Chapter 4 Flashcards
Capitalism:
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.
Socialism:
Worker control socialism:
Socialism: The polar opposite of capitalism, an economic system characterized by public ownership of property and a planned economy
Worker control socialism: A hybrid market-oriented socialism.
What are the 4 stages through which Capitalism has historically evolved from the Renaissance through 4 several stages?
What is the new stage that many believe we are now at and what does it mean?
Capitalism is constantly changing as a result of what two things?
1) mercantile - mutual dependence between state and commercial interests
2) industrial - large-scaled industry
3) financial - pools, trusts,holding companies, banking, insurance & industrial interests
4) state welfare - govt active role- social security, unemployment insurance, trade unions
Globalized capitalism - involving reliance upon foreign labor and services, joint ventures in overseas companies, outsourcing, etc.
Capitalism is constantly changing as new socio-economic and political conditions arise.
Key Features of Capitalism
1) Companies: permits the creation of companies or business orgs that exist separately from the people associated with them.
2) Profit motive: implies a critical assumption about human nature – that human beings are economic creatures who recognize and are motivated by their own monetary interests.
3) Competition: In his famous treatise on political economy, An Inquiry into the Nature and Causes of the Wealth of Nations (1776), Adam Smith explained how free competition makes individual pursuit of self-interest socially beneficial.
4) Private property: requires private ownership of the major means of production (factories, warehouses, offices, machines, trucking fleets, land, etc.)
The natural right to property:
One basic defense of capitalism rests on a supposed natural moral right to property.
- Utilitarians deny the existence of such rights.
- Other critics doubt that this right entitles one to have a system of property rules and regulations identical to the one we now have in the U.S.
Adam Smith’s concept of the invisible hand
In his Wealth of Nations, Smith argues that when people are free to pursue their own economic interests, they will, without intending it, produce the greatest good for all.
Human beings are acquisitive and have a natural propensity for trading.
A market left to itself is regulated by the mechanism of supply and demand. The high demand for certain types of goods in one area of the market will eventually be offset by supply in another area.
The law of supply and demand is equally applicable to the standard of wages.
Two types of criticism of capitalism.
Critics raise both theoretical and operational objections to capitalism.
- Theoretical criticisms challenge capitalism’s fundamental values, basic assumptions, or inherent economic tendencies.
- Operational criticisms focus more on capitalism’s failure to live up to its own economic ideals.
Inequality criticism to capitalism
Defenders of capitalism respond in three ways:
Inequality: Critics argue that poverty and inequality challenge the fairness of capitalism and its claim to advance the interests of all.
Defenders of capitalism respond in three ways:
- By blaming government for interfering with the market.
- By arguing that the capitalist system can be internally modified by political action.
- By arguing that the benefits of the system outweigh its weak points.
Human nature criticism of capitalism:
Human nature and capitalism:
- Capitalism wrongly assumes that human beings are rational economic maximizers.
- Capitalism offers us no higher sense of human purpose.
- Capitalism operates on the assumption that human beings find increased well-being through ever greater material consumption.
Competition criticism of capitalism
Competition isn’t what it’s cracked up to be:
- Capitalism breeds oligopolies – concentrations of property and resources (and thus economic power) in the hands of a few.
- Corporate welfare programs often shelter businesses from competition.
- Critics contend that cooperation, rather than competition, leads to better individual and group performance.
Exploitation and alienation: Karl Marx
Karl Marx argued that as the means of production become concentrated in the hands of the few, the balance of power between capitalists (bourgeoisie) and laborers (proletariat) tips further in favor of the bourgeoisie.
Because workers have nothing to sell but their labor, the bourgeoisie is able to exploit them by paying them less than the true value created by their labor.
Exploitation and alienation: “Economic and Philosophic Manuscripts” (1944), Marx
Marx explains the notion of alienation as the separation of individuals from the objects of their creativity.
This separation in turn results in one’s separation from other people, from oneself, and ultimately from one’s human nature.
Today’s economic challenges
1) The decline of American manufacturing
2) Outsourcing jobs
3) The U.S. trade deficit
4) Changing attitudes toward work
1) The decline of American manufacturing
Accounted for 27 percent of GDP in the mid-1960s, now 1/2 that. Manufacturing employs less than 10 percent of the U.S. workforce. 2007, the number of factory jobs hit a fifty-seven-year low. Critics worry whether the U.S. can prosper without a strong manufacturing base.
2) Outsourcing jobs
Becoming marketing organizations for other producers, usually foreign. New kind of company that does little or no manufacturing. Outsources, buying parts or whole products from other producers, both at home and abroad.Outsourcing has affects white-collar jobs.
