Liberalism Is the Freedom of Making Choices - Essay Example

?Liberalism Liberalism Introduction Liberalism is one of the theories of International political economics and it pays emphasis to individuals and individual’s freedom of making choices. According to David Balaam, liberalism focuses upon the freedom and autonomy that an individual has for his own good (Lynch 2010, 264). The concept of an individual’s autonomy and free enterprise are deeply embedded in the concept of liberalism. Capitalism is referred to as a market structure in which the markets are governed in accordance to the rule of free market economy according to which sellers are free to sell what they want to sell and buyers are free to choose what they want to buy. One of the key individual who has highlighted the importance of capitalism in his research is Adam Smith who proposed the theory of the invisible hand (Wilber 1998, 7). According to his theory there is a hand that cannot be seen but is guiding a particular economy to achieve the purpose of common good. According to his concept, the government does not have to intervene in the market and the market is regulated itself and this concept is similar to the concept of laissez faire. Strengths Those economists who are considered as liberalist and capitalist in nature are of the idea that the economy under liberalism is ruled by eight basic tenants (Davis 2008, 5). The initial tenant of liberalism and capitalism is that people operate to safeguard their own interest and to achieve their own aims and objectives before considering the interest of others. The second element of liberalism is that market is place where buyers and sellers meet each other in order to exchange goods and services. The third element of liberalism is that everyone has a free will to own property and assets should be privatized and not controlled by the government. The fifth element of this kind of economy is that market is governed and guided by the forces of competition. In order to achieve this element of liberalism, the sellers in the market have to operate in such a way that they compete with each other to attract more and more consumers and in order to attract more consumers they compete through the tools of pricing and they try to utilize their resources in the most efficient manner. The sixth basic element of liberalism is that all individuals are free to choose for whom they are going to work and they can even choose the markets they are willing to serve. The seventh element of liberalism is that consumers are the most important part of the market. This principle is in line with Adam Smith’s idea of consumer sovereignty and the consumer is the decider of the number and kind of resources that will be used to produce a product and when this production will occur and for whom the production will be conducted. The last element of this form of economy is that government should not intervene in market operations and let the forces of demand and supply dictates the operations of the market. Another major figure who promoted the idea of liberalism and who himself was a believer of liberalism was John Maynard Keynes of the 20th century (Heinberg 2011, 38). According to his believes, the government should not intervene in a particular economy and they have minimum amount of role to play in the market that are created in foreign and local regions. This concept can clearly be witnessed in the BWS (Bretton Woods System) that was witnessed after the era of WWII. A major part of the BWS was the Keynesian Compromise according to which involvement of the state is limited to the operations of their local markets and their involvement is unnecessary in international market operations (Bordo 1993, 158). Those economists who are considered as liberals even support the hegemonic stability theory and they assert that market operations that are international in nature are more stabilized if there is presence of hegemon. Hegemon is a term used to refer to the elite or the dominant one who has the power to make regulations and even has the power to enforce those rules and regulations (Ruggie 2008, 17. This means that liberalists are of the view that although government should not intervene in market operations and allow the forces of demand and supply to regulate the market, but they need to set rules and regulations in order to protect different stakeholders of the market. The strengths of liberalism are low intervention of the government, market governed by the forces of demand and supply, suppliers choose what to produce and how to produce and buyer choose what to buy and the main strength of liberalism is effective usage of resources. Weaknesses There are several strengths of liberalism, but this concept of market is not short of weaknesses, the main weakness of liberalism is that the people involved in the market are irrational decision makers and their decision can lead to under utilization and over utilization of resources and this could lead to shortage of resources. One of the weaknesses of Adam Smith’s theory of the invisible hand is that his theory is based on the assertion that people are involved in the process of making choices that are rational in nature and these choices are made to protect an individual’s own interest. Adam smith has fallen for the myth that people always make rational decisions, this is not necessary because, individuals are bound to make mistakes and their choices are not always rational and thus their choices can lead to destruction of the markets. Secondly, people make choices on the amount of information they hold, this does not mean that their choices are accurate because the information they might have is inaccurate and may be manipulated as the information they have access to is obtained from a third source. Two major elements of capitalism include: pursuit of one’s own interest and freedom of conducting economic activity. This means that there is no force that can stop people from using their money in whatever manner they want. If people choose what they want to do with their wealth, they might disturb the entire system. This is because an individual may choose to save a major portion of his/her income in order to attain economic security. If for example: all the people in the market resort to saving more and spending less, the economy will experience a recessionary session and people will lose their economic security. Such incidences have been witnessed during the sessions recognized as the Great Depression and the roaring 20s. According to Keynes, people lose their ability to make rational decisions and they make decisions that are unhealthy if they are unaware or if their predictions about the future are wrong. Another problem is that a market can never be as liberal as stated by the concept of liberalism, if a market would have been completely liberalized, then workers would not have been exploited by their managers. Conclusion A major theory of the international political economy is liberalism, according to this theory government should not intervene in market operations and they should allow the forces of demand and supply to shape the directions of the economy. The main advantages of such an economy is that people are free to produce what they want to produce and people are free to choose what they want to choose and since production is conducted while keeping demand in mind, efficient allocation of resources take place. On the other hand, the major weakness of this kind of a system is that people are irrational in their decision making and may ham[per the economy. References Bordo, Michael D.. A Retrospective on the Bretton Woods system lessons for international monetary reform. Chicago: University of Chicago Press, 1993. Davis, Mark, and Zygmunt Bauman. Freedom and consumerism: a critique of Zygmunt Bauman's sociology. Aldershot, England: Ashgate Pub., 2008. Heinberg, Richard. The end of growth: adapting to our new economic reality. Forest Row: Clairview, 2011. Lynch, David A.. Trade and globalization an introduction to regional trade agreements. Lanham, Md.: Rowman & Littlefield, 2010. Ruggie, John Gerard. Embedding global markets: an enduring challenge. Aldershot, England: Ashgate, 2008. Wilber, Charles K.. Economics, ethics, and public policy. Lanham, MD: Rowman & Littlefield, 1998. Read More