Question

Critics of “capitalism” maintain that one sign of the “badness” of that economic system is that it needs a war to keep it going—that a war is good for the economy. Some even argue that the U.S. would have never emerged from the Great Depression—or at least that it would have taken another decade or two for us to emerge—had it not been for our entry into World War II. Critique that line of argument!

Answer 1

Answer:-
The demand side economics belives in influence the aggregate demand to influence any imbalances in the economy. The supply side economists belives in increasing capital and reducing taxes to influence supply of the economy.
1. The conventional view of the war believes that the war will increase the demand for goods and services, as troops will need, food, clothing, transportation and other goods and services. This boost increased aggregate demand through increased in consumption and pulled the economy out of recession.
2. At the beginning of the war, the anticipation about the effect on the economy was a supply side view. This is because, the war increases the price of oil, increases the price of capital and decreases the supply of good. During this time the manufacturing was not the main sector for production, therefore, increase in demand through increase in demand for manufacturing good was limited. This is because, increase in production in manufacturing sector have little effet in aggregate demand.
3. The government does not take into account the effect of war before going to a war, because war is a political decision and srtictly consider the secuirity of its citizen. Thats why even though the war can prove costly, the US perticipated in Gulf war.

Capitalism is a form of economic system and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state. The goods and services are distributed by the price mechanism.

The following are the pros/goods of capitalism:

1) DECENTRALIZED ECONOMIC SYSTEM

As their is no or minimal government intervention the market runs in a competitive setup. People are more open to lots more options in business. As such, they are exposed to competition and need to overcome challenges just to stay in the market. As a result of having open competition in the market, capitalism then encourages economic growth.

2) PROVIDES A CERTAIN LEVEL OF FREEDOM

The government doesn’t intervene when it comes to the pricing of goods or in its production for private firms. The prices that are set depend on demand and supply. Also, in a capitalist economy, people have the right to own private property. Not only that, they also have the freedom to choose which type of work they want. This freedom extends to selecting one’s education, as well as religious or political influences.

3) EFFICIENCY

Firms in a capitalist based society face incentives to be efficient and produce goods which are in demand. These incentives create the pressures to cut costs and avoid waste whereas state owned firms often tend to be more inefficient.

4) ECONOMIC GROWTH

With firms and individuals facing incentives to be innovative and work hard this creates a climate of innovation and economic expansion. This helps to increase real GDP and lead to improved living standards. This increased wealth, enables a higher standard of living; in theory, everyone can benefit from this increased wealth, and there is a ‘trickle down effect‘ from rich to poor.

5) POLITICAL FREEDOM

Political freedom arises due to economic freedom in a capitalist economy. If governments own the means of production and set prices, it invariably leads to a powerful state and creates a large bureaucracy which may extend into other areas of life.

The following are the cons/bads of a capitalist economy:

1) INEQUALITY

Capitalism divides the masses into business class and those working for them, this leads to differnce in the wealth earned and leads to inequality. Societies which are highly unequal create resentment and social division.

2) INGNORANCE OF SOCIAL BENEFIT

A capitalist economy is driven solely by profit motive, it aims to maximize the profit. The philanthropist aspect is ignored and the gap between the 'haves' and 'have nots' tends to increase.

3) MONOPOLY POWER

Private ownership of capital enables firms to gain monopoly power in product and labour markets. Firms with monopoly power can exploit their position to charge higher prices.

4) MONOPSONY POWER

Firms with monopsony power can pay lower wages to workers. In capitalist societies, there is often great inequality between the owners of capital and those who work for firms.

5) LESSENS NEED FOR MANPOWER

Increased competition results in the need for rapid development. So high importance is put on technology. It implies that businesses tend to rely on automation more than they do humans. As a result, lots of people would lose their jobs to machines.