What is ‘capitalist economy’? What are its main features?


Nations around the world have been using different types of economic systems. But of these, capitalism and socialism are considered to be the two major systems. The pure form of capitalism is often referred to as the ‘open market economy’. Both of these economic systems also combine political and social elements that affect the level of purity of each system.

In other words, in many capitalist nations the elements of socialism are also connected. Thus, despite the level of commitment to the ideals of capitalism, there are many characteristics. Which are the same in all capitalist economies. The capitalist economic system focuses on the open market to determine prices based on the effective distribution, demand and supply of resources.

On the other hand, the socialist economic system is often viewed as the opposite of capitalism. Where there is no open market, the allocation of resources is determined by the central body. Both of these economic systems have their own characteristics and values. But here, the five main features of the capitalist.

1) Two class system

Historically, in capitalist society, people have been divided into two classes. First, the ‘bourgeoisie’, which has the resources to produce and distribute goods. Next, the ‘working class’ who pay their wages to the bourgeoisie. The economy is run by individuals or companies.

They also have the right to decide on the use of resources. However, there is also the ‘division of labor’. Generally, the division of labor is due to education, experience, training and coaching. Which further divides the two classes into sub-classes. An example of this is the ‘middle class’.

2) Private ownership

In a capitalist economy, property and equipment are owned by the private sector. Those who have the resources to produce decide how to run their business, how much to produce and how much to employ. In contrast, in a socialist economy, there is no private ownership. In which all the means of production are under the control of the state and the decision regarding production and distribution is also made by the state.

3) Profitable

In a capitalist economy, companies are set up for profit. The purpose of all companies is to produce and sell goods and services for profit only. Companies are not just set up to meet the needs of the people.

Even if some goods and services meet the need, people have the resources to buy them and only if the producer benefits. The purpose of profit is to accumulate wealth. Which is a major factor in providing employment to people and encouraging innovation.

4) Minimal government intervention

In a capitalist society, the market is everything. Therefore, they believe that the market should be left free and open without government intervention. Pure capitalists believe that the open market will always create the right amount of supply to meet demand and that all prices will be adjusted accordingly.

Therefore, they believe that any government intervention will hinder the effectiveness of the open market economy and create inefficiency in the society as well as in the economy. However, a completely government-free capitalist society exists only in theory and on paper. The United States, considered the pioneer of capitalism, regulates certain industries.

5) Competition

True capitalism needs a competitive market. Monopoly is born without competition. If there is a monopoly, the market determines the price of the goods and services and the seller determines the price. Which is contrary to the capitalist ideal. It is believed that competition encourages companies to be better than their competitors.

At the same time, there is a capitalist belief that competition gives birth to new creations. As goods and services become cheaper due to competition, it is likely to be beneficial for consumers as well. However, competition needs to be healthy.


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