Capitalism is an economic system found in a market economy. It involves the free trade of goods and services. Capitalism has various benefits, including promoting efficiency and innovation, providing a range of choices and freedoms, and advancing overall well-being. A market economy can also be very impersonal, promotes inequality, and suffers boom and bust cycles. Government regulation can soften the hard edges.
What is “Capital”?
Capital is money and other things used to produce goods and services.
Consider a factory that builds cars. The factory, machines used, and computers used to run those machines are all types of capital. Labor (workers) is also a form of human capital.
What Is Capitalism?
A market economy involves the free trade of goods and services with limited government involvement. Capitalism is an economic system found in a market economy.
Capitalism is an economic system that has a free flow of capital. The industry is controlled by private ownership. The owners and workers are guided by their own self-interest which as a sort of “invisible hand” serves as means to govern everyone’s actions.
Capitalism came into its own during the Industrial Revolution. It is the economic system that is now practiced in the United States.
Some Advantages of Capitalism
Capitalism is an efficient economic system based on the practical application of human experience. People need various things. They are willing to work in exchange for compensation. Employers offer wages based on their value in the market.
It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.
Adam Smith
A command economy, such as communism, is government controlled. An inefficient economy might still be favored for political or other reasons. Capitalism encourages the most efficient process because it is more profitable. Efficiency leads to more production.
A free market economy responds to the needs of the people and the situations that arise. Feudalism depended on largely fixed tracts of land, people tied to it by many obligations, and discouraged innovation. Change allows for new and improved things.
Capitalism promotes freedom and choices. Private ownership protects property rights. There are a diverse number of goods and services. People have a range of options as compared to a society where a person’s job is determined by caste or government-assigned role.
Capitalism is not only an economic system. It is a political system. A free market encourages a limited government in various ways. But, it also encourages the government to provide resources and regulations that help capitalism thrive.
This includes public infrastructure (bridges), schools to educate workers, and regulation of the money supply.
A free market system overall promotes happiness for all. An efficient economy is a good way to provide for the needs of the people.
Capitalism allows each person a chance to prosper and the freedom to change gears when it is suitable to their needs.
Private ownership results in some people making a lot more money than others. The profit motive is part of capitalism. But, workers and consumers benefit in the long run. The net result is a society with a lot more people with what they need to be happy.
The system might be unequal in some ways. Basic equality still is protected, helped by the government and private sources helping to cushion the blows with a safety net.
The Disadvantages of Capitalism
The Industrial Revolution resulted in many social changes. Some were good but some were bad. The resulting problems led to the support of socialism and communism.
Capitalism can be impersonal and overwhelming. The end goal is to make more money in the most efficient fashion. Money is not the only thing that matters in life.
Compassion is sometimes argued to be a misguided human emotion that is not really in the interests of the people. A “survival of the fittest” is promoted.
Inequality is a basic part of a free market society. The free market in the United States, for instance, led to big powerful businesses, monopolies, with a small group of people with a lot of money and power. The lowly worker suffered, with low wages and bad living conditions.
A fair society involves equal treatment and certain safeguards such as health insurance. Market forces will not always promote equality. Segregation, sexual inequality, and other unfair practices can still be present in a capitalist system. Capitalism alone does not stop these things.
Capitalism needs government regulation to soften its hard edges. The Great Depression is the result of a free market without a soft landing.
We have a mixed economy where the government intervenes to address market failures. And, the people are assured a certain basic safety net, even if not totally efficient.
Capitalism Today
Capitalism is thriving in many ways in today’s world. China, one of the few countries in the world with a communist government, has adopted many of its ways.
Many people in the United States are firm believers in capitalism. “Socialism” is still a bad word, even if many would not quite know how to define it. A few people, including Senator Bernie Sanders, might proudly call themselves socialists. But, not too many.
We have capitalism with a socialist face in various ways. We have public education, safety net programs not merely based on how much money we put into them, and publicly regulated airwaves. Private ownership has its limits. We accept the good while trying to limit the bad.