The Term Capitalism - Essay Example

The term ‘capitalism’ is usually given the definition of a system of economy in which the players in the private sector have the liberty of owning as well as controlling the application of property with regard to their individual interests and a system in which the ‘invisible hand’ where the price mechanism determines demand and supply functions in various markets in line with the society’s interests. At this point, according to Scott, the government is the force force responsible for justice, peace and reasonable taxes. Therefore, capitalism is described to be a system of economy where government indirectly controls this economy by making a provision of stability in institutional frameworks. Governance here refers to the political authorities. There is also the point of view by Scott; that it is a three-level type of system where markets rank first, institutional foundations second, and political authorities come in third. Markets are platforms for competition, institutional authorities lay the foundation of markets’ existence and political authorities give a hand in administering the economic system. (Scott, 2006) This paper sets out to provide the most comprehensive answer to the study question, “Should capitalism be taken to be more of a political than economic achievement?” The study is going to take a stand that capitalism is more of an economic achievement and to the aid of this argument; several scholar’s works are going to be put into consideration. Economists like Karl Marx predicted that a capitalist type of economy would be faced with a permanent caving in. The vision, which is synonymous to classical economics, foresaw a situation of economic chaos which would be reflected in periods of depression and these would recur. This chaos would intensify as time went by according to these speculations. (Sowell, 2007 p184) Later on, after classical economists and their predictions of capitalism’s collapsing came the neoclassical economists who ignored the problems of macroeconomics stipulated. That is, the forces of development and economic growth. These economists concentrated their forces on microeconomics and their concerns rested on the study regarding a system of static equilibrium. Therefore, classical economists viewed capitalism a system where stability had to be brought about by a system of good performance. Economists of neo-classical era did not fully do away with the views of classical economists; rather theirs was just to bring about change and continuity at the same time. The basic idea was that only the free play amongst the forces of the market would ensure full application of the available resources without the intervention of the government. Across the schools of thought was the common view- that of equilibrium at full level of employment and that meant an economy at a normal state with consideration of wage and price volatility. Full employment went tandem with total equilibrium. In addition, neoclassical economics brought about the new analysis tool called marginalism. This tool was applied in making an explanation on the issue of the price mechanism. As per their argument, the primary role is played by demand as opposed to supply while determining the value as the classical economists might have earlier purported. It is vital importance to realise that this concept of marginalism developed with time- during mid and towards the end of the 1800s. It only happened that another economist Alfred Marshall put it that prices were reliant upon supply and demand alike. (Piedra, 2004 pp103,104) As the study continues to analyse the scholars, note that capitalism was an invention of Adam Smith but it underwent refining through various stages. At some point this invention by Smith came to a state of near collapse. Notable are the impacts of the 1930’s Great depression and the economic events that happened in the 1900s that nearly brought capitalism to its knees. Living standards were under immense pressure and what had been achieved before under capitalism was almost being lost. Under this pressure on capitalism about a thirds of commercial banks caved in, output from industries in the USA declined by around 30% unemployment levels rose to above 25% and the value of stock prices plummeted by about 85%. Europe had a similar scenario. Capitalism system of economy was being questioned from all angles and moreso on its stability. Despite these forces, some intellectuals stood their ground while others turned to nationalism, socialism and central economic planning. Those who remained and argued for capitalism were like the outspoken John Maynard Keynes. He argued from a stable position and said that the economy had to remain with liberty and the government did not have to take the central position of the entire economy’s running. The government would only be a supporting function to the economy. The book by Keynes says it all, “The General Theory of Employment, Interest and Money.” The book by Keynes had the argument that though capitalism remains unstable as well as it has no trend of achieving full employment levels, no nationalisation need arose and no controls on wage would be called for. The inability of demand and supply in achieving equilibrium would juct call for the government’s intervention until stability could be achieved. (Skousen, 2007 pp135,136) Therefore, the Keynesian arguments as well as his predecessors are all about the fact that political intervention is indirect and what really matters in capitalism is the ‘invisible hand’ setting prices through the interaction of supply and demand. (monthlyreview.org, 2009) The conclusion is that the whole time, the economists argued about capitalism and saw it as more of economic forces reliant than political. The ‘invisible hand’ determines it all. Forces of demand and supply are wholly reliant upon prices in the market. Capitalism is a matter of economic pressures than political, therefore. Governance or the political set up just aids in making the components of capitalism remain in place. To this, classical through neoclassical to economists of recent times like John Maynard Keynes, put it that capitalism depended upon supply and demand forces and not governance. To all these economists, the political system just provides a platform in which the economic players determine the trends of capitalism. Thus, the conclusion is that capitalism is more of an economic achievement than political. This is in trying to answer the study question, “Should capitalism be taken to be more of a political than economic achievement?” Reference list: monthlyreview.org. (2009). Keynes, Capitalism, and the Crisis. Retrieved 1 April 2011 http://mrzine.monthlyreview.org/2009/foster170309.html Piedra, Alberto Martinez. (2004). Natural Law: The Foundation Of An Orderly Economic System. Lexington Books.p103,104. Scott, Bruce R. (2006). The Political Economy of Capitalism. Retrieved 1 April 2011 http://www.hbs.edu/research/pdf/07-037.pdf Skousen, Mark. (2007). The big three in economics: Adam Smith, Karl Marx and John Maynard Keynes. M.E. Sharpe. Edition Illustrated. pp135,136. Sowell,Thomas. (2007). On Classical Economics. Yale University Press. Edition reprint, illustrated. p184. . Read More