In the post depression period of Thirties and Second World War, price mechanism process has undergone rapid changes. The invisible hand mechanism which manifest that everyone working his own interest with his utmost ability that creates the best in the society. In this system producers produce the best as for as they can and maximise profit. Consumers are there to maximise their satisfaction.
Thus this invisible hand mechanism automatically creates a situation for maximisation of benefits for all concerned. Such a system determines what to produce, how to produce and for whom to produce. But after great depression capitalism has changed its face.
It is now regulated capitalism all over; government controls the system to reduce the fluctuations of business cycle and other unusual situation which destroys the people interest. The government also makes detailed arrangement for labour welfare, protection of consumers, a vigilant judiciary and create several regulatory bodies to make the system accountable to the common people.
The deregulated capitalism suffers from various malpractices.
Firstly, they are open to cyclical fluctuations in which government has limited control. The cyclical fluctuations do much damage to the smooth functioning of economic system.
Secondly, the society is divided between two classes one is capitalist and other is labour, the proleteriat class. They produce enough but they are paid very limited wages. The difference between the value of what they produce and what they actually get is the surplus value. This surplus value in a deregulated capitalism is maximum.
This also makes rate of exploitation higher. These two classes according to Marx have a relationship of enmity. The class conflicts always remain these owing to clash of interest. Marx concluded this class struggle will give rise to revolution by the proletariat classes. This will ultimately lead to overthrow of capitalism and establishment of the dictatorship of the proletariat.
Marxian analysis suffers from generalisation. But his analysis of attributes and features of capitalism points out the major crisis of capitalism that has been reflected in the Great Depression. Capitalism provides a situation of class conflict, hatred, disequilibrium, unequal distribution of power.
Strikes, lockouts and cyclical fluctuations are regular features of capitalism. Capitalism gave birth to a society which is unjust and in egalitarian. Capitalism had to make an adjustment for its existence with government’s presence in all relevant aspects of the economy. Modern version of capitalism is a form of mixed economy. This version now exists all over the world.
A popular belief in that in the capitalism consumer is the king. The arguments which are given in favour of this proposition are as follows:
The purpose of all productive activities in capitalism is to sell all the products that which is produced. The money income of the products comes from the price paid by the consumer. Hence producers try to produce and bring them in the market which produces maximum satisfaction of the consumers. It is the consumers choice, as shown by his expenditure determines what will be produced. So he is the king, enjoys sovereignty.
In real life, so called consumer’s sovereignty is limited by the following factors:
1. Technological bottlenecks prevent producers from producing some commodities highly wanted by consumers.
2. The state in many cases controls the consumption limit of certain goods through rationing over production and to ensure equitable distribution among consumers.
3. Monopoly elements curtail the liberty of the consumer.
4. The sellers can influence the consumer’s choice through advertisement and clever salesmanship. This influencing hampers the spirit of competitive marketing, which is a unique feature of competitive and classical capitalism.
5. The market system, the decision making process is entirely with the hands of the producers. So it is their decision what to be produced where people’s, interest may be neglected. Thus consumer’s sovereignty though is theoretically sound, yet it is not practically always true.
The consumer’s sovereignty is applicable only in a buyer’s society, where there is relative abundance of goods. The modern stage of the society in advanced countries in last three decades though conforms to those realities, which three hundred years of history of capitalism has not produced. James Meade the Nobel laureate economist says consumer’s choice in not perfect.
Because they suffer from lack of information regarding the availability of different range of commodities in the market. Even if the goods are available but consumer’s decisions are influenced by the seller’s propaganda. Thus we see in a capitalist society many doctrines are far from reality.
The invisible hand mechanism which had featured as one of the key features of capitalism and was a part of public policy suffered a serious setback in the thirties during great depression. Every economy in the world had to go for a sincere government’s intervention in order to maintain the stability of economic system and to increase the demand base of the economy.
Thus, capitalism has assumed a new shape with a lot of control where market mechanism process does not completely hold good.
Market mechanism process does not correct automatically the imbalances of supply and demand. Government intervention, externalities and other considerations play crucial role in price determination process. Thus many problems and contradictions of crude capitalism has changed the face of capitalist process.
The capitalism has compromised to a great extent. Now it has embraced mixed economy where the edge of crude capitalism has reduced and it is endevouring after to establish a stable society, with more concessions to proletariat classes, common people.
The several regulatory bodies are trying to establish equilibrium, but cyclical fluctuations remain very much as a part of the society. There are several rules which try to protect the society offering justice and establishing rule of law, by the judicial system.
The lack of adequate demand still gives rise to recessionary conditions. To sell their products enterprises have to go for foreign markets to sell their commodities. Surplus or unused capital tries to find market elsewhere in the present age of globalisation.
It is a matter of fact that, capitalism has given birth to a vast wealth and richness. But it has also dealt with its junior trading partner in an exploitative manner, in the question of trade and other economic consideration.
Internally capitalist country inspite of its instability through cyclical fluctuations enjoys fairly large degree of prosperity. Its people also enjoy a high level of prosperity with a satisfactory level of quality of life and human development index.
The history of civilisation tried to find another stage of social life with a lesser degree of uncertainty and instability in the socialist system. But due to lack of proper direction, impractical decision making, an inadequate price mechanism system, paucity of capital and investible resources many socialist countries have suffered from inadequacies.
As a result, in spite of the attainment of excellent socioeconomic conditions, the soviet system collapsed after seventy years of experiment and China was able to do economic miracles and one of the highest GNP growing economies after she created the conditions suitable for growth of capital from late seventies.