Differentiate Socialism, Capitalism

and Mercantilism. Which is applicable

in the Philippines?

Christian Ian P. Lim

BPS 4-1

Prof. Dumogho
Socialism
Socialism is an economic system characterized by social ownership and cooperative
management of the means of production, and a political philosophy advocating such a system.
"Social ownership" may refer to cooperative enterprises, common ownership, direct public
ownership or autonomous state enterprises. There are many varieties of socialism and there is no
single definition encapsulating all of them. They differ in the type of social ownership they
advocate, the degree to which they rely on markets versus planning, how management is to be
organized within economic enterprises, and the role of the state in constructing socialism.

A socialist economic system would consist of an organization of production to directly satisfy

economic demands and human needs, so that goods and services would be produced directly for
use instead of for private profit driven by the accumulation of capital, and accounting would be
based on physical quantities, a common physical magnitude, or a direct measure of labour-time.
Distribution of output would be based on the principle of individual contribution.

As a political movement, socialism includes a diverse array of political philosophies, ranging

from reformism to revolutionary socialism. Proponents of state socialism advocate the
nationalization of the means of production, distribution and exchange as a strategy for
implementing socialism. Libertarian socialism proposes the traditional view of direct worker's
control of the means of production and opposes the use of state power to achieve such an
arrangement, opposing both parliamentary politics and state ownership over the means of
production. Democratic socialism seeks to establish socialism through democratic processes and
propagate its ideals within the context of a democratic system.

Modern socialism originated from an 18th-century intellectual and working class political
movement that criticized the effects of industrialization and private property on society. In the
early 19th-century, "socialism" referred to any concern for the social problems of capitalism
regardless of the solution. However, by the late 19th-century, "socialism" had come to signify
opposition to capitalism and advocacy of an alternative system based on some form of social
ownership. Utopian socialists such as Robert Owen (1771–1858) tried to found self-sustaining
communes by secession from a capitalist society. Socialists inspired by the Soviet model of
economic development, such as Marxist-Leninists, have advocated the creation of centrally
planned economies directed by a single-party state that owns the means of production.
Yugoslavian, Hungarian, East German and Chinese communist governments have instituted
various forms of market socialism, combining co-operative and state ownership models with the
free market exchange and free price system (but not free prices for the means of production).
Capitalism
Capitalism is an economic system that is based on private ownership of the means of production
and the creation of goods or services for profit. Other elements central to capitalism include
Competitive markets, wage labor and capital accumulation. There are multiple variants of
capitalism, including laissez-faire, welfare capitalism and state capitalism. Capitalism is
considered to have been applied in a variety of historical cases, varying in time, geography,
politics, and culture. There is general agreement that capitalism became dominant in the Western
world following the demise of feudalism. Competitive markets may also be found in market
alternatives to Capitalism such as market socialism and co-operative economics.

Economists, political economists and historians have taken different perspectives on the analysis
of capitalism. Economists usually emphasize the degree to which government does not have
control over markets (laissez faire), as well as the importance of property rights. Most political
economists emphasize private property as well, in addition to power relations, wage labor, class,
and the uniqueness of capitalism as a historical formation. The extent to which different markets
are free, as well as the rules defining private property, is a matter of politics and policy. Many
states have what are termed mixed economies, referring to the varying degree of planned and
market-driven elements in a state's economic system. A number of political ideologies have
emerged in support of various types of capitalism, the most prominent being economic
liberalism.

The term capitalism gradually spread throughout the Western world in the 19th and 20th
centuries largely through the writings of Karl Marx.

Economic elements
Capitalist economics developed out of the interactions of the following elements.
A product is any good produced for exchange on a market. "Commodities" refers to standard
products, especially raw materials such as grains and metals, that are not associated with
particular producers or brands and trade on organized exchanges.
There are two types of products:
a. capital goods and
b. consumer goods.

Capital goods (i.e., raw materials, tools, industrial machines, vehicles and factories) are used to
produce consumer goods (e.g., televisions, cars, computers, houses) to be sold to others.
The three inputs required for production are:
a. labor,
b. land (i.e., natural resources, which exist prior to human beings) and
c. capital goods.
Capitalism entails the private ownership of the latter two — natural resources and capital goods
— by a class of owners called capitalists, either individually, collectively or through a state
apparatus that operates for a profit or serves the interests of capital owners.

Mercantilism
Mercantilism is the economic doctrine that government control of foreign trade is of paramount
importance for ensuring the prosperity and military security of the state. In particular, it demands
a positive balance of trade. Mercantilism dominated Western European economic policy and
discourse from the 16th to late-18th centuries. Mercantilism was a cause of frequent European
wars in that time and motivated colonial expansion. Mercantilist theory varied in sophistication
from one writer to another and evolved over time. Favors for powerful interests were often
defended with mercantilist reasoning.

High tariffs, especially on manufactured goods, are an almost universal feature of mercantilist
policy. Other policies have included:
a. Building a network of overseas colonies;
b. Forbidding colonies to trade with other nations;
c. Monopolizing markets with staple ports;
d. Banning the export of gold and silver, even for payments;
e. Forbidding trade to be carried in foreign ships;
g. Export subsidies;
h. Promoting manufacturing with research or direct subsidies;
i. Limiting wages;
j. Maximizing the use of domestic resources;
k. Restricting domestic consumption with non-tariff barriers to trade.

Jean-Baptiste Colbert's work in seventeenth century France exemplified classical mercantilism.

In the English-speaking world its ideas were criticized by Adam Smith with the publication of
The Wealth of Nations in 1776 and later David Ricardo with his explanation of comparative
advantage. Mercantilism was rejected by Britain and France by the mid-19th century. The British
Empire embraced free-trade and used its power as the financial center of the world to promote
the same. The historian Walter Rodney describes mercantilism as the period of the world-wide
development of European commerce, which began in the fifteenth century with the voyages of
Portuguese and Spanish sailors to Africa, Asia and the New World, which meant for Africa the
beginning of the terrible experience of the Atlantic slave trade.

Neomercantilism is a 20th century economic policy that uses the ideas and methods of
neoclassical economics. The new mercantilism has different goals and focuses on more rapid
economic growth based on advanced technology. It promotes such policies as substitution state
taxing, subsidizing, spending, and general regulatory powers for tariffs and quotas, and
protection through the formation of supranational trading blocs.

Mercantilism in its simplest form was naive bullionism, but mercantilist writers emphasized the
circulation of money and rejected hoarding. Their emphasis on monetary metals accords with
current ideas regarding the money supply, such as the stimulative effect of a growing money
supply. Specie concerns have since been rendered moot by fiat money and floating exchange
rates. In time, the heavy emphasis on money was supplanted by industrial policy, accompanied
by a shift in focus from the capacity to carry on wars to promoting general prosperity. Mature
neomercantilist theory recommends selective high tariffs for "infant" industries or to promote the
mutual growth of countries through national industrial specialization. Currently, advocacy of
mercantilist methods for maintaining high wages in advanced economies are popular among
workers in those economies, but such ideas are rejected by most policymakers and economists.

Which is Applicable in the Philippines?

The applicable in the Philippines is the Capitalism. Capitalism would be the appropriate type of
Economy that what we have. Market Economy ("hands off" systems, such as Laissez-faire
capitalism)
An individual or Consumer based Economic System that relies on the consumption choices of
consumers. Ex. USA, Japan, and any capitalist economy.

The type of economy that the United States has and these questions are answered in the
marketplace by the interaction of buyers and sellers. For example, the question of what to
produce may be based on what trend is popular right now. The producer would create a product
that they think would sell well to the public in hopes to make a profit. The question of how to
produce is usually based on the producer's choice. They might decide to produce a product with
more workers or they might decide to produce it more with machines and computers to save on
labor costs. The question involving for whom to produce is based on the buyer who decides what
they want or need and what price they are willing to pay for it.

A market economy is great for motivating workers to work harder because they are only paid
based on what they do. A worker can increase their income or profit by working harder and this
chance to profit motivates them.

A market economy is an economy in which decisions regarding investment, production and

distribution are based on supply and demand and the prices of goods and services are determined
in a free price system. This is contrasted with a planned economy, where investment and
production decisions are embodied in a plan of production. Market economies can range from
 hypothetical laissez-faire and free market variants to regulated markets and interventionist
variants. Most existing market economies include a degree of economic planning or state-
directed activity and are thus classified as mixed economies.
In the real world, market economies do not exist in pure form, as societies and governments
regulate them to varying degrees rather than allow full self-regulation by market forces. The term
free-market economy is sometimes used synonymously with market economy, but, as Ludwig
Erhard once pointed out, this does not preclude an economy from providing various social
welfare programs such as unemployment benefits, as in the case of the social market economy.

The central thought of this system is that it should be the producers and consumers who decide
how to utilise the resources. Thus, the market forces decide what to produce, how much to
produce and for whom to produce.
Features
 All resources are privately owned by people and firms.
 Profit is the main motive of all businesses.
 There is no government interference in the business activities.
 Producers are free to produce what they want, how much they want and for whom they
want to produce.
 Consumers are free to choose.
 Prices are decided by the Price mechanism i.e. the demand and supply of the
good/service.

Advantages
 Free market responds quickly to the people’s wants: Thus, firms will produce what
people want because it is more profitable whereas anything which is not demanded will be taken
out of production.
 Wide Variety of goods and services: There will be wide variety of goods and services
available in the market to suit everybody’s taste.
 Efficient use of resources encouraged: Profit being the sole motive, will drive the firms
to produce goods and services at lower cost and more efficiently. This will lead to firms using
latest technology to produce at lower costs.
Disadvantages
 Unemployment: Businesses in the market economy will only employ those factors of
production which will be profitable and thus we may find a lot of unemployment as more
machines and less labour will be used to cut cost.
 Certain goods and services may not be provided: There may be certain goods which
might not be provided for by the Market economy. Those which people might want to use but
don’t want to pay may not be available because the firms may not find it profitable to produce.
For example, Public goods, such as, street lighting.
 Consumption of harmful goods may be encouraged: Free market economy might find
it profitable to provide goods which are in demand and ignore the fact that they might be harmful
for the society.
 Ignore Social cost: In the desire to maximize profits businesses might not consider the
social effects of their actions.