Political Economy

Capitalism requires government oversight to ensure stability and the public good.

Capitalism is defined as an economic system whereby the possession and investment of the factors of production, exchange of wealth and distribution depends mainly upon private individuals and corporations (Coulter, 2013). Its main characteristic is the free and competitive environment in which capitalists manage or operate their property for profit. Capitalism can manifest in different forms depending on the role of government and community (Adler, 2013). For the sake of argument, this essay would classify capitalism as a “cooperative economy” whereby the role of community is strong and the role of government is weak.  In order to ensure public good and prolonged stability, it is imperative that the society is able to achieve low and stable inflation rates, high employment, national output, stable inflation and economic growth (Bernanke & Olekalns 2008).

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(Figure 1)

According to figure 1, it can be seen that the downward shift of the AS curve achieve the aforementioned goals. Constituents of capitalism such as the freedom of movement of capital, labour and goods and services and the invisible hand increases AS by harnessing efficiency, productivity and innovation (Bernanke & Olekalns 2008). Hutton (2011) asserts that capitalism enable free markets that allow investments in social, physical and knowledge assets, such as roads, science and stronger families. Furthermore, through the provision of a conducive and meritocratic environment, capitalism also encourages the growth of productive entrepreneurs. Hence, increasing AS. Hutton (2011) defined this form of capitalism as good capitalism (GC) and serves as the fundamental form and purpose of capitalism. In essence, to achieve public good and stability, GC has to be the basis of any market system. This is where the role of government lies as it has the ability and resources to develop an environment for GC to flourish. This essay would explain and analyse the role which government could take in facilitating GC. The role consists of maintaining law and order, provision of public goods, enacting policies and regulation of financial crisis and neo-liberalism. Lastly, this essay would investigate the importance of government oversight using relevant examples.