For the purpose of this essay I will critically discuss Free Essay Example

For the purpose of this essay I will critically discuss the implications of the statement “Advocates of capitalism are very apt to appeal to the sacred principles of liberty, which are embodied in one true maxim: the fortunate must not be restrained in the exercise of tyranny over the unfortunate”.

Although capitalism can be defined as an economic system in which the means of production of goods or services are privately owned and operated for a profit. It can also be viewed as a “term used to denote the economic system that has been dominant in the western world since the breakup of feudalism.

Fundamental to any system called capitalist are the relations between private owners of non-personal means of production (land, mines, industrial plants, etc. collectively known as capital) and free but capitaless workers, who sell their labour services to employers. The resulting wage bargains determine the proportion in which the total product of society will be shared between the class of labourers and the class of capitalist entrepreneurs”.

(Rand A (1967) What is Capitalism,: Second Renaissance Book Service).

However, according to Douglas (1919) capitalism is not a system of administration at all: it is a system of fixing prices in relation to effort. Whereas A. Buick et al. (1986) defines capitalism as “an exchange economy in which most wealth, from ordinary consumer goods to vast industrial plants and other producer goods, takes the form of commodities, or items of wealth that have been produced with a view to sale on a market.

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A. Buick et al. (1986) also suggests that “Apart from being a class society, capitalism has the following six essential characteristics:

1. Generalised commodity production, nearly all wealth being produced for sale on a market.

2. The investment of capital in production with a view to obtaining a monetary profit.

3. The exploitation of wage labour, the source of profit being the unpaid labour of the producers.

4. The regulation of production by the market via a competitive struggle for profits.

5. The accumulation of capital out of profits, leading to the expansion and development of the forces of production.

6. A single world economy.”

The golden age of capitalism occurred between 1945 and 1973 when wages and living standards more than doubled. Unemployment levels were low and solid business investment strengthened by the steady expansion into government spending. However, 2008/2009 showed that capitalism is inheritably fragile and unstable as economic crisis occurred following a decline in global output produced which was measured by GDP and in employment as this showed to be the worst depression since the great depression of the 1930’s.

Some of the key features of capitalism are innovation as businesses want to out-smart their competitors and competition between privately owned firms for markets, customers and profits etc.

Markets are known as the actual or nominal place where forces of demand and supply operate, and where buyers and sellers interact – whether it be directly or through intermediaries – in order to trade goods, services or contracts/instruments for money or barter. They include means for determining prices of a traded item, communicate the price information, and facilitate deals and transactions as well as effecting the distribution. Markets are made up both existing customers as well as potential customers who either need or want the item but also have both the ability and willingness to pay for the traded good. (www.businessdictionary.com – as accessed on 3.12.18).

Markets are places where buyers and sellers meet to ‘haggle’ over prices and they also play a role in capitalism. They are also a form of distribution. ‘Free market capitalism’ implies what is unique about capitalism is its reliance on markets and market signals (supply, demand and prices). Buyers and sellers ‘haggle’ over a price and agree on the exchange for the sale of a good, service or asset. However, markets imply equality. The seller can choose not to sell and a buyer can choose not to buy. Workers can sell their capacity to labour to an employer and an employer buys it. This implies that workers can choose to sell their labour elsewhere. Left to its own devices, a free market economy ensures all factors of production are used, including all labour being employed.

An advantage of markets includes that when sales in them are growing this can lead to two way benefits for firms. The first one being that it boosts sales so firms get higher revenues and the second one being that expanding sales also helps to reduce the average costs of production (economies of scale). Another advantage of markets includes that people are free to make their own choices, including what products or services it is that they do or do not want to purchase or sell. Further advantages also include that there is minimum amounts of waste as most people do not want to throw away resources or money and therefore they seek to maximise their profits by minimising waste. (www.smallbusiness.chron.com – as accessed 6.12.18)

Some disadvantages of markets include that costs associated with production are not always paid by the supplier and sometimes market outcomes may not be equitable. Another downside to markers includes that products can be made of a poor quality as a result of firms being too focused on maximising profit – which they might achieve by reducing their costs unethically by polluting the environment and/or exploiting workers. (www.intelligenteconomist.com – as accessed 6.12.18)

Within a capitalist firm market exchange occurs between buyers and sellers of labour and therefore there is an imbalance of power in the market for labour. As a result workers must then sell labour in order to survive, meaning owners of firms are less desperate to seal the deal with any one individual worker. Although this is the case asymmetry in size between employers and individual workers only adds to this imbalance.

Competition can be defined as the rivalry where every seller seeks to achieve what other sellers in the market are seeking at the same time. This includes things such as sales, profit and market share where they will offer the best practicable combination of price quality, and service in order to come out on top. Where the market information flows freely, competition plays a regulatory function in balancing demand and supply. (www.businessdictionary.com – as accessed on 3.12.18)

Not only does competition encourage investment it also encourages caution and uncertainty e.g. will this move be profitable? Are we investing in the ‘right things’? Etc. As well as this it competition also encourages survival of the fittest and disciplines firms. What one firm is doing – such as, reducing unit labour costs – other firms are doing the same thing. This creates opportunities’ via the winning market share but also challenges as others are doing the same thing. Businesses compete in product market via – price, innovation and marketing. Companies need a competitive rate of profit for owners or else they will stop investing and firms will be unable to convince bankers to give it money. Some examples of companies that have achieved positive consequences of capitalist competition include, TOPMAN/ TOPSHOP, RIVERISLAND, Nike and Adidas.

An advantage of competition includes how its presence can be a positive influence e.g. competition in markets. This encourages firms to develop better quality products. As well as this the presence of competition in markets encourages firms to become more efficient and productive – this is good as it means that customers can get goods for a lower price because of competitive pricing to get profit. It is also beneficial as this means that the company will also then be able to afford higher wages for its employees.

Some of the positive effects of competition also include investment, choice and innovation in production method e.g. Fordist assembly line.

Some of the negative consequences of competition include market competition can lead to inadequate profits. As well as this if capitalists are competing against each other on prices it is likely that margins will be tight. Furthermore, other negative consequences of competition include adequate profits can be made but firms are locked into a vicious cycle. As well as this there will be little funds left over to invest in innovation or improved quality. If competition is too intense, then all companies will have inadequate funds to reinvest. Another negative consequence would include productivity suffering as well as living standards.

Other disadvantages of competition include sweating labour/ overworking employees which can have both physical and psychological problems for those employed which can then mean a negative impact on the quality of the goods being produced. Further negative impacts can include wasteful trivial differentiation of products or duplication which leads to psychological manipulation. The social costs of consumer choice via wasteful duplication can also be seen as a negative impact of capitalist competition.

A very competitive market can also force firms to lower prices in order to stay competitive which causes a decrease on the return of each item that is produced and sold. If too many firms are also producing too many of the same products, the market can also become flooded. (www.bizfluent.com – as accessed 6.12.18)

Having thoroughly evaluated capitalism it is evident that it can be seen as both efficient and non-efficient. It can be seen as efficient as it has raised people out of poverty and has been a motor in economic growth – an example of this includes how China’s living standards have significantly improved in previous years. However a counter argument to this of how it is in-efficient includes that China are still state owned and led by the state.

For a given level of input you produce the maximum output possible and to produce a given level of output, the minimum level of input is used. Therefore capitalism is also efficient as where inputs are measured in price and cost capitalists to use them. Profit maximising capitalists try to achieve lowest possible costs and produce as much as possible for the minimum amounts of input.

However capitalism can also be seen as in-efficient. This is can be seen as unemployment is a normal feature of a capitalist labour market as well as in relation to the environment. Capitalism can also be seen as in-efficient as in recession’s factory and technology lie idle and credit is choked. It also forces capitalists to take account of costs they must pay for which shows capitalism to be privately efficient but more so socially efficient for everyone else.

To conclude capitalism can be seen as mostly in-efficient as it does not provide equality of opportunity. This can be seen as some people start off with a ‘head start’ through inherited wealth – e.g. a parent or other close relative with an already successful business. Whereas others may start from the very bottom with a low or modest income, lack of social networks to get ahead in certain occupations or business sectors. Competition against firms with economies of scale is difficult for new entrants as a result of credit not being available on equal terms. As a result of capitalism not providing equality of opportunity the risks that are involved for some new entrants in the business world are much greater than others. This is because those that start out with no inherited wealth or with not much to start off on will have nothing to fall back on as a backup plan. Therefore it is evident that structural inequality in ownership and wealth weakens equality of opportunity.