We have heard a lot about capitalism, about what is good or bad, etc. But how many really know what is the capitalist economy? How does it work? What are your bases?
In this article we will answer these questions to help you better understand what capitalism entails. What's more, we will talk about the advantages and disadvantages of this socio-economic system.
What is meant by capitalist economy?
To properly understand what the capitalist economy is, we are going to resort to the technical definition of capitalism. It is a social and economic system based on the means of production being privately owned. In this case, the function of the market is to allocate resources, especially scarce ones, in an efficient way. Capital is basically a source that generates wealth.
In other words: In capitalist systems, productive resources are private. Instead of belonging to an organization, such as the state, they are owned by some people. According to capitalism, the best way to do this is through the market, since the objective of the economy is to study what is the best way to satisfy all the needs that humans have with the limited resources that we have. So the capitalist economy promotes competition and private property.
In the case of the capitalist economy, The fundamental factors of production are capital and labor. Through this system, work is done receiving monetary wages in return. In addition, it must be freely and consciously accepted by the employees.
Regarding economic activity, it is organized as follows: The workers who are in charge of the means of production obtain an economic benefit, thus increasing their capital. Both goods and services are distributed through various market mechanisms, causing companies to compete with each other. With the increase in capital it helps to generate more wealth through investment. Therefore, if people seek to obtain economic benefits and compete in the market, wealth will be increased. If wealth increases, available resources also increase.
What are the bases of the capitalist economy?
Now that we know what the capitalist economy is, let's talk about the basic principles that make it up:
- Competitive market: Through the interaction of supply and demand, the exchange price is created. Of course, with the least possible intervention by the State.
- Business freedom: With this base it is possible to carry out or put an end to business projects.
- Defense of individual rights: It is the private property of means of production and capital.
- Product alternatives and multiple options: Each person can choose between several products. The concept of supply and demand comes back into play, opening the way to price decisions and balances.
Counting on these bases, those individuals who are part of the economic spectrum use their capital to operate, always seeking their own interest and maximizing their accumulated benefits. Instead, workers perform another type of participation in the system. They provide the labor and receive in return a salary or other remuneration that may be useful to obtain the goods or services they need or want.
Advantages and disadvantages of capitalism
To this day, a perfect economic system is still not invented. In fact, it is a task that could be crossed out as impossible. There are always disagreements, people never all agree on something. But why? The ideas and opinions of individuals are usually based on ideological issues.
An example for conflicting ideas about a concept is the theme of the inequality. Generally, those who prefer capitalism do not see inequality as a problem. In fact, they are in favor of its existence. Therefore, it is something that we must take into account when talking about the advantages and disadvantages of the capitalist economy.
Another example would be the productive capacity. It is very common to highlight as a point in favor of capitalism that it generates a lot of production in a very efficient way. However, people who are against the capitalist economy see it as something negative, since the resources that the planet earth possesses are limited. They point out that so much production will end up exhausting these resources.
Advantages
We will start by talking about the advantages that the capitalist system provides us:
- Free trade: Thanks to it we can access a wide variety of both goods and services. In addition, through supply and demand, market prices end up adjusting. This should reach a point where the applicants can satisfy their needs.
- Equal opportunities: Although it is true that socioeconomic differences continue to exist and it will be very difficult for them to be undone, capitalism promotes that each individual, no matter how low their income, has the possibility of climbing in society. However, it may require considerable effort.
- Respect for private property: The Government cannot appropriate the property of any person, except in a few cases, the expropriated person always receiving financial compensation.
- Promotion of innovation: There are no limitations to generate wealth and create business ideas.
- Usually, capitalism is linked to individual freedoms and those of a social nature, such as the manifestations of political ideas or the right to vote.
Disadvantages
Although the advantages of capitalism do not sound so bad, there are some points against it:
- Individual welfare may not be the collective interest.
- Generation of more socioeconomic inequality: It can lead to social conflict.
- Global warming: Productivity is given more importance than the environment. Fortunately, some market alternatives may emerge to combat this problem, such as sustainable businesses.
- Abuses in the labor market: Employers can exploit workers.
- Basic goods and services are also often treated as merchandise. Consequently, part of the population cannot opt for a higher standard of living.
And to you; What do you think of the capitalist economy? Are you for or against? You can leave us your opinions in the comments.