What Is Capitalism? Discuss the Arguments for and Against This Economic System

Tutorial 7:

1. What is Capitalism? Discuss the arguments for and against this economic system.

    Capitalism is one of the most universally loved and hated economic social systems. Since about the 14th century, modern capitalism has been rapidly expanding its reach. Some would say that is has become a necessary competitive tool within a global economy and point to its success as a productive and innovative system (Peavler, 2018). Others say that capitalism’s end result cause class inequality, worker exploitation, and stifles freedom.

There are controversy arguments of this economic system. Simply put, Capitalism is a social economic system where both the means of production and any associated trade are privately owned (Kelly, 2018). Knight (2018) discussed that in most Capitalist economies, the method of creating wealth or production is in fact mostly owned by private individuals directly or through private companies. The world’s leading capitalist such as United Stated economy, banks, insurance companies, transportation companies, and military hardware produced to government are privately owned (Shaw, 2016). Role of Government in the capitalism are only restricted in providing things such as health, education, welfare, roads, and defense (Knight, 2018). A capitalist nation is dominated by the free market, which is an economic system in which both prices and production are dictated by corporations and private companies in competition with one another, and places a heavy focus on private property, economic growth, freedom of choice, and limited government intervention.

Thus, the historical background of capitalism which can summarize into four stages including Guilds, Mercantile capitalism, Financial capitalism, and Globalized capitalism. Guilds in the Middle Ages were associations or groups of craftsmen established to regulate entry, standards and prices (Shaw, 2016, p105). Each guild focused on a specific trade such as the candlemaker's guild or the tanner's guild and they are creating goods according to the orders of individual customer (Shaw, 2016, p105).

Next, mercantile capitalism is the changes after the medieval guilds. Mercantile capitalism is a mutual dependence between state and commercial interests to control foreign markets in order to boost the economic health of the nation by increasing the reserves of bullion it possesses (Shaw, 2016, p106). It belief that nation wealth is best served when increasing export and keep out imports (Shaw, 2016, p106). Because a nation’s power and wealth can determine by how many precious metals, gold, and silver it possess (Lisa Cole, 2018).

Moreover, financial capitalism is the use of financial system and its institutions to accumulate of money profits in a financial system (Shaw, 2016, p106). In order words, it is a development stage where finance rules everything. To be specific, the bankers and vested interest group behind them are the real king of the country. Shaw et al (2016, p106) state that “financial capitalism is characterized by pools, trusts, holding companies and interpenetration of banking, insurance and industrial interests”.

Besides, globalized capitalism which is the capitalism stage of today. Shaw et al (2016, p106) define “Globalized capitalism is a relatively new stage in world economics involving the rapidly growing level of worldwide capitalist development, beyond traditional international trade”. The system, once organized and regulated within nations to protect them, now transcends national borders (Thompson, 2018). It production extend their reach to everywhere around the globe, monetizing cheap labor and resources, and profiting as best they can (Thompson, 2018).

After went through the historical of capitalism, now I would like to discuss the key features of capitalism which including companies, profit motive, competition, and private property.

First, the concept of companies state that it is a business organization that exists separately from the people who created it but still has many of the same right and entitlements that a person has (Shaw, 2016, p107). In other word, characteristics of a company is provided by the global company formation services (2014) it states a company has same right of a person such as enter into a contract, own a property, and it also have the possibility to sue or be sued. Although companies is not a person, but it has the entitlement of a person do (Shaw, 2016, 107). This refer to as the legal fiction of a company’s personhood (Shaw, 2016, 107).

Thus, another type of company which we call it corporation is a specific form of a company owned by shareholders when a fixed number of company stock shares are issued such as Microsoft (Leonard, 2018). A corporation does have prescribed rights and legal obligations within the community such as enter into contract, sue or be sued. It has limited liability which is the restriction of a company owner’s financial risk to the extent of the amount money invest in the company, it liability doesn’t beyond shareholder’s personal assets (Carter, 2018).

The second characteristic of capitalism which is the profit motive. Shaw et al (2016, p107) say that “most of us take granted that human beings are by nature acquisitive creatures who, left to their own devices, will pursue profit with all the instinctual vigor of a cat chasing a mouse.” In other word, profit motive a critical assumption about human nature are basically economic creatures motivated by their own economic interests to accumulate money (Shaw, 2016, p108). In the medieval times, church was so resist on profit, church taught that no Christian should be a merchant (Shaw, 2016, p108).  Afterward, it turn to classical economics Such as the factor of production involve the profit motive when buying a land the motive is to rent it, labor are motivated by wages, entrepreneurship is motivated by profit. Unfortunately, there are still one who will forbids the charging of interest on any loan which is Islam (Knight, 2018). The concept of profit is a recent phenomenon which the economic allow entrepreneurship. Which business nowadays being conducted with the motive of profit, because it is the lifeblood of the capitalist system (Shaw, 2016, p108).

Another central feature of capitalism is competition. Competition can be defined as a contestation for access to raw materials and markets in the sale of goods and services (Shaw, 2016, p108). Companies in the market are competing with each other in producing goods and service with different price to attract as much customer as they can in order to acquire the market volume (Shaw, 2016, p108). Adam smith tried to explain how economic competition steers individuals pursuit of self-interest socially beneficial. The Wealth of Nations written by Adam Smith outlined that free competition is a regulator to keep a community activated only by self-interest from degenerating into a mob of ruthless profiteers. Which mean the market force can help check unethical practice (Knight, 2018). For example, a company overcharging their customer go get short-term profits, they will have beaten out by competitor who offer at cheaper price. Adam Smith agree that the market should be Laissez faire to let people choose. Thus, competition will incentive companies to produce at higher efficiency level and make differentiate in price for to increase social welfare while company making profit (Carter, 2018). Assume when there is intensive competition in the field of supplier, retailer pick purchase with lowest price and high-quality goods from distributor which also benefit to consumer when the price is low (Belonwu, 2013).