Question 1
Capitalism is defined differently by different scholars. Capitalism is a form of economic system which combines a number of features. These features include private ownership of property and production means, profit making motive, competition in the markets, capital accumulation, and voluntary exchange of labor (Ingham, 2008).
The first component of capitalism is economic freedom. Economic freedom slightly differs from market freedom. In economic freedom there is a free window for individuals to acquire and control production in any of the economic sectors. An individual is free to choose whether to enter or leave the industry r market. In a capitalistic economy, there is what is called consumer sovereignty. Consumers who have resources thence purchasing power affect the rate ant which goods and services are produced. They also dictate the kind of goods and services that will be availed in the market (Ingham, 2008).
In capitalism there is Laissez faire or a free market economy. Market forces of demand and supply are left to control the economy. A capitalist economy is market – based. Seller and buyer agreements determine the prices of products and services. Competition is encouraged in capitalism. It encourages innovation and efficiency in production thus leading to economic growth. In capitalism there is self interest where people enter business to make personal gains. Lastly we have private ownership of property. Almost all enterprises in a capitalistic economy are owned by individuals or groups of individuals (Nee, 2007).
Socialism can be defined as an economic system where there is collective ownership and control of production means (Fleming, 2008). Most of the tenets of socialism are contradictions of the features of socialism. In socialism, there is a high degree of public or collective ownership of production means in the economy. Almost all basic services in the socialist economy are controlled by the public (Fleming, 2008).
In socialistic economies, there is communal living and ownership of property. Members of the community work together in equal measure to achieve economic growth and development. Other features of socialism income equality and social welfare as well as social security. Also, socialist economies are classless and economic planning is emphasized (Fleming, 2008).
In the technological age, capitalism is the best economic system. It encourages competition which leads to innovation and inventions. Form instance, the growth of the United States economy has been attributed to the capitalistic system of economy.
Question 2
Capital markets of capitalistic economies are highly supported by political institutions. Politics is the determinant of the survival of capital markets in capitalistic economies. The value of capital markets are influenced by political elements emanating from political debates and decisions. Big players in the economy who are mostly individuals are often forced to seek for rules which will favor their businesses and make them more competitive. The political class is composed of a majority of those who own the means of production. Since they are the influencers and or shapers of economic performance, they coin decisions or policies that support this system of production. Political opinions and or decisions can result to the collapse or replacement of the existing institutions. Therefore other institutions come up. The new institutions are often improved and more efficient than the outcompeted ones (Mueller, 2012).
According to Healy (2009) there is also a strong relationship between capitalism and the family institution. For a long time, the family has been the creator of the local markets. The local markets are the bases upon which the larger economy is built. The consumption patterns of the family determine the economic or enterprise incomes at that level. Families also mold economic drivers. The entrepreneurs in the economy are shaped and get stronger foundation from family institutions (Horwitz, 2007).
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