Capitalism Is An Economic System Characterized by Term Paper

  • Length: 5 pages
  • Subject: Government
  • Type: Term Paper
  • Paper: #41146430

Excerpt from Term Paper :

Capitalism is "an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market"

As we can see from this definition, according to the Webster definition, there are two main characteristics for capitalism, both economic: a private ownership of capital goods and the role of the free market.

From the same source, Communism is seen as "a system in which goods are owned in common and are available to all as needed," but also "a totalitarian system of government in which a single authoritarian party controls state-owned means of production" and "a final stage of society in Marxist theory in which the state has withered away and economic goods are distributed equitably." In this sense, Communism also combines political and historical elements with the economic main characteristic.

Socialism is characterized by "collective or governmental ownership and administration of the means of production and distribution of goods," with an "unequal distribution of goods and pay according to work done."

A mixed economy system refers to a system that contains "features of both capitalism and socialism"

. In practice, many states adopt a mixed economy system, where some of the important sectors, deemed strategic, such as telecommunications or transport, are still state dominated.

2. Capitalism can probably be traced back to the Middle Ages, the 12th and 13th century, when rich Flemish or Italian merchants competed fairly on the market and practicing trade as the main source of revenue. As feudalism weakened, the capitalism system became stronger and was implemented in England or the Lower countries. Among the theoreticians, Adam Smith sustained in the 18th century, in his book "Wealth of Nations," the idea that an "invisible hand" regulates the market mechanisms and functions. At present, capitalism seems to have merged more powerful from its competition with Communism and more and more countries are adopting it as the single viable economic system.

For many, the history of Communism starts with "The Communist Manifesto," written by Marx and Engels at the middle of the 19th century. Written as a reaction to the ruling of the bourgeois, the manifesto included revolutionary ideas, such as sharing the means of production and the capital goods. Surprisingly, the doctrine did not necessarily attract poor peasants in Russia, but other intellectuals. The extreme left groups grew in power in Russia, as the First World War caused the chronic problems that the Russian society faced to get worse. The Tsar was overthrown in February 1917 and this was an excellent time for the Bolsheviks, led by Lenin, to take power in Russia, in October 1917. Lenin introduced some of the ideas he had written about, but it was Stalin, who, through his concept of "Communism in only one State" turned to gathering all means of production, creating large kolkhozes in fertile areas of the Soviet Union. The measures weren't always productive: the Ukraine famine, for example, is believed to have killed millions of people. The Soviets began to export its model into other countries, the most important of all, China, adopting the Communist system in 1949, when Mao became President. Experiments such as the Cultural Revolution left tens of million dead in China. As the Cold War evolved, entering a period of Detente, each two superpowers attempted to attract and implement its model into the non-aligned countries. Communism gained several states in Africa (Ethiopia, Angola) or Latin America (Nicaragua, Cuba). However, it could not sustain its own economic malfunctions and the system itself imploded, the Soviet Union collapsing in 1991.

Socialism can always be described as an system in-between communist and capitalist concepts. Socialism started as an utopia, with some of the writers in the 18th and early 19th century created ideal societies, in which "humans co-operated in production for the benefit of all without the need for material incentives, and in which the state was abolished in favor of a system of self-government"

. The industrial revolution increased the appetite for socialism, as the working class worked long hours for terrible wages. In this sense, socialism consolidated itself as a system for protecting workers, with unions as the main for of representation. In 1848, part of the socialism movement derailed into Communism. Socialism, however, remained on a less controversial path and transformed gradually into the Social-Democrat Parties we know today across Europe.

The Mixed Economy is what is nowadays known as "the Third Way" and has been implemented in many countries around the world. It has appeared in time as a necessity. Indeed, most of the industries were State-owned in the beginning, however, in time, some of them were privatized. Others, on the other hand, were classified as strategic and remained State owned. This created a mixed economy, where some of the industrial sectors are state owned, while others are dominated by private companies.

3. A. In Communism, the means of production are state-owned. All resources are regulated and in the hands of the State. On the other hand, in capitalism, the means of production are private-owned. The case of socialism and the mixed economies are somewhere in-between, with an emphasis on the fact that they tend to be nowadays private-owned rather than State owned.

B. One of the most important differences between Communism and Capitalism is related to the mechanism of coordination of economic activity (we are referring to the Communism that was actually experienced in history rather than on idealistic Communism). In Communism, the Government and its apparatus determine and fix everything from prices, to the number of State-owned firms operating in a market sector and to the amount of production units that must be delivered.

On the other hand, in a Capitalist system, the market determines what will be bought and at what price. This is because, in a Capitalist system, a product that is not sold and that has a low demand drives itself the company to bankruptcy. Prices are thus determined depending on the demand for a certain product or service. Additionally, competition between private companies is important in determining which companies will make a profit and which will go out of business. Because in Communism, all means of production are State owned, any such competition is impossible.

In Socialism and Mixed Economies, the State fixes the price for some of the industries it is dominating. Additionally, in the case where it holds local monopoly, it also determines the conditions under which new companies are allowed to enter the market.

C. In Communism, the system of incentive is based on moral issues. There is a certain philosophy that leads people to believe that sharing everything will make everybody equal, which is a moral thing. On the other hand, in Capitalism, the system of incentives is based on material gains: the society and the system rewards those who are able to earn more with a better living. Again, Socialism and Mixed Economies find themselves somewhere in-between these two descriptions. However, Socialism has a stronger inclination towards moral issues, with the attention that the State pays to social security, unemployment, etc.

D. In Capitalism, the Government only watches out for any macroeconomic malfunctions that may occur within the system. As examples, it intervenes when the national currency has been strongly devaluating or when the public deficits have reached levels that are too high. In this sense, it also sets general macroeconomic strategies and coordinates the public sector activities (education, health).

In Communism, the Government virtually regulates everything. As I have previously mentioned, this ranges from setting the prices for all goods and services to setting the currency rate for the national currency. The government's role in Socialism is less strong and promotes social projects.

E. In Communism, these practically do not exist. Except for the national Communist Party and the Government (subordinated to the first), there is no other influence in economic life from any other institutions. Private institutions do not exist or are foreign ones (we are not referring here to the Chinese example, which should probably be included in the Mixed Economies sector).

In Capitalism, private institutions have a substantial role in determining courses of action. For example, NGO's fight against smoking has caused the cigarette producers to lose millions of dollars in lawsuits.

F. All three systems provide safety for different categories of citizens, the thing that differs is the degree to which this is provided. In Communism, all are taken care of, being integrated in a national social security scheme. To a lesser degree, this is also the case for Socialism (France should be an excellent example in this sense). Capitalism provides a strong system of safety for disabled citizens, ensuring that disadvantaged persons still have their chance.

G. In my opinion, in Capitalism we can talk more about consumer dictatorship rather than consumer sovereignty, because the consumer decides which products are viable and which are not. In Communism, the consumer doesn't usually have…

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