Capitalism is an economic process in which the means of production are privately owned; supply, demand and price are generally formed by market forces not by an economic planning; and profit it is distributed to holder of means of production who invest in businesses. Capitalism also refers to the process of capital accumulation. Evolution of Capitalism Economists mostly focused on the degree that government does not have control over markets (laissez faire), and on private property rights, while most of political economists focused on private property, wage labor, class and power relations.
It is clear that there is a general statement that capitalism encourages economic growth. The present collapse of the global economy puts a serious question such as: Is current economic arrangement fundamentally sound, needing only slight correctives, or has it reached its restrictions, requiring fundamental rethinking? American economic thinking for the last 35 year has been a hijacking of the evolutionary growth of capitalism that could offer sustainable economics.
The word “economics” comes from two Greek words, oikos or “house” and nomos, “one who manages,” so etymologically economics has a wide meaning, incredibly like “concerned for the household. ” The reason of our economy is to be concerned for our ordinary household, what are the principles that should direct our modernism? Sufficient care for the national household must give at a minimum: • A job for everybody who can support a family • Good quality education for each of our children • Sufficient universal health care • Essential safety for old age or in the occasion of unemployment or illness, and • Environmental sustainability.
Monopoly Capitalism A large part of capitalism is determined by monopoly. The term monopoly has always been a feature of capitalism and capitalist competition presumes monopoly. This capitalist competition has further led to the centralization and concentration. For Marx: “Capital is here directly endowed with the form of social capital (a capital of directly associated individuals), as distinguished from private capital, and its enterprises assume the form of social enterprises as distinguished from individual enterprises. It is the abolition of capital as private property within the boundaries of capitalist production itself.
“- ( as cited by Mattick, 2010) The monopoly capitalism made a pathway for a Socialist society. Lenin argued The socialist society as a huge factory steered by the state. “There are surplus of manufactured goods, of labor, and of farm produce: “always too much, but never too little”. (Baran & Sweezy, 1966). One of the discussed solutions was to cutting the production whereas other was in favor of stimulating demand, The price cut for the surplus can result to vanishing of the over production where consumers and manufacturers would benefit. However this would have consequences on the overall viability of the industry (Baran & Sweezy, 1966).
Banking Capitalism In any world financial system market, banks hold a very important position in money manufacture and speculation. Banks are the only most significant mediator for indirect money across the world. The securities (such as stocks and bonds) market is also another important ubiquitous presence for direct finance. However, usually growths and gains in importance ‘Pari Passu’ with financial growth; in common, the higher the per capita income, banks securities play higher source of the business investment and it also make clear that securities engage greater economic risks than bank loans.
If we take a case of America than its economic has became more dependent on securities than on bank for business development. Due to large form of pension, mutual funds American estimated to be shareholders in way or the other. As being a developed country American financial industry development is world most famous and undisputed leader in innovation in certain areas of the securitization and derivative and due to this American market securities rapidly grow and in this respect American capitalism called as “securities-market capitalism. “
If we look on other case like Japan’s financial industry which is actually remodeled on the American system right after world war II, Japan’s financial industry dominated American banks that Japanese-style capitalism characterized as ” bank-loan capitalism,” particularly in light of the relatively in corporate bond market. Bank loan have been dangerous in Japan’s economic growth in the postwar era and paradoxically because of this banking whole Japanese economy was affected. Any continuous deployment of economy needs increased finance. There is two possible solution exist.
a) To borrow from overseas by running current- account (CA) and CA is domestic saving CA deficit-based finance. This however makes hot global money. b) To create credit through country’s banking system and with the help of central banks, central bank-based finance” [Ozawa 1998]. Central bank-based finance entails the risk of rise if prolonged praise is used for nonproductive reason such as expenditure and speculative investments. It needs direction and judicious management of the banking industry by both the government and the central bank concerned.
There are two methods of financing capital configuration for economic growth: (1) Selling equities (stocks) and (2) Borrowing by issuing debt instruments (bonds and other securities). These two alternatives guide for growth of the securities market development. In the early postwar era, initially stock market played very important role as a source of funds for corporate in Japan, but soon after some time Japan overwhelmed by bank loans. This was clearly reflected that Japan’s high-growth era(1950-1974) for all industries and its declined from 26.
9% in 1950 to 16. 1% in 1970 and manufacturing declined from 31. 4% -19. 95% over the same period [Caves and Uekusa 1976: 479]. Central bank based finance, the bank of Japan (BOJ) pumped funds into Japan’s city banks, which extended industrial loans to their self groups of corporation and this group known as the bank-let kinyu keiretsu. There are six kinyu keiretsu that competed vigorously in arranging a set of chemical industries and this kinyu keiretsu is also know as the “main bank” system [Aoki and Patrick 1994].
In addition, Japan’s postal investments agenda played a very important part in financial intermediation. At the time of high-growth period of 1950-1973, nearly one-third of total private investments were captured by the administration in the form of postal investments financial records. In fact, Japan’s postal savings system called “the world’s largest bank” [Brown 1986, 128]. It has more than 20,000 post offices throughout Japan, in that mostly are in rural agricultural regions. It means that “there are more postal savings windows than in all the branches of Japan’s city hanks combined” [Brown 1986, 128].
Under heavy regulations, Japan’s banking institutions are also compartmentalized into particular actions and markets (e. g. , division of the lending business from underwriting of, separation of short- and long-term finance; securities and the trust business; and trading in separation of markets by size of customers and banking system of city and local bank). Money Manager Capitalism At the beginning of 2009, the world faces the worst economic crisis since the 1930s. Possibility of depression were talked everywhere.
there was a huge loss of jobs in the end of year 2008. Minsky always insisted that there are two essential propositions of his “financial instability hypothesis” (See Papadimitriou and Wray 1998 for a summary of Minsky’s approach. ). The first is that there are two financing “regimes”—one that is consistent with stability and the other in which the economy is subject to instability. The second proposition is that “stability is destabilizing,” so that endogenous processes will tend to move a stable system toward fragility.
There is small hesitation that the world faces the nastiest economic disaster since the 1930s, with a little economists and policymakers beginning to speak concerning the option of a depression. Keynesian economics references are ordinary, with only committed liberal marketers quarrelling against administration involvement. Still the wizards on Wall Street are begging for re-regulation of fiscal markets. The Obama government has projected present year federal budget deficits at $1. 75 trillion (12% of GDP) and $1. 17 trillion for 2010—although some private forecasters project $1.
9 trillion for 2009, representing 13. 5% GDP and it is clear that it will not fall till next year. If anything, prospects facing the rest of the world are worse. The Federal Government has become the worldwide lender of final resort, providing up to $600 billion in loans of dollar reserves to foreign central banks. The run to relative security in US treasuries has endangered exchange rates, increased risk and spreads around the world. Political and Social unrest is scattering around the periphery nations. Randall Wray considers that the US has at its sufficient policy space to decide its crisis.
Mark Thoma has called for international coordination–a good thought, but one that Randall Wray panic has little political hold. Euro-land will not enlarge its economy out of fear that markets will run government’s debts. All sorts of explanations preferred for the reason of the crisis: lax regulation and omission, growth of inequality that uplift households to borrow to support spending, greed and illogical enthusiasm, and extreme global liquidity—spurred by easy money policy in the US and by US current account deficits said to overflow the world with lots of dollars.
Hyman Minsky’s work has enjoyed extraordinary interest, with many calling this a “Minsky Moment”. R. Wray calls it the Minsky half-century in recognition and its seeds of crisis were planted 50 years ago. A paper from the Levy Economics Institute of Bard College confirms that money manager capitalism is the basic cause of current global financial crisis. “The current stage of capitalism is dominated by highly leveraged funds seeking maximum returns in an environment that systematically under-prices risk.
We must return to a more sensible model, with enhanced oversight of financial institutions and with a financial structure that promotes stability rather than speculation ( Randall Wray,2009). ” Conclusion As it known economists always focused on the degree and does not like government control over markets (laissez faire), which mean no interference of government in market policy and as well as on private property rights, while on the side most of political economists focused on private property, wage labor , class and power relations.
It’s clear that there is a general statement that capitalism encourages economic growth. The recent collapse of the global economy puts before us a serious question such as: Is current economic understanding fundamentally sound, needing only slight correctives, or has it reached its restrictions, requiring fundamental rethinking? American economic thinking for the last 35 year has been a hijacking of the evolutionary growth of capitalism that could offer sustainable economics. If we see large part of capitalism is determined by monopoly.
The term monopoly has always been a feature of capitalism and capitalist competition presumes monopoly. This capitalist competition has further led to the centralization and concentration. Even Alexander Gerschenkron  observed that rising countries are tended to became reliant on institutional arrangements rather than a market, especially in finance and industrialization. Japan growth depends on central bank-based finance in which bank play important role in capital formation with keiretsu groups. References:- Baran & Sweezy, Monopoly Capital. available at http://skeptically.
org/socialism/id13. html, accessed at May 25,2010. Boaz, David. 2005. “Defining an Ownership Society. ” www. cato. org/special/ownership_society/boaz. html, accessed at May 25,2010. Borger, Julian. 2005. “Hurricane aid used ‘to test out right-wing social policies’”, The Guardian UK, 22 September. , accessed at May 25,2010. Bernanke, Ben S. , “The Great Moderation”, speech given at the meetings of the Eastern Economics Association, Washington, DC, February 20, 2004; www. federalreserve. gov/Boarddocs/Speeches/2004/20040220/default. htm, accessed at May 25,2010. Black, William.
2005. The Best Way to Rob a Bank is to Own One, Austin Tx: University of Texas at Austin, accessed at May 25,2010. Cassidy, John. “The Minsky moment”, The New Yorker, Feb 4, 2008, www. newyorker. com, accessed at May 25,2010. McCulley, Paul, Saving Capitalist Banking from Itself,available at www. investorsinsight. com/… /saving-capitalist-banking, accessed at May 25,2010. Mattick, Paul,Chapter 4: On the Concept of State-Monopoly Capitalism,Available at http://libcom. org/library/economics-politics-and-the-age-of-inflation-mattick-four, accessed at May 25,2010.
Ozawa, Seiji, The rise and fall of bank-loan capitalism: institutionally driven growth and crisis in Japan Journal of Economic Issues, (June 1999),available at http://findarticles. com/p/articles/mi_qa5437/is_2_33/ai_n28733724/? tag=content;col1, accessed at May 25,2010. Wray L. R. ,The Death of Money Manager Capitalism? ,(April 15, 2009). Available at tpmcafe. talkingpointsmemo. com/… /the_death_of_money_manager_capitalism, accessed at May 25,2010. Wray L. R. ,Money Manager Capitalism and the Global Financial Crisis (September 2009),available at http://www. levyinstitute. org/pubs/wp_578. pdf, accessed at May 25,2010.
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