Introduction
Capitalism is an economic system that enables individuals to own resources of production privately. The system values private ownership with the price system as the system of determining the rate of exchange of goods and services. Te individual owners of the resources pursue their own selfish personal interests rather the mutual interest of everybody in an economy. The free hand of the economy determines the prices of commodities. Consumers determine the demand of the products to be supplied hence fuelling the competition between firms. Economic progress is important is every economy in the world. The progress of an economy depend so various factors that include free trade, high competition, low taxes and limitations to business. The characteristics that favor economic progress are similar to the characteristics of progress. Capitalism favors economic progress. This paper compares and contrasts capitalism and economic progress.
Capitalism
Capitalism is a form of industrial organization where the production means are mainly machines and are owned by individuals privately. Capitalism is characterized by pursuing material self-interest due to the freedom of the system. The reasoning of culture usually influences this. Savings and accumulation of capital by individuals, exchange of goods and services using money self interest of people financially and the motive of profit further characterize capitalism. Moreover, under capitalism, there is freedom of economic competition and equality. Capitalism operates under the price system, economic progress and harmony of the material self-interest of the participants in the system. There is the division of labor in almost every section of capitalism. Therefore, Capitalism is a social system that is based on the explicit recognition of private property and of nonaggressive, contractual exchanges between private property owners (Irwin, 2008, p. 8).
Economic progress
Economic progress is the ability of an economy to grow. The growth of an economy depends upon several factors. According to Boehn (2002, p. 138), economic growth is determined by the effective application of capital in the economy. The use of capital by individuals privately should be promoted by the state. The foundations of economic growth are five. First, there should be private property rights. Private property rights grant the owner of property the right to buy, sell, or derive income from their land, natural resources, capital and entrepreneurial talent. Even-handed enforcement protects these rights to exclusive use, protection against abuse, and transfer rights, thus allowing property owners to focus on resource allocation, efficient production, investment, and technological advancement. Property rights should encourage private owners of capital should be encouraged to use their capital productively. This should also involve promotion of stewardship, encouraging people to develop their property in ways beneficial to others for possible exchange, transfer or sale and promoting wise development and conservation of resources for the future (Dickens, 1996, p. 91).
The second factors are competitive markets. Efficient and effective use of economic resources is influenced by competition while providing a continuous innovation stimulus. Producers are forced to operate efficiently by the pressure from competition. Competition forces businesses to cater to the preferences of their customers and provide goods and services for which they are willing to pay prices sufficient to cover their costs. Consumers ensure that sole proprietors, partnerships and large corporations charge low prices, produce quality products and provide services of value relative to costs (Dickens, 1996, p. 92).
The third factor that promotes economic progress is the limits placed on the regulations of the government. Economic progress is usually retarded by policies that regulate trade. Such limits of the state include Limits of entry into some businesses and occupations, substituting political authority for rule of law and freedom of contract and imposing price controls. Another factor for economic growth and progress is an efficient market. It is important for an economy to have the means to distribute the capital that is used to create projects that generate wealth in order to realize its potential. This includes things that re able to produce goods and services such as machines, buildings and computers. Investment in capital tools requires consumption sacrifices today (savings). The payoff is increased production and consumption in the future. A mechanism is needed to channel savings into productive investments. Capital markets perform this function. The next factor for economic progress is the stability of the monetary system. Monetary policies that are inflationary alter price signals while undermining the free economy. The functions of money in an economy such as store of value, unit of account and as a medium of exchange makes it an important factor in an economy. Monetary stability there is usually less uncertainty in an economy leading to more capital investment (Boehn, 2002, p. 236).
Taxation also affects economic progress. More output is produced by people when they are allowed to keep more of what they earn. Thus, low taxation increases savings while increasing capital investment. Marginal taxes that are High deject the efforts of employees at work and decrease the efficiency of employees. The outcome is less and low capital formation efficiency. The low degrees of capital efficiency support the consumption of products that are tax-deductible by individuals even when the nondeductible products may be more desirable. Free trade is vital for economic progress this factor is closely linked to taxes. It is possible for a country to progress by selling products that it produces at a cost that is lower while purchasing products that would be costly to produce. Such form of trade leads to comparative advantage that in turn reduces costs further.
Comparison of capitalism and economic progress
Capitalism is the economic system where there is private ownership of the production factors. The factors of production include land, manufacturing plants, machinery and other production tools. The system values the price system in establishing wealth and economic growth. Trade is vital for effective growth to be achieved. The price for the exchange of the produced goods and services is determined by the free hand in the economy. Similarly, progress values the use price to exchange goods and services. The economic progress of a country also depends on the level of free trade within the country. Just like capitalism, progress will only be realized if individuals are left to purchase and sell products free (Wolf, 1982, p. 203).
The purchase and sale of products free leads to increased competition. Therefore, the two systems, capitalism and progress are characterized by intense competition. The competitiveness of the economy is healthy for economic progress. Competitiveness can be reduced with increase in taxation by the state. Taxation will slow down the levels of savings, reducing the available funds for private investments hence slowed economic activities. The low pace of economic activities can lead to less competition and slowed progress. Similarly, taxation restricts trade with an economy hence slowing the economic progress (Irwin, 2008, p. 12).
The system of capitalism is superior with respect to the production of wealth and the average standard of living. Capitalism can rationally allocate means of production and it can ensure that with the quality of the people and the allocation of resources being given, the quality of the output produced reaches its optimal level as judged again in terms of consumer evaluations. Assuming a given allocation of production factors and quality of output, and judged again in terms of consumer evaluations, only a market system can guarantee that the value of production factors is efficiently conserved over time (Irwin, 2008, p. 14).
Despite its benefits, capitalism differs from progress in the sense that it has been viewed as a wasteful system that is characterized by duplication of efforts, bad competition that ruins businesses and the absence of concerted and coordinated action. As socialists call it, it is anarchy of production. The systems doe not favor progress. It is only when the system is substituted by collective ownership of the resources of production that it is possible to eliminate the waste in the produced goods through the implementation of a single, comprehensive, coordinated production plan.
Capitalism is about private ownership of production resources. Therefore, there must be individuals who control resources while the rest do not control anything. Since the resources are limited, the individuals controlling resources are few while the majority does not have anything. Therefore, the system encourages proletarianization of the economy, something that is not good for progress and should not be encouraged. In accordance with common socialist beliefs, this tendency would in turn produce an increasingly uniform proletarian class-consciousness, which then would lead to a swelling voter turnout for the socialist party.
Conclusion
Capitalism is an economic system that enables private individuals to own resources of production privately. The system was established long time ago and is usually seen by many as a means of ensuring fairness in an economy since it gives each person an opportunity to own resources. The system utilizes the price system where the free hand determines the prices at which resource are exchange din the economy. The system is characterized by free trade, high competition, private ownership and price as a means of exchange. When the system is not interferes with, it leads to economic progress. Economic progress on the other hand involves the realization of the growth of and economy coming from various economic activities. The economic activities are realized when economic resources such as land and labor are well utilized. Progress can be slowed down by limited competition and taxation that affects the free movement of goods and services in an economy. Despite the two factors being different, they are similar. Moreover, capitalism promotes progress.
References
Irwin, S 2008, The New Capitalism. Web.
Dickens, C 1996, Graham Law, Hard Times: For these times, Broadview Press, pp. 60-65, 90-111, 169-182
Wolf, E 1982, Europe and the People without History, University of California State. pp. 195-231
Boehn, S 2002, is there Progress in Economics? knowledge, truth and the history of economic thought, Edward Elgar Publishing.