Capitalism and current trends

In what follows, I will be talking briefly about the history of capitalism (a theoretical basic approach), what it is and finally some current trends.


History


The capitalist system has around 250 years. It has started with the Industrial Revolution in Great Britain, when there was a big step in production, by automatization. The fact that production was greater than consumption and that there was a necessity of raw materials, led to exports of surplus and imports of deficit.

In 1776, Adam Smith saw the need for trade and global markets, in order to keep a certain type of dynamism in production. About a century later (1866), Karl Marx defined the world as an ocean of products, claiming that there already existed a global market. In 1936, John Keynes stated that the capitalist system was in crisis, as there was not enough demand for the production back then. That was because capitalism offered the biggest capacity of production that the world had ever seen.

Characteristics of capitalism


The two main tenets of capitalism are competition and markets. First of all, there is competition between the firms, which determines a certain dance between them. What this implies (as a novelty to prior currents) is that labour is yet another asset that is sold and bought, its price being the salary. Second of all, markets are the main mechanism of capitalism. It is where products are sold and bought, where prices are set and where finally it is decided what to produce and what not to produce; what can be bought will be produced.

The question now pending is why is it important to study capitalism? Well, because most of the countries have this system and the ones that don't, trade with the ones that do have it. In order to study its evolution, I will be developing on trade, finance and production, which are its main drivers.

Trade


As far as trade goes, I will stick to a very basic description of it. I will be developing more on its importance in future posts on my blog. For the moment being, I will describe it as the exchange of goods and services. Somebody buys products cheaply and then sells them at a higher price. It becomes international when there are imports and exports to other countries.

Finance


Financing allows people that have financial resources to borrow to the ones that are in need of them. This way, it is possible to produce and consume. If trading is done without resources, it will be just an economic activity. Finally, it becomes international when the financial source is international (loans, bonds) etc.

Production


Production refers to the process of buying raw materials and turning them into something more complex. However, in order to obtain profits, firms need to go outside their domestic countries. This way, they can take advantage of cheaper labour, transportation costs, legal barriers and others.

Trends


Internationalization


The three drivers of evolution previously described (trade, finance and production) obey to this trend. They become more and more international, which is why I developed a little bit on them.

Cyclical Evolution


The economy has a cyclical evolution. That is to say, it obeys to the following stages: growth, detachment, recession and recovery.

Business concentration


This trend is centered around the idea that there are fewer firms and a lot bigger. This happens through mergers, acquisitions, agreements etc.

On the basis of the previously explained, I will continue with further topics that I will be analysing in more depth.