CAPITALISM ECONOMY

Capitalism is an economic system in which capital goods are owned by private individuals or
business partners. It is the oldest type of economy in the world . The purest form of capitalism is
free market or laissez-faire capitalism, in which private individuals are free to determine where to
invest, what to produce or sell, and at which prices to exchange goods and services. Most modern
countries practice a highly regulated and mixed capitalist system . Private property rights are
very important in capitalism. For individuals or businesses to deploy their capital goods
confidently, a system must exist that protects their legal right to own or transfer private property.
To facilitate and enforce private property rights, capitalist societies tend to rely on contracts, fair
dealing and tort law.Profits are closely associated with the concept of private property. By
definition, an individual only enters into a voluntary exchange of private property when he
believes the exchange benefits him in some psychic or material way. In such trades, each party
gains extra subjective value, or profit, from the transaction. A capitalist earns the highest profit
by using capital goods most efficiently while producing the highest value good or service. In this
system, value is transmitted through those prices at which another individual voluntarily
purchases the capitalist's good or service. Profits are an indication that less valuable inputs have
been transformed into more valuable outputs. By contrast, the capitalist suffers losses when
capital resources are not used efficiently and instead create less valuable outputs. This type of
economy is also known as free market economy.

The main merits of this system are:

(i) Economic Freedom:

The foremost advantage of this system is that everybody enjoys economic freedom as one can
spend ones income according to ones wishes. Producers have complete freedom to invest in any
business or trade.

(ii) Automatic Working:

Another advantage according to classical economists is an automatic system. Equilibrium point is

automatically come with the forces of demand and supply.
(iii) Variety of Goods and Services:

All the basic decisions of what to produce, how to produce and for whom to produce are taken by
producers. Every producer gives attention to consumers taste and preferences . Hence, there are
large variety of goods and services; produced in the economy.
iv) Optimum Use of Resources:

All natural resources are used to their optimum level as production is undertaken with a sole
purpose: of earning profit and no scope for wastages at all.

Demerits of Capitalistic System:

According to Karl Marx, Capitalism contains the seeds of its own destruction.

The main demerits of this system are given below:

(i) Labour Exploitation:

The main defect of capitalism is the exploitation of labour. Labourers get less wages in comparison
to their working hours. The wages less than their marginal productivity are not sufficient for their
livelihood.

(ii) Class Struggle:

A lions share of income and resources is controlled by the upper sections of the society, while
others remain deprived of the basic amenities of life. Thus, the entire society is divided between
haves and have nots. Hence, the continuous class struggle spoils the health environment of the
economy.

(iii) Wasteful Competition:

Capitalism is a wasteful competition. A lot of money is spent on advertisement and publicity for
pushing the sale of the commodity. Its burden ultimately is borne by the poor consumers in the form
of increased price.

MIXED ECONOMY

Mixed economy is that economy in which both government and private individuals
exercise economic control. Murad.

A mixed economy system shows the traits of both capitalism and socialism economy. Socialism is a
populist economic and political system in which the means of production operate under public
political ownership, sometimes called common ownership. Mixed economic system protects private
property and allows a level of economic freedom in the use of capital, but also allows for
governments to interfere in economic activities in order to achieve social aims. According to
neoclassical theory, mixed economies are less efficient than pure free markets, but proponents of
government interventions argue that the base conditioned rational market participants cannot be
achieved in practical application. Mixed economic systems do not block the private sector from
profit-seeking as we know , but do monitor profit levels and may nationalise companies that are
deemed impediments to the public good. The United States is mostly a free market economy, but it
incorporates elements such as protection for agriculture and manufacturing by through trade
restrictions and subsidies. This makes the United States a mixed economy by definition.
Main Features of Mixed Economy:

Mixed economy has following main features:

(i) Co-existence of Private and Public Sector:

Under this system there is co-existence of public and private sectors. In public sector, industries like
defence, power, energy, basic industries etc., are set up. On the other hand, in private sector all the
consumer goods industries, agriculture, small-scale industries are developed. The government
encourages both the sectors to develop simultaneously.

(ii) Personal Freedom:

Under mixed economy, there is full freedom of choice of occupation, although consumer does not
get complete liberty but at the same time government can regulate prices in public interest through
public distribution system

(iii) Private Property is allowed:

In mixed economy, private property is allowed. However, here it must be remembered that there
must be equal distribution of wealth and income. It must be ensured that the profit and property may
not concentrate in a few pockets.

(iv) Economic Planning:

In a mixed economy, government always tries to promote economic development of the country.
For this purpose, economic planning is adopted. Thus, economic planning is very essential under
this system.

(v) Price Mechanism and Controlled Price:

Under this system, price mechanism and regulated price operate simultaneously. In consumer goods
industries price mechanism is generally followed. However, at the time of big shortages or during
national emergencies prices are controlled and public distribution system has to be made effective.
(vi) Profit Motive and Social Welfare:
In mixed economy system, there are both profit motive like capitalism and social welfare as in
socialist economy.

(vii) Check on Economic Inequalities:

In this system, government takes several measures to reduce the gap between rich and poor through
progressive taxation on income and wealth. The subsidies are given to the poor people and also job
opportunities are provided to them. Other steps like concessions, old age pension, free medical
facilities and free education are also taken to improve the standard of poor people. Hence, all these
help to reduce economic inequalities.

(viii) Control of Monopoly Power:

Under this system, government takes huge initiatives to control monopoly practices among the
private entrepreneurs through effective legislative measures. Besides, government can also fake
over these services in the public interest.

DEMERITS
The main demerits of mixed economy are as follows:
(i) Un-stability:

Some economists claim that mixed economy is most unstable in nature. The public sector gets
maximum benefits whereas private sector remains controlled.

(ii) Ineffectiveness of Sectors:

Under this system, both the sectors are ineffective in nature. The private sector does not get full
freedom, hence it becomes ineffective. This leads to ineffectiveness among the public sector. In true
sense, both sectors are not only competitive but also complementary in nature.

(iii) Inefficient Planning:

There are no such comprehensive planning in mixed economy. As a result, a large sector of the
economy remains outside the control of the government.

(iv) Lack of Efficiency:

In this system, both sectors suffer due to lack of efficiency. In public sector it is so because
government employees do not perform their duty with responsibility, while in private sector,
efficiency goes down because government imposes too many restrictions in the form of control,
permits and licenses, etc.
 INDIA AND CAPITALIST ECONOMY

MUGHALS
The chances of Mughal economy being capitalist economy are given by Prof. Irfan Habib in his
book Essays of Indian History. He has followed Marxs conception of Capitalist economy. He has
also said, as there were no machines and existence of complex economy was not present, the
concept of Capitalism during Mughal period becomes narrow. Prof. Habib talks about the
agricultural factor first and says In per capita agricultural productivity Mughal India was not in any
way backward when compared with other contemporary societies, including those of Western
Europe.1 He compares situations of West Europe to that of situations in India. Prof Habib has
explained possibilities of existence of Capitalism through analysing land revenue system during the
Mughal era, relationship between Zamindars and peasants, rise of population about which he has
said based on data, it can be concluded that Indian economy had achieved a considerable expansion
of its urban sector during the Mughal period. In both agricultural and non-agricultural production,
production of the market formed a very large sector. In handicrafts, merchant capital had developed
considerably and had brought artisans under control. But the manufactory as an established form
was yet largely outside the sphere of commodity production. Capital was by and large merchant
capital, and though the economy was fairly monetised, domestic industry still predominated. Hence,
there are some similarities between Capitalism as known during Industrial revolution and Mughal
economy. But Mughal economy was not a completely Capitalist economy.

BRITISH INDIA
After stabilising their power on Indian territory, British started the process to transform Indian
economy into a colonial economy. Under the colonial economy, British changed the land revenue
system of India along with revamping Indian indigenous industries. There was a process of
deindustrialization under which British practically destroyed the village and town handicraft
industries. This gave rise to poverty and unemployment in India. Once the transformation was
done and Mercantilist economy was established, British increased Foreign Capital of the country
and introduced modern industries in India.
This step was taken due to the Industrial Revolution taking place in England at that
point of time. India could not be kept aloof for a long time from a world system of Capitalism. In

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 terms of chronology, the plantation industries of indigo, tea and coffee were the first to be
introduced in India. They were exclusively European in ownership. The coming of railways
heralded the entry of modern machines in India and during the 1850s cotton textiles, jute, and
coal mining industries were started in India. Thus, the establishment of modern capitalist
industries began in India during the second half of the nineteenth century. In 1911 the first Indian
steel mill was built by the Tata Company at Jamshedpur in Bihar. In 1931, over four million
workers were employed in the perennial and seasonal factories, the mines and railways in India.
When it comes to India, there is a clearly a debate about the origin of Capitalism. The point of
debate are that if the components of Capitalism existed during Mughal economy or it was
brought forward only during the time of British. If the revenue system, trade system, market
system and handicraft system are alone considered then it is not exaggeration to say small
components of Capitalist systems could have been present even before the Mughal times. During
the Mauryan or Gupta age, which is actually called as Golden Age of India, all the systems
mentioned above were well developed and both the empires even had strong monetary system.
Hence, I dont think it was only during the Mughal period that seeds of Capitalism can be found
in India. They can be found much earlier. As far as Mughal economy is considered, there were
factors supporting capitalism as well as factors which were completely against the basic
principles of Capitalism. For instance, Free Trade or Laissez-faire as it is called today, did not
exist during Mughal Period. It was introduced only during the Mercantilist phase and Capitalist
phase of British India. Hence, to call Mughal economy as would be capitalist economy would
also be far-fetched as there was no direct contact between the King and peasants and it was more
of a Jajmani kind of a society and economy, especially during the period of Aurangzeb.
Hence, it can be said that, true Capitalism, in its Marxian and Adam Smiths form could be found
only during the time of British India.

INDIA AND MIXED ECONOMY

From the day India got its independence , India is following mixed economy. In a mixed
economy, private and public sectors go side by side. The government directs economic activity in
some socially important areas of the economy, the rest being left to the price mechanism to
operate.

Before Independence, Indian economy was a laissez faire economy. But post-independence, she
adopted the mixed economy system.
Thus, it is clear from the following arguments that our economy is a mixed economy.
(i) Coexistence of Public and Private Sectors:
The coexistence of large public sector with big private sector has transformed the economy into a
mixed one. Industrial policies of 1948 and 1956 formulated by the Indian government have made
the provision of such coexistence. Some basic and heavy industries are being run under the public
sector. However, with the liberalisation of Indian economy, the scope of private sector has further
enhanced.

(ii) Planned Development:

India had a poor industrial base at the time of Independence. A long period of economic stagnation
under British rule had weakened the Indian Economy. Hence 5-year plans have been adjusted along
with the Directive Principles of State Policy to rebuild the rural economy and lay foundations of
industrial and scientific progress.

(iii) Plan Objectives:

In 1951, Five Year Plan was started in India and we are going with the eleventh Five Year Plan.

The basic objectives of these plans are summarised as:

(a) Economic growth;
(b) Modernisation;
(c) Self-reliance;
(d) Social justice;
(e) Elimination of Poverty;
(f) Creation of conditions of near full employment; and
(g) Satisfaction of basic needs like food, clothing, shelter, education health etc.

(iv) Role of Public Sector:

It has played an important role in the development of Indian economy. It increased the pace of
economic growth and reduced disparities of income and wealth It seriously acts in the following
areas, like:
(a) Development of infrastructure;
(b) Establishment of basic and heavy industries;
(c) Dispersing industries in several backward regions; and
(d) Imperative role in trading and marketing activities, including international trade.

(v) Private Sector:

It includes not only organised industry, but agriculture, small industry, trade and great deal of
activity in housing and construction. Private sector provides employment to three-fourths of| our
manpower. To control the private industrial units. Industries Development and Regulation! Act and
Monopolies and Restrictive Trade Practices Act are already set up in India.

(vi) Combination between Public and Private Sector:

The second Five Year Plan and pointed out that both the sectors have to function jointly. In fact a
high level of public investment it infrastructures and key industries is a1 precondition for
development in the private sector.

NEXUS BETWEEN CAPITALIST AND MIXED ECONOMY

When we see the nexus between these two economics , we observe that there are more differences
than similarities .
DIFFERENCES -

CAPITALIST ECONOMY MIXED ECONOMY

Capitalist economy started its Mixed economy is combination of

journey much earlier. capitalism with state control

Capitalism provides an opportunity Mixed economy provides

for private ownership of wealth opportunity for private ownership
in certain sectors.

Capitalism leads to clashes Mixed economy has lesser clashes

between the industrialists and on the mentioned account
worker class.

Capitalism aims at PROFIT Mixed economy aims at welfare of

society

example - USA example - INDIA

SIMILARITIES -
Both are jargons related to market condition
Both have equal importance framing policy on industry by any country

CONCLUSION