Economy and the Capitalist Society - Essay Example

Economy and the Capitalist Society Introduction This essay focuses on the unit of analysis that best examines the capitalist society. A capitalist society is a society characterised by private ownership the means of production (Cudd et al, 2011: 291). In reality though, there are numerous factors that interacts to define the capitalist society. However, in the complex twist of systems and structures, there is a question of what really gives the capitalist system its definition and meaning. Is it really the individuals who own the production systems or the institutions that shape up the capitalist society. There is conflicting view of how you look at this. This is because when capitalism is compared with other models like socialism, it seem that the individual or private ownership that gives a capitalist society it status. Cudd et al (2011: 291) identify though, that there is no pure laissez faire system of capitalism. They admit that there are variations of government regulation and this give way for some level of institutionalization in such societies. Institutionalization involves the exclusion of personal elements from a situation and ensure continuity and consistency with the wider society (McKnight & Block, 2010 p32) In this essay, the writer argues that although there is a conflicting view of the importance of the role of individuals and institutions, the best way of analysing and comprehending the normal capitalist society is to examine the institutions as the unit of the society. Principles of Capitalism Capitalism can be viewed as a social system where people are allowed to take important decisions about things and situations that concerns them and their economic wellbeing. In other words, the individual's view is the basis for the running of things and affairs in the society as opposed to a planned society where some members of the society determine the trends in social, economic and cultural matters and affairs. Perry et al (2008: 359) identify that in a capitalist economy, the society is characterised by private enterprise the main decisions (what, how much, where what price to produce where etc) are made by private individuals in their capacity as owners, workers and consumers. From this situation, it appears that the role of individuals is central and determines the fate of the capitalist system. However, in a deeper analysis of this statement, it can be identified that decisions are not fully left to individuals. This is because although each individual might have a preference or choice, the ultimate decision and final outcome of a capitalist economy is based on the interaction of market forces. This therefore implies that although individuals and their preferences play a major role in a capitalist economy, the final outcome of each option or course of decision making rests fully on the aggregate decisions and the decisions of other stakeholders which collectively determines affairs in the society. This therefore hints that the final outcome of the various choices and plans of individuals in the society is subject to some kind of regulation by stakeholders and some dominant players relevant to the whole situation. This therefore implies that the whole idea of a capitalist society lends itself to some degree of regulation. And the determinants of these regulation drives form the institutional structures that define capitalism rather than the individuals. It can be pointed out that in contrasting a capitalist society with a socialist, communist or fascist society where affairs are controlled by the state, the individuals the society might have preferences like residents of capitalist societies. However, the major institutions in the nation that prevent the individuals from having are the definitive factors of such a society. Therefore in direct contrast, it can be said that the absence of institutions or the different behaviour of institutions in capitalist societies in relation to individual choices and preferences defines a capitalist society and not the people. Human beings have a natural tendency to have preferences but the blockage or support of institutions determine whether the individual will have a free choice or not. The institutional model for the analysis of capitalist societies is manifest in several forms and ways. These forms and ways include customs, law, markets, government regulations and the Central Bank. Customs Capitalism cuts across the economic, social and cultural fibre of society (Grassby, 1999: 1). Grassby goes on to argue that capitalism was developed as a theory by sociologists and historians rather than economists. This seem to touch on certain conceptions and ideas that shape the dominant thinking mode in a given society at a given period in time. However, for a thought to have a significant influence in the society, it needs to be entrenched in the society through its institutions. The foundation of the capitalist society is based on the conviction that people have the natural right to property (Shaw, 2010: 139). This fundamental right is one that is shared by people in non-capitalist societies around the world. However, the structures in these non-capitalist societies might not permit that. In this situation, it will be absolutely wrong to analyse the individuals rather than the dominant institutions in the society. In the era of absolutism and feudalism in Europe, many individuals had potential and they could have attained much (Wood, 2008: 183). However, the custom at that time did not permit the normal element of capitalism. These customs were supported by very strong and tough institutions like absolute monarchies that had tax collection wings, strong military and powers that prevented people from making choices that they deemed fit. This therefore shows that institutions, and not individuals determine the dominant political economy. The Enlightenment in Europe was prompted by individuals who took part in popular protests and war against the Catholic Church, monarchs and nobles. It was the plight of suffering of the working class that prompted the French, Bolshevik and American Revolutions. However, what these revolutions have in common is that they changed the previous institutions that sought to suppress the free choice of individuals and replaced them with institutions that were more capitalist in nation ie could help individuals to attain their dreams and make free choices in a less regulated environment. Law Capitalism is supported by a strong legal system that supports the profit motive, private property rights, competition and companies regulation (Shaw, 2010: 134). This is borne out of the fact that no meaningful free markets can exist with a strong law backing these things. Companies code and laws are meant to ensure that companies can attain their profit motives but with some sensitivities. This is because without those regulations, there will be absolute chaos and this can be very detrimental and defeat the purpose for which the capitalist system is established. It is therefore very important for capitalist states to have a strong legal institution that supports its ends. This therefore means that analysis of the legal structures and how they work in a given society can give you a better picture about how capitalist a nation is rather than just examining how trustworthy or ethical the individuals are. This is because the human nature is such that anyone can do anything. However, the use of laws and enforcement of these laws determines whether a person will be ethical or not. So from this, I think that it is much more convenient to examine the structures and institutions of a nation rather than the individuals in the nation to determine the structure of the political economy. Markets One key feature of a capitalist society is that prices are fixed by the interaction of the forces of demand and supply. Thus, the extent to which the consumers' decide the prices of goods and services through the price mechanism is very much dependent on certain key elements of the political economy. First of all, there could be some elements in the economy that plays a major role in the fixing of prices. For example, there could be very strong producers that can influence prices through monopolistic or oligopolistic systems. There could be some other factors like cultural trends and activities that could affect demand as well as some production gaps like energy and the like that could affect supply. All these can best be studied by examining the entities that are responsible for these macroeconomic trends rather than the study of individuals who make up consumer base. Government Regulation & Distribution of National Income Aside the legal and market conditions, a key institutional player that determines trends in the capitalist economy is the government. Government regulation is very important and plays a stronger role in determining the figures of a capitalist economy rather than any individual. First of all, governments in capitalist economies collect taxes from individuals and entities operating in the country. This taxation is very strong in defining how the economy will behave. McNally (1988: 53) states that one of the main ends of taxation is to ensure that there is a fair distribution of wealth in a nation. This implies that the activities of the government and the role of these activities have a great effect in determining the features of a capitalist society rather than the individuals. Also, governments have the power to ensure that through their actions, resources are used more efficiently in the economy (Ito, 1988: 31). This is because the government can use its power of taxation and regulation to ensure that some sectors are encouraged whilst other sectors are discouraged. Central Bank The Central Bank of any capitalist system is an institution that plays one of the most significant roles in the economy. This therefore implies that studying the results of the Central Bank will make more sense in understanding the economy rather than the study of the individuals who are affected and regulated either directly or indirectly through the Central Bank. The Central Bank controls the state and institutional capital and credit systems (Harman, 2010: 109). The state and capital matters of the nation is determined in so many ways by the Central Bank and this therefore means that the study of such an institution and its data can give a very good view and overview of the national economy than the study of just individuals. One of the major roles of the Central Bank is the monetization of economic realities which determine inflation which affects the markets and demand and supply (Dillon & Wykoff, 2002: 131). The prices of goods and services and inflation, which is in the direct domain of the Central Bank has a stronger effect on a capitalist economy than any other thing. It is therefore more convenient to study facts and figures released by the Central Bank than to attempt to collect information about individuals and analyse them. Also, the intervention of the Central Bank in the economy through the payment of public debts affects general wellbeing and determines the ability of individuals to create wealth (Arestis & Sawyer, 2001: 194). This clearly shows that the actions of the Central Bank as an institution in the national economy is very important and crucial in the conception of a capitalist nation and its economic situation. Government Spending & International Matters Government subsidizes a lot of ventures in the economy, which affects the growth of individual businesses. The governments of capitalist nations spend a lot of money to ensure that the lives of individual citizens is bettered and improved. America used the Keynesian model which sought to improve capital generation and stem out unemployment in 1946 (Degen, 2009: 66). This model has ensured that individuals and businesses get more abilities to grow and support further growth. Government institutions need to monitor, analyse and report economic matters for policies to be formulated (Smith, 2005: 11). This also shows that government policy, another institutional creation is very significant in shaping up the capitalist society. It is therefore important that such policies are studied to grasp the idea of what makes up a nation's economy and what determines it in the larger sense rather than just examining the lives of a few individuals in the nation. Also, government foreign policy determines how individual businesses can access opportunities abroad and this can be very significant in determine important aspects of the local economy (Patterson, 2007: 341). For instance the US has made a lot of money by having its businesses trade in foreign countries. Also, the US has lost a lot of money intervening in wars in places like Iraq and Afghanistan and this is to be paid by the local tax payer. Analyses of the foreign policy institutions of the company can sometimes give a more vivid explanation of how things are going in the country, especially in times where foreign inflows or outflows are high. This therefore gives a better picture of the economy than just an assessment of the local population. Conclusion In conclusion, I think that the study of institutions in a capitalist country gives a better view of the country rather than the study of individuals. The main institutions like the government, legal systems, foreign policy, Central Bank, cultural structures, market players and private enterprises give a stronger definition of a nation's economy rather than the activities of individuals. Individuals might have tendencies and desires but the absence of pro-capitalist institutions might limit the way these tendencies and desires are actualised. References Arestis, Philip & Sawyer Malcom (2001) Money, Finance & Capitalist Development Edward Elgar Publishing. Cudd Ann E., Cudd Ann & Holmstrom Nancy (2011) Capitalism, For & Against: A Feminist Debate Cambridge University Press Degen, Robert (2009) The Triumph of Capitalism Transaction Publishing Dillon Patricia & Wykoff Frank (2002) Creating Capitalism: Transition & Growth in post-Soviet Europe Edward Elgar Publishing Grassby, Richard (1999) The Idea of Capitalism before the Industrial Revolution. Rowman & Littlefield. Harman, Chris (2010) Zombie Capitalism and the Relevance of Marx Haymart Books Ito Makoto (1988) The Basic Theory of Capitalism Rowman & Littlefield McKnight, John & Block, Peter (2010) The Abundant Community: Awakening the Power of Family & Neighbourhoods Berrett-Koehler Publishing Patterson, David (2007) Foreign Policy and Macroeconomy Hoboken, NJ: John Wiley & Sons. Perry Marvin, Chase Myrna, Jacob Margaret C, Jacob, James R. (2008) Western Civilization: Ideas, Politics & Society Mason, OH: Cengage Learning Shaw William (2010) Business Ethics: A Textbook with Cases Mason, OH: Cengage Learning Smith, Edward (2005) Application of the Keynesian Model in a Capitalist Economy Faraday Press Wood Meiksins Ellen (2008) The Origins of Capitalism: A Longer View Verso Publishing Read More