Market Vs. Demand Economy Essay, Research Paper
Market vs. Demand
Now it is time for the final comparison between the two major economic systems which happen to be big ones in the world today ? the capitalist free market economy and the communist/socialist command-based one. We shall go about this comparison by going through a list of basic topics and questions required for setting up an economy, and provide the typical demand and the typical market response for them ? in the end, that is the true way to fully comprehend both systems.
The first question that needs to be answered in the creation of an economy is ?what shall be produced?? Every individual has a certain amount of needs and a certain amount of desires, which they are all in the end willing to work for ? in a capitalist economy, the government leaves the meeting of these needs to the actual people. The theory is that anyone who wants to succeed in a capitalist world, driven by Adam Smith?s ?invisible hand?, will eventually discover these needs that need to be met by the people and sell them, mainly for the good of the entrepreneur himself, but ideally (you?ll hear that word a lot during this comparison) for the good of the consumers and the employees as well ? basically, if you know that people want a certain product, you know that people will buy that certain product, so you can guarantee your own success as well as the fulfillment of those consumers in need (which is usually a secondary motive). Demand economies, on the other hand, do not believe in such private profiting ? rather, they assign a branch of the government as a ?central planning committee? which decides what goods and services the people are entitled to. In a perfect world, this would work perfectly, and everyone would end up getting what they wanted ? unfortunately, in more cases than not this central planning committee is too disconnected from the laborers they are providing for to know exactly what is in demand and what is not needed ? if, for instance, the people had a large demand for razor blades but the often ignorant government decided to give you more toothpaste instead, well, you?ve just got to grin and bear it, and stand in a big long line to get your razor blades eventually ? if you were experiencing this same problem in a capitalist country, you could just run off to the corner store and buy some razor blades from a private entrepreneur. The score so far: 1 point for the market system, 0 for the demand.
Another question that needs to be answered is the simple one of ?who shall everything be owned by??, and the answers for this one are rather obvious. Capitalism is a system that works on the very basis of private ownership and profiting, for without it the driving force of self interest would be rather useless? if everything were given to you, and nothing more, you would have no need to try to be as successful as you can be (and thus as beneficial as you can be), because you will never feel the effects of it. Communism, on the other hand, believes that capital should be owned communally by the entire community, and not single people or groups. This isn?t exactly true for everything ? yes, there are many people in communist countries who own different household commodities and so on (and even amounts of land) based on simply what they need, but in the end the public owns the capital wealth, which can be used to produce more wealth, which can be used to produce more wealth, ad nauseum. This concept of ?profit? is one of the most important elements of capitalism ? the private entrepreneur must be allowed to make more money, which he can use to make more money, etc. etc. ? and, according to capitalist theory, the more money he earns the more he is actually bettering everyone involved in the deal (himself, the landowner, the employees and the consumers) ? were this profiting not allowed, the welfare of everyone would eventually begin to suffer, or so they say. Communists and socialists, however, believe that profits for the individual are an actual drain on society, simply because of the fact that they take the capital away from the communal good and gives it to a few individuals. With all of this said and done, the score still stands at 1 for market and 0 for demand.
Both systems of economy pride themselves on being egalitarian, or equal and fair to all involved parties ? strangely, they pride themselves on equality for the exact opposite reasons as each other. This raises another question ? ?How is equality and fairness taken care of in each economic system, or do equality and fairness exist at all?? In a capitalist world, equality is defined by opportunity ? ideally, everyone has the opportunity to be an entrepreneur and earn quite a bit of wealth for themselves and their country ? because of the advent of competition and because one company having a complete monopoly in a certain field is illegal, you do have the opportunity to begin any business you so desire? technically. Unfortunately, it does cost a bit of money to make money, so if you are not well-endowed in the first place success in a non-ultra-revolutionary field is not going to be that easy. Life simply is not fair, and many people who are born into capitalist countries are instantly disadvantaged due to their circumstances ? an anonymous cynic remarked that ?the rich and the poor both have the same opportunity to sleep under a bridge at night?. It is true that capitalism is not as bad as the feudal empires of the past, in which you are doomed to assume the exact same financial standing as that of the family you were born into, but often it does take on such forms. Luck is sadly an important component of capitalist financial success, but even the poor still do have an ounce of opportunity ? it?s just that opportunity and equality are more available to those who have their rich daddies to fall back on than those who have nothing.
The demand economy, on the other hand, takes a more class-related and a less individual approach to the problem of equality ? Karl Marx, the clever but sadly quixotic founder of the communist school of thought, believed that for true equality we must first remove all the hierarchical classes we put ourselves into ? communism works on this purpose in a sense, but everyone is basically ?of equal poorness?. As I said, wealth-producing capital is never owned by the individuals, rather, it belongs to the community as a whole, and the wealth produced by that is divided up even some more. Unfortunately, owned by ?the community? all too often means owned by the government, because it turns out that there is a bit of a hierarchy after all? but more on this later. No points shall be awarded for this question, so the score still remains at 1 for market and 0 for demand.
For the progression of society as a whole, people must have motives to work, reasons to spend their time toiling away instead of simply lazing about like we?d all prefer
I said that altruism always takes the passenger seat compared to self interest, and self interest is precisely the concept that drives capitalism along. Basically: People want things to make their lives better, and most of these things can be purchased because other people are selling them and trying to make a profit ? they are not being dispensed by the government at the government?s leisure. In order to get a hold of these things, however, you need money ? and often lots of it? and whatever amount you are currently receiving is never enough, because you always want to better your situation and you always want to earn more. If you decide to go into business for yourself, you can satisfy this? well? I?ll call it ?greed? but self-interest was probably a more appropriate term by creating a product that others will buy ? as has been said many times before, if you are earning money from this product, everyone else?s lives are improving because of it as well ? no one would enter into a voluntary agreement about something (be it a job or a purchase) if it didn?t best suit their needs and wants ? this driving force will allow you to work very hardly and benefit society a great deal? plus, this driving force will cause entrepreneurs to find gaps where things are needed but aren?t being supplied and fill them? self-interest both makes people work harder and fulfills all societal needs. The business owners aren?t the only ones affected by this self interest, however ? the laborers experience it in just as large doses too. People work hard in capitalist systems, and spend time working even when relaxation seems like a more relaxing choice, simply because they want to benefit their own situations ? they want to work hard and get that overtime pay, those Christmas bonuses and even those sought-after promotions ? working hard benefits your company, benefits the consumers, benefits your nation, but all in all it benefits yourself? and to the self, the self is really all that matters. The market economy scores an obvious point here ? the score is now 2 for market, 0 for demand.
In order to have a functional economy, you must have a government to back it up ? the next question on the table is ?How does the government deal and fit in with the economic system?? In a capitalist economy, the government does nothing but help ? I?ll re-stress a point that was said earlier: The entire free enterprise system of economy works because we agree to contractual decisions with each other. If we were acting in our true, complete self interest with no regard for anyone else, we would break these contracts as we wanted after our end of the deal was completed ? we?d take products from companies without paying them (theft), we?d take labor from employees without giving them the proper wages (exploitation or slavery), we?d do everything within our power to get where we wanted, trampling everyone else underfoot along the way ? this does not fit in with the ?everyone is bettered? philosophy that capitalism works by at all. The government is a necessary component in any capitalist system, then, to make sure people don?t get too carried away with their own wants? our laws were created to protect ourselves from being treated badly by others for their own gain, and that?s precisely what they do. Only with a strong government in place could capitalism possibly benefit everyone.
In communism, on the other hand, the government is starkly different? the government is responsible for deciding what to give the people, when to give it to them, and even what to make the people do. A completely benign (or inhuman) government would work perfectly, but even our leaders are people and even they are governed by the same self-serving drives as us. It is for that reason that communist countries quickly and nearly always degenerate into dictatorships ? the government realizes that there?s nothing to stop them from doing everything to suit themselves, and eventually they are the ones getting all the resources, all the money, and all the luxury. The workers under them are all equally poor, and they are terribly rich ? as the great George Orwell said, they are ?more equal than other?. The point must be awarded to the capitalist side ? the ending score is 3 points for the market economy and 0 for the demand ? free enterprise wins by a landslide.
What is it that sets free enterprise apart from communism? Surely, there are many faults and flaws in both systems, but in the end free enterprise works simply because of its great potential ? everyone, even those born into the poorest families, can become rich and successful? in communism, however, it is only the government that is rich and successful and everyone else has to suffer for it. True, communism would function in theory, but it has never actually been as stupendous as it claims in a real setting, whereas capitalism has proved its value many times over. Yes, capitalism isn?t that perfect ? it scored no points in the ?ownership? category or the ?equality? category, but it still did score some ? its score is infinitely better than the demand economy, because in practice as well as in theory it is infinitely fairer? that doesn?t mean it is infinitely good, but it means that compared to the alternatives it is the lesser of two evils. And not that bad a lesser of two evils at that.