We explain what capitalism is, its characteristics and how the State intervenes. Its advantages, disadvantages, what is capital gains and more.
What is Capitalism?
Capitalism is an economic and social system which is based on private ownership of the means of production and on capital (money) as a generator of wealth, through trade in the free market.
It is the dominant system emerged after the defeat of European feudalism after the French Revolution and influenced by the Industrial Revolution of the late 18th century. The Scottish philosopher Adam Smith drafted the principles of the value of work, such as the specialization and division of tasks in favor of productive capacity.
However, capitalism has come to promote exploitation and child labor, due to the desire of capitalists in their quest to obtain maximum profit from the work of their employees.
Most capitalist countries today operate under a system called a “mixed economy” in which there is some state intervention to regulate taxes, prices and market competition.
See also: Market economy
Characteristics of capitalism
The main characteristics of capitalism are:
- Private ownership of the means of production. It consists of the lands, factories, tools and other productive systems that belong to private capital, not to the State or the communities.
- Freedom of the market. It consists of the fact that anyone has the right to buy or sell, even their work as a service, and to negotiate the price that suits them.
- The invisible hand of the market. It consists of the fact that individual actions and economic interests contribute to the well-being of society as a whole and that the State should intervene as little as possible in the market.
- Freedom of enterprise. It means that anyone can start a business, as long as they take the risks, and make a profit. This encourages competition and an improvement in the quality of production and prices.
- The market. It consists of a space where products and services are marketed and negotiated through free competition, which is governed by the law of supply and demand.
State intervention
State intervention in the capitalist system It is necessary to manage national defense and regulate foreign trade.as long as you intervene in a moderate way.
The State legislates to prevent the formation of monopolies, especially of companies that provide basic water, energy and telecommunications services, and to promote national production in order to maintain a stable economy that is competitive with other countries.
In cases in which the State intervenes in most market decisions in order to have most of the means of production and its consequent profit in its power, it is considered a communist system.
There are as many variants of economic and political systems as there are countries in the world. Neither communism nor capitalism have managed to implement their pure ideologies, due to the corruption of partisan politics that results in monopolies that absorb all control and power.
Advantages and disadvantages of capitalism
The capitalist system presents advantages such as:
- Promote the development of entrepreneurship.
- Allow respect for individual rights.
- Generate a lot of wealth through private capital investment.
- Access to private property.
- Promote the freedom of purchase and sale of goods and services.
- Increase savings and investment capacity.
The capitalist system has disadvantages such as:
- Ignore the consequent costs of the productive system, such as pollution and abuse of natural resources.
- Promote equality of conditions, but not of opportunities for the elderly or disabled.
- Limit diversity and innovation as a consequence of social inequality.
- Increase competition for money because it is the only driver of interest.
- Induce monopoly in corrupt government systems.
Capitalist system surplus value
The capital gain is the profit that the capitalist expects to obtain on his investmentThe problem is that the profit from the sale returns to the capitalist and not to the worker who provided the labor.
According to the economist and thinker Karl Marx, surplus value is a masked theft that contributes to labor exploitation and the enrichment of the capitalist, which could lead to monopolies and oligarchic systems.
However, for the economist Adam Smith, the worker is free to choose a job that pays a better salary: the greater the supply of jobs, the higher the salaries for workers can be.
Reality has shown that, if there are many people without work, the demand for jobs increases and the supply of wages decreases, which is advantageous for the capitalist.
In order to refute that reality, capitalism supports unlimited growth of corporationsdespite the fact that the planet’s resources are limited and cannot be provided infinitely, nor can so much pollution resulting from the system of production and mass consumption be processed.
Examples of capitalist countries
Some examples of countries that apply the capitalist system in the purest way are: