Theoreticians and politicians have put great emphasis on the ability of the capitalism to promote economic growth, as measured by Gross Domestic Product (GDP) and quality of life. This argument was central, at the proposal of Adam Smith to let the free market control production levels and price, and distribute resources.
So, they claim that the rapid and consistent growth of global economic indicators since the industrial revolution, is due to the rise of modern capitalism. Although measurements are not identical, those in favor argue that increasing GDP (per capita) has shown in practice an improvement in the quality of life of people, as well as better availability of food, housing, clothing, medical care, reduced working hours, and freedom of work for children and the elderly.
They also claim that a capitalist economy offers more opportunities for individuals to increase their income through new professions or businesses than other forms of economy for example in feudal, wild or socialist societies. Defenders of capitalism including Adam Smith, Benjamin Franklin and the most modern Ludwig von Mises and Friedrich Hayek who claim that this system can organise itself as a complex system without a mechanism of external guidance or planning. This phenomenon is called laissez faire. In a process of this type the search for profits is the most important point. From transactions between buyers and sellers a price system emerges, and prices emerge as a sign of what emergencies and unmet needs of people are. The promise of profits gives entrepreneurs the encouragement to use their knowledge and resources to meet those needs. So that the activities of millions of people, each seeking his own interest, are coordinated and complement each other to achieve a particular purpose.
This coordination system, shown as decentralised, is contemplated by the defenders of capitalism as one of its greatest strengths. Their argument is that it allows testing many solutions, also they say that the competition that exists in the real world, usually finds a good response to the challenges presented to it. They describe that central planning often selects inappropriate solutions as a result of wrong predictions. However, in all existing modern economies, the state leads to some degree of centralised planning of the economy (using such tools, such as allowing the central bank to set the base interest rates), obviously in an effort to improve efficiency, reduce cyclical instability, and look for specific social benefits.
Some advocates of capitalism who follow the Austrian School of Economics, object that even this limited control creates inefficiencies, because long-term activities cannot be predicted in the economy. From the Monetarist School, economist Milton Friedman argued that the Great Depression of the 1930s was caused by the Federal Reserve wrong US policies.
Original source: http://www.eumed.net
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