Capitalism

 

Capitalism    

              

Typical definition: - It is an economic system based on the private ownership of means of production and their operation for profit.

In simple words capitalism means “from each according to his ability to each according to his capital”. The word capitalism is basically drawn from the word ‘capital’ which means wealth. So if we go by the simple definition, it would mean that every person would work according to his ability but the reward would be based on what wealth he/she owns.

Some of the basic features of capitalism are:-

§  Privatization

§  Least interference by government

§  Free market

§  Competition in the market

§  Money begets money

Primitive form vs. Modern form of capitalism:-

Capitalism in earlier times and capitalism today or the modern capitalism are distinguished forms but the basic idea is similar that says- all the profit would go in the hands of investor/owner of the mode of production. Feudalism can be regarded as primitive form of capitalism. Feudal system flourished in medieval Europe between 9^th and 15^th centuries. During that time the European society was divided between the nobility, the clergy and the peasantry. The nobility and clergy were deemed to be higher classes of society and held land (were land owners). The peasantry (included laborers and farmers) worked on the land owned by nobility and clergy. The peasantry was paid considerably less with respect to their work and most of the profit was acquired by the land owners. Capitalism works similar today. E.g. employees work for a company and get a monthly salary but most of the profit is acquired by the owner of the company. Who is the owner? Owner is the one who invests in shares of that very company and the one who invests has got money. This also answers how money begets money.

 Adam Smith’s theory of capitalism:-

Adam Smith is called father of capitalism. In his publication – The Wealth of Nations, he appreciated the idea of Laissez faire which in French means ‘leave alone’ and Adam’s ideology was to leave alone the economy (no interference by government should be there in the economy). He believed that if there is no interference by the government, people will form their own code of conduct, regulations and will flourish more and quickly as the competition would be free. Moreover if a company works for its selfish interest, it ultimately works for society’s interest (as Adam’s philosophy states).    

He also underlines how division of labor and specialization helps boost economy. Every worker would be engaged in the work he/she specialises in and this would lead to best results and additionally the work would be divided and shared.

 

Adam Smith

Relationship to Democracy:-

Many political thinkers are of the view that democracy and capitalism are mutual ideologies. Many democratic regimes have supported capitalism for instance- capitalism became popular in Britain during 19^th century with extension of democratic male suffrage rights, US’s ideologies have always been liberal democracy and capitalism complementing each other. However many critics argue that capitalism has been observed accompanying other political forms and many authoritarian regimes have managed economic growth using capitalist competitive principles.

Accumulation of capital:-

The accumulation of capital is the process of “making money” or growing an initial sum of money through investment in production. Capital accumulation forms the basis of capitalism where economic activity is structured around capital accumulation in order to receive a financial profit. Here the capital is money or other financial asset used for purpose of investment and making profit in return and then reinvested in a continuous process of accumulation. This dynamic is known as law of value in Marxian economic theory. Ordinarily in economics, accounting and Marxian economics, capital accumulation is equated with investment of profit income of savings especially in real capital goods. Capital accumulation ultimately leads to accumulation of capital in a few hands.   

Keynesianism:-

In 1929, when the stock market crashed and great depression occurred, the capitalist world underwent shock. Around this time economic revolutionary John M. Keynes came up with his theory of capitalism. He was of the view that a completely free market is inefficient in view of the fact that it brings a recession when demand is low and inflation when demand is high. So the government can help stabilize economic output, inflation and reduce unemployment over the business cycle. In brief, Keynes theory says that market should be predominantly private but with an active role of government intervention.

John Keynes

Criticism to capitalism:-

Many political thinkers convict that extreme capitalist approach can destroy the world while some wish to balance it with some form of social control. Capitalism is criticized due to following reasons:-

 

·    Exploitative: - chief capitalists’ goals are to make profit by any means so they tend to exploit labors in their selfish interest as it happened after industrial revolution.

·       Unstable: - instability has been a key feature of capitalism as there have been number of market crashes in history and capitalism does not promise to end them.

·       Unsustainable: - it wouldn’t be incorrect to say that capitalism is other name of a competitive market. Competition in society especially economic one always puts pressure on resources and resource conservation is the need of the hour.

·       Brings inequality:-as suggested by the basic definition, from each according to his ability to each according to his capital, only the one already possessing capital is benefited by capitalism. Ultimately rich becomes richer and poor becomes poorer.

Many critics argue that capitalism is anti democratic and leads to erosion of human rights while it benefits imperialist expansion and war.

Conclusion:-

In this growing world, capitalism is a suitable ideology for it brings competition in a society and competition has always led to new discoveries and better opportunities for the consumers. But a completely free market is no doubt a threat to some sections of society as in tends to exploit them and steals their rights. State interventionist is must as suggested by Keynes. The state should be responsible to provide at least basic living amenities to all so every person out there could be able to compete and such a society would be a fairly competitive society.