Capitalist Economy: Features, Advantages & Disadvantages

“Socialism states that you owe me something simply because I exist. Capitalism, by contrast, results in a sort of reality-forced altruism: I may not want to help you, I may dislike you, but if I don't give you a product or service you want, I will starve. Voluntary exchange is more moral than forced redistribution.” - Ben Shapiro

 

Countries like Hong Kong, UAE, Singapore, New Zealand, Australia, Canada, Switzerland, UK, USA, Ireland have capitalist economies. India on the other hand has a mixed economic structure. Mixed economy is where a country has a socialist learning experience along with capitalist learning. Most of the countries nowadays are leaning towards a mixed approach.

 

How do we define a capitalist economy? It is a liberal economic structure wherein individuals and companies have the right over the production of goods and services. It is completely opposite to a socialist structure. 

 

In socialism the government has every right but in capitalism government intervention is minimum. Many major economies of the world as mentioned above are capitalists. 

 

“Capitalism has brought with it progress, not merely in production but also in knowledge”.- Albert Einstein, It is rightly said because capitalism in an economy has a lot of advantages and it gives people the confidence to grow and develop in the business and employment sector.

 

Also Read | Command Economy

 

 

Advantages of a Capitalist Economy

 

By now we know that a capitalist economy is what every country aspires to be in the near future. As Ron Swanson from the sitcom Parks and Recreation once quoted : “Capitalism God's way of determining who is smart and who is poor."

 

There are so many advantages, some of which have been pointed out below:

 

1. Producers in a capitalist economy are rewarded and incentivized for their produce. They are motivated to grow and produce the best products for the market. The main aim is profit making and holding the property for a long term. This brings out the best in every producer.

 

2. In a capitalist economy the country grows and booms faster. More investors come to invest in businesses. Businesses are also under no pressure to fulfill every demand of consumers. They have the freedom to make what they feel like and what will give them profit.

 

3. There is optimum use of every resource. In a capitalist economy each resource is owned privately therefore people use the resources judiciously and no wastage is done.

 

4. For consumers, a capitalist economy offers much more choices in terms of products and services. They can choose what they like. Moreover producers are in a race to produce the best products so that they can attract more consumers in the market to get maximum profits.

 

5. Research and development also increases as more investors come.

 

6. In a capitalist economy there is much more innovation and efficiency as compared to a socialist economy.

 

Also Read | Market Socialism

 

 

Features of a Capitalist Economy

 

It is wise to say that without any bureaucratic influence or government intervention an economy can grow faster and with much more efficiency. Now let us look at the features of a Capitalist Economy.

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Features of a Capitalist Economy

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1. Private Property

 

Factories, plants and machineries, Industries, equipment and resources everything is privately owned in a Capitalist economy. Privately it can be owned by individuals or companies.

 

2. Freedom of Enterprise

 

By freedom of enterprise we mean that every person in a Capitalist economy has the right to make decisions. There is no interference from the government. Every person includes all the consumers and the producers.

 

3. Profit Motive

 

Profit earning is the main motive of a capitalist economy. Producers make and sell what they feel is profitable for them.

 

4. Price Mechanism

 

Market demand and supply determines the price in a Capitalist economy. Unlike a socialist economy where the government decides the prices, here market forces determine the price.

 

Also Read | Mixed Economy

 

5. Consumer Sovereignty

 

Consumers are free to choose which product they will buy or which service they will opt. There is no influence or intervention from anyone. Their demand is what induces the companies to produce a product so they can earn profit.

 

6. Free Trade

 

International trade is promoted in a Capitalist economy as tariff barriers are very less.

 

7. Government Interference

 

Like stated above, government intervention is zero in a capitalist economy. Producers and consumers work with their own will.

 

8. Freedom of Ownership

 

In a socialist economy no person is allowed to accumulate property or wealth in excess. But in a Capitalist economy a person can accumulate wealth, have property and use it when they want. There is no restriction.

 

9. Flexibility

 

In terms of employment and labor there is complete flexibility in a Capitalist economy. One can choose the job they want to do and hiring labor is also very easy.

 

“Capitalism is the only society in human history in which neither tradition nor conscious direction supervises the total effort of the community; it is the only society in which the future, the needs for tomorrow, are entirely left to an automatic system.”- Robert Heilbroner

 

Also Read | How Capitalism is different from Socialism

 

 

Disadvantages of a Capitalist Economy

 

A Capitalist economy is a free market and it originated in the 18th century in England. It has some cons as well. 

 

“Capitalism means that a few people will do very well, and the rest will serve the few.”- Michael Moore

 

Let us look at the cons:

 

1. In terms of income there will be inequalities among people. It will lead to an increased gap between the rich and the poor.

 

2. Firms enter the monopoly stage and it becomes difficult for workers and small producers to live in such a state.

 

3. As resources are privately owned, people start using them in any way they like. It causes scarcity and natural balance also gets distrubed.

 

A Capitalist Economy is one of the three economic systems that a country uses. It has its own merits and demerits as stated. For developing countries like India, this model can create more issues than merits. Therefore, it depends entirely on a country as to which system it will adapt.