Capitalism Beyond the Crisis

Topics: Economics, Capitalism, Unemployment Pages: 6 (1988 words) Published: February 23, 2014
Name: Shiza Shafiq
Roll Number: 2017-10-0073
Instructor: Farah Shahid Hassan
Student Identifier: 3G
Recitation Section: 1

Amartya Sen, in his article ‘Capitalism Beyond the Crisis’, discusses about the misunderstanding of the concept of capitalism. Secondly, he points out whether there is a need for a ‘new capitalism’ after the financial crisis of 2008 or not, but more importantly, whether there is a need to change the organisation of the society or if a whole new system of economics is required so the way things operate are based on broader concepts such as ethics and social values rather than simple profit maximisation. This article also brings its readers to ponder on the major requirements of an economic system that would suit the current situation of the world and the long terms changes needed in order to get out of the crisis now and to avoid any other financial crises in the future. However, Sen points out, before any of it is done, it is crucial to understand whether our current economic system is truly capitalist and what are the main characteristics of a capitalist system. He points out flaws in the system and what contributed to the crisis. The article focuses on the earlier theories of Adam Smith, Keynes, Pigou and of other big names in Economics, their relevance to the current economic system and how these theories can be used to figure out a more sustainable way for everyday economics. The misunderstanding of certain theories has also been indicated by the author. There is a great focus on Adam Smith’s invisible hand and how that does not solely rely on economic transactions based on profit and loss. The idea of social welfare and how it so severely affects market economies is also a major concept addressed in the article. Sen explains the main ideas of Adam Smith about free trade and market economy that turned into what was later referred to as capitalism. The author agrees with Smith that economic transactions can also work on trust rather than being singularly based on self-interest. This, however, does not work all the time because if people lose trust, the market would freeze and the whole concept fails. The main argument that Sen proposes is that ‘the most immediate failure of the market mechanism lies in the things that the market leaves undone.’ This majorly includes the social welfare. Smith was a great supporter of private trade but never stopped the government to help promote public well-being specially by creating more job opportunities and poverty relief schemes. Sen agrees with Smith when he points out the need of non-profit institutions to help provide social welfare rather than solely depending on market economy. A very crucial point that Sen argues about is that the capitalism requires moral and legal responsibilities to be taken into account and constantly administered which has not been practiced and has had a severe effect on the economy, including the 2008 crisis. He says that the actions of ‘prodigals and projectors’, ignored by The Invisible Hand theory are one of the major reasons of the economic crisis because the extent of its impact was not considered by economists. Also, the crisis has exponentially increased due to the lack of trust of people in businesses.

Sen also believes that the revival of theories of early economists such as Keynes and Pigou can help bring about a change in the economic system. Though these two were rivals and have very different theories, according to Sen, an integrated version of the theories can be useful. Keynes’ multiplier effect of reduced incomes can be related to the psychological pessimism. If there is mistrust in an economy, it freezes, and even if every other factor goes perfectly fine, unless the trust in the economy is built again, it cannot flourish because mistrust of one group leads to lesser demand and that slows other businesses down and the chain effect continues. There is an exponential...
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