Economics of Capitalism Essay

After the crumbling of feudalism, capitalism took over the economy across Europe. With the adoption of capitalism, it implied that production had to be privatized and controlled. Besides, the income generated had to be widely distributed, and this could be achieved through the incorporation of markets within the system. Even though progressive development of capitalism is associated with the early 16th century, it happens to be that capitalism existed long ago and its benefits were experienced as far as the later European Middle Ages. The growth of capitalism was purely enhanced by the success of the English cloth industry during the 16th to the 18th centuries.

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The development of capitalism is characterized by the spending of vast amounts of capital, which aimed at boosting the production scale instead of investing in unrewarding enterprises, including pyramids and cathedrals. Some of the historical events witnessed in the past promoted capitalism in Europe. Ethics put forward by the Protestant Reformation of the 16th century, societal scorn for covetous attempts was reduced, whereas diligences, as well as self-denial, were awarded higher recognition in the religious dynamics. Capitalism embraced in the European countries brought about economic inequality, which was proved among the communities in the sense that the wealthy individuals were regarded to be more diligent than the poverty-stricken.

The other factor that encouraged the development of capitalism was the escalation of Europe's supply of raw materials. These raw materials were derived from the colonies in Africa as well as others overseas, and they included precious minerals/metals and cotton. As a result, inflation was on the verge, and it is through this that the capitalists benefited more than the others. It was unfortunate that the wages of the laborers barely rose to any substantial amounts, hence making the capitalist become the only beneficiaries of the inflation periods. Capitals in the period between 1500 and 1750 were also seen to gain from the appreciation of entirely all national states as experienced through the mercantilist era (Hall, 2007). Mercantilism was founded on the grounds that a country's path to prosperity lay in the buildup of valuable metals and indulging in favorable trade with other countries. In an attempt to maximize the revenues and cut on the importations, many governments opted to impose strict policies and regulations. The mercantilist view of economics was zero-sum in the sense that the gain enjoyed by one nation implied a loss in another country. The mercantilist highly encouraged the concept of saving as well as frugality and branded them as the best ways to immerse capital, which would enhance mining of the minerals for export. Despite that fact, mercantilism also advocated for favorable policies including uniform monetary systems as well as legal codes which significantly escalated economic development, thereby resulting in a shift from public to the private sector. It can be noted that mercantilism differs from modern capitalism, where there exists a free market and a lack of excessive government intervention (laissez-faire economics). It is with these features that modern capitalism has encouraged the prosperity of several countries.

At the start of the 18th century, England experienced a swing with regards to capitalist development; the focus changed from commerce to industry. The accumulated capital was injected into the real application of the scientific knowledge they possessed, which eventually led to the industrial revolution. Adam Smith, a Scottish philosopher, and an economist introduced the classical economics, which in his book it was captured that the wealth of a nation was gauged by the variety and quantity of goods the economy could command. From this ideology, Smith's central idea was to initiate free trade among countries as nations would be exposed to a wide variety of goods. Smith objected the concept of mercantilism by proving that trade could be enhanced for all traders through the generation of more wealth contrary to the assumption that wealth is a fixed quantity. In line was Smith's argument is the idea that people work towards individual best interest, and by doing so, it promotes the general economic welfare. Smith highly recommended that economic decisions are abandoned and instead, a free market ideology is embraced (Hall, 2007).

Smith's policies were mainly put into practice after the French revolution, and the Napoleon wars had subsided. The wars eliminated the perpetrators of feudalism, and this, therefore, made it simpler to put Smith's ideologies into practice. Some of the courses of action adopted by nations in Europe concerning political liberalism encompassed free trade, sound money, balanced budgets, as well as least levels of poor relief. The startup of the factory system and the development of capitalism during the 19th century led to the emergence of an entirely different class of laborers whose conditions were depressing. Due to this, it inspired the revolutionary philosophy by Karl Marx. Marx's philosophy intended to conquer the ideology of capitalism, but then it did not work. His philosophy was more inclined to the communist ideology where it happens to form the roots. The war waged by Marx upon capitalism did not stand as the proletarian class led it.

The occurrence of World War I indicated a massive blow to the success of capitalism. Immediately after the war, world markets came to a stop the gold standard was discarded as traders opted for national currencies, banking domination shifted from Europe to the United States, and lastly, trade hurdles burgeoned. It is during 1930 that the Great Depression had struck Europe, leading to the elimination of laissez-faire in several countries. The great depression was a financial disaster that caused a massive blow to the European economy. Financial institutions declined, and the rate of unemployment was very high. At one time, sympathy for socialism was experienced among the policymakers, multilateral agencies, academics, workers, and investors more so in Western Europe.

After the recovery from the effects of the Great Depression, about decades later, the economies of the capitalist countries were restored to a better position. It is noted that most of these countries that thrived had embraced some version of the welfare state, and this enabled to reinforce confidence in the capitalist system, which was disoriented during the Great Depression. In the early periods of 1970, nonetheless, incidences of economic inequality were experienced in nations within Europe and also across the globe. This incidence resuscitated the doubts that people previously had regarding the feasibility of the capitalist system. The financial crisis and great recession of 2008 also happened to be another economic contraction that the European countries faced, especially the United States. Citizens in these countries completely lost interest in the capital system and opted to trust the socialism. This behavior was portrayed by the millennial (those born in the 1980s or '90s), which happens to be a group that was explicitly knocked hard by the recession. Several young people had been swayed into socialism system, and this number increased with time except for those aged above 65 years. Nevertheless, it should be captured that the courses of action prompted by these groups showed an insignificant disparity in the scope and purpose from the New Deal regulatory and social-welfare programs which were enacted in the 1930s and it barely resulted in conventional socialism (Hancke, Rhodes, & Thatcher, 2007).

Great Britain happens to be the most suitable example that demonstrates the wavering approaches to capitalism. In the period of the 1980s, conservative Prime Minister Margaret Thatcher scaled down the central government as well as the welfare state, reduced the income tax, and inspired local business development. The strategy by the prime minister helped improve the British economy even though economic inequality escalated while social services declined. Furthermore, towards the end of the decade, the rates of unemployment, as well as inflation, increased drastically. The people of Great Britain had to act; they adopted an approach which had an association with socialism. Led by Prime Minister Tony Blair, the people embraced the "Third Way" political movement which advocated for a form of capitalism that encompassed more of the government control (Hancke et al., 2007). This new direction forsook the policy of state intervention and opted for commitment to social justice. In as much as the "Third Way" took a different path as opposed to the intended, the move indicated a substantial shift in policy from Thatcher's conservative policies.

References

Hall, P. A., (2007). The evolution of varieties of capitalism in Europe. Beyond varieties of capitalism: conflict, contradictions, and complementarities in the European economy, 39-86.

Rhodes, B. H., Hancke, B., Hancke, B., Rhodes, M., & Thatcher, M. (Eds.). (2007). Beyond varieties of capitalism: Conflict, contradictions, and complementarities in the European economy. Oxford University Press.