What is the capitalist economic system? What are its main features and tendencies?
Discuss the success/failure of the attempt to reform capitalism in the Golden Age through Keynesian policies.
Capitalist economic system or simply capitalism is an economic system whereby private actors or rather individuals have the right to own property and also control of the use of property in line with their specific interests with pricing mechanism regulating demand and supply in the markets in such a way that it is in the interest of the society at large. Under this system of economy there is minimal intervention by government and authorities on how the markets operates. In a nutshell it is an economy characterized by free markets with only government intervening to provide protection to private property, tolerable taxes and justice.
Capitalist economic system has several features that differentiate it from other economic systems. The first feature is that it is a system whereby every person in his or her own capacity as a producer, resource owner and consumer engages in an economic task with a very high level of economic freedom. The second feature is that the factors of production are managed and owned by individuals privately. The third feature is that the driving force behind this system is the profit. All the participants get into production with the objective of maximizing on profits. The fourth feature is that income is earned in the form of money by selling services of the factors of production. The sixth feature is that this system is not controlled, regulated or planned by the government but decisions are regulated by the price mechanism that works automatically and independently from authorities. The last feature is that there is stiff competition brought about by a large number of sellers and buyers in the market who are driven with self-interests.
During the Great depression of 1930, Maynard Keynes introduced some changes in the way capitalism operated to salvage the situation. During this period of depression economists have argued that economy could recover from depression with no or little government intervention. However, this did not happen and Keynes introduced several policies. These reforms introduced by Keynes were very successful. The adoption of these policies prevented the occurrence of another depression following the end of 2nd World War. Keynesian policies on government spending helped in preventing mass unemployment and depression in 1950. Keynesian policies was successful in that the government would intervene in the economy by reducing or increasing taxation to control demand and level of unemployment. This is what is termed to as state led demand management. It was also successful in that it enable the government to intervene when the economy slows down by increasing spending and cutting down on interest rates. This would prevent unemployment and inflation. Despite the success Keynes policies had some failures. It did not provide solutions to stagflation state.