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Which Economic System Is the Best and Why: Argumentative Essay
Theoretically, economic systems are imperative for the efficient allocation of scarce resources across society and the protection of its citizens on a national and globular scale. One of the most renowned of these systems is capitalism, in which autonomy is granted to its members, allowing them to trade in a free market, less encumbered by regulation to achieve greater efficiency. Recognising that capitalism may go against the utilitarian views on morality doesn’t mean it’s an immoral way to organise an economy, resulting in a crucial question to be deliberated on: ‘Are moral values and market values correlative?’. A social system such as capitalism cannot be moral or immoral in the sense of an individual, only people can be moral agents. However, a social system can be moral through its effects if it induces the likelihood of moral behaviour by individuals who adhere to it. This dictates that there’s a moral necessity to create a political and economic sound economy that allows the greatest utility, self-determination and moral agency. Hence, I agree with the above statement that capitalism is the morally best economic system through its efficiency and its protection of human freedom, in this I will use moral arguments to further justify my stance.
An important fact to deliberate on is that capitalism is consistent in adhering to fundamental moral principles acquainted with life itself. The libertarian argument of capitalism states that people have a right to personal liberty, which allows an individual to act in their interest, provided it does not prevent others from doing as they please. Having a right to personal liberty implies that one has the right to be private property, in which “it is immoral for society or the economy to violate through means of fraud, theft or expropriation” (Winfield, J., 2014). Morality in itself cannot exist without responsibility, and no responsibility exists without self-determination. By having self-determination, it implies that you exercise rationality, perseverance and self-control. These moral principles honour the right to self-determination and individuality in society without objectifying individuals but rather recognising their own rights and responsibilities. They aim to induce persuasion and voluntary exchange in comparison to using coercion or force. The allowance of transactions being voluntary in nature of the private property market guarantees that the moral and physical autonomy of an individual is protected from manipulation or violent attack by others. Through a regime of capitalism, force can be prevented in human relationships. We can coin personal freedom about economic and political freedom as being ‘ethically indifferent’ as they are a mandatory condition of morality. Any such form of violation in the denial of human freedom, the safety of people and their property is inconsistent with moral order. An example would be the interference of the state through its collection of taxation. The taxpayer’s earnings are effectively their private property, and this forceful removal of private property in the sense of revenue by the government goes against the right of personal liberty and morality, making it theft of a person’s income and immoral. Morality has to meet consistent standards that permit individuals to make choices free of intimidation and coercion. According to Friedrich Hayek, “It is only where the individual has a choice, and its inherent responsibility, that he has to affirm existing values, to contribute to their further growth, and to earn moral merit”. His words further reiterate that moral choice requires freedom for one to exercise moral behaviour and responsibility. Under the rule of law, competitive capitalism can positively nurture moral behaviour and be moral in its effects. When justly acquired property rights are defended, contracts are enforced, and the rule of law prevails, then “the voluntary nature of capitalist transactions can propel us into respect for others”.
Through its organisational structure, capitalism allows the most efficient coordination of an economic system, subsequently creating incentives to allow innovation and economic growth. This is achieved by not having a centralised economy in which all power is concentrated in the hands of the government or one individual, but rather decentralised markets with privately owned enterprises (August, N., 2009). The most renowned argument for capitalism was systematically elaborated by Adam Smith in his ‘Wealth of the Nations’ known as the invisible hand argument, which states that through acting in our own self-interest we adversely promote society more effectually than when we actually intend to promote it, thus allowing a system which is both productively and allocatively efficient to be created (Winfield, J., 2014). The key idea in the theory of the invisible hand of market coordination is the notion of ‘prices’ as a mechanism for supplying both information and incentives to people in such a way that their activities can be coordinated. Consumers will want to pay the lowest prices for goods and producers will want to set a price that maximises their profit, however, due to competition amongst suppliers and the threat of new entrants in a free market, prices will be bid down to a bare minimum known as an equilibrium price in which consumers are willing to pay and producers are willing to accept. Producers unable to compete drop out, leaving only efficient market producers who, as a result, achieve production efficiency. Since prices are low enough, it leads to greater affordability and consumption amongst consumers, who in return achieve maximum utility or satisfaction. As preferences in demand change amongst consumers, it can result in a shortage or a surplus in the supply of a market, putting pressure on prices and producers to produce at their maximum capacity to meet the level of demand. This interplay of supply and demand through the mechanism of price is what leads to what economists call allocative efficiency. An economic system that achieves productive and allocative efficiency satisfies the condition of Pareto optimality, in which its resources are being allocated to the maximum efficiency and no change can be made without making someone worse off. Unfettered markets do not only achieve Pareto efficiency but promote innovation which contributes to economic growth by improving human productivity and hence the quality of life. Competition amongst firms puts pressure on firms to innovate to sustain themselves in the wake of competition. Over time, this allows firms to successfully adopt existing innovations or seek new ones and expand, and those who do not decline. The result is that innovations tend to diffuse throughout a capitalist economy, raising productivity and underwriting significant economic growth (August, N., 2009).
The most critical stance made by critics is that many oppose the libertarian claim to capitalism. The question arises as to what exactly can be defined as private property. According to the philosopher John Locke and his labour-mixing argument, once an individual mixes their labour with a common resource, they inherently have given something they own being their labour to a resource, hence making it their private property. The argument lies as to why can’t we embrace a communal view of collected resources. I would argue that privatising an object or resource is sometimes necessary, it does not go against the liberty of others to use that right, as it works on a first come first serve basis. Should you be the first to acquire it and invest labour in it, it rightfully is yours. As we know, sometimes having shared resources sometimes leaves an individual optimally worse off with less utility than satisfaction, this can be seen in Garett Hardin’s ‘Tragedy of the Commons’, where self-interested behaviour leads to a common resource being depleted. So how exactly does capitalism contend with greed and self-interested behaviour, which seemly provides a contentious issue? What many critics fail to realise is that the notion of greed long predates capitalism. In 1904, Max Weber wrote: “Greed exists and has existed among waiters, physicians, soldiers, nobles, crusaders, gamblers, and beggars. One may say that it has been common to all sorts and conditions of men at all times and in all countries of the earth, wherever the objective possibility of it is or has been given”. All political and economic systems must contend with greed, however in comparison to them capitalism can constrain greed and ambition. The most basic principle of capitalism is that any form of exchange is voluntary, allowing formidable measures to be in place to prevent the pursuit of self-interest at the expense of others. In a capitalist society, to attain wealth, status and respect, it requires the individual to appeal to the self-interest of others, by creating a desire for a service that others are willing to buy. Attempting to live at other’s people’s expense through coercion or enslavement, violates the law of property, exchange and voluntary contracts. Should the government assert its proper role, those who don’t abide by the law should be punished accordingly.
The second argument expressed is that from a social standpoint, unfettered markets can result in plutocracies and market failures, hence nullifying the invisible hand theory”. Market failures exist because individuals make decisions where much of the cost or benefit goes to another person. A situation of market failures can sometimes exist in a private market, however, it’s an exception, not a rule. Most products are private goods, so the producer determines how much of the benefit to the buyer he can covert into a benefit for himself through the price he charges. Many inputs that go into production, such as raw materials, capital and labour, determine the cost measure of goods produced. In a model of perfect competition, what a producer sells goods at is of the same worth to the consumer, hence the private benefit equals the social benefit, so the total effect of the net worth of transactions is equal for everyone. Individuals usually receive most of the benefit and pay the cost of their actions, making market failure the exception, not the rule. On the political market, bureaucrats aim to accumulate power for personal gain or career interests, as many hardly bear the cost of their actions or receive much of the benefit. Corruption presents itself as a chronic problem not only the essence of politicians and bureaucrats consorting to bribery but in the sense of government officials resorting to egregious activities to protect powerful economic entities from market competition through the form of subsidies, tax breaks and regulations that serve self-interest in exchange for their political support. Hence market failure, being an exception in the private market, is the rule on the political market.
Lastly, the final claim according to utilitarian philosophy is that capitalism results in inequality and unfair income distribution. The utilitarian claim can be empirically tested, in such that if the marginal benefits of working are less to the wealthy, then indeed they should work less than the poor. After all, there’s a trade-off that needs to be met, more leisure time is what you trade for more income. Through economic experiments conducted, we discover that, for one reason or another, men in our society at all levels of the income scale seem to work roughly the same amount, indicating that the minor increase in income inequality can be attributed to the rich working longer hours in comparison to the poor who were working fewer hours. This contradicts a central tenet held by the advocates of income redistribution, forcing utilitarians to realise that economic liberties and competition are essential to increasing state wealth.
In conclusion, we can conclude that capitalism is an efficient economy consistent in meeting moral standards, and hence is the best economic system. It provides a plausible solution to the challenge of coordinating the production and distribution of goods in a free society by inducing economic productivity and innovation that meets modern moral views. Although socialists would challenge this claim, greed and self-interest are inherent in human nature and pose a predicament to every social order. Capitalism has proven to be superior in the way it directs these energies to provide an outcome that’s mutually beneficial to society in a peaceful way. Criticism of capitalism based on moral grounds is often misguided as being responsible for what is the role of other institutions, such as government and religious societies. Capitalism is not perfect and cannot solve every social problem – no economic system could – however, has proven to be superior in its deliverance of economic efficiency that is consistent with moral codes, human freedom, and personal liberty.
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