Chapter 4 -The Nature of Capitalism

https://ethicalrealism.wordpress.com/2011/05/01/considerations-for-
against-capitalism/

-Capitalism can be defined as an economic system in which the

major portion of production and distribution is in private hands,
operating under what is termed a profit or market system.

-Private production and main goal is to make profit; free to make

any product and set any prices that depends on consumers demand
and other market forces

-The United States is the worlds leading capitalists economy.

-All manufacturing firms are privately owned, including those that
produce military hardware for the government.
-The same applies to most banks, insurance companies and
transportation companies.
-With the exception of government expenditures for such things as
health, education, welfare, highways and military equipment, no
central governing body dictates to these private owners what or
how much of anything will be produced.

-For example, officials at Ford Motor Company design their products

and set their own production goals in anticipation of consumer
demand.

-The private ownership and market aspects of capitalism contrast

with its polar opposite, socialism.
-Ideally, socialism is an economic system characterized by public
ownership of property and a planned economy.
-Under socialism, a societys productive equipment is owned not by
individuals (capitalists) but by public bodies.
-Socialism depends primarily on centralized planning rather than on
a market system for both its overall allocation of resources and its
distribution of income; crucial economic decisions are made not by
individual but by government.

-For example, in the former Soviet Union, government agencies

decided the number of automobilesincluding models, styles and
colors to be produced a year.
-Top levels of the Soviet government formulated production and cost
objectives, which were then converted to specific production quotas
and budgets that individual plant managers had to follow.

Key features of Capitalism

i. Companies
-Capitalism permits the creation of companies or business
organizations that exist separately from the people associated with
them.
-What benefits the company, what motivates the company.

ii. Profit motive

-To make profit.

-Profit motive implies and reflects a critical assumption about
human nature: that human beings are basically economic creatures,
who recognize and are motivated by their own economic interests.
-How the company will earn profit for themselves

iii. Competition

-Competition makes individual pursuit of self-interest socially

beneficial.

iv. Private property

-Requires private ownership of the major means of production and

distribution.
-The means of production and distribution include factories,
warehouses, offices, machines,, computer systems and many more
that makes up the economic resources of a nation.
-Under capitalism, private hands control these basic economic
assets and productive resources.
-Thus, the major economic decisions are made by individuals or
groups acting on their own in pursuit of profits.
-These decisions are not directly coordinated with those of other
producers, nor are they the result of some overall plan.
-Any profits (or losses) that result from these decisions about
production are those of the owners.

Moral justification of capitalism

i. The natural right to property

-A common defense of capitalism is the argument that people have

a fundamental, natural right to property and that our capitalist
system is simply the outcome of this right.

- When individuals mix their labor with the natural world, they are
entitled to the results

-However, Utilitarian reject the whole idea of natural right to

property as a fiction.
-In their view, although various property systems exist, there is no
natural right that things be owned privately, or collectively or in any
particular way whatsoever.
-The moral task, according to utilizations, is to find the property
system, the way of organizing production and distribution, that has
the greatest utility.

-Even if one believes that there is a natural right to property at least

under some circumstances, one need not believe that this right
leads to capitalism or that there is a right to have a system of
property rules and regulations.

ii. Adam Smiths concept of the invisible hand

-Relying in the idea of a natural right to property is not the only way
and probably not the best way to defend capitalism.
-Another, very important argument defends capitalism in terms of
the many economic benefits the system brings, claiming that the
free and unrestrained market system that exists under capitalism is
more efficient and more productive than any other possible system
and is thus to be preferred on moral grounds.

-Smith argues that when people are left to pursue their own
interests, they will, without intending it, produce the greatest good
for all.
-Each persons individual and private pursuit of wealth resultsas if
guided by an invisible handin the most beneficial overall
organization and distribution of economic resources.

-Individuals should be allowed unrestricted access to raw materials,

markets and labor.
-Government interference in private enterprise should be
eliminated, free competition encouraged and economic self-interest
made the rule of the day.
-Because human beings are acquisitive creatures , we will, if left
free, engage in labor and exchange goods in a way that results in
the greatest benefit to society.

-Adam Smiths concept of the invisible hand the law of supply and
demand:

Criticisms of capitalism

Inequality

i. A few extreme supporters of capitalism simply deny that it is

responsible for poverty and inequality.
-Rather, they say, government interference with the market causes
these problems.
-Left to itself, the market would eliminate unemployment and
poverty while ultimately lessening inequality.

ii. Poverty and extreme income inequality can be reduced (or

eliminated) in capitalistic systems through political action. For
example, we can reduce poverty through taxation and public
services (i.e. redistribution of wealth).

iii. Even if capitalism leads to poverty, the benefits of capitalism

could outweigh the harms.
-Inequality is not so important if living standards are rising and if
even the poor have better lives than they did in previous times.

Human nature and capitalism

-The theory of capitalism rests on a view of human beings as

rational economic creatures, individuals who recognize and are
motivated largely by their own economic self-interest.
-Adam Smiths defense of capitalism, for instance, assumes that
consumers have full knowledge of the diverse choices available to
them in the marketplace.
-They are supposed to know the price structures of similar products,
to be fully aware of product differences and to be able to make the
optimal choice regarding price and quality.

Socialism: Control more by government that gives order to the

public, it is a planned economy and there is public ownership.
(China)

Canada is more in the socialism and capitalism but it is a mixed

economy.