Rise of Capitalism - Essay Example

Rise of Capitalism Introduction: Capitalism has become the widely accepted as the most appropriate form of organising the economy. There were other forms of economic organisation which include feudalism and socialism. In Feudalism the system the lords were owners of land, the lord would grant the vassal ownership of the land and in return the vassal would provide military services to the lord. The socialism form of organisation entails collective ownership of resources, this means that the means of production were owned by the state, every individual have equal opportunity in this form of organisation. This paper analysis the key characteristics of the capitalist form of organising the economy, that make it different from the other forms of organising the economy. Characteristics of the Capitalist Society: Economic Freedom: In the capitalist system individuals have the freedom to make economic decision as stated by Friedrich (1995), individuals are free to make decision on their own unlike the other forms of organising the economy, this means that the individual will decide what to consume and in what quantity, he or she will also decide on whether to work or not to work, save or not save. In the socialist system individual are assigned roles and these roles are equal and this means that there is limited choice. Also in the feudal system it is also evident that freedom is limited and that decisions are made by the lord who is the owner of land. In the capitalist system there is freedom of enterprise whereby individuals are free to make business decisions, however this decision is limited by competition where decisions in the market are made by demand and supply forces. Private Property: According to Marx (2002) in the socialist system means of production and resources are collectively owned by the society and individuals do not own property. The capitalist system however is different in that the individuals in the economy privately own property. As owners of property an individual has the right to utilise these property and even dispose property, by utilising property owned individuals will own land and the reward for land is rent, labour whose reward is wages, capital whose reward is interest and enterprises whose reward is profits. Therefore this system is different from the socialist and feudal systems in that there is private ownership of property. Competition: In a capitalist society there is competition in the market. Friedrich (1995) states that competition in the capitalist system is based on the assumptions that there are many buyers and sellers in the market, This assumption means that the existence of many buyers and sellers means that the prices and conditions in the market cannot be controlled by one buyer or seller. The other assumption is that there are zero barriers to entry and exit into an industry by firms, this means that the market supply and demand depends ion the nature of market where if only some firms controlled the market than competition will be limited and prices determined by the firm in the industry. The other assumption is that consumers have knowledge regarding prices in the market. This means that a consumer has information regarding the quality and price of a product and therefore firms will compete in the market to meet consumer price and quality requirements. Therefore the capitalist society is characterised by competition and this competition leads to the proper allocation of resources of production, the other systems have limited competition where in the socialist society no competition is evident because this system is based on equality philosophy. Motivation: The capitalist society through its competitive nature helps in promoting increased production and innovative ideas. The nature of the capitalist society motivates individuals to involve themselves in production activities unlike other forms of economic organisation. Given that production resources are scarce the individuals in the economy will compete with each other in effectively utilisation of resources in the economy. Competition will lead to invention innovative ideas that aid in economic growth. Resources for production are also properly allocated and valued, this is due to the fact that the market demand and supply determines the value of resources and this value is regarded as the most optimal value. This is in contrast to the other forms of economic organisation which may not assign optimal value to production resources and this system may also promote inefficiency in the economy where individuals will not be motivated. Government and Government Intervention: According to Friedrich (1995) in a capitalist society the government has limited roles to play in the economy, government intervention in the capitalist society is only necessary in times of crisis, scholars like Adam smith state that government intervention in the market only leads to inefficiency and therefore advocated for a free market economy where the role of government is to create legal and economic policies for the market to operate effectively. The economy in the capitalist society is characterised by a mode of governance whereby the government makes important decision in the economy unlike in the socialist society where decisions are make collectively. The government controls the economy and makes important decision, the feudal system is characterised by a decentralised form of command and therefore makes it different from the capitalist system. Prices in the Market: The price in the capitalist society is determined by the demand and supply in the market, buyers and sellers communicate through prices, the quantity and quality of a service or product that a buyer is willing to buy is communicated by the price, also the quantity and quality a seller is willing to sell of a good or service is communicated through prices, therefore the price summarises the desire of both seller and buyer in the market. According Friedrich (1995) Adam Smith states that the price is an invisible hand that depicts what, how and for whom to produce. Social Inequality: In the capitalist society the social organisation of the society is different from the other systems. The nature of the capitalist society is that it promotes social inequality; this is in contrast with the socialism form of society which promotes equality. According to Karl Marx (2002) the capitalist society there are two groups of individuals and they include the workers and the owners of factors of production. The owners of production employ workers and pay them poorly and this promotes inequality, therefore Marx (2002) advocated for a socialist society which would promote equality where means of production would be collectively owned, Marx (2002) criticise the capitalist society for promoting alienation and exploitation of labourers by owners of production resources. Inequality leads to the emergence of social classes and therefore there those with high social status and those with low social status. In a capitalist society the movement from one social class will be influenced by a number of factors, they include education, chance, inheritance and marriage. Individuals can move up the social ladder through education where individuals with higher education will be ranked high in the social ladder, the other factor is chance and this entail luck where an individual can move up through the social ladder by chance, for example an individual who wins a large amount in a game. The other factor is marriage where a poor individual can be married by a rich individual and therefore move up the social ladder finally inheritance is another factor that will improve an individuals social status. Self Interest In Decision Making: Decisions in the capitalist system are based on individual interests, these self interest are as a result of economic incentives that prevail. For example an individual’s interest in earning profit, rent, labour and interest will make him or her to utilise scarce resources he or she owns, however individual will avoid making losses and therefore the individual will not engage in productive activities. Therefore positive incentives in the economy will encourage production while negative incentives will discourage production in the economy. The capitalist system decision are therefore dependent on self interest, according Friedrich (1995) Adam smith states that when every individual in the economy pursues his economic self interest then every individual in the economy will benefit. Conclusion: From history it is evident that the socialist and feudalist form of economic organisation have failed to establish desired economic organisation, the socialist form of organisation failed in many economies including China and the Soviet Union. Capitalism has become widely accepted as the most appropriate way to organise the economy. Capitalism has characteristics that make it different from other forms of economic organisation and some of these characteristics include economic freedom, private ownership of property, competition, social inequality, and limited government intervention and individual decisions guided by self interests. For this reason therefore the widely accepted form of economic organisation is the capitalist form of economic organisation, despite the numerous critics of the system from scholars’ example the promotion of inequality, alienation and exploitation the system is the only way in which a society will achieve desired growth and economic stability. References: Friedrich, Hayek (1995). The Pure Theory of Capital. Chicago, University of Chicago Press Marx, Karl (2002). Communist Manifesto. New York, Penguin publishers Read More