Introduction
The following essay examines the concept of capitalism in general over the last two decades and explains how the global capitalist system has evolved and the main phases that are involved in the evolution process.
Capitalism refers to an economic system whereby the production means i.e. land ,labor capital as well as entrepreneurship are owned by private individuals for profit gains and the decisions that concerns such aspects as price of commodities, demand and supply e.t.c are usually done by the private players in the market. According to economists, the government usually does not have control as far as property rights and markets are involved.
The entire economy is thus vested in private hands in a capitalism form of economy and the role of the government is mainly to regulate and ensure that the system operates safely and effectively without fraud or fear.
Capitalism history dates back to the early merchants of the seventeenth century and the word capital was derived from a Latin word capital which has signifies a moving property.
Engels and Marx were the proponents of the capitalistic system whereby they described capitalist as a production mode that is characterized by private ownership of production means (Polanyi, 1945, p.78).generally, the capitalist economics was as a result of such elements as products whereby a product was defined as anything that is produced with the aim of exchanging it in the market.
Products may be classified as either capital or consumer goods which depend on whether the goods are used for production of goods and services or consumed directly by the consumers. Thus capitalism involves the ownership of both the capital goods as well as natural resources privately and the products are owned by capitalists either collectively or individually. (Fulcher, 2004, pg.2)
Global capitalist system Evolution in the last two centuries
Capitalism system is currently the most dominant economic model but there has been evolution over the past two centuries which started with mercantilism followed by industrialism then Keynesianism and neoclassical economic theory which is the capitalism system in the 21st century (Seldon, 1990, p.390).
Mercantilism
Mercantilism refers a theory that was common in Western Europe from the period between 15th to 18th century and it is a form of capitalism that is nation-oriented and holds the notion that the states’ wealth is mainly increased by a way of balance of trade that is positive with the other states.
The theory thus assumes that both monetary and wealth assets are usually identical and that the government has the sole mandate of protecting the economy by maintaining a positive trade balance through such means as discouraging imports and encouraging exports and the imposition of tariffs and subsidies.
The capital is mainly represented by gold and silver which forms bullion and is mainly in custody of the state. The theory was believed was believed to have an impact on the intra-European wars that was experienced in many parts of Europe and the subsequent expansion (Saunders, 1995, P.45).
The emergence of Mercantilism approach occurred during the time when the economies in Europe changed into being centralized states from the former feudal estates. France and England were the mostly affected countries by the transition. Other European countries such as Netherlands, Spain and Portugal adopted the mercantilism policies at a much later time. The innovation as far as shipping is concerned and the emergence of urban centers in Europe fueled the international trade among states and in turn mercantilism.
Mercantilism was mainly concerned on how to enhance cooperation among states by way of trade .The emergence of modern accounting methods such as the double entry concept of book-keeping was also a major boost in developing the mercantilism theory.
The United states of America also has an impact as far as the development of this theory is concerned due to the emergence of new mines and markets which paved way for international trade.
The theory however was criticized by such scholars as dam Smith in his wealth of nations who argued that the wealth creation was due to myriad individuals who pursued their individual interests and thus the wealthy European nations that were considered successful were beginning to enter the new phase of economic growth and so there was need for the corporations which could have massive production and which could pave way division of labor as well as the economic growth and efficiency. This thus led to the evolution of the industrial capitalism (Filcher, 2004, p .8).
Industrial capitalism
Industrial capitalism refers to an economic system that is usually characterized by extensive use of machinery and the theory was developed by theorists led by Adam Smith and David Hume in 18th century. The merchant who was a sole actor as far as the capital system was concerned was thus replaced by an industrialist and this saw the demise of the handicraft skills which were possessed by artisans and the subsequent rise of the commercial agriculture as well as the emergence of factories for large-scale manufacturing.
Industrial capitalism was also characterized by division of labor and specialization whereby tasks are subdivided among individuals and an individual is given a task which he or she is best suited to perform or that matches his or her skills so as to increase efficiency.
The Industrial Revolution started in the United Kingdom before subsequently expanding to other European countries then North America and the world at large. In the United Kingdom, Industrial Revolution saw the rise in the use of the refined coal, the emergence of steam power which was fuelled by coal, mechanization of garment and textile industries and such techniques as the iron-making and this had the effect of enhancing the living standards of the citizens, emergence (Rabinowitz, 1917, p.104-180).
Keynesianism and Neo-liberalism
Keynesian theory refers to macroeconomic theory that was developed after the global economic depression that was experienced in the 1930s shortly after the World War 1 by John Keynes who was a British economist.
This period was marked by high inflation rates and a rise in the level of unemployment and so John Keynes argued that the decisions that are made by the private sector can result to adverse economic effects and so there is a need for good policies by the governments such as fiscal policies as well as monetary policies (Friedman, 2002, p.8-67).
The Keynesian economics assumed a mixed economy that is composed of both the private sector and the government so as to stimulate economic growth but the private sector having the greatest proportion. Thus government spending in infrastructure and interests rates reduction could enhance the economic growth according to Keynes (Mason, 2010, P.25-29).
Keynesians argues that the capitalist economies emerged from the process aggregate demand generation that the economies experienced. Keynesian had some weakness such as the belief that nor mina wage and downward price were the reason behind unemployment and it was replaced by the neoliberalism in the 1970s (skidelsky, 2009, p.233).
Neo-liberalism is an economic policy that was developed by John Williamson’s with a view of transferring the entire ownership of the economy from the public sector to the individuals’ i.e. private sector so as to improve the economic growth of a state and enhance the government’s efficiency.
The international organizations such as the world bank and International Monetary Fund have developed on the Williamson’s policy and hence proposed other policies such as fiscal policies, introduction of tax reforms aimed at broadening tax base, the floating exchange rates, trade liberalization among others.
Neo-liberalism dominated the global economy to the late 1980s from the end of 2nd world war and the idea behind it was not to subject the states from the Great depression economic stress that they faced in the 1930s. Neoliberalism insists that full employment is attained through price adjustments and the interventions for increasing the employment can cause inflation or result to unemployment as the market process will be destabilized (Heckescher, 1994, p.287).
Neoclassical economic theory
Neoclassical economic theory have been in use since the 1980s and was characterized with globalization which have the effect of increasing the mobility of capital as well as people.
Neoclassical economies encompasses the individuals,markets,governments as well as the enterprises and so the individuals are only regarded as consumers, investors and laborers.
This implies that an individual have the choice of choosing which jobs he or she should engage into and also the kind of markets where he or she can search for work. Individuals can also decide on the proportion of their income that should be invested, consumed or go to savings (Rand & Nathaniel, 1986, p.64).
On the other hand, business may decide on what ventures to undertake and the best locations to locate do business. Neoclassical is characterized by competition among employees and therefore, the more a person is skilled, the higher the incomes and vice versa. The trade unions demands are common in this form of economic system and they are meant to provide an avenue for the recognition of the right of the workers (Schumpeter, 1943, p.32-35).
Pros and cons of capitalism
Capitalist system however is the most dominant form of economic model in the world today as compared to socialism and democracy systems due to the major benefits that are associated with it.
Some of the advantages of capitalism system include the fact that capitalism enhances open competition as far as the production of goods and services is concerned and this in turn promotes the economic growth. It thus provides individuals wit better opportunities of raising their living standards and also a platform which is essential for raising their revenues.
Capitalism is also characterized by a decentralized system that allows individuals to have an option of operating any number of businesses as long as they act within the law. As they operates their businesses ,entrepreneurs are often exposed to stiff competition and numerous challenges and so they finds lasting solutions which enables them to be competitive and this has the effect of encouraging them to work hard because in a capitalist economy, the more harder you work, the more the rewards and vice versa.
Capitalism as a form of an economic system is not without criticism and several critics who included communists, socialists among others have strongly been against it with such arguments that capitalism promotes unequal distribution of power and wealth, the tendency of monopoly, unemployment, and social alienation among others. In poor countries however, capitalism usually doesn’t flow as compared to developed countries as a result of the massive corruption that is usually widespread in these countries (Case, 2004, p.32-35).
The stiff competition that exists in capitalism may pose as a major drawback because some people may use it to act in unethical manners so as to remain in the business and drive others out of the business altogether. Different religions such as Christianity, Judaism and Islam have also been against some capitalism elements with regards to lending and banking methods.
The scientists and environmentalists also holds some critics against capitalism because they deems the system as a form of depleting the natural economic resources that are scarce because capitalism tries to maximize the factors of production for generation of profits. The production process must be a continuous one for the capitalism system to continue in its existence and hence the argument that it can lead to the depletion of resources by the scientists as well as environmentalists (Nee &Swedberg, 2007, p.236).
Conclusion
The last two centuries have seen the development of capitalist theories from mercantilism to neoclassical theory which is the most current theory of capitalism. During the 19th and the 20th centuries, capitalism gained its prominence mostly in Europe boosting industrialization in the world.
In capitalism however, the forces of demand and supply plays a vital role in the determination of prices of goods and services. There is much innovation in capitalism as compared to socialism or other mode of economic system as a result of competition. The government have limited control on private property on ownership and also does not prohibit people from working in areas that they desires or prevent organizations from determining their price for their goods and services (Case, 2004, pp.32-35).
Reference List
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