Capitalism System of Economy - Essay Example

Micro and Macro Economics

• Long essay question
  • Introduction

Capitalism is known to be one of the oldest economic systems around the world. During the time of Industrial Revolution capitalism evolved in England. In this system, various means of production are primarily possessed by private individuals where profit is their principal motive. Government does not interfere in varying economic activities of the nation. Capitalism system of economy is also known as free market economy. In free market economy there is less restrictions on market operations. According to Karl Marx, capitalists pay meager amount of wages to the workers and make them work harder (Murray and Pateman 110). Market operations in capitalism are regulated by competition and underlying motives of capitalist individuals.

• • Main characteristics of capitalism

Main features that capitalist economy possess are price mechanism, private property, consumer sovereignty, profit motive, freedom of enterprise, self-interest, democratic and no-interference of the government. Capitalists mainly invest their money to fulfill profit-making motive. Capitalist economy leads to intense market competition. The market dynamic that is created in capitalist economy deciphers artificial decrease in supply and increase in demand. In this type of economy, price of a particular commodity is never determined by cost incurred during production rather it is set by law of supply and demand. Credit system is an integral part of capitalism. Capitalist develops business by taking loans from financial institutions. As a result, increase in properties of the capitalists can be witnessed because of credit system (Robins, Robert and Weiner 113). Even during times of financial crisis capitalists take loan on the basis of market reputation. An industrial house gets its shape by the capital of various shareholders.

Government hardly holds any control over distribution, production and exchange under capitalism rather market operations do so. Every individual in capitalism has the right to maintain and earn property. Capitalism thrives on large scale production. Division of labor and gigantic plants increased the scale of production in capital economy. Resources are used to their optimum level in large scale production. In capitalism labors are exploited to a large extent. Primary objective of various capitalists is to extract as much work as possible from employees or workers and pay them lesser than the deserved amount. Quality of commodities is improved because of intense competition in the market. Choice of the customers pertaining to products is given importance by producers in capitalism or else consumers can switch to better alternative.

• • Objections to capitalism
• Capitalism thrives on exploitation of labor

Exploitation simply means that a particular group of agents hold control over the principles of society by various means of production. By controlling production surplus labor is generated by capitalists. Marx treats exploitation of labor as a matter of surplus labor appropriation from the direct producers (Cowling and Tomlinson 125). According to the Marxist theory, exploitation is considered to be normative in nature. There are two aspects of the Marxist theory; one where he claimed that capitalist is stealing some values that should have been endowed to the workers and in second one, Marx proclaimed that capitalist should pay workers much more even if their contribution is less in full value extraction. Delving deeper into the subject it can be understood that the workers are not endowed any right for claiming fruits of their labor. Capitalists accumulate wealth on the basis of exploitation of labor. People who are working hardest should be in the receiving end of maximum surplus compared to that of non-toilers. Exploitation can also be witnessed in social relations. It is objectionable because capitalists manipulate the working class or the hardest toilers to leverage their own malicious underlying motives. However, socialists do not express any objection because of the outcome allocation.

• Conditions that are created by Capitalism leads to alienation of labors

A society does not merely comprise of individuals; rather it expresses total sum of relationships and connections in which every individual finds his or her identity. Labor is the pathway of relating with humanity. Humanity develops through labor and human beings establish their relationships in the society with the help of labor. Ability to work of individuals has given rise to cumulative productive forces. Even class society is formed by the cumulative development. Alienation of labor gave rise to class society. By various means of production one class had control over the other as claimed by Marx. There are certain forms in social life which drives the force to wedge between the community and an individual.

• Capitalism promotes commodification of goods

Commodification is mainly the transformation of services, goods, ideas and different other agents as objects of trade for earning maximum profit. Workers sell their labor to an employer in exchange of a stipulated value. Critics of commodification argue that everything is not supposed to be treated as commodities because ascertaining value of certain objects is not possible (Tormey 82). Karl Marx considered commodification as the principle driving force of capitalism. Socialists find that commodification of consumer’s material needs is objectionable and not at all progressive. Commodification gives people purchasing power according to their needs and requirements. However, socialists claim that material needs of the consumer remain dissatisfied despite of commodification. Quality of life is also degraded to a large extent because of commodification.

• • Response corresponding to one objection

Capitalists claim that commodification expands its scope in all the corners of political and social life of the common people. They are strong supporters of markets and market operations. In fact, core element of capitalism is market. Without market competition production of new innovative products would have never been possible. Prevailing competition in the market prevents monopolization of products to a large extent. Moreover, consumers are the most benefited one in perfect competition market. Even though to some extent laborers are deprived of their fair share of wages or “fruits of labor”, capitalists compensate it by channelizing the surplus towards the consumers by providing them more value for money. Governmental bodies does not set prices of various commodities and services in capitalism rather customers are the king and thus they determine prices. As a result, balance is maintained in demand-supply dynamics of the market when consumers are instrumental for setting prices. Pressure that is created by the competitors in a market increases the quality of commodities and services. Resultantly, the consumers are benefitted because of capitalists (Strauss 143). Apart from these, capitalists claim that they have to take substantial risks with their capital for investing in the market. Fluctuations in the market may lead to losses that can be unrecoverable within short span of time; even the capitalists can become bankrupt during times of excess market fluctuations and misbalance in demand-supply dynamics.

• • Conclusion

Capitalism evolved first time in England during Industrial Revolution. It is characterized by free market operations, more number of competitors, and prevalence of credit system and non-interference of the national government. Main motive of the capitalists is to accumulating wealth and establish personal assets such as property. Workers hardly get adequate amount of money for their hard work in capitalism. However, consumers are the ones who extract maximum benefit from capitalism; it is because consumer demand determines the market prices and thus established businesses cannot cheat them by asking for higher prices.

• Short essay questions

According to Karl Marx, in serfdom and slavery exploitation is obvious. Everyone in the society knows that who possesses power in the form of wealth. Coercion is carried out in the society to allocate resources. In capitalism, workers do not get what they deserve even after working hard. However, the workers accept wages voluntarily and thus they are not coerced. Wage slavery is also a type of slavery where laborers sell their labor power to capitalists for earning their living. Technical definition of exploitation states that capitalists hold power to exploit the workers where they are not paid adequately. It is one of the fundamental characteristics of capitalism. Marx has analyzed that workers are compelled to choose between few benefits and accepting subsistence. The dilemma via which workers go through is either because of lack of skills or unequal distribution of wealth in labor market.

Capitalists take advantage of the labor market’s vulnerability and exploit the employees. The workers are exploited in terms of flourishing and capabilities. From the perspective of the capitalists it can be understood that workers can positively affect their welfare and fulfill profit-making objective. Principal reason for which employees are compelled to compromise their bargaining power is unequal distribution of wealth.

Karl Marx’s and capitalism theory of exploitation are interrelated with each other because to some extent workers are forced to work for fewer benefits even if they are underpaid by the capitalists. It is true that workers are not coerced by the capitalists to work under them and accept fewer wages voluntarily. However, the labor-market is inadequately mobilized by the market participants and force employees to accept meager wages.

According to Cohen, base motives of the capitalists are fear and greed; these two things make capitalists morally inferior to that of socialists. Capitalists make profit twice; once on raw materials which are used by them and another time when they make profit out of the business. It is the capitalist who let their negative emotions such as fear, greed and anxiety to prevail. Moreover, it is important to understand that anyone cannot turn their negative emotions on and off whenever they wish to. Alienate concept of capitalism demands continuous dirty production jobs from the capitalist for earning maximum profit from the market. Alternatively, capitalists manipulate both workers and customers and exploit their base motives. Capitalists treat laborers as manipulable objects and give them less respect.

Capitalism is not potent enough to equally distribute and produce wealth of a nation. For example, customers are in advantageous position in capitalism while laborers are subject to receiving fewer wages for toiling. Definitely wealth generation is important but its distribution is not equal in capitalism. Small amount of wealth which can be effectively distributed is more efficient to foster happiness amongst people of the society. Nowadays, corporations have accepted that they cannot make profit without serving the society. As a result, they conduct various activities such as CSR which looks after the welfare of the society in holistic sense. After the advent of open-economy multinational, companies have started to operate in international market sparingly. Resultantly, the competition that corporations face in global market is also intense compared to that of domestic market. Due to this market competition, employees have also started to receive reward for their hard-work in the form of incentives and promotions.

In negative income tax, families or persons who are having income less than a particular amount receive federal income subsidies. Claimants can receive negative income tax by simply filing tax return prepared particularly for the above mentioned income group. Complex welfare bureau is avoided by the government of a nation by providing negative income tax. However, this policy makes general public of nation reluctant to work or search for an employment. The taxpayers whose funds are allocated amongst the non-income tax payers demand accountability of their wealth allocation (Tormey 97). Moreover, taxpayers’ funds may not be allocated appropriately and non-tax payers may also be deprived of the benefit. According to welfare economics, redistribution of the available wealth of a nation can help to mitigate economic crisis such as poverty.

Amongst many fiscal policies, welfare state is one of the most notable policies rolled out by federal government. Main objective of welfare state policy was to reduce inequality amongst the members of society and support their standard of living. All these objectives would efficiently minimize administrative costs of a nation (Schroeder 575). During financial crises, states help the common people to overcome economic problems. It has always been difficult for the government to motivate voluntarily unemployed people to seek for employment despite of multiple hardships and consecutive failures. The payments that are done according to the welfare state policy varies greatly amongst various groups. For instance, people who are pensioned receive more amount of money compared to that of unemployed people. Alternatively, people who want to remain voluntarily employed or seek for job actively are rendered training and employment under negative income tax proposal. As a result, government can spend its capital optimally and help group of people who are in deep soup.

Freidman wanted to keep negative income tax proposal on the top layer by replacing other already enforced programs. If negative income tax proposal would be topped over other programs then cumulative marginal tax rates could have been witnessed. Marginal tax rates are bound to be much more of any family receiving financial aid from various similar programs.

4)

According to Singer most of people in society can contribute substantially by sacrificing their well-being for the sake of the holistic development of the society. For instance, if an individual come across a pond where a child is drowning then he or she is supposed to help the child even by letting some of his cloths to get destroyed (Barry and Øverland 200). Singer further claimed that there is not much difference between famine reliefs and above mentioned drowning child syndrome. In fact, helping a person in times of crisis is moral duty of everyone residing in the society.

Conclusion that can be drawn from Singer’s drowning child argument is simple; if it is possible to save an individual without substantial harm then a person should choose to help him or her.

There are few instances when even if an individual wants to contribute in global aid he or she cannot do so because of geographical distance (Singer 65). In the above mentioned Singer’s argument it can be understood that a person can instantly help a drowning child if he or she is physically present in the spot. As a result, a person cannot save a child who is drowning in distant land.