Capitalism refers to an economic system in which production is done by private entities who own the means of production. The central tenet of capitalism is that owning private property and pursuing self-interest is legitimate and morally justifiable (Ikeo and Kurz 46). It advocates for a free market economy in which the state has minimal interference. Capitalists believe that the role of the state should be restricted to protecting the rights of individuals.
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Private economic agents should be allowed to make their own decisions concerning investments, production, prices, and profits. Despite its dominance in the contemporary world, several scholars have always criticized capitalism due to its negative effects. This paper focuses on capitalism by presenting a discussion on how it was understood by different scholars. In particular, the paper will focus on the views of Adam Smith, Karl Marx, Andrew Ure, Andrew Carnegie, and Thorstein Veblen.
Smith is considered the founding further of capitalism since his ideas on free trade replaced the concept of mercantilism, which was dominant during his time. He argued that wealth is created through labor. Individuals and the community obtain their necessities and make money by applying their labor in productive activities, thereby improving their standards of living (Medema and Samuels 93). According to Smith, free trade increases wealth since it creates more opportunities for the application of labor.
Smith concurs with Karl Marx by asserting that the society cannot flourish if majority of its members are miserable and living in poverty. He believed that the laborers should enjoy part of their labor in order to improve their standards of living. In this regard, he advocated for the creation of a universal opulence that would benefit all members of the society by enhancing equity in the distribution of wealth (Medema and Samuels 97).
This was to be achieved through a commercial system that would improve the lives of the poor by supplying all the necessities that an individual needed to live a descent life. According to Smith, the socio-economic condition of the masses can be improved by increasing production and the workforce.
Unlike Marx, Smith believed that individuals should specialize in performing specific tasks in the production process in order to increase productivity. Contrary to Marx and Veblen’s views, Smith advocated for the pursuit of self-interest. He asserts that, the pursuit of self-interest in a free market system not only benefits the individual, but the entire community (Hunt and Lautzenheiser 213).
Thus, he believed that the ideal social and economic order is one in which individuals are allowed to pursue their interests in a free market economy. He defended this position by arguing that a person who purchases a product (self-interest), benefits more people than he would have done by contributing to charity. This is because a purchase leads to increased production and employment.
Ure was also a supporter of capitalism. He focused on defending the factory system of production, which is the cornerstone of manufacturing activities in a capitalist society. He concurs with Smith by asserting that utilizing labor in production benefits the masses through compensations such as wages and acquisition of new skills (Ikeo and Kurz 98).
He further asserts that workers should forego their right of deciding when to stop or start working in order to maintain a stable production process. This contradicts Marx’s view that workers will be alienated if they have no control over the production process.
Ure argues that the exploitation associated with capitalism is exaggerated. He asserts that workers in factories have little knowledge of how the economy operates. Thus, they cannot accurately measure the extent to which the value of their labor and the time they spend in production exceeds the wages paid to them. Ure believes that workers should be grateful to the capitalists and be happy with the success achieved through their labor instead of criticizing their employers.
He argues that laborers should focus on being good workers so that they can be promoted to higher positions and to increase the demand for their colleagues’ labor (Hunt and Lautzenheiser 469). In this regard, Ure believes that the factory system can benefit all stakeholders if the workers abolish violent confrontations, which Marx believed would end exploitation in capitalist societies.
Finally, Ure defends child labor by claiming that children were never exploited in the factories. He argues that working in the factories enabled children to acquire advanced skills. Consequently, they were better than their colleagues who remained at home (Hunt and Lautzenheiser 471). Ure believes that a capitalist system in which the workers cooperate with the employers is the ideal social and economic system since it will benefit the entire community.
Carnegie was a strong supporter of capitalism who believed in Smith’s concept of free trade. As a businessperson in the manufacturing sector, he strongly opposed state interference in commerce (Medema and Samuels 172). He also believed that the government should not be involved in charity work. According to Carnegie, private accumulation of capital was essential for the progress of society rather than creating class straggles as Marx claimed.
Unlike Smith who believed that workers deserved a fair share of the product of their labor, Carnegie believed that high wages was not desirable since it would increase the cost of production. Consequently, he focused on reducing wages in his steel mills. He also opposed labor unions by arguing that their quest for high wages led to increased production costs, thereby discouraging industrial production.
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According to Carnegie, labor unions should be abolished since they represent the interest of a few workers, whereas capitalists’ actions benefit the entire community (Medema and Samuels 174). This perspective contradicts Marx’s view that labor unions are important since they fight for the rights of the laborers who are the majority. It also contradicts Veblen’s opinion that capitalists should not reduce wages in order to fulfill their self-interest of earning high profits.
Carnegie believed that the ideal economic system is one in which private entities are allowed to pursue their interests without any state interference. Unlike Smith, he believed that wealthy people should help the poor through charity work. Moreover, rich people should use their wealth to benefit the society rather than leaving it behind as inheritance to their children.
Unlike Smith, Ure, and Carnegie, Marx was an ardent critic of capitalism. He argued that capitalists had to extract as much labor as possible from workers in order to maintain their competitiveness in the market. In this regard, the aim of capitalists is to exploit workers by paying them the lowest wage in order to reduce the cost of production.
Marx’s concept of exploitation is illustrated by his labor theory. According to Marx, producing and selling various goods is meant to help individuals to acquire other goods in order to satisfy their needs rather than accumulating money (Hunt and Lautzenheiser 325).
However, capitalists engage in trade in order to accumulate money rather than satisfying their needs for various goods. Thus, capitalists purchase labor at a low price and use it to produce goods, which they sell at a high price in order to make a profit. Marx believed that obtaining surplus value from the workers’ effort was a form of exploitation that was not acceptable.
Unlike Smith and Ure, Marx believed that industrial production in capitalist societies led to alienation among workers. Marx argued that workers are alienated from the products that they produce because they do not have any say concerning the purpose of production (Hunt and Lautzenheiser 329).
He criticizes Smith by asserting that division of labor alienates workers from the production process rather than increasing productivity. This is because specialization leads to boredom and discourages creativity. Workers are also alienated from themselves and the rest of the capitalist society because they have no control over the production process, as well as, the goods that they produce.
According to Marx, the alienation and exploitation associated with capitalism leads to class struggles between the haves and the have-nots (Hunt and Lautzenheiser 335).
This struggle is expected to cause the defeat of capitalism. Consequently, the proletariats (have-nots) will replace the capitalists. Additionally, the mode of production will shift from capitalism to communism, which Marx considers the ideal socio-economic system.
Veblen was also a critic of capitalism. He concurs with Marx that capitalism leads to antagonistic relationships in the society. In particular, he argues that capitalism creates tensions between individuals who accumulate their wealth through exploitation and those who make it through industry. He refers to those with the ability to exploit as the leisure class (Medema and Samuels 236). This class is associated with conspicuous consumption and little engagement in productive economic activities.
Veblen criticized capitalism by claiming that any economic theory that supports the pursuit of self-interest is unscientific. He also criticized conspicuous consumption because it leads to waste. According Veblen, businesspersons have little creativity, whereas engineers are innovators.
However, businesspersons always benefit through their capitalistic tendencies at the expense of engineers. This leads to waste, predation, as well as, a conflict between the businesspersons and engineers (Medema and Samuels 237). Veblen agrees with Marx’s argument that businesspeople exploit laborers by making high profits through selling goods and services, which they did not produce. He believed that socialism was the ideal economic system.
This paper discussed the effects of capitalism as understood by various scholars. Smith, Ure, and Carnegie supported capitalism by arguing that it will help in increasing production and job opportunities. Consequently, it benefits the entire community. On the contrary, Veblen and Marx strongly opposed capitalism by highlighting its weaknesses.
They argue that the pursuit of self-interest is not morally defensible because it leads to exploitation of the masses. Concisely, capitalism benefits the rich at the expense of the poor, thereby worsening inequality in the society. This leads to tensions and class struggles, which can only be avoided by abolishing capitalism and adopting socialism or communism.
Hunt, Erick and Mark Lautzenheiser. History of Economic Thought: Critical Perspective. London: Palgrave, 2011. Print.
Ikeo, Aiko and Heinz Kurz. A History of Economic Theory. New York: McGraw-Hill, 2009. Print.
Medema, Steven and Warren Samuels. A History of Economic Thought. London: Sage, 2000. Print.