Capitalism- Advantages and Disadvantages

28 March 2020

 

You’ve probably heard people talk about capitalism. Whether you overheard your parents talking about it or you read about it in a local newspaper, what does it really mean?

Well, it’s amazing how you can know something, yet you have very little detailed information about it. Let’s face it. Most people only have a slight idea of what Capitalism is. If told to explain what it really is and how it came about, they probably hide their faces in their arms.

Many students also fall into this category. It’s not a crime. So what am I trying to say? Let me explain.

Just like writing any other essay or research paper, writing an essay on capitalism can sometimes prove to be a challenging task for many students. To start, you might be having some ideas, but putting them on paper becomes a problem due to various reasons, such as your writing skills. Or you actually don’t have time to gather all the information needed for writing your essay on capitalism. [Buy cheap term papers online]

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Here is what our expert writers cover whenever they write your essay on capitalism:

What is Capitalism?

Capitalism is an economic system where the private sectors control a country’s industry, profits, or trade. Private entities control and own the four factors of production, e.g., labor, capital, entrepreneurship, and natural resources. An excellent example of a capitalist state is the United States.

However, there are a few other economic systems that have been around for quite a while–and countries still embrace them up to today, they include Communism and socialism. The purest type/form of capitalism is a free market, where private individuals are not restrained. They can decide what to sell, produce, invest, and the price to exchanges their goods and services. [Write my paper cheap]

History of capitalism

Do you remember the term feudalism from your social studies class? Capitalism is believed to have grown based on the death of feudalism. Feudalism is a system of hierarchy where the wealthy owned almost all factors of production, especially land. Poor farmers sold their land to the rich in exchange for protection and a place to live.

This meant that poor farmers could not climb the ladder and become wealthy. They always remained poor farmers. The system reduced competition because it was oppressive and unequal.

However, when the poor farmers came together and revolted, they reclaimed their land. They started competing with one another and selling their produce to one another. Those who were more competitive and savvy quickly climbed up the ladder of class because they made a lot of money. This made the wealth also to start paying for services offered by the poor farmer. And without notice, capitalism came into existence.

Who is capitalist?

A capitalist is an individual who is typically wealthy and has a large amount of capital investment, which includes the money and financial investments. He/she invests a lot in business and benefits from the capitalist system by making extremely high profits and thus adding to his/her wealth status. This is because capitalism focus on private property growth, freedom of choice, limited government intervention, and economic growth.

The impact of capitalism depends on whether one is a boss or a worker. For people who start and run their business, capitalism is a good idea and makes sense. This is because the more profit your business makes, the more resources the owner will have to share with the workers. All this comes down to the principle of supply and demand.

However, most bosses aren’t good at sharing their wealth according to what they earn. This is why some people, especially workers, critique capitalism. 


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Characteristics of Capitalism

Although there is a commitment to the idea of capitalism, most capitalist nations have some elements of socialism. Here is a list of the characteristics of Capitalism.

• Privative ownership

• Capital accumulation

• Free market or minimal government intervention

• Voluntary participation

• Competition

• Willingness to change

Forms of capitalism

There are various derivations of capitalism from its purest form. This mostly occurs due to government influence in various sectors of the economy. Here are the variations/forms of capitalism.

1. Crony Capitalism

Crony is a term that describes a situation where a company’s success is strategically influenced by politicians, civil servants, and other people who may be in authority. In most cases, business owners buy off politicians and those in power in return for favors.

This form of the political system has been experienced in countries such as South Korea, China, and Latin America.

2. Democratic capitalism

Democratic capitalism describes an economy that is based on free markets and economic incentives, a liberal and classical moral-cultural system where pluralism is encouraged, and a democratic polity. Its democratic nature allows pluralism and recognizes the idea that people have different interests and opinions. This enables them to interact and share their thoughts freely.

Those who started democratic capitalism believed in equity and liberty. [Do my essay for me]

3. State Capitalism

This is where the state owns industries that play a key role in the market economy. For instance, the government can invest in the telecommunication and transport industries, which play an essential role in the market economy.

A good example is modern China. Although private firms play an important role in supply and demand, the state influences critical sectors of the economy, e.g., energy, transport, exchange rate policies, monetary policies, and planning.

4. Mercantilism

This form of capitalism dates back to the 16th Century. Mercantilism states that a well-managed balance of trade can only increase the wealth of a nation. A trade imbalance with other countries leads to a deficit that negatively affects imports or exports. In short, mercantilism is a mixture of interest, national business interest, and imperialism.

5. Finance capitalism

This is where firms are in pursuit of profits by being involved in the sale and purchase of financial products. Some of these financial products include stocks, currency, bonds, and other types of financial products. Firm owners also lend money to people and other firms at a specified interest rate.

If you decide to invest in real estate, then you have delved into this form of the economic system.

6. Laissez-faire Capitalism

This is where an economy operates without any economic activity rules or government intervention. There is a complete separation of the state and the economy. One of the main causes of the emergence of laissez-faire capitalism is The Great Depression. Before The Great Depression, a lot of money, energy, capital, power, and wealth rested on a few individuals, which reduced the rate of money exchange.

7. Social market economy

The social market economy is an economic system where state intervention in the market is minimized. However, the government offers many social services to the public.

A good example is Sweden. Most of the citizens in Sweden owe their economic benefits to the country’s complex social welfare structure.


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Advantages and Disadvantages of Capitalism

Advantages

According to Milton Friedman, any nation or society values equality more than freedom ultimately gets neither. A nation that values freedom more than equality gets both. Here are the advantages of capitalism:

1. Economic freedom–which leads to political freedom

Capitalism leads to economic freedom because people can carry out various activities according to the forces of demand and supply. More economic freedom is witnessed when leaders support citizens in doing their businesses freely without intervention. If a government owns, produces, and sets the prices of primary commodities, it's hard for that government to become a powerful state. This is because these governments tend to create a bureaucracy that usually extends to other sectors of the economy. [Buy cheap term papers online]

2. Firms become more efficient

In a capitalist economy, firms produce goods and services that are in demand. The society also has incentives that create some form of pressure for firm owners. This pressure ensures firm owners reduce the cost of products in order to avoid any wastage.  On the other hand, firms that are owned by the government tend to have fewer incentives for innovation, and they are less willing to lay off surplus workers-which makes state-owned firms more inefficient.

3. Increased innovation

Capitalism brings about innovation because entrepreneurs are always eager to meet the constant needs of people. These entrepreneurs also seek to develop commodities and services that can earn them more profits. Therefore, they are more than willing to invest in new ventures that may be popular among consumers in the future.

4. Increased economic growth

Since firms are always looking to make profits, their employees tend to work hard. Hard work and innovation ensure people’s living standards improve, and the real GDP (Gross Domestic Product) of a nation also increases. Through innovation, people also get jobs, and this wealth creation ensures everyone benefits, both the rich and the poor.

Usually, when the government is left to control the economy, several problems are likely to set in. For example, most nations in the world today are faced with the challenge of imperfect information, corruption, and lack of incentives.  


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Disadvantages

1. Private ownership leads to monopoly power

Private ownership of property can lead to firms exploiting their positions. This could make them charge high prices for goods or services that would otherwise be cheaper if there were many competitors in the market. Private ownership, especially ownership of capital, can make firm owners have monopoly powers in the labor and product market. 

2. Inequality

In most capitalist societies, there is inequality between firm workers and owners of capital. This creates monopsony powers that make capital owners pay workers lower wages. This brings about monopsony exploitation, and the firm owners tend to get richer while workers remain relatively poor. 

A good society should have people who care about others, especially if it’s firm workers. Although firm owners are always looking forward to increasing their profits, it's important that they think about the welfare of those who work for them.

3. Ignores externalities

Its rear for a perfectly free market to exist. This is because there are several externalities that firms experience from time to time. For instance, most firms tend to ignore how negative externalities affect the surrounding environment and those who live around it. 

Negative externalities can include pollution of the nearby river, among other things. There are also positive externalities such as education, public transport, and health that have a lot of influence on the free economy. Moreover, most capitalists admit that provisions of public goods and services are essential for society. 

4. Diminishing marginal utility of wealth

Capitalism is based on the idea that it’s okay for people to earn as much as they want regardless of the wealth and income inequality that may exist in society. However, capitalism tends to ignore the law of diminishing marginal utility of wealth because as wealth increases, people tend to get less happy and satisfied with what they are earning. 

This means that more money may not necessarily make you happy. For instance, a billionaire may not see any significant difference if he adds one million dollars to his/her wealth. However, this amount of money can bring a lot of happiness to people in hospitals if he/she used it to offset their bills.  

5. Bust and Boom cycles

Capitalist economies tend to have the worst recessions as well as mass unemployment due to boom and bust cycles. Inflation also reduces the value of money, and thus people earn less. Therefore, the solution to this is intervention from the government and other relevant bodies through monetary and fiscal policies.

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