Question

Explain the following concept.

Capitalism

Answer 1

By definition, "an economic and political system in which private owners control a country's trade and industry for profit rather than by the state" is called capitalism.

The main characteristics of capitalism are:

1. A Two-Class System:
   • A capitalist society is characterized by the split between two classes of individuals—the capitalist class and the working class,
   • Capitalists own the means for producing and distributing goods (the owners), and the working class is who sells their labour to the capitalist class in exchange for wages.
   • The economy is run by individuals (or corporations) who own and operate companies and make decisions as to the utilization of resources.
   • there exists a "division of labour" which allows for specialization,
   • This specialization occurs through education and training, breaking down the two-class system into sub-classes (e.g., the middle class).
2. Profit motive:
   • Companies exist to make a profit and, therefore, have a market nature.
   • The motive for all companies is to make and sell goods and services only for profits.
   • Companies do not exist solely to please people's needs.
   • Even though some goods or services may satisfy needs, they will only be available if people have the capital to pay for them.
3. Minimal Government Intervention:
   • Capitalist societies need the freedom to operate without even any government intervention.
   • But, a completely government-free capitalist society exists in theory only.
   • Even in European countries, the government regulates specific industries.
   • A purely capitalist society would permit the markets to set prices based on supply and demand to make profits.
4. Competition:
   • True capitalism needs an economical market which is competitive.
   • Competition prevents the formation of monopolies
   • The market sets the prices, not the seller
5. Willingness to Change:
   • Capitalism can adapt and change.
   • Willingness to allow change and adaptability of societies is essential in the period of technology.
   • It improves inefficiencies within economic structures, a true characteristic of capitalism.