Capitalism Essay Example

Throughout history, nations have favoured liberalism and the ideology of 18th-century economist Adam Smith, fostering free competition, capitalism, and preserving individual rights and freedoms.  On the contrary, countries have adopted the economic and political ideology of German philosopher Karl Marx. A communist system in which high levels of efficiency would ensure an equal standard of living for all citizens; however, with impositions to liberal rights and freedoms of the individual to benefit the greater good. The passionate debate of ideologies has ensued the Cold War from 1922-1991 and created an economic and cultural divide. Yet, throughout all the trials and tribulations, capitalism has been superiorly favoured over the alternative. 

American Economist Milton Friedman has a pronounced philosophy that promotes capitalism, a self-regulated economy, and the preservation of democracy in favour of individualism. Friedman states, any diversion of an individual’s money to provide funding for “social responsibilities” adversely and unjustly affects consumers and the state of the economy. The misallocation of an individuals’ financial resources is undemocratic; driven by activists who cannot achieve their objectives through the legitimate political process, resort to exploiting and humiliating capitalists, employees, and consumers into supporting the various causes supported by such activists. When an individual such as a capitalist or executive’s money is diverted towards “social responsibilities,” fewer funds are available to provide employees with higher wages, improved working conditions, and benefits. When less profit is derived from a business due to financial relocation, producers cannot provide consumers with the same product quality at an affordable price; therefore, consumer dissatisfaction occurs from the decline in quality and affordability. Friedman suggests that instead of spending other people’s money on the concept of societal contribution, the responsibility of social causes should be a free choice of individuals to use their finances to support a cause. If employees or consumers do not agree with the results of choices made by a business, they have the right to refrain from advocating that business. This concept of capitalism allows for constant innovation and growth and a satisfied consumer base, benefiting the economy.  Competition is the essence of business in a capitalist economy; while engaged in competition, the goal is to win, companies that prosper create the most value to society and make greater choices than the competition. 

Reaganomics, an economic policy that ensued one of the longest-lasting economic growth periods in the United States history. The 40th President of the US, Ronald Reagan, focused on supply-side capitalist economics and promoted a free market economy. Reaganomics reduced government spending, made cuts to income and capital gain taxes, deregulated business, and controlled inflation of the economy by adjusting interest rates to stabilize the economy. Consumers benefitted from inexpensive goods and resources, and unemployment decreased drastically. Tax cuts made by the government put more money into the consumer’s pockets which was spent in the economy, further stimulating it. Reagan cut the top bracket taxation rates from 70% to 28% and corporate taxes from 48% to 34%. The deregulation of businesses, specifically the US oil and gas sector, allowed prices to rely on supply and demand, a tenet of a free market economy. The monetary policy implemented stabilized the fluctuation of the economy by controlling interest rates making loaning money more or less expensive. In the early ’80s and late 90s, the Dow Jones Industrial Average, a widely recognized stock market index, increased by fourteen times. Forty million jobs were added to the economy benefiting all citizens, and the monetary policy increased the value of the US dollar. President Reagan’s capitalist economic agenda created significant economic growth and provided citizens with endless economic opportunities. 

The alternative to capitalism is centralized planning, an economy in which the government controls the price, means of production, resources, services, and employment. The Communist Soviet Union was a devastating country for citizens who suffered chronic shortages of essential consumer goods. From 1922 to 1991, the Soviet Socialist Republic followed centralized planning for its economic structure, a basic tenet of communist regimes. The Soviet Union’s ordinary citizens were to no extent permitted access to imported consumer goods, especially those produced by the U.S, as a result of the iron curtain from the Cold War. The Soviet Union failed due to their economic system, which was inferior to the free-market capitalist economies of the U.S and the west. A method of centralized planning allows for limited adjustment to correct errors and consumer reviews. As imports were strictly outlawed, all industries relied on one another; when one industry failed, so did the rest, such as a row of dominoes. Soviet consumers experienced some of the products manufactured in the U.S economy, such as Levi Jeans. Smugglers sold Levi brand denim in the Soviet Union on the black market at extreme prices; however, consumers were willing to purchase them. Soviet consumers experienced the benefits of a free-market capitalist economy, which allowed Mikhail Gorbachev’s Perestroika policy of economic restructuring to promote capitalism to be widely accepted among the population leading to the collapse of the communist regime of the Soviet Union in 1991. 

Governments must foster capitalism for a nation’s economy to experience constant growth, consumer satisfaction, citizens’ well-being, and continuous innovation. Throughout history, Adam Smith’s economic ideology has allowed countries to accumulate wealth and a high standard of living for their citizens. Liberal democratic societies devoted to the citizens are only genuinely democratic and for the individual if a free market and capitalism are permitted without the relocation of finances and embargos on the economy. Capitalism ultimately allows all citizens to experience liberal rights and freedoms with endless economic and financial opportunities.