Capitalism refers to an economic system run and owned mostly by private owners. In capitalism, workers use resources on behalf of owners but do not claim a share of or profit from the business; rather, they receive wages on a regular basis. Capitalism has its roots in feudalism and mercantilism. It grew as a result of industrialization in the 19th century. The concept of capitalism is wide and has different types. Capitalism, like the expansion of the economy, brought its own criticism and impact on society.
The concept of capitalism revolves around private property rights, economic production, and resource distribution. Economic planning in capitalism takes place via a) decentralisation, b) competitive business, and c) voluntary decisions.
The main concept of capitalism is that the trading influence of an individual is determined by the value of the property he holds. i.e., the value of property is equally proportional to the power of the owner.
Capitalism did not just benefit the aristocrats; it improved the standard of living of the poor, which gave rise to middle-class people in society. Healthy competition among capitalists always results in lower product prices, which benefits consumers.
It is believed that before the rise of capitalism in the 18th and 19th centuries, the growth of the economy was based on the extraction of resources from conquered people, and the global per capita income remained constant without any change.
Capitalism paved the way for new inventions and innovations. In the capitalist economy, there was mass production of goods, which resulted in the availability of affordable products on the market, which benefited people of all classes.
Capitalism is classified into six types based on the influence of the state and individuals on the economy.
In the oligarchy form of capitalism, the economy and the state are controlled by an aristocratic group of people. These people tend to buy the power or businesses of smaller group and inturn take a complete control over them. Example of such capitalism is demonstrated by Russia where a group of strong businessmen have direct connection with high ranking government officials and do influence the decision making of the country.
In corporate capitalism, the economy is controlled by the corporate companies. Here, large corporations take the control of a large part of the market. For example, the Facebook in US controls a giant part of the social media market and extended its ownership to Whatsapp and instagram.
In state-guided capitalism, the government controls the economy of the nation. The best example of such capitalism is given by China where the government own 40% of the companies in the market and has a substantial control over the economy.
The role of the government and the capitalist in the economy will be equal in welfare state capitalism. While the capitalists produce goods, the state decides how to distribute the resources of the economy. An example of such capitalism is seen in Norway and Finland where the law ensures that the wealth generated by capitalism is equally shared by the population.
People have the freedom to act freely in the market under laissez-faire fairness capitalism, with little or no interference from the government.
In this form of capitalis, the market is controlled over by small-scale businessmen. This is considered as the earliest forms of capitalism where wealthy individuals dominated the economy. However, this type of capitalism is highly unstable as competition changes constantly in the market and a more successful business will takeover a less successful one in the market and expand to establish corporate capitalism.
Although capitalism has served in positive growth of many nation, it is highly criticized on three grounds: growth, quality , and equity. Many critics suggest that capitalism encourages unreliability of growth as capitalists continuously focus on earning profits and may start investing in new opportunities and shake out the older industries. Another school of thought criticises the quality of growth in a capitalist economy. It supports the idea that the continuous desire for yielding surplus results in outcomes that have both negative and positive effects on the environment and the society. The third and the most debated side of capitalism is the equity distribution. Critics suggest that capitalism favors a inequality of wealth. Marx, a critic of capitalism stated that in a capitalist economy the income of a laborer does not justify the amount of effort he put forth in production of the goods. Thus, capitalism gives rise to economic differences in the society.
The concept of capitalism has pros and cons in its impact on society and the economy. Despite all of the benefits, it is also important to remember that the concept of capitalism has matured through adaptation to and consideration of people's needs, as well as consideration of supply and demand. Society has adapted new policies and laws that are enforced to maintain social order. Capitalists can be driven to work in the right direction as long as the government interferes in their decision-making and protects the working class with new law enforcement.
Q1. Who proposed the theory of capitalism?
Ans. Adam smith is the first known theorist to propose the concept of capitalism in his work ‘An Inquiry into the Nature’ and ‘Causes of the Wealth of Nations’.
Q2. Which was the first capitalist nation?
Ans. Great Britain was the first capitalist nation as a result of the industrial revolution at the end of the 18th century.
Q3. Who is Karl Marx and why is he famous?
Ans. Karl Marx was a political economist journalist, who is famous as the father of communism. He highly criticized the capitalist system and his ideas influenced a large number of political groups that resulted in bloody revolutions and crushed ages old goverments to form political system that still rules twenty percent of the world today.
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