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CAPITALISM
SENIOR PROJECT RESEARCH PAPER
BY JASON GERKEN
CAREER ENGLISH
MRS. CONLON
5/14/95
CAPITALISM
Today in the United States, a free market system or capitalism is the main economic
system. I am interested in this subject because I someday wish to own my own business. I
believe that in the future this topic will be very useful to me. Among the topics that I
will discuss are the greeks and romans early practices of capitalism, the ideas of Joseph
Schumpeter, Rush Limbaugh, and Karl Marx, corporations, regulation by the government, and
Reaganomics. I will also discuss the relationship between inflation and unemployment. In
addition, I will give my own perspective on the economic theories that I'm presenting.
These are just a few of the things that I will be discussing in this paper.
HISTORY OF CAPITALISM
Many of the institutions of capitalism can be traced back to Greek and Roman times. Things
such as trade, moneylending, and insurance were well known practices to them.
Unfortunatly, growth of the Roman Empire prevented further development of a private
business class. As power over economic growth came back to the people or lords during the
Middle Ages, modern capitalism started to evolve. (The Software Toolworks Illistrated
Encyclopedia)
In the late Middle Ages, the medieval economy was based on MANORALISM. This system said
that peasants worked on the land that the lord's owned, but everthing that was produced by
them was kept in return they had to perform services or pay dues to there lord. During
this time period, there was no incentive to produce large and productive resources. The
end of the midieval Manoralism was brought about by a larger demand for goods. Kings
competed against lords, and lords competed with peasants for the rights to what was
produced. As a result, there was an emergence of merchants and businessmen who accumulated
large sums of capital. In addition, there was also a large emergence of banks and the
start of corporations. (Galbraith Pg. 58)
The only other economic system that got much attention was a new idea called Communism. A
person named Karl Marx wrote a book called the Communist Manifesto which thought of the
state as being the main controller of economic growth, unlike capitalism where the people
in a free market are the main controllers of economic growth. In the 19th century when
most of the world like Britan, France, Germany, and the United States were in the age of
Laissez-Faire economic capitalism, other countries like the Soviet Union and China
followed Karl Marx's Communism. (Galbraith Pg. 97)
Modern Capitalism
The main thing that drives capitalism today is the large corporations that are able to
finance large operations to promote economic growth. As corporations got bigger and
bigger, many liberals favored breaking up corporations and putting them under state
control. They pressed for antitrust laws to get a competitive economy. This meant that
some corporations that got too big had to be broken up to make smaller companies in order
to create a competitive economy. The large corporations fought back by saying that they
were no less competitive than smaller businesses. An Austrian-American economist named
Joseph Schumpeter who argued in defense of large corporations said, "the prime mover
in capitalist progress is not the small businessperson but the entrepreneur who introduces
new technologies and develops them." He also said "Capitalism gives creative
people the freedom to make innovations, unlike state-runned economies which tended to
stifle this creative force." He also predicted that capitalism would eventually be
replaced by some form of socialism in order to protect the people and the global
environment. (The Software Toolworks Illistrated Encyclopedia)
Arguments for and Against
Capitalism today differs from capitalism of the 19th century because of its dependence on
the state. Today government is expected to take measures in order to stop inflation and
unemployment. A British economist named John Maynard Keynes said, "government should
spend more money in times of slump, and also reduce taxes in order to increase aggregate
demand for goods and services, and in boom times the policies should be reversed to hold
down inflation." Most liberal economists believed that large corporations ought to be
broken up and nationalized so that their manager would be responsible to the public as a
whole.
(Lekachman Pg. 51)
Other conservative econimists stated that evan large corporations were ultimately
controlled by the market where they sold their product and the market is subject to the
desires of the public. Conservatives also pointed out that government spending by federal,
state, and local governments amounted to more than one-fifth of the gross national
product. The same thing seemed to be happening in other European countries like Sweeden,
and Britain.
(Lekachman Pg. 62)
During the 1980's when Ronald Reagan was elected president it signaled the return of
capitalism as the dominant economic idea in the United States. Reagan's two main policies
or objectives were to reduce the size of government and deregulate the economy. The main
benefit of Reagan's new policies of lower taxes and tax reform was the virtual elimination
of inflation. As a result, the U.S. economy expanded and new records were set on Wall
Street. Critics of Reagan favored tax and spend policies that would inflate the economy
into what we are now seeing in Russia. As our National Debt got larger, they blamed it on
Reagan, but as I see things it was caused by the Democrats in Congress during the 70's who
authorized many new spending progams that were not able to be paid for. This is why there
was such a problem with inflation during the 70's. I believe it to be unfair to blame him
when we saw some of the biggest economic growth in the history of the U.S. during the
1980's. Reagan, as well as many other conservatives, believed that if you cut taxes,
it would give incentive to businesses to invest there marginal tax dollars,causing them to
earn more money and pay more taxes on their earnings. As a result you get rid of inflation
and unemployment at the same time. Critics still protest, saying that these policies are
unfair to poor people and minorities. This statement has some truth to it, but in the
words of Rush Limbaugh, "Capitalism, though not promising prosperity to all, greatly
improves the lot of most and offers opportunity to all." (Limbaugh Pg. 273-274)
The concept that I talked about in the last page is called supply-side economics. Liberals
think that if you cut taxes, you get less revenue. Right? Wrong! Actual revenues nearly
doubled during the 80's from 550 billion to 991 billion. To go even further I would like
to see a flat tax implemented. A 15-18 percent flat tax rate would stimulate the American
economy greatly. This would happen by giving huge incentive to everybody to make more
money. Of course, some liberal might confuse you by saying that making money is greedy.
Sure the rich will get richer, but their businesses will grow due to the fact that they
will have more money to employ more people creating less unemployment. Also people
currently avoiding taxes either legally or illegally will be brought into an evev system
where they will not need to avoid taxes through current legal loop holes. The reason why
people like Bill Clinton get elected to be president is because he plays the game of class
warfare. Clinton did a good job of convincing the poor and the middle class that Reagan
did them wrong. Clinton believes that the rich should be punished by higher taxes. I ask
you, "why should you punish prosperity?" The main goal of the liberals and Bill
Clinton is the reditribution of wealth. The key question to ponder is, " when do
profits become unfair and excessive?" (Limbaugh Pg. 118-119)
In conclusion, capitalism is the best thing to help the United States economy grow. The
entrepreneur is the person who makes this economy rum smoothly and profitably. A creative
person at the head of a company can do alot more than a person who is at the head of a
state-runned bureaucracy. This is true because the entrepreneur has incentive to do the
job correctly, but the bureacrat has none because he knows that his job will still be
there tomorrow no matter how he performs. I will agree that pure capitalism won't work
because you still need environmental laws and other laws to protect the consumer. However,
problems begin when extreme socialistic views like Bill Clinton's are imposed.
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