How Capitalism Works in Different Scenarios - Coursework Example

Rise of Capitalism Introduction The underlying basis for capitalism is to use wealth to make more wealth. This can only be achieved through focusing on profits and consequently, the profits made are invested to bring in more profits (Holliday 706). A capitalistic mind will always be self centered and in look out of opportunities to exploit. The simplest example to demonstrate this is through lending money which will be returned with interest. Another form of capitalism but a sophisticated one is through the investment of money into projects which will later return as profits. A demonstration to show how capitalism works is in factory scenarios, where a lot of people are involved in the production process but the profits are reaped by one person (Laibman 478). The characteristics of capitalism have been viewed to be the major causes of modern day problems such as war and crime. This is so because all live aspects are subjected to the extremes of profit making. According to Hagopian (803) capitalism is a social organization which is currently experienced in every country. In this type of organization, means that are used for production are owned by a minority group in society (capitalistic class). The rest of the population has to sell their labor in exchange for salary/wage (working class). Unlike the communism form of organization where a society has no classes, in capitalism class division plays a major role. Capitalism is best explained by Karl Marx who says a capitalistic society has two main classes; those who have (own the means of production) and those who have not. There may be the existence of other classes in society but the two are conceived as the major ones. According to Marx those who have are fond of exploiting those who do not have hence conflict will always exist between the two classes (Wood & Geoff 303). This is what forms a capitalistic society and that is how it operates. Capitalism is the mode of production that is employed in our contemporary societies. In many societies today you will find the existence of the two main classes. Exploitation comes about when the capitalistic class uses the working class to their benefit (Wood & Geoff 304). This is because as much as the working class is the one working on the ground the overall profits realized goes to the capitalistic class. Costs paid by capitalists in the production process such as salaries are way too low as compared to the profits realized. These profits are then invested in order to generate more profits, leading to further wealth accumulation. When the working class gets tired they will result into a revolution and finally the society will go into a state of communism (Holliday 706). At this state no one owns anything and Marx asserts that the process will repeat itself. Origins of Capitalism Blaut (127) explains the history of capitalism by first letting the people know the transitional debate history. Capitalism origins can be best explained through the commercialization model. Economic scholars, who have attempted to account for capitalism origins, have tried to explain it from the point of commercial activity extension. The transitional period happened during the era of urbanization when people change their production modes from subsistence to industrial. Through industries a lot of goods were produced which needed to be exchanged hence commerce. Moreover, since industries carried out numerous functions, there was the need for labor (Laibman 478). Since these industries needed to be managed and maintained, there was the emergence of people who controlled the means used in production. From the above explanations capitalism can be viewed to be a phenomenon of the urban that arises from the gradual and expected commercial activities expansion. Consequently, expended commercial activities lead to the establishment of trade networks throughout the world. Wood and Geoff (305) argue that such explanation of the rise of capitalism views capitalism as an opportunistic arena and not an imperative. This is because the history is explained in terms of a slow removal of the feudal traits and replacing them with the middle class. The feudal traits had previously hindered the overall goal of maximizing profits by the self-interested individuals who perceive situations rationally (Holliday 723). These individuals saw the capitalistic ideology as the means to achieve their goal. The commercialization model also seeks to explain capitalism from the point of view of advances in technology (Hagopian 803). Before industrialization there was no technological equipment that was used in production. However, with the emergence of industrialization, there was the need to come up with machines to make work easier since work in industries was overwhelming. The introduction of labor-saving machines in industries lead to increase in productivity, hence need for exchange. Furthermore, division of labor lead to maximum utilization of labor in order to increase returns which are required to finance the high production costs (Laibman 485). A critical analysis of all these activities concludes that in such situations capitalism will play a very important role. The Marxist model into the explanation of capitalistic origins shifted the focus from commercialization to social classes (Penfold 212). Marx looked at the emergence capitalism as being caused by the struggles that exist in society between the classes. At the same time other scholars came up with different explanations aimed at identifying the causes of struggle among the rural classes. These scholars were trying to show that capitalism is not always a phenomenon of the urban as perceived by many but it also exists within the rural. They argue that by being termed as a thing of the urban, it limits the existence of capitalism which is not true. Hagopian (804) contends that capitalism however especially in the modern days exists in any type of society since individuals’ economic statuses are likely to vary widely. Wood and Geoff (305) considers the above claims to be true to some extent since they still had the same view of the market as an opportunity which needed exploitation. One the rural classes won the war over their parasitic landlords, they could exploit the opportunity by engaging themselves in capitalistic modes of production. This arguments compares highly to the Marxist claims as both are based on class struggles and their underlying assumptions fit perfectly to the claims of the commercialization model (Hejeebu & Deirdre 135). All in all the fact remains that capitalism is an opportunistic venture, where participants aim at exploiting an existing in order to reap maximum benefit from it. Moreover, there is a contention that in any capitalistic society individuals are self centered. Another historian named Brenner R. explained that the emergence of market forces was an accident resulting from the actions of tenants and their landlords (Huato 109). Since landlords desired to make more profits, they could impose high rents for the tenants. On the other hand, tenants needed to go an extra mile of putting their labor into maximum use in order for them to pay their rents. Such struggles between the two classes gave rise to the market’s competitive imperative. Laibman (492) asserts that these imperatives emerged due to the actions of the classes as they struggled to maintain their existence modes. The classes would do all that it took to attract and maintain the markets without which they would cease to survive. In studying capitalism, it has been found that the agrarian capitalism of the Europe was not only the cause of imperialism forms and worldwide trade but industrialization as well. Hejeebu & Deirdre (140) argues that the differences that existed between the land owners and the tenants were widening the gap and eventually tenants were turned into the working class. Afterwards peasantry not only became the fundamentals of industrialization but also a basic means of survival. The low class depended purely on it in order to get basic commodities of survival such as food and shelter. This was because with such trends access these basic commodities were limited. According to Penfold (213) without such unfolding of event in Europe, capitalism could not have ever emerged. From the above explanations about capitalism, three major characteristics of capitalism can be formulated: division of classes, profit motive and capitalism as a free market. First in trying to explain the division of classes in society Wood & Geoff (307) asserts that capitalism will always divide people according to what they own. Having divided people completion and struggle will set in as each individual aims for the better. The low class will struggle to enter the middle class as the middle class also aims for the highest class in society. On the other hand, the highest class will always want to maintain their power and control in order to continue enjoying the privileges that are attached to them (Hagopian 804). Competition is also likewise going to set in since people struggle to own the limited resources. The profit motive sets in because capitalistic minds are always profit oriented. Capitalistic production aims at producing more than people can need in order to send the excess to the market (Blaut 140). Hence the products of capitalism must find a potential buyer but the exchange will only happen when the seller see a satisfactory amount of profit. According to capitalism, the process of production does not start with consumers’ needs but rather starts when capitalists realize the possible profits to be reaped. However, this is not due to capitalists’ greed but it is due to their need to maintain their positions in society. Penfold (214) concurs that even after the high class in society has made enough profits, they still want to get more in order to keep up with the competition. Eventually, it is assumed that capitalism breeds a free market in which goods and services are always available for exchange (Laibman 502). However this is not always the case, since there are cases in which capitalism does not reflect a free market. This is because capitalism can be likened to socialism since the two have almost similar characteristics. For instance taking an example of what existed in Russia during their communism times, there still existed wage exploitation, production and exchange of commodities. Russia traded according to the demands of the international capital and it was ready to even go to war in order to defend its interest economically. This is exactly how a capitalistic country behaves (Huato 117). Hence this is an indication that communism cannot exist in a single country rather exists as a global economy just like capitalism. The Central Tenets of Capitalism Capitalism and economic freedom According to Smith (26), capitalism system is well-known for the deficiency of the central government possession, participation and planning. Society members make their own decisions without involving the central government. Freedom of Consumption As observed by smith (27), individuals in capitalist economy have the right to decide on what to buy in the market. The only constraint in the market is the individual’s income. In this case, individuals have the right to choose what can satisfy them with the limited available resources. This is referred to as the freedom of choice. Freedom of Production Individuals have the right to choose their area of involvement in the production process. Individual has the freedom to choose what contribution to offer in the production process. On the other hand, individuals have the right to decide on their occupation within the confines of his/her skills. The Freedom To Save In the capitalist system, the customer has the right to choose between the abrupt and prospect consumptions. Individual save for future satisfaction. In the capitalism setting, cutback is more than saving for future satisfaction. The accrual of saving means the accumulation of possessions. The freedom of saving is therefore very essential in capitalism. The freedom to invest Individuals have the freedom of increasing their wealth through investing their income surplus. The resources which are not invested reduce the income in the society. The liberty to save and invest makes the capitalist economy susceptible to employment. Freedom of Private Ownership As observed by smith (28), freedom of private ownership has to do with freedom to use capital, money, and land at an individual liberty. Ownership can either be direct ownership or indirect ownership. Other Economic Freedom Individual has the liberty to utilize all available economic alternatives for wealth increment. Manufactures have the freedom of creating the most profitable production line. The customers have the freedom of getting the products that can satisfy their needs. Competition This a distinctive attribute of capitalist economy. Businesses compete to earn customers. They come up with attractive quality products at a reasonable price. This generate a more effectual market in which unfair situation are unlikely to emerge The Profit Motive Profit is the basic driving factor in capitalist system. Owners of the production factors try to maximize the profit in their business. All production factors in capitalist society have financial value. Pricing and the Market Mechanism The market in the capitalism determines the price of the commodities. The market supply and demand determines the prices of the commodities in the market Benefits of capitalism As stated by Zellig (124) the greatest benefit of capitalism is its aptitude to enact human choice. It institutes a social contract that makes it likely for individuals to practice their franchise. It also grants people with the capability to provide security to themselves and their assets. The capability to provide security to themselves and their properties permits people to assume very complicated risks in the market. Capitalism has enable people to shift from poverty to prosperity. They have vacated from lower class to owners of the means of production. In capitalism society, the rights to own property have been clearly highlighted in the rule of law. This presents the deprived and dispossessed people in the society with resources and possessions that are available to the prosperous and powerful people. The security of properties provided by the industrialist society reduces the level of panic among the investors. As per the capitalist ideologies, slavery, murder, and any other transgression against humanity are purely infringement of their basic fundamental right. Capitalist society is therefore a society which is predisposed to be free, where it members from various races and tribes benefit from comparable franchise. Individual in this society are protected from competition hostility of any nature. People are free to pursue their interest with very limited impediment. The capitalist society grants security to both tangible and intangible properties. The people right to life and liberty is assured in capitalist society. In capitalist society, property rights are comparable to the rights to life. Society members cannot take pleasure in their life if they are denied the right to own properties. As observed by Dennis (508) property rights granted by the capitalist social setting creates an inducement that encourages people to reflect on future development. When people own something, their entire life is inclined into the possession. As a result of ownership, an individual have the leeway of defending and improving the owned property. On the other hand, property right motivates individuals to protect and improve the quality of the property possessed. Pursey (301) stated that, property right forms the enticement required in preserving the available scant resources. In most cases, communal possessions are always misused with limited possibility of rectification and improvement. Possessed assets are appropriately protected by the owners. The capitalist society provides an avenue for ownership of property. The property right helps in protecting the insufficient resources in the society. This is different in communist community where the public compete for the available limited resources. Limited resources in capitalist society are adequately preserved for future usage. There is limited competition in the privately owned properties. Capitalist economy has the advantage of improving the superiority of the society’s goods and services. Capitalism increases competition level in entrepreneurial activities in society. In competitive markets, the only alternative of acquiring wealth is through producing products and services that are valuable and of high quality. In order to maximum profit, an entrepreneur has the responsibility of coming up with newer, better, cheaper and a more tempting good and services. In this case, capitalist encourage and apprehends innovation and invention in social setting. Entrepreneur in the capitalist society invent and expand value by themselves. As stated by Robert (83) capitalist enhances civilization. Individuals in the society consign themselves to their daily activities for the sake of their own benefit. Creation and innovation is very rampant in capitalist society as opposed to the unenthusiastic development in communist society. Entrepreneurs undertake researches to come up with new ideas and thought to fit in the capitalist market. On the other hand, to persuade and attract private investor in the society, the powerful organ in the society invests a lot in infrastructure. Improved infrastructure is tantamount to advancement in civilization. In this regard, the competition in capitalist society bears the acclaim of modern civilization. Capitalist is a new creation in the economic sector. It had replaced the communist system. As a result of this, those societies which have adopted capitalist are assumed to be more civilized than the communities which have adopted the old system of communist. Shortcoming of Capitalism Capitalism is responsible for mounting inequality in the society. The payback of the capitalist are not equitably distributed within the society members. The owners of the means of production in capitalist society are the greatest beneficiaries of the system. The rich people continue to be rich while the poor people maintain their poverty status. In capitalist society, the rich people are the minority in the society. They are the only people who benefits fully from the outcomes of capitalist society. In regard to this, the minority in the society are the one who benefit from the advantages of capitalist. In capitalist society, there is uneven distribution of resources and wealth. This leads to the inequality of economic and political power among the society members. The wealthy people in the society utilize their resources to acquire and preserve their political power. Capitalist system is not proficient enough to maintaining high employment level. The employment level is determined by the existing market force instead of the state. When there is reduced market force, the level of employment is low. This trend inconveniences the working class in their economic budgeting. It creates uncertainty among the middle class and the lower class. In the capitalist society, owners of the means of production determine and manipulate production and consumption of commodities in the market. This is brought about by the prevailing economic freedom in capitalist society. The competition between the owners of the means of production determines the quality of the commodities in the marketplace. If the competition in the market is manageable, the quality of the products produced in the market is low. For the owners of the means of production to attract more customers in a competitive market, they always improve the quality of their products. On the other hand, the costs of the commodities in the market are also predisposed by multinational companies. Prices depend on the quantity of the commodity in the market as well as the nature of the market. The variations in the quality and quantity of the commodities are always manipulated to fit the interest of the owners of the means of productions. In the capitalist society, personal initiative and personal possession are no longer the powerful strength in the market According to Luc (150), capitalism is expected either to grow or collapse. It lacks the foundation of maintaining it own constancy. The surpluses in the capital market are continually invested. In capitalist economy, more emphasis is on increasing the production capacity. Owners of the means of production amplify the production to increase their production capital. On the other hand, the capitalist economy demands for the introduction of new needs in the society in order to consume the increased production in the market. The introduction of new needs in the market is liable for the continued growth of the capitalist economy. Additionally, the capitalist economy leads to increase in wastages. The commodities in capitalist economy are produced in large quantity for profit purposes. These results to a “throw away” society where new products are throw away because of their poor quality. This results to the reduction of the quantity of the surplus in the economy. In the capitalist community, the interest and needs of the community are always undervalued and neglected. The state does not provide for the basic needs of the public. In this case, the state is seen as an intruder in the entire economy. The state is only expected to collect taxes from the production capital for its sustainability. The scenario is brought about by the capitalism need to focus on the freedom and liberty of an individual. On the other hand, the public is not involved in the introduction of a new product in the market. There interests are not considered in the capitalist market. Customers are only expected to be the consumers of the produced products but they are not supposed to participate in the production process. Conclusion In conclusion, capitalist is a new development in the financial system. Capitalism re-established the old method of communist system. Although it is not fully acknowledged by all societies in the world economy, it covers a considerable section of the world economy. Capitalism has boosted the sovereignty of human preference in the society. The system provides a system where an individual has to pay for their exploit individually. Individuals benefit for their action on their own individual capacity. Capitalist is known for fostering economic development in the areas where it exists. The high competition in capitalist helps in fostering economic development. The system has played a very significant role in eliminating poverty in the society. The system also recognizes and values individual basic rights. In capitalist, an individual have the right to own property in any economic spheres. It also respects the existing rule of law in the society. The ownership right is also responsible for conversation of the scarce resources. Due to high competition in the capitalism society, innovation and invention is inevitable. Individuals come up with new product in order to fit in the economy. In reference to economist, innovation and invention is squarely responsible for economic development On the other hand, capitalist have some limitation. Its upshot ranges from individual shortcomings to the entire economic limitation. Capitalism is squarely responsible of inequality in the society. The benefit of the economy is enjoyed by very limited number of the community members. The owners of the means of productions are the great beneficiaries of capitalist. This section occupies a very small section of the economy. Capitalism is also responsible of frequent wastages in the economy. Low quality products produced in the capitalist economy have brought about wastages in the society. Lack of involvement of the public in manufacturing process has brought about undesired products in the market. In general, capitalism system has its own disadvantages and advantages. A comprehensive understanding of the system is very important. Individual have the responsibility of coming up with productive means of adapting in the system. The managers of capitalism economy have the responsibility of ensuring the limitations of the system are well addressed. Works cited Dennis, Mueller. The oxford handbook of capitalism. New York, NY. Oxford University Press, 2012. Print. Robert Degen. The triumph of capitalism. London: transaction publishers, 2009 Blaut, Jaliam. “Marxism and Eurocentric Diffusionism.” The Political Economy of Imperialism: Critical Appraisals, 10.2 (2001), pp. 127–140. Luc, Boltanski. The new spirit of capitalism. London: Verso, 2005. Print. Hagopian, Mark. Political Theory: The Spirit of Capitalism: Nationalism and Economic Growth. The American Political Science Review, 96.4 (2002): pp. 803-804 Hejeebu, Santhi & Deirdre McCloskey. Polanyi and the History of Capitalism: Rejoinder to Blyth. Critical Review, 16.1 (2004): pp. 135-142. Holliday, I. Productivist welfare Capitalism: social policy in East Asia. 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