The Two Realms of Capitalism by Robert Heilbroner

The Two Realms of Capitalism by Robert Heilbroner

The concept of capitalism has been in existence for many years. Throughout its existence, people from different periods have argued both for and against capitalism. The concept is quite complex hence the existence of the varying opinions. The book; 21st Century Capitalism defines capitalism as an economic system where the business firms and private individuals undertake the production and exchange of services and goods via a complex network of markets and prices (Heilbroner, 1994). Despite there being numerous variants on capitalism, there are those forms that can be regarded as being more dominant. They include anarcho-capitalism, mercantilism, free market capitalism, social market economy, corporate capitalism, market economy, and state capitalism. The existence of numerous forms of capitalism has been among the reasons why it has taken different directions since it was conceived. There is a need for the existence of both the public and private sector for the success of capitalism. These sectors should work together and be independent at the same time to help maintain the desired balance in the economy. Capitalism can be regarded as both being good or bad for the society, but the world has reached a juncture where it is difficult to imagine the non-existence of capitalism. Capitalism tends to thrive because people are programmed to search for things in abundant measures than they even require. Based on how it functions, capitalism might not be an ideal system, but it works to allow people to fulfill their desires.

Among the people that have had a significant contribution in the examination of capitalism is Robert Heilbroner. Heilbroner is an American economist that discusses the concept of capitalism in his book the 21st Century Capitalism quite creatively. In the book, Heilbroner assesses the different roles that capitalism plays in the society; both negative and positive. He commences by helping the readers get a clear understanding of the concept by comparing the modern capitalist society with the traditional capitalist society. There is a section where Heilbroner differentiates between wealth and capital. The explanation provided here makes it easy for the readers to understand the basic explanation of capitalism. Heilbroner goes ahead to demonstrate a fundamental aspect of capitalism by outlining the two realms of capitalism; state or government and economy or business.

According to Heilbroner (1994), the two realms of capitalism are both beneficial and dysfunctional for society. Heilbroner was interested in how these two realms coexist. Among the things that he notes is that both realms should exist interdependently. This means that the state and the economy should be interdependent and supportive of each other in areas of need. When such relations exist, there is harmony among the different systems that have been involved hence creating a favorable environment where the economy can thrive, and the government can operate successfully (Heilbroner, 1994). In case the aspect of interdependence is lacking, there might be negative implications likely to accrue. When the two realms operate independently, there exist dysfunctions for both the government and the economy. This is attributed to the fact that both realms are lacking complimentary factors that make it possible for things to function as desired by the relevant stakeholders. Lack of interdependence and support means that there is one realm that will be working to sabotage the other. A good example is when the government is trying to sabotage the market in a certain way that ends with some negative implications to the general economic state. The economy might also make it difficult for the government to perform its functions. The government cannot operate without funds, and if the economy is not generating sufficient funds, the state will not have the ability execute its mandate as it would be expected. With this, Heilbroner has shown that the two realms of capitalism bring about an interesting relationship where one aspect of the relationship can make it beneficial for the society while the other aspect is likely to make it dysfunctional.

Heilbroner (1994) believes that people should first strive to comprehend the difference between the two realms before gaining knowledge on the relationship that exists between the two. The economy or business is responsible for capital, production, natural resource, labor and distribution of services and goods. The state or government, on the other hand, is the system in the society that has the power to enforce regulations and the law on different institutions and exercise control over these institutions.  To help showcase the beneficial aspect of the realms of capitalism, Heilbroner includes a quote by Adam Smith, “Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man or order of men” (Heilbroner, 1994). This quote shows a good example of the two realms being interdependent and supportive of each other. The economy expects people to involve themselves in different income generating activities. As a result, people have found many ways of earning a living that are different from each other. This helps the economy by way of raising substantial capital and helping in the spending of the money earned. The spending helps in the circulation of money. Here the government supports the economy in that it does not restrict people on the income generating activities to get involved with so long as the activities involved are legal. This helps the economy positively as there is a reduction of unemployment and the government also stands to benefit with regards to the taxes collected in the process.

The realms of capitalism also indicate another beneficial effect based on how free markets operate. In a free market, there is a limitation of state control. Here, the state does not work in a way that is likely to affect the economy, but it is supportive. This helps in creating competition in the market. Competition is healthy for the economy due to the benefits that result. For organizations to remain competitive, there is always the need of providing superior products to the consumers to help beat competition from rivals. This calls for innovations and inventions to help achieve this objective. In the end, consumers can get superior products and quality services from the organizations. Organizations that fail to enhance superiority of products and services usually face the possibility of being eliminated in the relevant industry. This concept has made it possible for the world to experience advancement in technology every now and then. Production capacities have increased in the process making it possible for countries to become self-sufficient in different fields. There have been increased employment opportunities in the too. This is beneficial to many people as it has helped in improving the standards of living. Heilbroner (1994) asserts that a capitalist nation has an elusive goal of securing stable prices and high employment. The economy ought to be self-regulating, and the state action becomes necessary only when there is a need to guarantee contracts and uphold private property rights.

Apart from increasing the production capacity, the level of competition experienced through capitalism also makes it possible for the creation of wealth. Wealth creation tends to help in the development of countries in different ways. Among them is that it makes it possible for countries to grow even further with regards to the economy. More streams of income become available to potential employees, and variety is accorded to consumers. Wealth creation also ensures that the government has a pool of funds to tax. When the state can collect more funds, it becomes easier to protect and provide for the citizens. This makes the country more secure since there is affordability of various military and security resources. These are important aspects for the citizens to feel safe. A country cannot become sustainable if it cannot protect itself from potential enemies. Funds collected through taxes can also be used in the development of other areas such as infrastructure and health sectors. These are among the things that different governments wish they can do for their people. These examples provide a vivid idea of how the two realms of capitalism can be beneficial when they are working interdependently and in support of each other. When the government does not interfere with the economy, benefits tend to accrue. In the United States, the government adopted Laissez-Faire Capitalism (Heilbroner, 1994). The idea of government regulation became alien as per the prevailing economic conditions. There is the belief in capitalism that businesses ought to be regulated by the law of demand and supply, but not the state as this condition paves the way for economic improvement.

According to Heilbroner (1994), capitalism has gained much popularity and acceptance since there are no other better options or alternatives. The available options have not been as effective as capitalism, and history can show this aspect. Heilbroner (1994) affirms that the collapse of the Soviet system paved the way for human freedom, but also acted as a defeat for human aspirations. There was a crushing blow to the idea that socialism could offer an opportunity to help guide the society to greater progress. However, there is still a belief that some sought of socialism ought to be considered as a possibility regardless of the society’s adaptation (Heilbroner, 1994). There are various instances that can show the superiority of capitalism to other concepts. Capitalism has proved to be the only concept with the ability to reward positive traits such as ingenuity and hard work while at the same time it tends to punish negative traits like theft and laziness. This is something that brings motivation to people on being great with the activities they are tasked to undertake. Unwanted behavior is also discouraged due to the negative consequences likely to ensue.

Despite the beneficial effects of the realms of capitalism, there is also a possibility of dysfunctional effects based on how the state and the economy operate. This usually occurs when the two realms operate independently of each other. Among the dysfunctions that are likely to be experienced are negative externalities. This is more so with pollution in the water, air and land that forces people into crying out for help from the government (Heilbroner, 1994). Negative externalities are likely to accrue when the economy operates independently without adhering to relevant government regulations that are meant to ensure that these externalities have been avoided. These externalities arise due to the nature of capitalism, which is more focused on profit maximization to the extent of neglecting the welfare of the society. Pollution in the society results to unwanted health issues that prompt people to spend a big chunk of their income seeking medical help. The government is also forced to spend significantly in the health sector to help the people that have been affected. The funds spent while trying to correct a problem that would have been prevented could have been used in more developmental projects if the state and the economy operated interdependently and became supportive of each other in such cases. It is apparent that capitalism calls for no government interference in the economy, but there are aspects where it might be necessitated. If the economy is left to operate independently on issues like regulating pollution, the probability of experiencing global warming would be high. The resulting effects would be detrimental to all the stakeholders involved.

It has been outlined that the competition of firms that comes with the concept of capitalism is healthy for the growth of the economy. However, without government intervention in the economy, there are firms that are likely to gain more resources. Tendencies to undercut rival firms and institute vertical integration will be high since every firm is focused on maximizing profit. This results in the formation of monopolies that have more influence in the market. According to Heilbroner (1994), the excessive freedom given to the economy encourages the holders of means of production to exploit the quality of products being delivered and the prevailing prices. Creation of monopoly eliminates competition and the firms now do not have the incentive to provide quality products, and if they charge high prices, consumers will still purchase the products and services involved. This is a good indication of how the two realms of capitalism can be dysfunctional for the society. The situation mainly comes about when the government and the economy try to operate independently from each other.

In my view, the contribution of capitalism to the society has been more positive. Yes, capitalism has its shortcomings, but history has shown that there is no better alternative. It is only on few occasions when systems such as communism and socialism have tried to challenge capitalism as it has been dominant ever since it was coined (Heibroner, 1994). Capitalism has provided people with the opportunity to make their lives better. The increased competition has encouraged innovations and inventions resulting to advancements. These advancements have made life better and easier for people to bear. Heilbroner (1994) also notes that the existence of political liberty; usually regarded as democracy only prevails in nations that have adopted capitalism as the desired mode of economic organization. Countries that at some point had embraced socialism and communism were characterized by dictatorial tendencies. This is something that is not desirable in modern civilization. It is also through capitalism that consumers have come to enjoy more freedom and power with how they would want the systems to operate. These are among the aspects that lead to the conclusion that capitalism brings more positive contribution to the society than negative. There is no faultless system, every system has its weaknesses, but it is prudent to choose a superior system from the choices available.

In conclusion, Robert Heilbroner was well informed when he asserted that the two realms of capitalism could be both dysfunctional and beneficial for the society. For there to be beneficial effects, the government and the economy ought to work interdependently and support each other. In case these realms opt to operate independently, dysfunctional tendencies are likely to accrue. The beneficial effects of capitalism include increased production capacity, increased consumer freedom, elevated levels of innovation and invention, and increased wealth creation among other things. Dysfunctional effects, on the other hand, include the emergence of negative externalities, the creation of monopolies and exploitation of the working class by the owners of means of production among others. Capitalism might have its fair share of shortcomings, but it has proved to be a better option to the alternatives that have existed before.



Heilbroner, R. (1994). 21st century capitalism. New York: W. W. Norton & Company.


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