“Capitalism in a simplified manner..”

CAPITALISM is often thought of as an economic system in which private actors own and control property in accord with their interests, and demand and supply freely set prices in markets in a way that can serve the best interests of society.

The man behind our modern capitalism is Adam Smith, the 18th-century philosopher. We call him ‘The Father of Capitalism’ The essential feature of capitalism is the motive to make a profit.

He said that capitalism is where both parties to a voluntary exchange transaction have their own interest in the outcome, but neither can obtain what he or she wants without addressing what the other wants. It is this rational self-interest that can lead to economic prosperity.

In a capitalist economy, capital assets like such as factories, mines, and railroads—can be privately owned and controlled, labor is purchased for money wages, capital gains accrue to private owners, and prices allocate capital and labor between competing uses. Although some form of capitalism is the basis for nearly all economies today, it was but one of two major approaches to the economic organization for much of the past century.

-What are the pillars of Capitalism-

  • Private property, which allows people to own tangible assets such as land and houses and intangible assets such as stocks and bonds.
  • Self-interest, through which people act in pursuit of their own good, without regard for sociopolitical pressure.
  • Competition, through firms’ freedom to enter and exit markets, doesn’t only maximize the joint welfare of producers and consumers, it brings innovations.
  • Freedom to choose with respect to consumption, production, and investment. Dissatisfied customers can buy different products, investors can pursue more lucrative ventures, and workers can leave their jobs for better payment/salary.
  • A market mechanism that determines prices in a decentralized manner through interactions between buyers and sellers.
  • Limited role of government, to protect the rights of private citizens and maintain an orderly environment that facilitates proper functioning of markets.

-There always have been controversies and shades in capitalism-

To understand the shades of capitalism, you need to see what are the types of capitalism, there are many but recently economists have identified four types of capitalism distinguished according to the role of entrepreneurship in driving innovation and the institutional setting in which new ideas are put into place to spur economic growth.

In state-guided capitalism, the government decides which sectors will grow. Initially motivated by a desire to foster growth,

Now, this type of capitalism has several Drawbacks: excessive investment, picking the wrong winners, susceptibility to corruption, and difficulty withdrawing support when it is no longer appropriate.

Oligarchic capitalism is oriented toward protecting and enriching a very narrow fraction of the population. Economic growth is not a central objective, and countries with this Capitalism have a great deal of inequality and corruption.

Big-firm capitalism takes advantage of economies of scale. This type is important for mass production of products.

 Entrepreneurial capitalism produces breakthroughs like the automobile, telephone, and computer. These innovations are usually the product of individuals and new firms. However, it takes big firms to mass-produce and market new products, so a mix of big-firm and entrepreneurial capitalism seems best. This is the kind that characterizes the United States more than any other country.

Let’s see what is Communism System.