The Capitalism Theory
The capitalism theory argues the existence of an economy marked by private property, markets, and firms (Barnes, 2018). Here, the establishment of a capitalistic system is founded on ownership rights of properties, the presence of defined markets where entities undertake the exchange of goods and services for mutual benefits and firms which produce outputs at a given price. However, the pursuit for profits witnessed in the capitalist markets has transformed over time to respond to emerging trends and opportunities as witnessed in the article by Rajan (2018) in the Financial Times.
Private Investors and Incentives
The capitalism theory asserts that private investors in the market are able to attain incentives resulting from devising cost reducing processes that allow for competitiveness and market security (Sarkar & Sahu, 2018). In the article by Rajan (2018), the author indicates that the contemporary short sellers in the financial market are deviating from the utilisation of retirement savings to enhance prosperity, skills, and jobs and create wealth through the investment in short-term speculations. While the investment of the given funds cannot be deemed as a typical good or service, it is apparent that the contemporary investors thriving in the capitalist economy are realising opportunities that include low costs and higher returns as asserted by the capitalism theory. The activities of a private investor are always informed by security and competitiveness of a venture (Moeran & Malefyt, 2018). The arguments inherent in the capitalism theory supports the activities in the financial market asserted in the article in that, it is apparent that the shift towards short-term speculation creates a private incentive for the realisation of the cost-reducing innovation and the prospect of higher returns.
Control of Markets by Low-Cost Producers
Capitalism theory indicates that the inherent markets are controlled by entities with established ability to produce commodities at a low cost. In the article by Rajan (2018), it is apparent that the short sellers are attaining success in the financial markets as far as investment is concerned. Also, Rajan (2018) notes that institutional investors are focusing on the private markets through the investments in real estate, private equity, private debt, and infrastructure. It is important to understand that the functioning of a competitive capitalist economy is founded on the responsiveness of individual investors to opportunities. In the case of the institutional investors and the short sellers in the financial markets, the given success witnessed is attributed to the ability to make investments that require low-cost inputs and prospected substantial returns (Henry & Davidson, 2017). The quest for new innovations in a capitalist market indicates that creativity and innovation are continuous in that, amidst the effects of technology, consumer needs, and awareness is portrayed as dynamic and the coping skills of the individual investors are founded on consistent change (Pilkington, 2016). Here, the identified investment destinations for the short sellers and the institutional investors are deemed to allow the realization of profits at low costs as explained by the capitalism theory.
Role of Public Policy
Also, the capitalism theory indicates that the ability to produce goods at low prices and the private incentives for cost reduction is supported by public policy (Fusari, 2016). In the article by Rajan (2018) on the Financial Times, corporate tax cuts are deemed to enhance productive investments and increase the earnings per share. Also, the UK regulatory measures are explained as the means that has enhanced the efficiency of the country's market in acting as a channel between the borrowers and savers to boost economic growth. It is important to note that the capitalism theory indicates that while the private entities are the major stakeholders in the market, the government's role is also pivotal (Fraser & Jaeggi, 2018). The regulatory aspect of a capitalist market is informed by the need to ensure the protection of the investors and consumers for long-term economic stability.
Limitations of the Capitalism Theory
However, limitations in the capitalism theory are marked by the disproportionate influence of different stakeholders in the market. In the article by Rajan (2018), Elon Musk's false claim about Tesla's funding and the subsequent fraud charges led to a $1.3 billion loss to short sellers who had invested in the company's stocks. It is apparent that the actions of a single participant in a capitalistic market can cause an extensive impact on other stakeholders due to the private nature of how decisions regarding investments are made (Cannan, 2016).
Conclusion
The focus on the Capitalism Theory in assessing the article by Rajan (2018) on the Financial Times is informed by the contents of the publications which are deemed to assert the presumptions encompassed in the theory. The capitalism theory allows for the creation of a link between the events in a given market and the principles that allow the conduct of business inherent in the ideology. The assertions by Rajan (2018) revolve on the activities of private investors as well as the role of the regulatory authorities thus enhancing the relevance of the capitalism theory in explaining the article as opposed to any other given school of thought.
References
Barnes, K. J. (2018). Redeeming capitalism. Grand Rapids, Michigan : William B. Eerdmans Publishing Co., 2018
Cannan, E. (2016). A Review of Economic Theory. London : Taylor and Francis, 2016
Fraser, N., " Jaeggi, R. (2018). Capitalism: a conversation in critical theory. Medford, MA, Polity. 2018
Fusari, A. (2016). A new economics for modern dynamic economies: innovation, uncertainty and entrepreneurship. New York : Routledge, 2016
Henry, M., " Davidson, S. (2017). From communism to capitalism: theory of a catastrophe. London [etc.], Bloomsbury Academic, an imprint of Bloomsbury Publishing. 2017
Moeran, B., " Malefyt, T. D. W. (2018). Magical capitalism: enchantment, spells, and occult practices in contemporary economies. Cham : Palgrave Macmillan, 2018.
Pilkington, P. (2016). The reformation in economics: a deconstruction and reconstruction of economic theory. Cham, Switzerland : Palgrave Macmillan, 2016
Rajan, A. (2018). ‘Quarterly Capitalism’ takes its toll on Public Markets. Financial Times. October 29th, 2018. https://www.ft.com/content/52030b87-efef-3fab-a3a4-6addbc9e5aa5
Sarkar, A. K., " Sahu, T. N. (2018). Investment behaviour: towards an individual-centred financial policy in developing economies. United Kingdom : Emerald Publishing, 2018.
