Exam 1 Extra Essay
A summary of the evolution of economic:
The evolution of capitalism and socialism is based on the analysis of the largest economies in the globe. China is a model of countries that do not support capitalism for specific reasons. In the 19th century, there were capitalist developed countries as well as the non-capitalist underdeveloped countries. Following the Great Depression experience in Europe in 1920s and 1930s, the world got classified into the socialist developed countries, the capitalist developed world, and the underdeveloped world (Boettke, Coyne and Leeson, 2005).
Capitalism and Socialism throughout the 20th century:
In the early 20th century, massive criticism of capitalism over socialism was introduced. Socialism was believed to bring revolution in the productivity of the world economies as well as for individuals. Throughout the century, there were clashes among economists such as Bretton Woods of 1970s and the renowned economist Keynesian n which policy was the most outstanding following the advancement of economic policies. By the end of the century people were moving demand Keynesian demand management regulation and investment gap towards market socialist regulation (Boettke, Coyne and Leeson, 2005).
The primary benefits and drawbacks of both the capitalist and socialist system:
Capitalism refers to the economic system anchored to private ownership of capital. Capitalist economies support the distribution of means of production to private individuals with the market functioning determining the pricing and production of goods and services.
The Benefits of capitalism:
The first benefit of capitalism is that, it opens competition in the market promoting economic growth. This provides persons with massive opportunities to raise income leading to extensive economic growth.
The second benefit is that, capitalism leads to decentralized economic systems. In this case, people are exposed to many options in business. They face challenges where they are supposed to find solutions for them to remain in competition (Boettke, Coyne and Leeson, 2005).
The third benefit is that, capitalism leads to consumers’ regulated market. The competitive market facilitates manufacturing of a wide range of products and services (Boettke, Coyne and Leeson, 2005).
The drawbacks of capitalism:
Capitalism forms a money-oriented economy. Entrepreneurs view at the economy at a materialistic point of view. Profit is the only language that these people understand (Boettke, Coyne and Leeson, 2005). This means they do not bother of the services they offer to their people. Capitalism encourages dominance of business giants over small business as the large companies search for high profits.
Socialist system refers to an economy where the means of production are state owned. A central planning authority undertakes the production and distribution responsibilities.
The Benefits of socialism:
The First benefit is that, efficient use of resources is one of the advantages of a socialist economy. Resources produce socially useful goods with no emphasis on the profit margin (Boettke, Coyne and Leeson, 2005).
The second benefit is that, the economy is never affected by business fluctuations. This encourages stability since there is efficient production and consumption of elements in the economy.
The third benefit is that the system discourages monopolies since there is no private ownership (Boettke, Coyne and Leeson, 2005). Although, the country is a monopoly it produces quality goods at affordable prices. Since social welfare is the ultimate goal in this kind of system, concentration of wealth is discouraged, preventing extreme inequality in the socialist system.
The Drawbacks of socialism system:
One of the drawbacks of the socialist system is the bureaucratic expansion. Since the system operates through centralized command and control system, people work with the fear of people in higher positions (Boettke, Coyne and Leeson, 2005). This means that it gives people no room to work hard.
Also, since factors of production allocations are done rationally, there is no freedom of occupation. Job vacancies are provided by the government as well as the place of work (Boettke, Coyne and Leeson, 2005). Following lack of freedom at work, technology does not prevail in the market. This means that innovation is hard to employ in these sectors.
The right mix between markets and planning:
In my opinion, in the setup of any economy, planning is extremely crucial. This is based on the economic performance of a given economic platform. It refers to the process of coordinating activities accordingly to allow ample allocation of resources in the economy (Boettke, Coyne and Leeson, 2005). Planning is dependent on the kind of economic system operational in a given country. Capitalist form of economy allows individual to conduct their planning while socialism allows only the government to conduct planning.
This is an extremely crucial element in the organization of the element as forces in the economy are predetermined unlike the case of markets situation where an economic agent undertakes activities as they come up in the economy. Planning helps counter forces, which may affect business individuals, as well as countries if they were not prepared for them.
Boettke, P.J., Coyne, C.J., and Leeson, P.T. (2005). The New Comparative Political Economy. The Review of Austrian Economics 18: 3/4, 281-304.