The concept of capitalism has been in existence since the times of the Industrial Revolution to date. In each of these different stages, the concept has continued to evolve depending on the nature of the markets and the dynamism of the world. Regardless of this continuous evolution, the concept has attracted controversy perhaps due to its complexity. In this regard, therefore, numerous economists, scholars and authors have touched on the subject through history. Robert Heilbroner is one of the most renowned scholars to contribute to the issue through his book Two Realms of Capitalism. Particularly, the thorough dissection of the concept is most appealing and relevant in the twenty first century. Essentially, the discussion in his book explores the role of the capitalist system in the society and the world in general. In his essay, an avid explanation of the concepts of capitalism as well as the difference with traditional systems is maintained thus giving readers a clear understanding. The paper adopts a neutral perspective thereby achieving a point of balance in the examination of the concept. The discussion in the essay alludes to the existence of two realms of capitalism that are both beneficial and dysfunctional to the society.
The most interesting part of Heilbroner’s analysis of capitalism is the two existences of the two realms of capitalism. Indeed, the two realms are the government, or the state on one hand and the economy or business on the other hand. The nature of capitalism is highly complex as evidenced by the interrelationship between the two realms discussed in the book. For one, the relationship between the two realms produces a benefit to the society. Still, the relationship between the two realms may also be dysfunctional in the larger society thus providing a different approach to the concept of capitalism (Heilbroner, 1992). The benefits of the two realms of capitalism are only realized through the interdependence and reliance on each other. In this regard, the state and the economy support each other resulting in a peaceful state and the thriving of the economy in the long run. However, the two realms have the possibility of existing independent of each other thus resulting in dysfunctions within the state and the economy. In this instance, the state may prevent the thriving of the economy while the economy may also impact on the state negatively by not supporting its wealth creation strategies. In the end, the interactions of the two realms of capitalism may result in both benefits and dysfunctions in the society.
It is important to understand the evolution of capitalism through history in evaluating the benefits and disadvantages of capitalism. Through history, the concept of capitalism has had more advantages than disadvantages perhaps because of lack of other viable options. The benefits point to the important role that capitalism has played in the development of the world economies over time. Indeed, capitalism does incorporate free enterprises and a market system allowing for businesses to operate freely within a state. According to Heilbroner (1992), capitalism is a system through which private firms as well as individuals undertake the processes of production, and goods exchange through an intricate network of markets and prices. The origin of capitalism can be traced in Europe before the nineteenth century upon which it reached its peak. In the nineteenth century, the concept of capitalism spread across the world in most of the countries including the United States. Perhaps the dominance of the concept of capitalism was enhanced through the colonization of the world by European countries. The United States, colony of Britain, adopted the ideals of capitalism as did several other countries in the world.
The dominance of the concept of capitalism is attributed to the limitation of other economic systems including communism and socialism. In addition, the characteristics of the system contribute to its dominance as it allows for free interactions between different components within the system (Young, 2010). The system provides for the private ownership of basic components of production including capital and land. Furthermore, the interactions between the buyers and the sellers within the markets coordinate and organize the economic activity. The concept also allows for the owners of the components of production to exploit their personal interests in maximizing their gains from the processes of production. In this regard, the concept of capitalism explores the principle of consumer sovereignty in which buyers may spend whatever amount of resources they wish in attaining the resources sought from the buyers. This way, the market dictates the market price for the items that are on sale. These characteristics of capitalism enhance the thriving of capitalism as a free market.
The system of capitalism is highly beneficial as history has portrayed its impacts on the world. Perhaps the best advantage stems from the affect that there is no other option that is as effective as the concept of capitalism. While communism and socialism have their advantages, they come nothing close to the benefits accrued from the concept of capitalism. In fact Heilbroner (1992) argues that there is no other option or better alternative to economy control. Capitalism is most effective through the limitation of control measures o the economy. The state operates alongside the economy with minimum interference thus ensuring a steady development of each of the two realms. This interdependence contributes to the numerous advantages associated with capitalism. Particularly, the absence of strict control measures targeted at the economy ensures that social problems are limited altogether. In this regard therefore, the system prevents and avoids the occurrence of the problems of corruption, poor information, as well as the lack of motivations and incentives. It is common knowledge that any form of state control ion the economy would result in the proliferation of these problems. It is therefore necessary that a system of capitalisms stature works towards the alleviation of these problems in the economy.
The concept of capitalism is also responsible for the proliferation of the exchange of goods and services. Without capitalism, wealth would not be created as everything would belong to the state thus limiting the processes of value addition. Also, most of the resources would not be converted into finished goods as there would be no value in converting resources into final products that are a property of the state. In this regard, therefore, capitalism contributes to the existence of an efficient chain of distribution of the different resources. Furthermore, the concept allows for the needs and preferences of the consumers to dictate the nature of services and good exchanged in the market (Friedman, 2009). The absence of capitalism would result in production of goods that are not consistent with the needs of the consumers thus resulting into minimal benefits to both consumers and the producers.
The concept of capitalism, through limitation of state control on the economy, encourages healthy competition among different players in the market. By encouraging private ownership of resources and components of production, capitalism motivates firms and individuals to extract maximum benefit from available resources thus contributing to wealth generation. This aspect of capitalism motivates the businesses to produce goods with more efficiency in a bid at attaining an advantage. In the end, the market will have goods and products that were produced at the least price therefore reducing the costs of goods while increasing their value. Ultimately, the economy can only benefit from this undertaking as firms compete with each other to produce goods at the least cost and sell the same to the consumers at the market prices (Schumpeter, 2013). The existence of competition as provided by the concept of capitalism is a positive step in the realization of economic growth of a state.
The concept of capitalism is not only beneficial to the producers and the state but to the consumers as well. The lack of state involvement in the processes of production ensures that people have a liberty to choose and dictate the nature of goods and services they want. Still, the absence of government involvement reduces the chances of homogenous goods while encouraging diversity in production. Consequently, producers are given a myriad of options in solving their problems. The state bestows the people with the freedom of choosing what they want to purchase and not limiting their options in the process. Eventually, capitalism encourages the players to partake in a variety of economic activities without restrain from the state (Friedman, 2009). The net effect translates into the promotion of trade amongst individuals and entities resulting in wealth creation for the benefit of the state and its people.
Still, wealth creation is extended to the players in the market including the consumers, producers and middlemen. The creation of value in the process of production helps in the maximization of profits for the capitalists translating into better living standards for the people within the state. The motivation to satisfy customer wants is beneficial in this respect as it encourages players to maximize their profits. Moreover, there is diversity in the products that can serve the wants of a particular customer base. By not limiting the solutions through homogeneity, capitalism encourages diversity in revenue attainment thereby increasing the probability of wealth creation. Ultimately, the idea results in huge supplies of both goods and services. The different customer desires also result in improved efficiency among the players in the market. Increased demand results in higher productivity and the provision of incentives to employees within companies.
The existence of competition as well as the incentives availed through capitalism result in higher production. In the process, different entities are bound to become more innovative and work hard to provide solutions to different needs in society. The net effect is that societal needs are addressed in a permanent and more rewarding manner. Eventually, competition among different entities results in positive economic growth for the state and its people. Studies have alluded to the fact that people perform better when exposed to the existence of incentives and motivations. The benefit of capitalism is well manifested in the establishment of numerous entrepreneurs in the world today (Schumpeter, 2013). In addition, the technological inventions witnessed across the world were necessitated by the identification of needs in the society. These needs would not have been visible without the ideals of capitalism. In some respect therefore, capitalism encourages the process of innovation and technological development.
Despite the many benefits, capitalism has its fair share of disadvantages to both the state and the economy. Indeed, both realms of capitalism are bound to witness these dysfunctions in time especially when they do not respond to the needs of each other. One of the disadvantages of capitalism is that it has the potential of contributing to monopolization. The absence of state interventions means that firms and individuals are free to accumulate unlimited resources at the expense of others. A capitalist economy permits the freedom of firms to gain power in markets with no restriction of how much they will spread. This freedom may encourage property holders to dominate markets and exploit prices, quantity and quality of products available in the market (Heilbroner, 1992). Normally, the concept of capitalism provides limited competition for burgeoning entities thereby allowing them to dominate the markets unperturbed. In the end, capitalism results in the formulation of different classes of people in society based on their riches. It fails to acknowledge the fact that wealth creation among individuals and firms is accomplished at the expense of other citizens in the state. It occurs therefore that capitalism does not really result in wealth creation but the transfer of wealth from the poor to the rich people.
In addition, capitalisms may encourage the establishment of barriers to entry of other firms and individuals. This process is attained through the restriction of other competitors as the existing entities flex their accumulated financial muscles to push new entrants out. In the process, capitalism also leads to income inequality as people are classified according to different classes. Since it allows firms to have a high degree of control, the firms might ignore ethical dilemmas such as environmental safeguards, compensation, workers conditions among others. This is because they determine the production course. As a result, the rich get opportunities to employ the poor who will be paid low wages for their work while they make profits (Young, 2010). Capitalists present reasons to show how capitalism is fair since you get rewarded for your hard work. But most of the time, people are rich because of their inherited wealth. Therefore, it does not help in furthering equality in the society.
Inequality in a capitalist economy, leads to social division. A capitalist society creates problems such as exploitation of labor, unemployment and poverty. This is due to the capitalist society being dramatically opposite to the social society. Therefore the needs of people are overlooked. This causes social agitation among people who don’t have capital or property. Also, capitalism is mainly focused on profit and highly emphasizes on consumption since consumers need to constantly buy goods.
The concept of capitalism has two realms that coexist to either provide benefits of disadvantages. The popularity of the concept is attributable to its success in the world since the industrial revolution. Capitalism is the dominant economic system stretching across different continents in the world. Despite having evolved throughout history, the ideals of capitalism remain the same as guided by the two realms. According to Heilbroner (1992), the two realms of capitalism are the state and the economy with each benefiting from the success of the other. Eventually, capitalism has both benefits and disadvantages with the benefits outweighing the drawbacks. Indeed, the success of the concept is discussed in light of the disadvantages of other systems and the absence of concrete systems to act as options.
Heilbroner, R. L. (1992). 21st century capitalism. New York u.a: Norton.
Young, M. (2010). Gambling, capitalism and the state towards a new dialectic of the risk society?. Journal of Consumer Culture, 10(2), 254-273.
Friedman, M. (2009). Capitalism and freedom. University of Chicago press.
Schumpeter, J. A. (2013). Capitalism, socialism and democracy. Routledge.
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