Capitalism

Capitalism

Capitalism, also known as the capitalist economy, is an economic structure in which private businesses control and regulate the factors of production such as capital goods, labour, natural resources, and entrepreneurship. The production of all goods and services in a capitalist economy is reliant on market’s demand and supply. It differs from the central planning system, also known as a command or planned economy.
 
CapitalismORIGIN AND DEVELOPMENT OF CAPITALISM
• During the 16th, 17th, and 18th centuries, the growth of the English cloth industry was instrumental in the development of capitalism.
• The use of accumulated capital to expand productive capacity rather than investing in economically unproductive enterprises, such as pyramids and cathedrals, was a feature of this development that distinguished capitalism from previous systems.
• Several historical events aided in the development of this trait. Traditional disdain for acquisitive effort was diminished in the Protestant Reformation of the 16th century, while hard work and frugality were given a stronger religious sanction. The wealthy were thought to be more virtuous than the poor, so economic inequality was justified.
• An increase in Europe's supply of precious metals, as well as the resulting price inflation, was another contributing factor. Wages did not rise as quickly as prices during this time, and the capitalists were the primary beneficiaries of the inflation.
• These states' national power policies were successful in providing the basic social conditions for economic development, such as uniform monetary systems and legal codes, and eventually enabled the shift from public to private initiative.
• In England, the focus of capitalist development shifted from commerce to industry in the 18th century.
• During the Industrial Revolution, the steady capital accumulation of previous centuries was invested in the practical application of technical knowledge.
• The ideology of classical capitalism was expressed in the Scottish economist and philosopher Adam Smith's An Inquiry into the Nature and Causes of the Wealth of Nations (1776), which advocated allowing self-regulating market forces to make economic decisions.UPSC Prelims 2024 dynamic test series
• After the French Revolution and Napoleonic Wars swept the remnants of feudalism into oblivion, Smith's policies became more widely implemented.
• Free trade, sound money (the gold standard), balanced budgets, and minimum levels of poor relief were all policies of 19th-century political liberalism.
• World War I was a watershed moment in the evolution of capitalism.
• Following the war, international markets shrank, the gold standard was abandoned in favour of managed national currencies, banking hegemony shifted from Europe to the US, and trade barriers increased.
The Great Depression of the 1930s ended laissez-faire (government non-intervention in economic matters) in most countries, and for a time, many intellectuals, writers, artists, and, especially in Western Europe, workers and middle-class professionals, developed sympathy for socialism.
• The economies of the major capitalist countries, all of which had adopted some form of welfare state, performed well in the decades following World War II, restoring some of the confidence in the capitalist system that had been lost in the 1930s.
 
FEATURES OF CAPITALISM
PROFITEERING
The primary feature of a capitalist economy is the desire to make money. The presence of free markets and a lack of government involvement in business regulation are also characteristics of the capitalist economy.
 
PRIVATE PROPERTY
Private property, such as factories, machines, and equipment, can be owned by private individuals or companies, which is one of capitalism's most important characteristics.
 
FREEDOM OF ENTERPRISE 
Every individual in the capitalism system has the right to make their own economic decisions without interference. Both consumers and producers can benefit from this.
 
PROFIT MOTIVE
One of the most important drivers of a capitalist economy is the desire to make money. In this system, all businesses strive to produce and sell their goods to consumers in order to maximise profits.
 
PRICE MECHANISM
Without the involvement of the government, demand and supply in the market will determine the level of production and, as a result, the price set for the products.
 
CONSUMER Sovereignty
In this case, the market is ruled by the consumer's demands. It regulates the level of production carried out by businesses, while the consumer is free to choose which products to buy.
 
FREE TRADE
Low tariff barriers help to promote international trade in this system.
 
GOVERNMENT INTERFERENCE
In a capitalist economy, the government is not involved in the day-to-day operations of the business. Customers and producers are both free to make their own choices when it comes to products and services.
 
FLEXIBILITY IN LABOUR MARKETS
The hiring and firing of employees is more flexible in capitalism.
 
FREEDOM OF OWNERSHIP
In this system, an individual can amass any amount of property and use it according to his wishes; after his death, the property is passed on to his heirs through the right of inheritance.
 
CapitalismADVANTAGES OF CAPITALIST ECONOMY
• The capitalist economy is more efficient because products are manufactured in response to consumer demand.
• Government intervention and bureaucratic interference are reduced.
• More room for innovation as companies try to capture a larger share of the market with their products.
• It prohibits any form of discrimination, allowing trade between two parties to proceed without hindrance.
 
DISADVANTAGES OF CAPITALIST ECONOMY
• Capitalism results in income disparities.
• In capitalism, businesses can gain a monopoly over employees and customers.
• A capitalist economy with a high profit motive uses resources in such a way that it destroys the natural balance, resulting in environmental problems.

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