A capitalist economic system is characterized by a lack of government intervention, a means of production that is owned by private firms and is where goods and services are distributed according to price mechanism rather than government price controls.
In a capitalist economy, people are divided into two classes: those who own businesses and those who work for them. Business owners are those who can supply or have a larger capital, and earn profits from the production of those they employ.
Those who labor for business owners get rewarded for their efforts through salary or wages. These workers are responsible for producing the goods and services needed by their employers.
Karl Marx was a supporter of the capitalist movement and he called it the most revolutionary. He also praised the system for being a driving force for technological advancement and economic growth. However, he did predict that inherent problems with capitalism would lead to instability, and as such, the system would be replaced by socialism.
While capitalism has been existence for centuries in the form of merchant, renting and lending activities, modern-day capitalism can be traced to the rise of agrarian capitalism and mercantilism during the Renaissance. It was the dominant global economic system towards the end of the 19th century.
Top Countries of Capitalism
A lot would argue that there are no examples of true capitalism, several countries employ some form of capitalism, and these include the following.
- United States of America
- United Kingdom
- New Zealand
- Hong Kong
- Costa Rica
Types of Capitalism
Democratic Capitalism – This is the current form used in the United States. According to Edward Younkins, author of Capitalism and Commerce, “Democratic capitalism, the cornerstone of American society, is far more than an economic system: it is a dynamic complex of economic, political, moral-cultural, ideological, and institutional forces.”
State Capitalism – The government controls the economic system and can own all or part of businesses. The controlled economies during the First World War can be categorized under this as the government took control of inventory and output of production.
Social-Market Economy – Government intervention is minimized, but the state does provide several social services such as unemployment benefits and social security to reward labor rights. This form is seen in Western Europe, Northeastern Europe and Japan.
Mercantilism – The early form of capitalism which started in the late 16th century. The premise of this form is that the wealth of the nation increases through a well-managed balance of trade with other nations.
In order to truly understand how capitalism benefits or puts a country at a disadvantage, it helps to look into its many pros and cons.
List of Pros of Capitalism
1. It is for the good of society
While others are encouraged to think that a capitalist society is selfish as people work for their own money. However, a deeper look suggests that it can result in benefits for the society as every job can help someone else.
Let’s use an example to illustrate this further. For example, a factory worker creates items that a society can’t live without. A hairdresser provides services that help people look and feel good about themselves. Lastly, police make sure that people are protected and live in a lawful society.
While some may argue that people who work high-paying jobs are still at an advantage over those who are paid to do menial labor, it can also be argued that they actually have a positive effect on the society. For instance, a banker can teach society how to manage money better. An athlete, even if overpaid, can provide much excitement and entertainment for society.
2. It promotes equality
As they say, it doesn’t matter if you didn’t start out living the good life as you have an equal chance of making it big. Basically, the principle here is that the harder you work, the greater the reward.
3. It results in a decentralized economic system
A decentralized economic system is considered as one of the greatest advantages of capitalism. In this kind of economy, people are more open to lots more options in business. As such, they are exposed to competition and need to overcome challenges just to stay in the market.
Also, as a result of having open competition in the market, capitalism then encourages economic growth.
4. It provides a certain level of freedom
The government doesn’t intervene when it comes to the pricing of goods or in its production for private firms. The prices that are set depend on demand and supply.
Also, in a capitalist economy, people have the right to own private property. Not only that, they also have the freedom to choose which type of work they want. This freedom extends to selecting one’s education, as well as religious or political influences.
List of Cons of Capitalism
1. It creates a money-oriented economy
Businesses tend to focus too much on money-making opportunities and therefore become very materialistic. In essence, rather than provide for the common good, they create products and services with only profit in mind. In other words, the goods and services they create are available only if people can pay for them.
2. It lessens the need for manpower
Increased competition results in the need for rapid development. As such, high importance is put on technology. This simply means that businesses tend to rely on automation more than they do humans. As a result, lots of people would lose their jobs to machines. Not only that, the excessive use of machines harms the environment.
3. It doesn’t really create an equal opportunity for all
This is most evident in land ownership where property passes from one generation to the other. Because of this, some people remain rich just because their parents are property owners. That being the scenario, the concept of equal opportunity for all is thrown out the window.