Capitalism is an economic system in which private entities have production factors. The four factors are entrepreneurship, capital goods, natural resources and labor. Owners of capital goods, natural resources, and entrepreneurial control through the company. Individuals have their workforce. The only exception is slavery, where others have a person's labor. Although illegal throughout the world, slavery is still largely carried out as the advantages and disadvantages of capitalist economy.
The capitalist economic system is characterized by free markets and the absence of government intervention in the economy. In practice, the capitalist economy will require government intervention, especially to protect private property. It is important to distinguish capitalism from anarchism, where there is absolutely no such government as the weakness of the market economy system.
Characteristics
Capitalism requires a free-market economy to succeed. It distributes goods and services in accordance with the law of supply and demand. Legal demand says that when demand increases for a particular product, prices go up. When competitors realize that they can generate higher profits, they increase production. Larger supplies reduce the price to a level where only the best competitors are left.
Features of the capitalist economic system
- Economic freedom: Individuals are free to manage businesses and provide the goods and services they want.
- Consumer sovereignty: The consumer is free to decide which goods and services to buy.
- Restricted Government: Government intervention is limited to the protection of private property and the provision of public goods.
- Financial sector: Capitalism requires an advanced banking and financial system that can lend to companies and banking services for households.
- Profit motives are considered essential to enable efficient distribution of resources and drive innovation and responsive markets.
- Market forces: Goods and services are distributed according to an invisible market hand, in other words, the allocation of goods is determined by market forces. For example, if demand rises, firms have an incentive to increase supply.
- Flexible labor market: easy to hire and fire workers.
- Free trade: Low tariff barriers to encourage international trade.
The advantages of the capitalist economic system
- More efficient
- Less bureaucratic
- More innovation
- Prevent discrimination and force people to trade with each other and break barriers.
The problem of the capitalist economic system
- Inequality: The capitalist economic system always leads to inequalities in wealth and income. However, he argues that this inequality provides incentives for wealth generation and economic growth.
- Monopoly: In capitalist society, companies can gain monopoly power over consumers and workers.
- Environmental problems: Capital-driven capitalist societies can make the decision to maximize economic revenues in the short term but at the expense of environmental problems in the long term.
Different types of Capitalism
- Capitalism-tourism: free-market capitalism with few government regulations
- Responsible Capitalism: The free market but also the social welfare net. More to reflect the European economy with private markets, but strong government intervention
Example of a Capitalist Economy System
After reviewing the meaning and variety of features, then we learn about the example of capitalist economic system in the world:
1. Crony capitalism
Crony capitalism refers to situations in which business success is influenced by the strategic influence of civil servants, politicians, or those in power as an example of a populist economy.
2. Democratic Capitalism
Dr. Edward Younkins, author of Capitalism and Commerce, explains three principles of democratic capitalism: an economy based primarily on free markets and economic incentives, democratic governance and a classical moral-liberal-liberal culture system that encourages pluralism. The democratic capitalist system assumes pluralism, recognizing that individuals have different opinions and interests, allowing them to freely associate to advance those interests.
3. Financial Capitalism
Financial capitalism is characterized by the pursuit of profits from the purchase and sale of financial products such as currency, stocks, bonds, and other derivatives. Lending money at a certain interest rate is also included in the category of financial capitalism. Real estate deeply digs financial capitalism. Buying real estate shows this variant of capitalism, especially when the individual does this for investment purposes ie flipping the house.
4. Laissez-faire Capitalism
Laissez-faire capitalism is a branch of capitalism in which the economy operates under the absence of full rules. Here, the government abandoned its own people about all economic activity, with complete economic and state separation. It has been stated that The Great Depression resulted from the laissez-faire capitalist society.
5. Mercantilism
Mercantilism is an example of the early form of capitalism, which began in the late 16th century. The premise of mercantilism is that the wealth of a nation increases through a well-run trade balance with other countries. Mercantilism is a mixture of national business interests, state interests, and imperialism. The early American colonies practiced mercantilism. Colonists are only allowed to trade with their parent country, such as Britain or France.
6. Social Market Market
The social market economy alludes to an economic system where government intervention is minimized. However, the state provides many social services (such as unemployment benefits and social security) to respect labor rights. Sweden operates under the social market economy. Many citizens consider themselves to be beneficiaries of the complex social welfare infrastructure of the country. Mutual help and general welfare embody a system of many benefits, such as new parents who receive additional parental leave.
7. State Capitalism
With state capitalism, the government controls the economic system and can own all or part of the business. The example of state capitalism originated from the great powers during World War I and World War II. During this time, the government controlled the inventory and production output, as seen in Nazi Germany and the former Soviet Union.
Free and Fair
To become a true capitalist society, free markets and private property rights must remain important. As we can see, however, government forces tend to assert themselves into the economy. When that happens, capitalism, in its purest form, becomes changed and we see these various levels being formed.
Around the world, capitalism will always have its supporters and critics. On the one hand, free markets and private ownership can present tremendous economic opportunities. On the other hand, political greed and corruption sometimes manifest and must be overcome - hopefully through an honest and attentive democratic process.
In the real world, many economies that are seen to have a capitalist economic system may have government spending of up to 35% of GDP. This is because the government pays for national welfare, health, education and defense. However, the economy is still seen as a capitalist because in the field of private companies, companies are free to decide what to produce and for whom.
Alternative to capitalism
The capitalist economic system is often contrary to the socialist or communist economic system in which economic decisions are made centrally by government agencies. In the communist economy, the means of production are owned collectively and the government says more about what to produce, how to produce and how to distribute resources.
