Comparative Economic Systems
The course of comparative economic system is a subfield in economics which tries to compare and differentiate the various economic systems applied in various parts of the world. These economic systems include socialism, mixed economy and capitalism. The economic systems have had their effects on the concept of capitalism and socialism (Public Citizen, 2010).
Adam Smith
Adam Smith’s theory is based on the concept of free market. The theory is based on leissez faire political economy. Adam Smith postulated this concept which suggests that the business sector and the government have no formal relationship. Market approach according to Smith is beneficial since market efficiency is directly related to public good. This leads to the improvement of the living standards of individuals. Lisez fair concept is also known as the ‘invisible hand’ which aims at producing at lower prices, better goods, and large quality available to all the people.
Karl Marx
The importance of socialism according to Karl Max is to narrow down and eliminate the gap between the rich and the poor in order to establish and equal economy. Capitalism according to him is a disadvantage to the society since wealth will only be accumulated in the hands of a few influential people in the society. Free market capitalism according to Karl Max has its own limitation of forcing individuals to take up monotonous labor. This will lead to selfish motives of satisfying own needs. The two systems according to Karl are dehumanizing. Public good is archived when there is an equal economy to all individuals.
John Maynard Keynes
John Maynard Keynes talks of the third approach theory. This approach is used by most of the developed countries in the world today. According to Keynes, when the government fully controls business, it will lead to improved standard of living and business efficiency. He states that Karl Max socialism theory and free market will in the long run contradict and undermine it. The government has a role to play in setting goals to business sectors in order to achieve a common good. This can be done through the use of use of monetary policy which is the only way a country will improve its economy (Hillman, Zardkoohi and Bierman, 1999, pp 67-81).
J Schumpeter
Joseph Schumpeter was an Australian political scientist and economist. He postulated an economic concept known as creative destruction (New York Times, 2009). Creative destruction is a theory of progress and innovation which Schumpeter describes as a transformation process that comes with radical transformation. Capitalism according to him provides an innovative environment where entrepreneurs are able to attain economic growth. This growth is attainable despite of the destruction of value caused by laborers and companies that have had monopoly power to a certain degree. The power derived from organization regulation, traditional technology and paradigms of economics (John and Shawn, 2001, pp 11-46).
Schumpeter unlike Keynes theory does not capture the fundamental mechanisms in the development of economics in his Walrasian equilibrium. Schumpeter rejected Keynesianism by stating that a well developed financial system of capitalism is by enabling entrepreneurs to buy resources.
He also argued against Karl Max idea that capitalism will one day be collapsed by socialism. Schumpeter observed that capitalism will be destroyed by the formation of corporatism as seen in his theory of creative destruction. The theory indicates that the old ways are replaced and destroyed by creative, better and new ways.
Ronald Coase
Ronald Harry Coase is a British economist who through his article of The Nature of the Firm (1937) introduced the concept of transaction costs. Transaction cost explains the limits and nature of firms. This further leads to the concept of property rights and overcoming external problems. Property rights are important as a way of determining distribution. This concept has been applied in the US tort and contract law (Harris, 2007, pp 1185)
Amartya Sen
Amartya Kumar Sen is a prominent Indian economist who is referred to as the mother Teresa and conscience of economics. He postulated the concept of capability which is contributed to social indicators and development of economics. This is indicated in his article called the ‘Equality of What’. According to his argument government’s measurement should be based on the abilities of the citizens. The reason for this is that top-down development will continue to persist in trumping human rights. For example, every citizen has the right to vote in the United States, but, in Sen.’s view this is an empty concept. This is because every citizen must first have functioning capability in order to vote. Functioning comprises of a wide range of aspects like transportation to the polls and education. These aspects are the barriers which dysfunctions citizens. If they are removed, then it will be appropriate to view citizens as acting truly out of their own personal choice.
The capabilities approach is applicable in the 21 centaury by opening a door way to other economists. This is a model which emphasizes that the major motivating factor of humane activity is self interest. This has led to the development of new policies by the United Nation based on this concept.
Reference
Public Citizen, (2010) Consumer law & policy Blog
Retrieved from
http://pubcit.typepad.com/clpblog/
On July 16, 2010
Hillman A, Zardkoohi A and Bierman, L (1999) Corporate Political Strategies and Firm Performance: Indications of Firm-specific Benefits from Personal Service in the US Government. Strategic Management Journal, No 20, pp 67-81.
John A and C Shawn, (2001) the Role of Effective Resource Utilization on Strategy’s Impact on Performance. International Journal of Commerce and Management, No 11, pp 11-46
NewYork Times(2009)$200 Laptops Break a Business Mode” Retrieved fromhttp://www.nytimes.com/2009/01/26/technology/26spend.html?partner=rss&emc=rsons.
On August 2, 2010
Harris, Seth D. (2002). Coase’s Paradox and the Inefficiency of Permanent Strike Replacements. Washington University Law Quarterly, pp 1185.
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