Compare and Contrast between Market Economy and Capitalism - Essay Example

WHAT IS CAPITALISM? COMPARE AND CONTRAST BETWEEN MARKET ECONOMY AND CAPITALISM No) (Lecturer)   Introduction Capitalism is an economic system that the means of production is own by few private individual in the society. The few individuals are referring to, as lords who own all the factors of production while the other majority members of the society provide labour to the capitalist. Capitalism goal is to maximize their profit at a cheap labour (Fisher 2009). The lords exploit the labour by paying minimal wage and use the surplus labour to be richer, and workers remain poor. Capitalism in the modern society has alienated the members of the society that own nothing, and give rise to the constant society conflict. Body Capitalism in the society leads to class structure between halves and halve nodes. The halves are the capitalist who owns all the resources, and have nodes are the labourers whose only means of subsistence is their labour power. The capitalist buy labour in the market likes any other commodity (EyalSzelényi &Townsley 1998). The surplus of labour in the economy goes into the capitalist in the form of supernormal profit. The surplus arises due to the worker working overtime with no payment. If a worker is assign to work for a certain job within 10 hours, and the worker finishes the task in 7hours, the 3hours extra will go into capitalist profit. Capitalist is society trace origin from 13th to 16th century. The reasons for emergence of capitalism in society were due to the society need to use wealth to create more wealth. In pre-capitalist society, the profit from enterprise was shared among the society members. The land, labour and capital were not factors of production but communal resource. With the emergence of capitalism, labour was viewed as a factor of production. The profit for the entire company goes into the pocket of one person. Capitalism develops fully in 16th century with the industrial revolution and development of companies. Industrial revolution is a period of advancement of industries due technology and innovation. Advances of industries leads to few individuals accumulating a lot of wealth leaving others poor. The companies that were developed were in a group of people but everyone depend on herself. Industrialization lead to emergence of capitalist nations in 17th century that became economically powerful. In a capitalist economy, the level of completion is high to economic scarce resources. The owners of production face completion in prices of goods and services from other individuals in the society. The competition in the society will leads to alienation of the owner and workers. The owner of the factors of production will be alienated by the level of high level of competition in the commodity market. The workers are alienated by low wage and pressure from the boss alienates the workers leading to anomy amongst the workers. The emergence of class in capitalist society alienates the lower class individual from the society. Capitalism is viewed as a three levels of system in the society: political, institutions and the market. Markets compete for the scarce factors of production and the satisfaction of the customers. Institutions comprise the physical and social infrastructure in the society(Rand Branden Greenspan & Hessen 1986). The physical infrastructure is communications channels and the transport system; social infrastructures include legal systems, schools and health facilities(Cohen 2008). Society agents who protect the rights of the society members, such as the consumer federation movement fall under the second level of the capitalist. Consumer Federation movement protects the rights of the consumer from consumption of poisonous goods paying high prices to goods and services. The third level of political institution deals with the formulation of the society laws. Political system comprises the three arms of government: legislation, executive and judicial. Law is necessary to regulate the behaviours of individuals in the society. Political power is responsible for the country to achieve the economic power over other nations. All the three levels of capitalist use the society resources to satisfy consumer utility. Capitalist compete in production of goods and services in the economy thus satisfaction between the actors and the society. Capitalist in economy combine labour and capital to produce goods and services to the consumers. Market economy is a free trade that the demand and supply of goods and services interact together to form an equilibrium in the market. Every person own factors of production individually and produce goods and services to the market. The prices of goods and services of the product are determined by the consumer taste and preference and the level of demand and supply in the market. The market economy involves competition of the producers, and every stakeholder is responsible for their action. Market economy creates more innovation of a new product to the level of competition in the market. Market economy utilizes technology to come up with new products that suit consumer tastes and preference. In market economy, all the agents are struggling to make them better off than others do. The producer maximizes their profit by supplying quality and in large quantity to attract more buyers of their products (Sirich 2012). The consumers are willing to pay low price for commodities in the market. Consumer’s goal is to satisfy his or her utility using low income. The producers and the consumers are competing to gain a market share. In real life situation pure market, do not exist due the need of government to interfere with the economic activities to regulate the parties in the market. The government to achieve the planned and the mixed economy use market economy by the government. Planned economy is a central government mechanism of distributing goods and services in the economy using fixed prices. The mixed economy the prices of goods are determined by forces of demand and supply and the government. Mixed economy is ideal for a country to overcome capitalism economy. Market economy and capitalism is a free completion economy. There is no government interference in both markets. The players in the market use their capacity and resources to achieve the market power. The prices should be set at a relatively low level because consumers will go for products that are selling at a lower price. Market economy and the capitalist have trade across the borders of a nation to countries that have form trade agreement and have favourable policies that encourage investors from all over the world. In both market economy and capitalist, the demand and supply curves determine the price and quantity of goods and services in the respective market. The demand of goods by the consumers determines the level of prices in the market. When there is excess demand, the price level rises up to reduce the demand to meet the supply. When the supply is high in the market is high, the price is reduced to cut down the number of producers supplying to the market until the initial equilibrium is achieved. Both economies majorly depend on the market forces as price determining factor. Capitalist refer to the production of wealth by the capitalist who owns the essential factors of production. Free market deals with the agent’s exchange of wealth using the market mechanism. In both markets, the capital is the unifying factor to the economy agents. In market, economy there is free trade that brings about equality in the economy. Capitalist society owners have an influence on the market because they are the owners of production. The capitalist make decision basing on his or her opinion hence inequality on the part of workers. Globalization has increased the capital power hence, accumulation of wealth by capitalist from the unfair exchange. In market economy, the agents deal with goods, services, and minimal exchange of capital unlike in the capitalist that majorly deal with capital exchange. Capitalist prices are determined by the free market mechanism, but the concentration of the wealth on the hands of the few, negatively affects the supply side of the market economy. Capitalist economy deal majorly on the demand side and ignore the supply side of the economy. The demand side of economy deals with prices of commodities in the market and ignores the supply of goods leading to inflation of prices in the economy. The free market economy depends on the level of demand and supply while capitalist determines the terms of trade. Capitalist factors of production are own by one person who manage the factors using his or her means. The owner employs labourers and determines the price to pay to the labour. In a free economy, one person but a group of person or the general state does not own the factors of production. The free market determines the price of goods and labour in the market (long &Luong 2010). Allocation of state own factors of production is done by the market mechanism for equity in the state. The market economy advocated free market mechanisms but minimal interventions by the government. The government regulate services that are essential to the public and cannot be provided by the private persons in the economy (Kates 2007). Publics goods are non-rival and cannot exclude other members of the public hence private person find it expensive to provide. In capitalist, they advocate a free economy with no government intervention. The economy regulates itself back to the equilibrium whenever there is excess or deficit in the factors of production. According to capitalism the market, bring justice to the society unlike the government that bring about inefficiencies in the market. Capitalist make maximum profits in the short run and the profits are reinvested back to the business. The capitalist reinvest the profit over a long period until he completely own all the factors of production in the economy. The capitalist goal is to derive maximum wealth by using the available cheap labour in the economy. The market economy profit is distributed to the members of the public as per individual contribution to the economy. Individuals who contribute more earn a larger share of profit (Johnston 2003). While the individuals who contributed less gets a small share of the profit. World markets depend on market and the government to regulate the demand and supply. For a competitive market, the market is independent of government regulation. The market forces interact freely to achieve equilibrium. When the demand is high the price of the goods rise thus, shifting the demand down to meet the supply. Other things constant when the supply is high, the market price of commodities goes down thus, shifting the supply curve to meet the demand curve. If the international markets behave like perfect competitive the market, it could be easy to manage and operate in the market. However, competitive markets are theoretical framework and are not found in the real world. Market forces alone cannot determine the prices and quantity in the economy. The consumer taste and preference, technology and income of the consumer play a major role in the determination of market prices. Government regulation and policies play a bigger role in the market prices. The government activities such as wage control, tariffs and quotas affect the quantity and prices in the market. The government intervene in the economy to regulate the producers and consumers. If the producers are not regulated, they will exploit the consumers by inflating the prices of commodities. Capitalist system is a political and economic system in the short run. Capitalist is serving as an economic agent where factors of production freely interact to achieve the desirable equilibrium; labour in capitalist society is a commodity just like goods and services. The capitalist has more influence in determining the prices of labour (Johnston 2003). Capitalist depend on the government institution to formulate market policies. The state regulates the market of goods and services to protect the minority rights. The government use direct or indirect methods, to intervene to the economic activities of capitalist in the economy. The government in a capitalist economy serve as an administrator and innovator. The government serve as bureaucracy organization rules are followed, and there is a chain of command. The government innovation is a source of change in the system to replace the old system. Capitalist advocated a free economy with no government interference, in a free economy the capitalist that would coordinate economic activities. The capitalist set the price goods and services without the interference from government using the market mechanism. Capitalist economy should cope with changes in the economy to due to technology and the preference of the society. Capitalism and free market economy are faced with the problem of market failure. Market failure is a state that the market fails to allocate the resources effectively and efficiency. Monopoly, externalities and the existence of public good in the economy cause market failure. Capitalist is served as monopolist since they own all factors of production while the rest provide services to them. The capitalist can produce goods and services that are of low quality because the market offers no competition (Piketty & Goldhammer 2014). Market economy is a free market and existence of public good will not be sufficiently provided. Capitalist economy should involve government in their economic activities. The government will protect the labour and the consumers from the exploitation by the capitalist producers; the state will set the price limits and standard wage rate for workers. In a free market, the government will take care of externalities and provide the public good (Mansfield & Milner 2012). Externalities and public good bring about disequilibrium in the market and lead to market failure. Capitalism leads to inequality in the society. The owners of production acquire all the wealth leaving the labours with nothing. The capitalist society does not promote the welfare of individuals. The capitalist exploit the worker to provide services at a cheap labour. The labours work over time but given the same amount of wage. The owner in form of a profit takes the surplus value leaving the worker in poor condition and the only means of survival is to provide labour for subsistence. Capitalism has led to social evils in society due to the creation of social class. The main goal of capitalist is economic empowerment and does not consider the needs of society. Emergence of capitalism has increase unemployment and social unrest due to the low wage. When most people are unemployed and the ones employed are not paid well, the society economy will decline leading to social evils. According to Karl Marx the father of capitalism, he advocated for communism as oppose to capitalism. Marx saw the capitalist as exploitative and can create conflict arising from the social class. Conclusion Capitalist and market economy should introduce a social market mechanism in the economy. The social market is a type of economy that factors of production are own by the public. Individuals in the society work to achieve Pareto efficiency point for the public. In Social markets, forces of supply and demand interact in the determination of the prices of goods and services. Unlike the capitalist, social market protect the labour rights and reduce the class conflict in the society. Capitalism has put pressure on the members of society to make money for survival. The organization that was found for provision of services to the society has conformed to making revenue. Capitalism society has increased the activities in modern society as means of survival. Individuals in society have lost meaning of the communal with the members of society and nature. The capitalism society has brought about alienation from the community. Capitalism is associated with spiritual emptiness. Capitalism economy creates a natural monopoly because they own all society factors of production. The monopoly exploits the consumers by charging high prices on goods and services. The capitalist in the market deny entry into the market by other new players. The monopolist creates market power by raising their prices above the equilibrium prices to scare away any new investors. Monopoly lack competition hence produces poor quality goods and a high prices because they are the sole owners. Capitalism cannot take care of externalities in the society. Externalities are cost to the society; it can be positive or negative. The positive externality is a cost that a private company suffer due to the action of the society. The negative externality is a cost to the society by private persons. The involvement by the government in the economy regulates the effect of externality on the economic activities. Capitalism is a free reign with no government interference thus cannot regulate the externality. Reference Amin, S. 2003. Obsolescent capitalism: Contemporary politics and global disorder.London: Zed Books. Cohen, B. J. 2008. International political economy: An intellectual history.Princeton: Princeton University Press. Fisher, M. 2009. Capitalist realism: Is there no alternative?.Winchester, UK: Zero Books. Johnston, R. D. 2003. The radical middle class: Populist democracy and the question of capitalism in Progressive Era Portland, Oregon. Princeton, N.J: Princeton University Press. Kates, S. 2007. Free Market Economics: An Introduction for the General Reader. Cheltenham: Edward Elgar Pub. Piketty, T., &Goldhammer, A. 2014.Capital in the twenty-first century. Sirico, R. A. 2012. Defending the free market: The moral case for a free economy. Washington, DC: Regnery Publishing. uong, H. V., &Luong, H. V. 2010. Tradition, revolution, and market economy in a North Vietnamese village, 1925-2006. Honolulu: University of Hawaiʻi Press. Piketty, T., &Goldhammer, A. (2014).Capital in the twenty-first century. Rand, A., Branden, N., Greenspan, A., & Hessen, R. 1986. Capitalism: The unknown ideal.New York: Signet. Eyal, G., Szelényi, I., &Townsley, E. R. 1998.Making capitalism without capitalists: Class formation and elite struggles in post-Communist Central Europe.London: Verso. Hawken, P.,Lovins, A. B., &Lovins, L. H.2010.Natural capitalism: The next industrial revolution.London: Earthscan. Mansfield, E., & Milner, H. 2012. Votes, Vetoes, and the Political Economy of International Trade Agreements (pp. 20-30). 41 William street, Princeton, New Jersey 08540: Princeton University Press. Read More