Capitalism is an economic system where people or companies own businesses and compete to make money.
Capitalism is an economic system where private individuals and businesses own the means of production, such as factories, capital, and resources. A major emphasis is on the rights of private property owners.
In capitalism, owners can use their private property to make a profit. For example, factory owners can decide what to produce, who to hire, or what prices to charge to maximize profits.
Voluntary transactions between buyers and sellers determine the production and prices of goods and services in a capitalist system in a competitive market.
The incentive to earn profits drives owners to use capital and labor efficiently. Labor is purchased with wages, owners gain profits, and market prices signal where resources are needed most.
Capitalism contrasts with command economies, where central planners control production factors. Under capitalism, decentralized individuals freely make decisions guided by profits. Supporters argue this free pursuit of self-interest results in innovation, freedom, and economic prosperity.
However, others critique elements of capitalism like income inequality, short-term thinking, and social issues.
Capitalist Ideology
Below are some of the main features associated with capitalist ideology:
Private ownership
Resources and businesses are privately owned by individuals and firms who have the right to control and derive profit from their properties.
In a capitalist economy, there is private ownership over the means of production rather than collective or state ownership.
Capitalism allows individuals or businesses to own tangible assets such as land and houses and intangible assets such as stocks and bonds.
In a capitalist economy, assets such as factories, railroads, and mines can be privately owned and controlled, for instance.
In Engels’ view, the monogamous nuclear family emerged with capitalism. Before capitalism, traditional and tribal societies were classless and did not have private property. Instead, property was collectively owned, and this was reflected in family structures.
An isolated nuclear family means that men can confirm whether a child belongs to them and ensure that wealth remains in the family through private inheritance.
Self-interest
Capitalism enables individuals to act in a way that pursues their own interests. Individuals and businesses seek to increase their profits, which is a central motive of capitalism.
Individuals and businesses seek to maximize profits and accumulate wealth by investing capital and engaging in market-based transactions with other private enterprises and consumers.
Despite being motivated by self-interest, it is thought that society also benefits from these individuals.
Competition
A critical way for individuals and businesses to keep making profits is through competition.
When there are many competing businesses in a specific industry, companies must work to generate the best product while maintaining low production costs and charging a reasonable price to compete for customers.
Market forces
The production and distribution of goods and services takes place through voluntary transactions in markets and prices are determined by competition.
Firms compete with one another by making use of strategies around pricing, quality, innovation etc. Competition drives economic efficiency and innovation.
In a capitalist economy, a market mechanism determines the prices through interactions between buyers and sellers. In return, prices allocate resources that naturally seek the highest reward for goods, services, and wages (Jahan & Mahmud, 2015).
Minimal government intervention
There is minimal government intervention in the economy.
Free market and private enterprises should be allowed to organize most economic activities without excessive regulation, oversight or involvement from the government. This includes allowing the market to determine prices, quantities, production decisions, investment choices, hiring/firing, etc.
The role of the government is to protect private property rights and set up the legal and regulatory framework.
Freedom of choice
Within a capitalist economy, businesses have the freedom to choose concerning production and investment. Investors can pursue more profitable ventures, and workers can leave their jobs for better pay.
Likewise, customers have the freedom to choose what they consume and can buy different products if they are not satisfied.
There is also limited intervention from the government, which is thought to protect citizens’ rights and maintain an orderly environment that facilitates the proper functioning of markets (Jahn & Mahmud, 2015).
How Does Capitalism Affect Society?
A way in which capitalism affects society is that the process of producing capital has dramatically increased and enhanced production capacity. The quantity and quality of goods have become cheaply accessible to broader populations, raising the standards of living for many.
In a capitalist society, there is competition between those who have private ownership. Each seeks to maximize its profits relative to its competitors. A way in which this can be done is through technological innovation.
For instance, a manufacturing business can switch from using items crafted by the hands of employees to using a machine that can do the same job but in larger quantities in a short amount of time.
This will ultimately lower production costs below the average cost of production in the sector and thus increase the rate of profit.
In response, competitors may attempt to create more advanced technology to rival other companies’ profits. Society may become more reliant on technological innovations, and more of this will be seen in general.
Each competitor in a capitalist economy conflicting with other members of the capitalist class is one form of conflict inherent to this type of societal system. There is also conflict between the interests of the capitalist class and those of the working class. This is because the capitalists are said to exploit the labor of those who work for them (Callinicos, 2003).
Through capitalism, businesses’ rapid growth and profits give some owners enough capital to develop corporations that can monopolize an entire industry.
Since the Industrial Revolution, many companies have gained control over all aspects of the production cycle for their industry. This means that in societies, there are enormous companies that significantly overpower similar companies.
Pros & Cons
Strengths
Capitalism is considered the best economic system for bringing about economic growth and a sustained increase in the number of goods produced. It can be argued that capitalism transforms individual self-interest into collective good for society.
The high standards of living achieved in primarily Western capitalist countries are believed to have come from the steady growth in productivity that brought prices down over time. It is also thought to have come from a stream of new products reaching the market that has expanded consumers’ range of choices (Mueller, 2012).
With the cost of goods and services being lower, more people can buy what they want and have more choices regarding where they are putting their money. The growth of incomes afforded by capitalism has made it possible for more people to acquire an education rather than just a small group of elites.
The rising incomes have also enabled work weeks to be shortened and vacations lengthened (Mueller, 2012).
Competition is a big part of a capitalist economy. This competition from new products, new means of production, and organizational structures drive economic progress and growth (Mueller, 2012).
Capitalism is also considered efficient because goods and services are produced depending on demand. It ensures that what is produced corresponds to the needs of the people since producers only make a profit if they supply what people demand. This means lower costs and less waste, with fewer surplus materials and workers.
Limitations
A criticism of capitalism is that the people who are the laborers behind the goods and services lose their value over time. When once the workers would have crafted the whole product, they may now be reduced to producing one component on the production line.
Being confined to a component means that workers lose value and are potentially less skilled when seeking other employment (Chiapello, 2013).
Likewise, the workers who are the source of production draw little benefit from what they make, while others who do not do the work but own the capital become richer and have the power to command the workers (Chaipello, 2013).
Capitalist societies can produce private monopolies, which can be seen as a strength and weakness. The idea of monopoly can be what drives individuals to become entrepreneurs and introduces innovations that society benefits from.
However, those who succeed in becoming monopolists have the motivation to prolong their monopolies even if this worsens social welfare. Over time, only the elite few would benefit from capitalist production (Mueller, 2012).
Marxists argue that capitalist societies result in greater wealth inequalities. Over time, the wealth becomes concentrated in the hands of fewer and fewer people until there are a few elites, and the rest of the society is extensively exploited.
Marxists see capitalism as an unstable system that will eventually result in a series of crises. The more that capitalism grows, the more people take advantage of it, and the more oppressed, degraded, and exploited the proletariat will be (Marx, 1873).
Eventually, capitalism will result in a revolt by the proletariat, according to Marxists. This will lead to the dismantling of capitalism to make way for communism.
Capitalists would argue that a capitalist society is fair because people are rewarded for their hard work. But, often, people are wealthy because they have inherited wealth or are born into a privileged class. Therefore, capitalist society also fails to provide equality of opportunity (Chiapello, 2013).
Capitalism vs. Socialism
Although some form of capitalism is the basis for most economies, there is another prominent approach to an economic organization: socialism.
Socialism is a system under which the means of production are publicly owned and controlled by the government to meet the people’s needs. Some countries’ economies are considered socialist, while several others feature a mix of capitalist and socialist systems.
Under capitalism, private owners produce goods and services they can sell in an open market, with prices and wages set by supply, demand, and competition. Under socialism, however, the means of production are commonly owned, and the government controls part or all of the economy.
Capitalists argue that private ownership allows individuals to use resources more efficiently than the government, meaning that the free market decides who receives profits and who does not. However, socialists argue that capitalism’s private ownership allows relatively fewer wealthy people to control most of the properties, meaning that the rich get richer while the poor get poorer.
In a socialist economy, there is thought to be more income equality since this is equally distributed according to need. Whereas in a capitalist economy, income is determined by private owners.
When it comes to healthcare and education, these would be provided for free in a socialist economy or subsidized by the government.
In a capitalist economy, healthcare and education would be provided by the private sector. Due to these differences, taxes would likely be higher in a socialist economy to pay for these public services. In contrast, taxes would be based on individual income in a capitalist economy.
Who Benefits From Capitalism?
Capitalists argue that a capitalist economy benefits everyone since it brings innovation and societal growth. It also allows more people to buy goods and services at a reasonable price.
However, capitalism tends to benefit capitalists the most.
This is usually the business owners and investors who are at the top and who have the most control and wealth.
What Was Karl Marx’s View Of Capitalism?
Marxism is a conflict perspective that argues that the working-class, the proletariat, is exploited by the capitalist class, who profit off of their labor.
Karl Marx asserted that capitalism is a system that alienates the masses and that workers do not have control over the goods they produce for the market.
Capitalism predisposes societies to unjust systems favoring a small group of people, the ruling class bourgeoisie, over the majority, the working class proletariat.
According to Marx, the bourgeoisie, also known as the capitalist or ruling class, are those who own the means of production and monopolize wealth, and stand in contrast to the working-class proletariat majority, whose labor power is exploited by the bourgeoisie majority.
The emergence of capitalism, a system of private ownership, in the 18th century, changed society and the family. The bourgeoisie, or capitalist class, used their personal wealth to invest in businesses to make a profit which they did not invest for the benefit of everyone else.
Eventually, the bourgeois started to look for ways of creating intergenerational wealth, rather than having it distributed among the masses of society. The monogamous nuclear family guaranteed that people could pass on their property to their own kin, as monogamy made clear whose children were whom (Stern, 1948).
Ultimately, however, this arrangement served to reproduce inequality. As the children of the rich grew into wealth, the children of the poor remained poor. Thus, the nuclear family served to benefit the bourgeois more than the proletariat.
He believed that capitalism would eventually stagnate due to mass exploitation, which would ultimately occur when the elite few exploited more people.
In Marx’s view, capitalism can only be overcome with revolution, which will be followed by socialism when this happens.
In The Communist Manifesto, Marx and Engels proposed that continued exploitation by capitalists would eventually cause a proletariat revolution. The workers will revolt due to increasingly worse working conditions and wages.
The result of the revolution is that capitalism will be replaced by a classless society in which private property will be replaced with collective ownership. This will mean that society will become communist.
A communist society would mean there would be no inherited wealth, there would be steeply graduated income tax, centralized control of the banking, communication, and transport industries, as well as free public education (Marx & Engels, 2019).
What Is Laissez-Faire Capitalism?
The term ‘laissez-faire’ translates to ‘leave alone’ regarding economic intervention. With capitalism, it is the idea that the free market should not have any government involvement. It allows private owners to make as much money as possible without intervention.
According to laissez-faire economics, the economy is strongest when the government does not get involved, and lets market forces behave naturally.
This type of capitalism is considered beneficial for economic growth since it gives individuals an incentive to create their own wealth.
What is the Difference Between Marxism vs. Capitalism?
What distinguishes capitalism from Marxism is the emphasis on the rights of property and the individual owner”s right to employ capital as he or she thinks fit.
According to Karl Marx, the bourgeoisie, also known as the capitalist or ruling class, are those who own the means of production and monopolize wealth, and stand in contrast to the working-class proletariat majority, whose labor-power is exploited by the bourgeoisie majority.
References
Callinicos, A. (2003). Anti-capitalist manifesto . Polity.
Chiapello, E. (2013). Capitalism and its criticisms. New spirits of capitalism? Crises, justifications, and dynamics, 60-81.
Jahan, S., & Mahmud, A. S. (2015). What is capitalism. International Monetary Fund, 52(2), 44-45.
Marx, K., & Engels, F. (1967). The communist manifesto . 1848. Trans. Samuel Moore. London: Penguin, 15.
Mueller, D. C. (Ed.). (2012). The Oxford handbook of capitalism. Oxford University Press.
Rand, A. (1967). What is capitalism? (pp. 11-34). Second Renaissance Book Service.
Stern, B. J. (1948). Engels on the Family. Science & Society, 42-64.
