Understanding Economics: The Nature and Logic of Capitalism

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Table of Contents

Introduction
The nature and logic of capitalism according to Heilbroner’s analysis
Conclusion
Works Cited
Footnotes

Introduction

The word capitalism is derived from the word capitale which evolved from capital meaning “head’. Most economists are of the opinion that the word capital became common during the 12^th century. The term was used to refer to a number of elements such as funds, interest on funds or a stock of various merchandises.

Capitalism is an economic system which is also considered to be a liberal market. Alternatively, capitalism can be defined as an economic system through which production is conducted privately. In capitalism, the market is free and hence it is not controlled by the government of that economy. Therefore, in a capitalist economy, the price, demand, supply and the distribution of goods and services are determined by the market forces^[1].

In addition, in a capitalist economy, individuals have the right to own property. In a capitalist economy the wages and salaries are paid to the employees by the business which has employed them. Profits resulting from the business operations are wholly owned by the investors. This means that investments within a capitalist economy are not in any way under government control. Capitalism can also be defined as accumulation of capital with the objective of investing it in certain economic sector.

Miles suggested that capitalism started in Europe in the 16^th century and it has gradually spread to other western countries during the 19^th and 20^th century. Currently capitalism is practiced in a number of countries around the world since it enhances economic growth and development^[2]. This essay outlines a description of the nature and logic of Capitalism as given by Heilbroner. Additionally, the subsequent discussions support Heilbroner’s analysis of Capitalism as given in his Book.

The nature and logic of capitalism according to Heilbroner’s analysis

There is no universally accepted definition of the word Capitalism. Many scholars have tried to give a clear-cut definition of capitalism. However, it has been noted that they end up contradicting ideas of others while others choose to avoid defining it all together. There are various economists who have contributed their views on capitalists’ economy.

Some of them include Karl Marx in his Marxist theory, Max Weber in his Weberian political sociology theory, the neoclassical economic theory and Keynes in the Keynesian economics among others. In all these theories, there are a number of elements of Capitalism that have been observed by these economists. Their ideas on Capitalism include the fact that the production of goods and services, payment of wages, control of profits and prices in the market are all controlled by private investors and not the government.

Therefore, the ultimate goal of capitalism is accumulation of capital which has been shown to be more than the money invested in most cases analyzed. This is in line with the Heilbroner’s analysis in which the author states that, in a capitalist economy the producers aim at making profits. These profits are determined by the prices of the commodities and the cost of production that the producer incurred during the whole process of production and creation of goods and services^[3].

Capitalism can be considered from various perspectives such as from the economists’ viewpoint, the political economists’ viewpoint or from the historian’s perspective. As shown above, the economist refers to capitalism as the market situation whereby the government has no control over the prices, costs, wages, profits and the rights to property ownership. On the other hand, the political economist’s idea of capitalism is that there is private ownership of property in the market.

In this case, the market players are classified according to their economic power and class. Additionally, the political economist views capitalism as a market situation characterized by wage labor. Therefore, in a capitalist economy, economic power includes the purchasing power, monopoly power, managerial power and bargaining power. Wage labor refers to the concept where the employee is involved in full-time labor or his/her services are sold to the employer in exchange for wages.

The end-product of the employee in this case becomes the property of the employer. The economic class referred to in this case includes the upper classes, the middle classes and the lower classes. Considering the two perspectives, one thing is obviously common between the two. It can be said that capitalism is a system that encourages amassment of income and wealth just like a magnet attracts iron filings^[4].

In the perspective of the two viewpoints, Heilbroner suggested that the capital amassed is not the end-product which is produced in terms of a good or service but rather capital is the continuous expansion of the firm or the private property. In this case, capital is considered as the continuous process of expansion of the firm. In order to ensure a continuous expansion, the firm or private property owner should make profits and not loses. It is thus true that capital accumulation is the continuous process of expansion of a business.

Various economists such as Marx and Weber understood capital as the initial amount of money that an investor uses to start a business enterprise while the amount of money which helps the business to continue in its operation is referred to as the operating capital^[5]. Therefore, capital is the amount of money that exceeds the cost of production. It is earned when the selling price of a commodity is higher than the cost of production incurred by the producer^[6].

Capitalism as a mode of production has also been analyzed in Karl Marx’s Marxist theory. As depicted in our earlier discussions, capitalism is characterized by wage labor and therefore production process and profits are controlled and owned by individual employers or business owners.

Marx suggested that the commodity market which is a free market leads into a conflict between various classes of people and also contributes to labor exploitation^[7]. According to Marx’s viewpoint, capitalism is an economic system where individuals through buying and selling of commodities make their living. In this case, a commodity refers to a good produced with the objective of being exchanged in a market environment.

The commodities can either be consumer or capital goods⁸. Capital goods refer to products used to produce other goods such as consumer goods. They include land, labor, machines and raw materials. On the other hand consumer goods entail finished goods which are ready for human consumption.

Examples of such commodities include cars, houses, books and roads. Therefore, commodities can be described as products of human labor, useful, cannot be separated from the producer and are produced to be exchanged in the market^[8]. Money imposes or limits the market value of the commodity. On the other hand, the value of a commodity determines the demand of the commodity in the market.

But the initial major factor that influences the value and quality of a commodity is the labor. Since capitalism is associated with wage labor, it is the duty of the business owners to ensure that their employees are well paid and motivated in order to produce the highest quality of goods that can fit into the competitive market. The value of the commodity also determines the price of the commodity in the market.

The nature of capitalism is characteristic of a competitive market. In this case, prices revolve around the same point and do not change randomly. The producer operates at a loss if the selling price is below the cost of production. If this persists for a long time, the producer is forced out of the market^[9].

On the other hand, when the cost of production is lower than the selling price, the producer earns a profit. High profit levels in a given economic sector have the probability of attracting more investors. Increase in profits, leads to overproduction culminating into a surplus in the market.

Surplus of commodities in the market forces the prices to fall due to the law of supply^[10]. This is because when supply is high the demand goes down and hence the prices of the commodities also decline. In addition, market prices fluctuate according to the production costs which are mostly influenced by the cost of labor in the market^[11]. Therefore, the market forces of demand and supply do not influence the value, but rather the value is determined by production.

This is in line with the Marxist theory which states that the value of a commodity is determined by the production itself and the level of production is influenced by the labor force which is considered as a capital good^[12]. Labor force is a human resource which can either be mental or physical and is applied in production to convert raw materials into finished goods (consumer goods).

Therefore, salaries and wages of the employees should be put into consideration in a business because they affect the quality of production^[13]. Marx suggests that the wages and salaries of the employees are determined by the surplus of production and the cost of labor power. Wages and salaries are determined by the number of hours that the employees work per day, the efforts applied or the intensity of labor and how the labor is productive^[14].

In a capitalist market, labor can be exploited because many competitors will be employing those people who do not require high amounts of wages. Therefore, the employer takes an advantage over the employees so as to increase the profits and at the same time he pays them low wages. In addition, Heilbroner suggests that when the competition in the market is stiff it would cause the profit to reduce to zero or negative^[15].

This is true because when the competition for production is high the producers may decide to reduce the prices of their commodities so that they can be able to attract more consumers to consume their products^[16]. When the prices are reduced to amounts lower than the cost of production, then the firm suffers huge loss and if the competition is stiff, the prices may become lower until the firm is not able to survive in the market and hence it closes.

The factors of production such as land, labor and capital produce wealth or income when labor force is applied^[17]. This arises from the fact that labor force is a human resource which is either mental or physical and when applied to capital goods, consumer goods are produced. Therefore, the capital goods are not of any benefit to the firm or the investor until labor force is applied. This has also been suggested by other economists such as Marx, Weber and in the neoclassical economic theory^[18].

Finally, in a capitalist market, the capital is influenced by the forces of demand and supply. Other than the market force, capital is also influenced by the way skills are applied in the production process and how the work is organized^[19]. The management structure and the level of technology also influence the capital of a business.

This is true because even if demand and supply are high and the management structures are not stable, the firm’s operations are affected and hence may not be efficient. The same is also true when the technique used is not updated.

Conclusion

This paper has given an in-depth evaluation of economics of capitalism according to Heilbroner’s analysis. In various ways, the research paper supports the idea of the nature and logic of capitalism as outlined by Heilbroner.

A capitalist economy refers to a type of economy where prices, production and distribution of commodities are controlled by the market players rather than the government. This makes capitalism to be a free or liberal market. To avoid labor exploitation in a competitive economy the trade unions and the government negotiates with the employers on matters related to wages and salaries and on the working conditions of employees.

According to the various theories postulated by various economists, capital is the initial amount of money or capital goods that investors use to start a business while profits include the amount that the investors use to expand their business. This opposes the suggestion of Heilbroner because he said that capital is the continuous process of expansion of the business. Heilbroner also states that the management, skills and technology affect the capital of a firm. In general, capitalism leads to economic growth and development.

Works Cited

Bratton, John, Denham, Davis and Deutschmann, Linda. Capitalism and claddical sociology theory. Toronto. University of Toronto Press, 2009. Print.

Corfe, Robert. Social capitalism in the theory and practice: emergence if the new majority. New York: Arena books, 2008. Print.

Heilbroner, Robert. The nature and logic of capitalism. New York: W.W. Norton & Company.1985. Print

Little, Daniel. The scientific Marx. New York: U of Minnesota Press. 1986. Print

Miles, Robert. Capitalism and the unfree labor: anomaly and necessity? New York: Taylors & Francis, 1987. Print.

Newman, Michael. John Strachey. Manchester: Manchester University Press, 1989. Print.

Footnotes

Newman, Michael. John Strachey. Manchester: Manchester University Press, 1989. Print.
Miles, Robert. Capitalism and the unfree labor: anomaly and necessity? New York: Taylors & Francis, 1987. Print.
Heilbroner, Robert. The nature and logic of capitalism. New York: W.W. Norton & Company, 1985. Print
Heilbroner, Robert. The nature and logic of capitalism. New York: W.W. Norton & Company, 1985. Print
Corfe, Robert. Social capitalism in the theory and practice: emergence if the new majority. New York: Arena books, 2008. Print.
Little, Daniel. The scientific Marx. New York: U of Minnesota Press. 1986. Print
Miles, Robert. Capitalism and the unfree labor: anomaly and necessity? New York: Taylors & Francis, 1987. Print.
Bratton, John, Denham, Davis and Deutschmann, Linda. Capitalism and claddical sociology theory. Toronto. University of Toronto Press, 2009. Print.
Little, Daniel. The scientific Marx. New York: U of Minnesota Press. 1986. Print
Newman, Michael. John Strachey. Manchester: Manchester University Press, 1989. Print.
Miles, Robert. Capitalism and the unfree labor: anomaly and necessity? New York: Taylors & Francis, 1987. Print.
Miles, Robert. Capitalism and the unfree labor: anomaly and necessity? New York: Taylors & Francis, 1987. Print.
Miles, Robert. Capitalism and the unfree labor: anomaly and necessity? New York: Taylors & Francis, 1987. Print.
Newman, Michael. John Strachey. Manchester: Manchester University Press, 1989. Print.
Heilbroner, Robert. The nature and logic of capitalism. New York: W.W. Norton & Company, 1985. Print
Miles, Robert. Capitalism and the unfree labor: anomaly and necessity? New York: Taylors & Francis, 1987. Print.
Heilbroner, Robert. The nature and logic of capitalism. New York: W.W. Norton & Company, 1985. Print
Miles, Robert. Capitalism and the unfree labor: anomaly and necessity? New York: Taylors & Francis, 1987. Print.
Heilbroner, Robert. The nature and logic of capitalism. New York: W.W. Norton & Company, 1985. Print

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