Capitalism is an economic system that limits the powers of the government but instead gives people and companies the power to make most decisions. Thus, capitalism has been defined as an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state. There are many forms of capitalism which ranges form free market capitalism, state capitalism and welfare capitalism. The intervention of government in each of these capitalistic models may vary but one of the most popular forms of capitalism is the free market capitalism model.
Capitalism has been characterized to be a right wing economical system as it is said to only benefit the rich and rob the poor. When in actuality all capitalist countries have experienced consistent economic growth and an increase in the standard of living. Today there are very few countries that rely on merely a capitalistic model as many have integrated a more accepting system that is said to be a mixed economy that combines elements of free markets with state intervention. Capitalism as an economical model which has caused tremendous growth rates that were not thought to be possible in the past
Regardless, capitalism has faced backlash from many as it is seen to be an economical system that values those who are not only hardworking but also those who are willing to take advantage of others. Critics of capitalism may argue that power is only given to a fair few and thus exploitation of the majority working class tend to increase in the means of attaining higher profit and eliminating overall social good. It can be said that capitalists are faced with a moral dilemma and many people today have a more altruistic perspective when it comes to the economy which creates a huge ripple in the general public.
History of Capitalism
Capitalism as a concept is rooted to the idea that a good spiritual life and the pursuit of money are sworn enemies. In Venice during the 1450s Luca Pacioli published one of the most important works in the history of capitalism which is Summa de arithmetica. In the book Pacioli introduces the concept of double entry bookkeeping which gardually becomes standard practice in all companies. Prior to this money was seen as a means of bidding on good faith when in reality it is merely a science that can be studied.
Later in the years there would be more focus on the mindset of capitalism rather than anything else. People were taught to reinvest their money in the business rather that spend lavishly. This created a self disciplined mindset amongst those who valued the ideals of capitalism. It was a rigid system that emphasized on the economic sciences with a new found respect for money and the biddings that came with it. These virtues later caused lazy aristocrats to be looked down upon and hardworking merchants revered. Those who had their own businesses were seen to be more noble than those who fought in the wars as glitz and glamour at the time were measured by the virtues of business.
The publication of a book called An Inquiry into the Nature and Causes of the Wealth of Nations (1776) by Adam Smith would forever change the face of capitalism. In this book he pointed out how capitalist economies grow by reaching several important conclusions. He mentions how slavery is inefficient and employers are better off paying their employs a satisfactory wage in order to increase production. He states how money is more of an incentive than violence when it comes to carrying out a job.
Smith then goes on the idea of specialization in order to grow the economy. Smith states that an organized group of workers are far more productive than a singular worker and that the division of labor is an important tool for any capitalist business. He specifies that every business should maintain their self interest in order to benefit society as this is how capitalism as a mechanism functions. Capitalism runs on the self interest of an individual which ultimately benefits society due to the concept of consumerism and how a capitalistic economy will forever be at the mercy of the consumer.
Charles Dickens was a critic of capitalism as he pointed out that the capitalist mindset would abuse the workers and justify the employment of child labor. This view of wanting to achieve infinite wealth came at a cost and it was at the cost of the working class. The country would flourish due to capitalistic minds but the people in the country would have to suffer and receive no compensation for their labor. John Ruskin would also critic the idea of capitalism in his book Unto This Last where he tackles the consumer side of this economical philosophy. He states that consumers are being fed useless items that pollute the environment and hold no purpose.
As time goes on, the world slowly realizes that capitalism provides us with life’s little luxuries and this is proven due to the weakness of communism/ socialism. Capitalism allows for innovation to thrive due to the free market philosophy and without this freedom a nation can only rely on importing goods, leaving the government with the full authority over consumers. Capitalism reaches its peak in history when more people buy into the idea of luxury and choice, knowing that capitalism allows them to lead a more materialistic and comfortable life filled with things beyond necessity.
Capitalism today is one of the most flourishing forms of economy and there has to be a reason behind it. Capitalism is seen as an attractive offer as it proves that those who are able to outwit their competition will in turn gain more money which allows for more options. Individuals no longer have to do hard labor but can instead pay others to carry out the grunt work. This process then incentivizes innovation and hard work but the downfall is that those who fail to win against their competition will end up in a worse position in comparison to when they had started.
Capitalism as a system values those who are willing to shed blood and go all the way to attain success which may cause others to take a fall/ bend the knee in the process. Capitalism also sets the status quo that financial gain is the benchmark of success in any given industry. Milton Friedman believed that maximizing profits within the boundaries of the law should be the sole purpose of a business in order to satisfy investors. Many companies that adopted this mindset have gone to extreme lengths to justify that greed is good when it comes to economic growth.
That was definitely the case and it was proven by the massive spike in jobs that were created during a time in which many were unemployed. A company built on capitalism needs employees and this is statistically shown by the number of employees a fortune 500 company has which is on average around 60,629 workers. Capitalism also allowed for job diversity due to constant innovation, allowing more people to venture out into new fields due to competition in the industry. Without competition in the market space there will never be innovation or advancement in the world as there is no opportunity for change in an economy that does not hold capitalistic traits.
There are capitalists who create problems in the pursuit of wealth but there are also capitalists who solve problems in the pursuit of wealth A good example is the automotive industry that started out with the production of vehicles that ultimately polluted the environment. At the time there was no care in the world for air pollution as the main game was to make the best car for the user. The exponential growth in the automotive industry came from capitalism due to the high demand of consumers who wanted personal vehicles. Then came the solution to the problem which was electric vehicles and Tesla was the innovator. The solution to the problem was also born on the grounds of capitalism.
Capitalism as an economical system also gives more power to the consumers as it allows people to make a choice when it comes to the services that they enjoy. If a company performs practices that do not align with the individual, then the individual has the choice to leave in search of a new one. If a consumer dislikes a brand, they are spoiled with choice in a capitalistic economy as in most cases the industry is saturated and the consumer holds the ultimate say at the end. This keeps companies on their toes as their main goal is customer satisfaction and in most cases this is the closest an economical system can get to true democracy.
There have been tremendous successes that have been brought on due to a capitalistic economy. This ideology has in most cases led countries to the pinnacle of advancement and innovation by voluntary wealth redistribution. Jeff Bezos as an individual is worth 182 billion USD but Amazon as a company is worth 1.7 trillion as of 2020, meaning roughly 1.5 trillion in wealth was generated and distributed to the general public in the form of job prospects. A singular company managed to generate such a high revenue and this was only possible due the nature of a capitalistic economy.
All good things have their fair share of negatives and the same goes for capitalism. A capitalistic economy thrives on the stock market due to IPOs that allow the public the trade and own shares in the economy. The way the stock market functions is that people make a bet on the future of the company and that they receive dividends to keep investors interested in the company. The stock market in most cases caused the middle class to have a chance at basically gambling with the economy. The only problem was that many people were making the wrong bets and that the philosophy of the stock market changed over time.
Milton Friedman introduced the idea that the main goal of the company was to keep the stockholders happy by maximizing profits. This later led to stock prices being tied to the salaries of CEOs, this decision was made to ensure that there would never be a decline in share prices. This had also stimulated what could be considered hostile competition as people would go to extreme lengths to ensure the company was doing well and this included compromising the longevity of the company as the goal was short term profits. Later more compromises were made such as cost cutting and the overlooking of environmental effects merely for the increase in profit and the ability to achieve financial freedom.
This has also caused the average CEO to earn 271x more than the average worker. Since capitalism encourages profits, there is no cap on wealth meaning one individual could technically have a net worth equivalent to a small nation and this is what caused the uproar and demand for redistribution of wealth. Capitalism allows some people to win and where there are winners surely there are losers. The problem is the punishment of losing in a capitalistic economy is too great and some people may not have the chance or equal opportunity to compete so they end up subjecting themselves to already successful capitalists.
In a capitalistic economy there are only a handful who are in power meaning for the gears of capitalism to turn, people are in need of the working class. The problem lies here as the working class far outweighs the people in power yet they face the most hardships. Reason being is that they are willing to participate in a capitalistic economy and are forced to live by the rules set by in most cases greedy capitalists who chase wealth. There are those in power who treat the workers fairly ensuring that they are fairly compensated but there are also others who don’t and the reason this happens is due to to the unregulated economy.
When there is freedom in the economy all is well and good in the pursuit of self satisfaction and exponential growth. When competition and growth is incentivized, the rich will continue to get richer but the poorest of the poor will often remain because the chances of them making it big becomes slimmer as the market space becomes more saturated over time. Capitalism also causes a lack in social consciences meaning many wealthy capitalist tend to live in their own bubble not being able to understand the struggles of the average working class as the wealth gap becomes larger over time.
Capitalism prizes itself for meritocracy but there are also times when it can turn into a monopoly. This is when the one entity has wiped out the competition and has gained control over a certain industry thus causing capitalism to lose its value as there is no longer any form of competition or innovation. It is also argued that a monopoly can only occur with the help of government and this practice is known as crony capitalism. When a monopoly emerges there is a control in resources causing the competition to die out. A monopoly is also then able to influence government due to an excess in resources and this is known as lobbying.
Is Capitalism Functional?
It basically comes down to who you are asking this question to because each individual will have a different take on it. Those who benefit from it will definitely support it while those who suffer from it want it gone. Those who are unaffected from it tend to be uneducated altogether on the effects of capitalism on the economy so it is hard to decide. It can be easy to look at the disadvantages of capitalism but it is also important to recognize the positives and weigh it out in order to form the best opinion. Capitalism has solved many problems but it also causes a fair few so the important decision to make is the severity of those problems.
Also if people decide that capitalism is fundamentally wrong as it may not favor the altruistic point of view then comes the struggle of recognizing which economical philosophy will work best in society. The only way to make this decision is by studying all forms of economics in order to get a general grasp on how the economy functions and which philosophy would work best with the current status quo. Every system has flaws and it is also important to understand that no system can favor everyone. A society is built on the basis of majority ruling and the same goes for the economy, it will never satisfy the needs of every individual.
Nowadays it’s best to not just jump on the bandwagon when it comes to economical policies and look beyond merely a sad story and start recognizing the magnitude of each philosophy on a global scale. It may be simplistic to hate on a system due to it being a trend but the long term effects may be detrimental if everyone chooses to ignore the rationales and instead focus on the idea of a revolution just for the sake of a revolution. Many fail to truly understand economical ideologies but prefer to throw around terms without fully understanding the concept and this form of misinterpretation may cause an individual to wish for something without taking into account all the possible consequences.
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