Capitalism vs Democracy

Topics: Capitalism, Business cycle, Free market Pages: 6 (2344 words) Published: May 25, 2011
Capitalism and Democracy
The political system and the economic system of the United States have been intertwined since the very founding of our country. Although there are many different views on how well the systems work or how they function, this has been a common thought shared by all different sides. Some have an optimistic view of capitalism, while others feel as though capitalism favors too few people. Two major points of view, the conservative and the “reform” liberal, describe how capitalism works, and the role for the government in managing the marketplace, in two similar, yet very different ways.

First, we look at the thoughts of Milton Friedman, of the conservative point of view. According to Friedman, capitalism is a free market system that is driven from the bottom up, starting with individuals who make voluntary choices to purchase goods and services and hold jobs. Having a free marketplace gives every individual the power to create their own economic destiny, from what food they eat, to what car they drive, to what career they choose. Friedman also describes capitalism as “self-correcting”, that if left alone, the market place will inevitably fix any problems it creates. According to Friedman, capitalism follows a cycle, consisting of ups and downs in the economy that will eventually work themselves out over time. It begins with a future expectation of profit, and people with money to invest. As more people begin to invest their money, the demand for labor and materials increases, leading to economic expansion and more people spending money. As demand continues to increase, supply begins to decrease, causing inflation and increasing product prices. At this stage, future expectations of profit are bad. As prices rise, people can’t afford to buy things, so they start to pull their money out of the market and investments. With fewer investments comes less demand, causing people to lose their jobs, prices to drop, and consumers to buy fewer goods. This ultimately leads to a recession, where demand for products is very low and often the unemployment rate is high. Then the cycle starts over again, cost conditions are recreated and people begin to invest money again, and the cycle continues. Another benefit of capitalism is that it allows for healthy economic competition, which not only gives individuals a larger variety of products, but also enables the marketplace to regulate its own prices. This also causes power to be widespread, and keeps people satisfied by being able to purchase what they like. For example, a consumer voluntarily goes to a grocery store. As they walk down the beverage aisle, they see a large selection of drinks to choose from, this is because of competition. Since there are various products to choose from, every consumer can decide to buy what type of beverage they like, making the consumers happy. Friedman also argues that capitalism is rational and efficient. The marketplace constantly finds a way to do more with less, and with every economic decision made, the costs and benefits are weighed first. In a capitalist economy, no one is going to do business unless they gain more than they lose. For example, if a person wants to start a business baking cakes, they would first determine how much money they need to invest to be able to make the cake, and compare it to how much they could sell each cake for. If it costs more to make the cake than they would be able to sell it for, then of course the person isn’t going to do it. The whole point of investing and even purchasing with capitalism is to make a profit, or somehow gain from the exchange. Nobody enters into a business contract knowing they are going to lose money. This is why Friedman claims that one’s standard of living should be based on what they can afford. Even basic necessities of life, such as food and shelter, are not rights of an individual, but a result of the economic decisions they make. Someone who works hard and has a...
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