Question

MACROeconomics help needed for Capitalism paper

How has society changed over time

How has industry changed over time

How has trade changed over time

Answer 1

The word Capitalism was not founded by the people who actually practiced it.

Capitalism is a system of production where some people own production called Capitalists. Those who own production employ people who didn't own it by paying wages. A system organized like this carry out business and commerce activities by selling the commodities got using production.The people who didn't own and work for wages are called labourers or Proletariat.

Some may sell the services instead of physical products. In return of selling product or service, they receive money a bill of exchange which can be used to buy other goods and services. This system is called market where intensive exchange of goods and services take place. The system involves producers who are both capital owners and labourers, Wholesalers, retailers, end users called consumers.

How some people end up in owning production? This disparity is caused due to social and historical changes such as slavery, feudal systems migrating to industrialized forms of production. Due to the available credit system and piled up assets some people become capitalists owning production. They live by profits generated by Capitalism. The profits may be in the form of interest or surplus of labour realised after selling product or rent generated from the owning assets and land. Anything excess than capital saved by a capitalist may qualify as profit.There are several hidden ways of generating profit such as usury which a layman is not aware of.

What's give value to the product is the labor involved in making the product and the Capital used to buy means of production. This is where the hidden agenda of profit lies. The labor will produce more value than it is paid for, called Surplus value. This surplus value minus labour paid and Capital used is what brings profit. There are middleman involved hence the Landlord rent, commission of both wholesaler and retailer has to be subtracted from the profit. But the production will go on large scale hence this commisions to middleman just come around 10% to 20% of surplus or may be even more.

However, over time means of production like machinery depreciates and losses efficiency. Hence the capitalist profit may fall but they accumulate and generate interest by lending profit. Also they try reducing wages of labour to maintain profits. The competition in market be it free or not, also have impact on profits. These decisions made by capital owners are referred to as anarcho capitalism as this was done by the owner without consultation of working class and the state which governs.

Many regard money also a form of capital but when it generates interests by lending, it will become Fictitious Capital. The capital which is piled up in stock exchanges, risk markets, money lended by Banks qualify as Fictitious capital. Because we do not trace the complex process involved here and any interest is also claim on some surplus value of labour produced somewhere. In this market setup rarely the worker and owner of stock know each other but they are working for each other unknowingly. The worker produces surplus value and the owner of the stock will have capital gain by trading the stock to others.

During Industrial revolution in Europe, some people who don't own production developed discontent for private ownership of means of production. They are inspired by teachings of Karl Marx and Engels. These people founded socialism, and also there is emergence of democratically elected ruling classes contrary to aristocracy and feudal system. They have made a communist manifesto to cease private ownership of production and converting it in to ownership of democratically elected worker unions. This has experimented but not adopted in countries like Britain and Germany due to resistance from capitalists.

During world war 1, Valdmir Lenin inspired by Karl Marx manifesto done a similar revolution by creating Red army in Russia to cease private ownership including emperor Tsar Nocholas. They established Soviet union, a communist state.

Capitalism as a system led to forced holding of power by some European countries due to colonization by exploiting not so developed industrialized countries in 18th, 19th and 20th centuries. Most European countries established Colonies which aided their religious, financial and Scientific devolopment. The formation of US, Canada is actually due to this movement. Decolonization took place due to revolution and world wars. Most decolonized countries became socialists but liberalized when they hit crises and fall of soviet union also one of the causes.

Socialism as a system never taken in to effect because owners of capital insisted their rights to ownership and they negotiated with the ruling class by means of taxation. This system is also known as Fascism which is in place in most parts of the world. Here there is a democratically elected ruling class who regulate the capitalists, markets and also do taxation, licensing, infrastructure development for all people including Capitalists. Well regulated Fascism close to Socialism may be called mixed economy.

Even though no country practices pure socialism, there are reforms done in most of the countries how a mixed economy could be run efficiently by benefiting majority of people which is also tried by capitalist countries like US through Keynesianism.

The drawback of capitalism is it may lead to overproduction and recessions. Both Overproduction and recession causes decrease in profits which lead to crisis.

The 2008 real estate bubble in Europe and US was assumed due to this causes. When housing prices peak and fall, some who had taken loan done willful default, thinking they would not get returns or profit if they repay loans, some foreclosed it. This may even affect banks as they cannot recover loans and also interest.Banks need to pay the investors, depositors depending on these loans which they will be unable to do it.

Overproduction occurs due to Capitalism's motive to increase profits by exploiting more labour, but due to falling demand they are unable to sell commodities at a profit rate. The decrease in demand may cause fall of profits or even losses.

Capitalism also leads to accumulation of wealth by few elite classes of people as they save more money due to increasing profits and interest bearing capital. This causes disparity and inequality in any Society.

Due to liberalism Capitalists will put pressure to stop government intervention on taxation, exploiting labour, forcefully disposses land from peasants in some developing countries.

None of these technological and societal changes would have been possible without the emergence and development of capitalism. The European empires of the 16th through the 18th centuries were empires that existed primarily to increase trade and the wealth of the European nations. During this time, powerful European nations such as Spain, Portugal, England and France participated in intense economic and exploration based rivalries. The Age of Exploration shows this rivalry in the massive colonies that each European nation amassed, as they competed with each other for territories in the New World. At their height, these countries controlled large sections of the world as part of their vast empires.

​At the foundation of these rivalries existed the economic system of mercantilism, which was the idea that colonies and trade should be strictly controlled to benefit the economy of the home (European) nation. Mercantilism was an economic system that was heavily regulated and controlled by the government and allowed very little freedom for individual people. This all changed with the introduction of capitalistic beliefs and values in the late 1700s. ​As the 18th century went along, some people began to reject the principles of mercantilism. For example, in 1776 Scottish economist Adam Smith published his famous written work “An Inquiry into the Nature and Causes of the Wealth of Nations” which is just often shortened to “Wealth of Nations”. The book challenged the idea that the government should control the economy and instead proposed the idea of free trade and competition with a lesser role of the government. The ideas of this book would eventually lay the foundation for the principles of capitalism, which is an economic system that supports the idea of free trade and choice as a way of achieving prosperity. The emergence of capitalism was vitally important to the start of industrialization and the Industrial Revolution.

​Capitalism caused the Industrial Revolution because industrialization required significant work and investment from individuals and not necessarily the government. For example, in Britain, where the Industrial Revolution began, wealthy entrepreneurs were important because they used their wealth to create factories and mines. This investment from individuals, whose actions were guided by the profit motive, would not have been possible without the emergence of capitalism. Furthermore, as the Industrial Revolution began the individualistic principles of capitalism helped create a climate wherein industrialization exploded, and eventually spread worldwide.

Capitalism was a central component of classical liberalism in the societies of the Industrial Revolution. Classical liberalism was an ideology that was based on economic individualism and the principles of: economic freedom, private ownership, competition, self-interest and self-reliance. In general, all of these principles focused on little or no government intervention in the economy and as much economic liberty for individuals as possible. This contrasted with the previously mentioned mercantilism, which favored heavy government regulation and intervention. The economic ideals of classical liberalism first emerged in the 18th and 19th centuries and quickly shifted European society from left-sided mercantilism to right-sided capitalism.

​Classical liberal societies were also based on the economic principles of laissez-fair capitalism. Often, laissez-faire capitalism is also referred to as free market capitalism or market capitalism. Simply put, laissez-faire translates to ‘leave us alone’ meaning that the government should remain out of the economy and instead allow individuals to freely carry out their own economic affairs. Historically, laissez-faire capitalism was most common during the 18th and 19th centuries in the timeframe of the Industrial Revolution. As such, England during the Industrial Revolution is considered to be an example of a classical liberal society. At the time, it was a revolutionary idea, because in the previous centuries, mercantilism had been the dominant economic system which was discussed previously. However, prominent thinkers, including Adam Smith, began to argue against mercantilism in favor of an economic system with more freedom for individuals. The development of capitalism as an economic system, sought to reject the idea of government control of the economy and instead put the focus on individuals.