Basic Characteristics of Capitalisim

Question 0

Define money.

Answer 0

Money is anything that fulfills the following three criteria:

1) it is the generally accepted media of exchange for goods or services or the settlement of debts.
2) it can be used to store value over
3) it acts as a unit of measure.

Question 1

How is capitalism different than feudalism in terms of labor, ownership and profit motive?

Answer 1

In feudalism feudal lord controlled the means of production (ie. The land). Serfs worked to produce crops for their own use, paying a portion in tribute to the lord. Their motive to produce was principally the use of the product. As feudalism faded in the 1500’s the manor land was sold to private owners on the emerging real estate market. The serfs, newly freed, owned their own labor but did not have access to the means of production, began to sell their labor to land owners. Serfs no longer produced to use the outcome but to gain income from their labor. Profit was now the main motive of production.

Question 2

What is the role of money in capitalism?

Answer 2

In capitalism money acts as a universal medium of exchange.

Question 3

What form does money currently take ?

Answer 3

Currently money is fiat money that is paper money as well as the balances in our checking accounts.

Question 4

What is a market ?

Answer 4

A market is the interaction of buyers and sellers bargaining over the free exchange of goods and services for a price.

Question 5

What is the role of price in a market ?

Answer 5

Price is the language through which buyers and sellers communicate. Price communicates the value that buyers and sellers place on a good or service.

Question 6

How did the role of markets change during capitalism?

Answer 6

Prior to capitalism, markets played a minor role in society, governing mostly the trade of luxury items. As feudalism gave way markets became the primary organizer of production.

Question 7

What is the difference between labor in feudalism and capitalism?

Answer 7

In feudalism labor produced goods to use the product of their labor. The use of items produced was the primary motive of production. In capitalism labor produces goods to profit from their labor. Profit is now their motive.

Question 8

What does ownership of an asset mean?

Answer 8

When someone owns an asset they the poses specific property rights.

1) The right to use or not use the asset
2) The right to use the asset in the means that they choose
3) the right to the income or output from the assets use
4) the right to transfer ownership rights

Question 10

What does it mean for ownership to be private ?

Answer 10

Private means that the owner of the asset retains exclusive property rights.

Question 11

Define Social Class

Answer 11

People with a similar relationship to the means of production.

Question 12

• What are the two essential classes described in capitalism the particular class structure of capitalism what defines each of them? What is their relationship to one another?

Answer 12

1. The two classes that Marx noted in the capitalist system are the capitalist class, those that possess the means of production, and the working class those that do not own the means of production and thus have to sell their labor.
2. According to Marx the interest of the Capitalist Class and the Working Class are at conflict. He noted that as a result of the manufacturing process a surplus value is produced. If the wages paid to the working class were higher profit would be lower. Inversely if wages paid to workers were lower the profit for the capitalist class would be higher thus these two groups interest conflict.

Question 13

What motivates investment and production? How is that motive different from previous modes of production?

Answer 13

• In capitalism production and investment is motivated by the profit made from the sale of goods
• Prior to capitalism production was motivated by the ability to use and consume the product of production. Use was the production motive.

Question 14

What is meant by capital accumulation?

Answer 14

he circuit in which surplus (profit) produced in the manufacturing process is added to the previous invested capital. The expansion of capital is the dynamic force that propels a capitalist market.

Question 15

How does competition result in concentration over time?

Answer 15

Through competition less successful firms either go out of bankrupt or are bought out by the more successful ones through mergers and acquisitions. The successful firms become bigger and bigger gaining more and more market share.

Question 16

What is the meaning of creative destruction?

Answer 16

• Creative destruction refers to the process whereby firms compete for profitable markets through innovation. A firm will innovate, that is create a new product to meet a need or want in a new way, replacing whatever product had met that need or want before. The new product will create a whole new industry and with it new occupations. At the same time it will have destroyed the industry that created the previous product that the new product replaced and with it the occupations of the old industry.

Question 17

Give a contemporary example of both the creative side of the process and the destructive side of the process both for firms and labor.

Answer 17

• A contemporary example of creative destruction is the mobile phone. Prior to the mobile phone people used payphones to communicate when away from their home. These phones were widely manufactured, installed and maintained by a labor force on behalf of telephone companies until introduction of the mobile or cellular telephone. The cellular telephone created a new industry. Cell phone handsets had to be manufactured. Stores were opened to sell and service mobile telephones and companies providing cellular service were created. As cell phones became more prominent the need for pay telephones drastically decreased. Phones were eventually largely removed from previous instillations. The workforces and manufacturing installing and maintaining pay telephones were drastically reduced along with the companies that employed them.

Question 18

Describe the contradiction between the notion of capitalism being a system of freedom of choice for individuals and the essential nature of capitalism.

Answer 18

• Some might contend that capitalism is not a completely free system because for those that do not own capital and have no other source of income than working, if they were to only receive job offers at a wage that would not enable them to pay for basic needs and with unsafe working conditions, can these people be said to have a choice. Accepting no job would leave them with no income. Accepting would leave them less than enough to meet their basic needs. Are they really free to choose?