The Paradox of Capitalism

•  capitalist economy = running for centuries > developed by Adam Smith.
• foundations of capitalist economy > belief of free market = economic structure wherein expenditure, output and distribution decisions are driven by price mechanisms produced by supply & demand curve => price mechanism = core driver of economy
• money significant role within addressing core problems in such a system.
• capitalist economy =/= cut out for an inevitable growth => recessions occur based on either misinterpreted market intelligence, by operating on adverse selection or by having distrust.
• Trust in business = core value.

 

• great depression (late 1920’s) = most severely experienced recession in history => effects merged globally where a deflation was observed in industrial production and prices, massive unemployment rates + increasing rate of poverty. >> During crisis banks panicked + followed motto of capital economy in order to rescue themselves; “Every man for himself”.

It is not long ago since we had the dream of living a comfortable and easy life where we can communicate with one another from different geographical locations and having the most distant click at our fingertips. The world we are living in has rapidly changed to a more comfortable state. We couldn’t imagine how an easy life would be. {The Innovation Paradox}

• Since breakout of internet many companies + enterprises = focused + built on innovation within internet, providing services + facilities towards the customers > innovation = not only boosted economic development of countries + created a globalized market + increased knowledge & creativity in many different fields of studies. {The Innovation Paradox}

With innovation comes technological development and knowledge which results in an easier lifestyle – hence innovation is one of the core elements of the economic development. On the contrary, innovation was also invented for to increase consumption. Matt Haig in his book of “Reasons to stay alive” clearly and simply defines the world of economics;

“THE WORLD IS increasingly designed to depress us. Happiness isn’t very good for the economy. If we were happy with what we had, why would we need more? How do you sell an anti-ageing moisturizer? You make someone worry about ageing. How do you get people to vote for a political party? You make them worry about immigration. How do you get them to buy insurance? By making them worry about everything. How do you get them to have plastic surgery? By highlighting their physical flaws. How do you get them to watch a TV show? By making them worry about missing out. How do you get them to buy a new smartphone? By making them feel like they are being left behind. To be calm becomes a kind of revolutionary act. To be happy with your own non-upgraded existence. To be comfortable with our messy, human selves, would not be good for business”. {The Innovation Paradox}

• entire economy depends on demand
• seek to influence the demand by changing government revenue and spending.
• Implementing an expansionary fiscal policy with aim of increasing demand =>increase inflation > Paradoxically, on the long run inflation will cause a decrease in demand.

• 2008 a financial crisis > based on act of adverse selection => many major banks >  Goldman Sachs and Morgan Stanley > bankrupt.
• capital economy = based on fact of adding one more dollar to the circulation => about generating more revenue hence adding more players.
• result of retrenchment + redundancy =  create an increasing number of unemployment => affect the aggregate demand level.>  Furthering this decrease in employment => average disposable income level will decrease => demand curve will slightly turn downwards = economy will suffer from a deflation.
•  line of capitalism =  drawn by confusion between minimizing costs by downsizing +  maximizing revenue.

The Reflection

The capitalist economy has been running for centuries and was developed by Adam Smith. The foundations of the capitalist economy lies in the belief of the free market often described as an economic structure wherein the expenditure, output and distribution decisions are driven by the price mechanisms produced by the supply and demand curve. Therefore, the price mechanism is the core driver of the economy where prices of goods and services are based upon.

Within a capitalist system that has private control of the means of production and even private sector output, money plays a significant role within addressing the core problems in such a system. The demand and supply system is a tool used to do this. The market system automatically works without policy guidance and supervision. Illustrated by Adam Smith, the invisible hand of competition would make companies more efficient and bring more players to the market. On…

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