Institutional economics - Term Paper Example

?Running Head: al Economics al Economics [Institute’s al Economics Since the time when the world came into existence, the concept of economy resides. It was a momentous time in history, when man first decided to abandon the system of barter in favor of a new invention in the world of economics that is capital. The emergence of currency, all those centuries ago, was just an indication of the mammoth shape money would take in the future. No man in his right mind can possibly deny that today, money makes its present felt in every field. Economics is the process that is undertaken to fulfill the customer needs and demands by maximally utilizing the resources available with the individual or a group of people or an organization. Economics is a part of every aspect of human life, whether it is social, financial, political or institutional. Economics comes under classification into several components, where one of its components focuses on evaluation of institutions’ social and political framework in order to understand their performance that leads to the progress of the nation’s economy (McConnell & Brue, 2007). Institutional economics is the name given to this branch of economics. The aspects of social, political and commercial institutions can come under enlightenment in the context with institutional economics as it integrates the fields of economics, political science, sociology, law, organization theory and anthropology. Due to ever-rising competition in the commercial world, the institutional economics is becoming a source of interest for many because it observes the current market trends, so that they can keep an eye on the institutions and their activities (Groenewegen et al., 2009). The system of economics has many facets, out of which capitalism is one of it. Capitalism is a method in which an individual or a private organization manufactures the products and services with an objective to generate profit. Profit and wages are the two common forms of income in a capitalist system. As different people have different mindsets, therefore, different viewpoints by economist, political economist and historians have come under consideration when capitalism is under allocution. The elements that are the result of the development from capitalist economies include a product, money and labor. A product, commonly known as a commodity, is a good that comes under production for trade in the marketplace. Products are of two types; capital goods and consumer goods. Consumer goods that are the finished product is the result that comes from capital goods, which are the sources such as raw materials, machines, transport means and factories. On the other hand, currency that is the mode of payment, determines the worth of the goods, which always comes under measurement with a standard set of values and this is worth (Lippit, 2005). The forms of currencies have evolved through years and so has the meaning of producing/making goods. In addition, improvement and advancement in capital has come under a major affection by imposing of taxes, tax collection and the concept of banking. With the advancement of technologies and growing demands of tax payments, economies were becoming multifaceted as it endured the currency to progress and made its role more vital and crucial for the whole world. Regardless of all the factors of the past, the fact still exists, that money emblematizes significance. Through ages, the role of money has not changed and today still, money has the same functionality, but nowadays it not only exemplifies material goods but services are also charged. ”Acquiring money is not the same thing as creating value” (Lau, 2000). This statement gives a clear view that money and finished goods are directly proportionate to each other. It means that profit generation cannot always lead to the production of goods in a valuable manner. The best example that explains the statement is currency traders. These people make money by bartering of currencies (that is buying and selling), thus. they are not in the process of making any value in the good/product. On the other hand, an example of painting symbolizes that not only the money comes under collection but also the value of the good has come under deportation (Lau, 2000). Originally, the economic process involves activities for producing goods or services and this is the fundamental purpose that is production of goods that represents value rather than focusing on making money. However, today, making money has become the foremost objective of people; therefore, it has become complicated to make people understand the evolution in the world of economics. Capitalist have taken the advantage from this bizarre attitude that people have, hence, they are getting a chance to control over their labors and makes the maximum use from them (Lau, 2000). Consumers are of significant importance for any organization as the production of the goods depends upon the customers verdicts. Likewise, the customer in a capitalist economy plays the role of the monarch, as the production of the goods will depend upon the customer’s decision of buying. It has been an observation that the wealthy and opulent merchandisers such as businesspersons have the power over the plebeians merchants like farmers in the transmission of the traded goods in the world of capitalism (Lau, 2000). Due to the rapid increase in the adoption of capitalism in the whole world, the powerful countries revolves around the capitalist system and this system has become a foremost and leading mean of economy for them in today’s era. These developed countries with an objective of generating greater profits, heavily count on the supply and demands of the products/goods. In capitalist economy, the buying decision of an individual develops through their needs and interest, which has an influence of the system that provides with economic inducements. When the demands rise, the aspiration for the profit of the business would lead the businessperson to use his fruitful resources for the production of goods and services (Lau, 2000). The probability of economic growth increases when the system of capitalism comes under implementation as it gives rise to open competition in the market. This also leads to have multiple options and contingencies with the individuals to make a raise in their income. Due to increase in competition, the company will make better products for its customers due to the hunger for making more money and success than their competitors. Due to the social discrimination and social integrity in the capitalist societies, the dominant and powerful company can set a monopoly and diminish the meaning of competition through its power. As a result of utter and chronic competition in the market, capitalist economy can accelerate into unbalanced competition, which may lead to poor performance in the production of the goods and services as business are concerned only with their profits (Lau, 2000). Consumers who are brand loyal and are not ready to make a switch to a new product especially when it comes to cosmetics related product, as they do not want to make a compromise with their skin and looks. In the same context, a flashback reveals an example of the difference between making money and making goods, where one of the famous companies Johnson and Johnson halted the supply to markets of one of its product, Pacquin hand cream that was in high demand and due to its customers retention for the product, who do not hesitate to pay even a high price for it. With the hunger of making more money, they came up with an idea of selling this product through different sources in high prices as they saw an opportunity to strike a gold mine through it. This business decision was made mainly for making money and the worth of product did not come under consideration (Komives & Wagner, 2009). The above discussions clearly states that there is a wide difference between making money and making goods in capitalist economy and one factor that is making money will leave a great impact on the value of the goods manufactured. An intuitional economics that is described above, keeps an eye on this behavior of the companies, and monitors the impacts of this difference on the market and the consumers. References Groenewegen, J., Van den Berg, A., Spithoven, A. (2009). Institutional Economics: An Introduction. Palgrave Macmillan. Komives, S. R., Wagner, W. (2009). Leadership for a Better World: Understanding the Social Change Model of Leadership Development. Jossey-Bass. Lau, K. J. (2000). New age of Capitalism: making money east of Eden. University of Pennsylvania Press. Lippit, V. D. (2005). Capitalism. Routledge. McConnell, C. R., Brue, S. L. (2007). Economics: Principles, Problems and Policies. McGraw-Hill Irwin. Read More