed by taxes on production, the greater the chances that economic growth will decline and falter. Price controls or restrictions encouraging new competitors to enter a market promote market exchanges and others like interdictions on illusory practices and enforcement of contracts can also aid voluntary exchanges. The US government is currently making such an effort to prevent the concentration of fiscal power that’s been growing for a long time in the investment and banking industries.  The congress is undertaking financial reform and federal supervisors and a few influential state attorney generals are starting inquiries of suspected abuse by the little remaining bank holding corporations, the markets themselves, and other key accomplices like hedge funds. Historically, laissez-faire was a response to mercantilism, a structure of commercial powers in which trade and industry, particularly overseas trade, were only regarded as ways of making the state stronger. Trade monopolies, taxes, Navigation laws, and paternalistic policy of various kinds bore greatly upon the growing class of merchants during the time of European colonial development. French physiocrats, leader economists in the 18th century, on behalf of this class of merchants, initially devised the theories of laissez-faire. State noninterference became a fundamental philosophy with the physiocrats,; they in particular were opposed to the idea of taxation of commercial endeavors. Resistance to mercantilism and government paternalism also inspired Adam Smith, pioneeer of classical economics, who is directly associated with British laissez-faire policies. Smith supposed that individual benefit rather than state control was the proper objective; he therefore campaigned that trade should be conducted without government limitations. When people had the freedom to follow personal interest, competition or rivalry would turn out to be more effectual than the nation as a controller of economic policy. Smith did not advocate for laissez-faire in an unconditional sense; he created a space for government intervention in public works, such as the construction of docks and canals to assist trade, and in the control of overseas trades to leverage some domestic industries. However, the philosophy of laissez-faire turned into a doctrine of individualism and of functional ethics in the hands of Jeremy Bentham, and John Stuart Mill made it to reach what was perhaps its highest point. The theory’s strong individualism was naturally of interest to the merchants and factory owners during the Industrial Revolution; they tried to change society along capitalistic terms and often ended up being hampered by old regulations and the conflict of landed interests. Some real-world examples of programs presently funded by the government that would no longer exist in a laissez-faire society include: i. Bankruptcy Protection: Business is naturally full of risks and one of the greatest risks is business failure, predominantly in times of recessions and depressions. Bankruptcy laws funded by the government guard otherwise healthy businesses that temporarily experience shortage of funds. These regulations permit entrepreneurs to be ultimately liberated from severe debts. Bankruptcy rules form a vital fiscal protection net for entrepreneurs. ii. Banking Regulation and Insurance: A capitalist society highly depends on established banks to fund developing. However, banks are naturally susceptible to “runs” – cases where anxious clients all request to withdraw their money all at once. All contributors in a market struggle greatly to get rid of competition. Most of the market participants want to dominate the market, a goal which they may achieve over time. The losing participants vacate the field of competition while the winners remain, larger and more resolute. This is a process that takes place a laissez-faire society, first domination by one political regime then domination by one, or more large companies. In both situations the public finally loses its liberty and the affected markets suffer.  Power and wealth advance the revenue pyramid, reflecting the same increasing flow in the market or political economy as the focus joins together and unite. Competition becomes the sole defense mechanism to this master the political and economic empires and the government is ironically the only body that can force competition. The competitive philosophy makes more sense because a free competitive market and a free price system make products from around the globe available to consumers. The free competitive market also offers the widest potential scope to entrepreneurs, who risk their capital to apportion resources in order to gratify the upcoming expectations of the mass of consumers in the most efficient manner. Investment and investment can then expand capital goods and develop the wages and productivity of workers, thereby raising their living standard. The free competitive market also motivates and rewards technological innovation that enables the innovator to get an advantage in satisfying consumer wants in new and creative ways. This philosophy encourages investment, and more importantly the profit-and-loss motivations of the market and the price system guide the production and capital into the right paths. The complex latticework can engage and “clear” all markets so that there are no abrupt, unanticipated, and mysterious shortages and excesses in the production system. Question 2: Externality, “The Tragedy of the Commons” and “Unpriced Natural Capital”. Externality refers to a cost generated by a company’s procedure that, in a free market, does not exist on the company’s documentations. The study of externalities by economic experts has become widespread in current years - not least because of apprehensions about the connection between the economy and the surroundings. Externalities are usual in virtually every segment of economic practice. They are categorized as spill-over or third party effects created from the manufacturing and/or exploitation of goods and services for which no suitable compensation is got. An externality is generated when the activities of partakers in a private market impinge on the well being of another person not directly connected with that market. Externalities can consequences market collapse if the price mechanism does not consider the full social expenses and social merits of consumption and production. One of the externalities discussed is “Tragedy of the Commons”. This is a case of externalities that arises if person pursuit of self-interest is jointly self-defeating; but the price of person pursuit of self-interest is not based to any vast degree by any individual group such as overfishing in the North Sea. The Tragedy of the Commons concerns the depletion of communal resources by people acting individually and rationally, in accordance to one’s self-interest (Leal 9), in spite of knowing that a misuse of the general resource is divergent to those people’ long-term, best interests.  The initial use of the expression is accredited to the “American ecologist Garrett Hardin’s 1968 Science article” which was first presented in an 1833 leaflet by W. F. Lloyd) describing European farmers activity of sharing general ground on which they could graze their livestock. It is in each farmer’s interest to put each animal he acquires on the grazing ground, even if the value of the commons is spoilt for all due to overgrazing. The person receives all of the advantages from any extra cow, but damage to the general grazing land which is shared by the group. The Tragedy is frequently applied to a discussion of ecological matters and is a model for a huge variety of society’s existing resource-based challenges, including habitat destruction, over-irrigation, traffic congestion, over-fishing and pollutions (Leal 12). It is especially appropriate to this study, namely air pollution, where strong financial forces are influencing the use of the environment as a free-for-all discarding ground for conservatory gases.  Any resolution to this crisis will clearly be a communal good of massive proportions. But the reality is that any individual of the six billion population on Earth has an inducement to avoid the cost of avoiding polluting discharges, even though this in twist generates the ”Free Rider” dilemma, such as a person who benefits from another’s labor without compensating for it. While resolutions to the Tragedy of the Commons rapidly fall victim to bureaucratic apathy and/or danger tape, the more dangerous problem is the matter of political will – explicitly that policy decision makers have to make revolution happen.  But, politicians also react to enticements.   Each party in the air pollution activity prefers a solution that is compensated by somebody else; the merits of being “a free rider” on the international scale are huge.  Politicians recognize that they will be made to pay by well-funded interest organizations, especially if the judgment is made to assign a larger share of the expenses to specific segments or industries rather than permit civilization as a whole to suffer from the free-rider predicament. Another externalities discussed is “unpriced natural capital”, in this externality, the “Natural capital” refers to environmental materials and services such as clean water or a steady environment; “unpriced” means that businesses do not reimburse to consume their existence. This research monetizes the worth of unpriced natural capital exploited by core production activities such as agriculture, fisheries, mining, forestry, oil and gas discovery, utilities, and a number of primary processing namely cement, pulp and paper, steel, petrochemicals in the universal economy through typical operating practices, exclusive of catastrophic occurrences. For each subdivision in each area such as region-subdivision, it approximates the natural capital cost packed up by six ecological key performance indicators (EKPIs), and a position of the top a hundred costs is generated from this. It also approximates the 20 region-subdivision with the uppermost combined consequences across the entire EKPIs to give a platform for corporations to begin to evaluate exposure to unpriced natural capital, both openly and through distribution chains. In undertaking that it permits investors to reflect on how their capitals may be exposed. Tragedy of the commons is an example of externalities that concerns the depletion of communal resources by people acting individually and rationally, in accordance to one’s self-interest. The free market philosophy that is applicable in controlling this externality is the competitive free market philosophy. The competitive philosophy is proposed by its supporters, both as a solution to economic problems and also in moral stipulations. The reason the philosophy has been chosen is that it will give guiding principle to people. It has both economic and moral solutions to problems that individual has concerning the environment. The tragedy of the common provides the challenges individuals creates to environment due to their individualistic benefits. To solve this problem people should be encourage acting in a general manner that safeguard the environment and also empower other people. The philosophy that tends to bridge that gap is competitive since it suggests solutions to environmental challenges and moral values that should be observed. If individuals observe moral values then they encourage others to develop and environment is preserved. It is not right to graze on a common land since one wants to benefits as individual; however, it is more productive observe the well being of the grazing land for future. While resolutions to the Tragedy of the Commons rapidly fall victim to bureaucratic apathy and/or danger tape, this can be realized if people adopt competitive philosophy. Question 3: According to Marx, capital is wealth which is used to produce more wealth and is basically seen a as means of production. Capitalists are individuals who own means of production, and cause the means of production to produce by hiring laborers to run them. The labor adds value to the product, which the capitalists sell for its total value. The capitalist pays the laborers less than the value that their work added to the product and retains the difference as his profit. This difference is referred to as the “surplus value of labor” and the capitalist is said to “expropriate” it from the workers. Marx viewed this expropriation as unfairly retaining what belonged to the laborers, leading to his idea that capitalism is unjust. Marx questioned the reason why capitalists could get away with paying laborers less than the value they add to the product. capitalists own the means of production, which the laborers cannot work without, therefore the laborers have to agree to lower pay compared to if they controlled the means of production. Capitalists exclusively own the means of production because they influence or control the state. They have the power to influence the government to establish rules that support exploitation by banning or restricting strikes and other labor rights, limiting getaway through bankruptcy, forbidding vandalism or theft and requiring payment of debts. Such laws are enforced by the government police and courts. In an attempt to keep workers from trying to alter this situation, capitalists seek to control the ideology of the society. They try to bring in the ideology of class i.e. classes are normal, proper and necessary characteristic of reality, lower classes are lower for good causes and upper classes warrant their status. By promoting this ideology, the workers will continue being exploited and will not protest, sabotage, refuse or revolt. Marx seems to think this is a serious objection since the capitalist class intentionally builds and naturalizes hierarchy in the minds of individuals by endorsing class ideology using control of private media including radio, television and newspapers. These media show events in a light that carries the ideology. Capitalists also use public channels like public schools which display that education is required to join the upper class, but do not avail it to workers. The church also promotes ideas like a hierarchy of saints, gods or angels, status in present life is rewarded in afterlife, and poverty is virtues etc, making the ideology of class seem appropriate and normal. Marx also looked into the social outcomes of capitalism and suggested that all aspects of capitalism lead to alienation: i. the alienation of labor Labor is separated from social relationships as work is not entangled in a web of social relations anymore. Work is simply paid for by the employer, and is not done together with any social relations with the laborer. This deprives labor of its social meaning making the process a insignificant, unrewarding grind. ii. alienation of production (products) Since labor is separated from its production, laborers are no longer attached to their product; they take small pride in it or responsibility. Products stop being possessions connected to their makers, lose their social meaning and turn into mere commodities. Marx argues that alienation encourages abuse of workers because of the little social relationship and lack of personal links between workers and managers. According to him, abuse of labor is the unavoidable consequence of capitalism. Marx felt that expropriation of the surplus value of labor by capitalists was unjust. Capitalists would argue that Marx’s idea that they do not refrain because they are unable to use the capital that they avail seems to involve a fallacy. Certainly, capitalists cannot use the raw materials and machinery they offer their workers. However, if it were not for the hope of a future on their investment, they capitalists would have been reluctant to devote their funds to these non-consumables. Additionally, it is debatable that these very methods of production would not themselves have been created had it not been for the anticipated demand resulting from capitalists who wish to invest their money for a return. By making investments in means of production and increasing, the capitalist binds funds that would otherwise have been available for personal use. Therefore, although the capitalist are unable to literally consume what they invests their capital in, providing capital does entail. According to David Friedman’s observation has observed, 'buying items for production and waiting for years to recover the money is already a productive activity in itself, and the interest that capital earns is the equivalent compensation.’. Sometimes the view that capitalists do not abstain when making investments because they do not really use less consumer goods than they earlier did is expressed. Capitalists reply by affirming that the sacrifice they make requires no reduction in levels of consumption, but only needs a deliberate restraining from probable consumption. The defenders reply is convincing. Evidently, accumulation of capital did not come about originally as a result of capitalists’ forcefully stealing wealth from others. Rather, it was due to their long-drawn-out abstinence. It is also evident that the provision of capital does entail an actual forgoing of likely consumption, and, therefore, entails a real forfeit on the capitalists’ part. Consequently, it may legally be maintained, in contrast to Marx, that the capital provided by capitalists is an authentic contribution to production that involves a legitimate sacrifice that gives the capitalist rights to some return. for that reason, we may refute that the subtraction of labor for payments of interests from the product entails exploitation of the worker. The position is that laborers are assured a return on their work by the wage contract whether or not the demand for the product will include the wage. The wage contract is no more an assurances of the workers' employment for life than the laborer assures the capitalist that he will for all time work for him rather than for himself or for another capitalist who might propose a higher payment. In conclusion, the assumption of commercial risk by the capitalist is an indisputable contribution to production that warrants the capitalist profit and the authenticity of the claims of capital has been maintained. Work Cited Leal, Donald. Community-run Fisheries: Avoiding the 'tragedy of the Commons'. Bozeman, MT: PERC, 1996. Print. Read More