If you look around yourself in today’s world, you will find a majority of the shops, businesses, and industries consist of private companies. That is because we live in a capitalistic society. Capitalism refers to an economic system where the private companies own the trade and industry and control the demand and supply of a country.
In a capitalistic economic system, private companies own the 4 factors of production. These factors are capital goods, labor, natural resources, and entrepreneurship. The owners four these four factors control there through their private companies. The owners utilize their capital goods and use natural resources to manufacture the product and own the employee’s labor.
The United States of America is the best example of a capitalistic society and economy. Like the USA, you will find many other countries practicing Capitalism as their economic system. Capitalism has other names like “Free Market Economy” and “Free Enterprise Economy.”. The reason behind it being called a free market economy is because the government does not interfere with the market, and the private companies do uninterrupted business in the market.
Everything about Capitalism
Before the birth of Capitalism, there was feudalism. Feudalism is a hierarchical ruling system where the poor were oppressed. During the era of feudalism, the poor were called the peasants, and they were bounded to lands that were owned by the rich people. The primary motivation behind the peasants farming activity was that, in return for a place to stay and protection offered by the military.
However, the feudalistic society came crashing down after the large scale plague which took place in Great Britain in the sixteenth century. That is where Capitalism was born. After the plague, the new merchant class started going across the sea and traded with other countries. This is how the concept of export and import business started. However, this gave birth to colonialism, imperialism, and slavery.
During the eighteenth century, England had transformed into an industrial nation and started what was called the “Industrial Revolution.”. During the industrial revolution, factories popped up almost everywhere in England. And through the smokes of the new industries came modern Capitalism and started booming.
In 1776, Adam Smith wrote a book called “An Inquiry into the Nature and Causes of the Wealth of Nations.”. This book is considered as the stepping stone for modern Capitalism. In fact, Adam Smith is renowned as the father of Capitalism.
The fundamental attribute of Capitalism is that the owners in a capitalistic system have control over the 4 production factors, and this control brings them their income. That means the owners can operate efficiently. The motivation behind them running in the capitalist economic system is that they can maximize their profit as there is no interruption from the government. That’s why capitalist say that greed is good.
The current private companies feature the attributes of a capitalistic economic system as shareholders own these businesses. Your control over a business depends on how many shares of that business you own. Generally, chief executive officers are hired to run these companies.
The markets in Capitalism revolve around demand and supply. Capitalism functions at its prime in a free market. The demand law says that the price of a product will increase when the need for the said product rises. To capitalize on that product, the industries will start bulk production. As a result of the greater supply of the said product, the price will decrease. The businesses which can find an equilibrium in these laws can maximize their profits.
The markets in a capitalistic system are very competitive as every company is trying its best to increase profit. This has a bright side to it. Since everyone is competing, every company is coming out with a product which may be slightly better than the other company’s product. As a result, customers have many alternatives to choose from. The owners of private companies try to maximize their profit by increasing efficiency. That means, every company is trying to produce more with the least expense. This, however, not only keeps the production very efficient but also the price moderate.
Another feature of Capitalism is the capital market and its free operation. In the capital market, the price of stocks, bonds, and other capital tools are set by the laws of demand and supply. Even though Capitalism produces the best results uninterrupted, the government sometimes has to step in and control the market. The government steps in when a monopoly is created, as monopoly businesses create an imbalance in the market. To rectify that situation, the government will step in and establish a level playing field.
Capitalism is a significant economic system, and that is for the benefits it offers. Like mention earlier, customers are finding a cheaper but better alternative to almost every product. It can be said that, in Capitalism, you will find the best product at the best price. Furthermore, companies put effort into making these products to a satisfactory level.
Aside from products and prices, in Capitalism, an individual has the right to own lands, unlike socialism. It lets people own assets and businesses. Furthermore, in such an economic system, you will notice the economic growth through the innovation of products that help make our lives easier.
Capitalism has its drawbacks too. Capitalism is not the best system for those who lack the skill to compete in the ever more competitive market. That is why to help the ones who can’t play in the capitalistic field; the government has rules and policies to help them.
This also leads to the disadvantage of inequality. Because you’re lacking, it means that you can’t play with the big guns. Therefore, those skills are left untapped. Another disadvantage is that Capitalism does not care what happens to the environment due to the rapid growth of industries and their operations.
In conclusion, Capitalism, like any other economic system, is not perfect, but it has its set of benefits and disadvantages. If a country’s goal is solely economic advancement, then you will find a capitalistic society there.