Menu Close

What is Capitalism | Definition, Advantages and Disadvantages of Capitalism

Traditional Economists or Classical Economists are called the creators of the capitalist economic system. From the eminent economist Adam Smith to J S Mill, all eminent economists have contributed to the development of the capitalist economic system. Scholars have different views on capitalism. Various scholars have defined the capitalist economic system on the basis of its characteristics. In this article we will know what is capitalism and what is the Definition, Meaning, Advantages and Disadvantages of capitalism.

What is Capitalism | Definition, Advantages and Disadvantages of Capitalism

What is Capitalism

Capitalism is a widely accepted economic system in which the means of production are privately owned. Capitalism is based on the concepts of private property, profit motives and market competition.

Capitalism is an economic system where the components of production belong to the private sector. Owners of capital goods, natural resources and entrepreneurship are controlled by companies. Individuals own their labor. The four components of capitalism are entrepreneurship, capital goods, natural resources and labor.

Meaning and Definitions of Capitalism:

Some of the main definitions of capitalism are as follows:

Locks and Hoot – “Capitalism is a system of economic organization in which individual ownership is found and man-made and natural resources are used for personal gain.”

Pigou – “Capitalist economic system is one in which the right to use or the right of material means of production is with a few persons. Profit should be made by them. A capitalist economy is one in which the major part of the means of production is employed in capitalist industries.”

Benham – “Capitalist economy is resistant to economic dictatorship. There is no central planning in the field of production. Everyone is free to act according to his will except the restrictions imposed by the state. Makes economic decisions and economic actions according to his will. Because he is the owner of the means of every production. Which he can use in any use he wants to earn income. “

G.D.H. Cole – “Capitalism is that system of production for profit, under which there is individual ownership of the equipment and materials of production. And the production is mainly done by wage workers.” And this production is the right of the capitalist owners.

Sidney Webb and B. Webb – the term capitalism or capitalist system or capitalist civilization refers to that stage of development of industries and legal institutions in which a class of workers can free themselves from ownership of the means of production. separates and joins the wage earner class.

The subsistence, security and personal liberty of this class depend only on the will of the limited number of capitalists who control land, capital, machines and factories, etc. And all these works are done for the purpose of their own personal and personal gain.

Dr. Bharatan Kumarappa has written in his book ‘Capitalism, Socialism and Villageism’ while defining capitalism – Capitalism is an economic system. In which the production and distribution of goods is done by individual units or group of persons. These people use their accumulated wealth to accumulate more wealth. Thus two elements are important for capitalism. Private capital and private profit.

Advantages of Capitalism

The capitalist economy has certain advantages and disadvantages. That is why this economy still survives in one form or another in most parts of the world. Its main merits / advantages are as under.

(1) Automated economy

In a capitalist economy, the organizers have complete freedom to decide on the nature, type, quantity, method, capital investment, etc. of the product. Therefore, each organizer adapts the tools required for the production work and makes all the decisions related to it.

In no case does the convener depend on the government. The economy works smoothly without government intervention. Therefore, the capitalist economy is in a way an automatic economy.

(2) Maximum efficiency

Every citizen of the country is trying to earn maximum income due to private ownership of property and motivation for profit. The value of wealth depends on one’s efforts and income. In capitalism, the equation is more effort, more income, more wealth, more consumption and investment. Thus the right to private ownership and the motivation for profit help to keep the efficiency of each person high.

(3) Maximum use of productive tools

Competition is an important institution in a capitalist economy. In order to survive in the competition, the production environment of manufactured goods must be kept to a minimum. To this end, every manufacturer strives to make maximum use of its resources sparingly and efficiently. Maximizing the use of resources leads to a decrease in production outflow and an increase in profit margins.

(4) Technological progress

In order to successfully compete in the market, it is necessary to improve the quality of goods by reducing the cost of production. For this, manufacturers are trying to produce quality goods with little capital using new technology. The need of the hour in the capitalist economy is to keep abreast of technological advances in order to survive in the competition. Organizers who do not make technological advances are on the verge of extinction.

(5) Large scale production and financial savings

In a capitalist economy there is constant competition. In order to survive in the competition, the producer has to buy a large quantity of products. In order to produce on a large scale, division of labor, specialization, modern technology, new methods of production, etc. have to be adopted. This saves on production costs.

In addition, large quantities of raw materials are procured, resulting in lower prices. Advertising costs are saved, while others benefit from internal and external savings.

(6) Production on demand

In a capitalist economy, the consumer is the sovereign. Therefore, only those items which are in demand in the market are produced. Essential, pleasant and luxurious products are produced keeping in mind the preferences of the customers – choices, fashion etc. The availability of consumer goods in the market increases the standard of living of the people.

(7) Economic development

New products are produced to maximize profits. New techniques are adopted in production. New inventions are made. New industries are started. As a result, economic growth occurs.

(8) A system of democratic nature

In a capitalist economy, the citizens of a country have financial freedom. Everyone can carry out their financial activities as they wish. Just as the consumer has freedom of consumption, so does the producer have freedom of production. Therefore, this economy is considered to be democratic in nature.

Disadvantages of Capitalism

The capitalist economy is full of merits and demerits. There are advantages as well as disadvantages. The major defects / disadvantages are as follows.

(1) Economic and social inequality

Economic independence, profit motive, right to private property and inheritance system are the main features of capitalist economy. It is because of these traits that everyone strives to become rich. The bourgeoisie’s efforts were so successful that they had a concentration of wealth. The capitalists get a very large share of the income from the production process and the workers get a very small share. As a result, two classes are formed in the society, rich and poor, and economic and social inequality starts increasing.

(2) Creation of monopoly

Although the capitalist economy has seen competition in the early days, with the development of capitalism comes the concentration of economic power in the hands of the big capitalists and the monopoly tendency. Too often, large producers come together to form a coalition to avoid competition. This establishes a monopoly in the market. Once a monopoly is established, producers create prices or artificial scarcity of goods and rule consumers to maximize profits.

(3) Importance of personal interest

In a capitalist economy, personal interests are paramount. Feelings of individualism grow as each person thinks of his or her own benefit. The tendency to cooperate, help, or loyalty diminishes. Social interests are sacrificed to fulfill one’s own narrow self-interest. Since ‘making money’ is the main goal of every person, ideals or values ​​have no place in society.

(4) Exploitation of workers

In the early days of capitalism, the capitalists exploited the workers on a large scale. In order to survive in the competition, it was necessary to reduce the cost of production of goods. So in order to reduce the cost of production, the capitalists paid the workers less and made them work longer hours, but gave them very little. In this way the capitalists exploited the workers by taking advantage of their helplessness.

(5) Class struggle

‘Economic inequality’ is the offspring of capitalism. Economic inequality creates two classes in society. One class of capitalists who own the means of production and the other class of laborers who work for wages. Capitalists exploit workers to maximize profits.

Workers unite to oppose this exploitation and demand their rights as well as economic and social justice. This created conflict between the capitalists and the workers and destroyed the industrial peace. In order to get their demands for justice, trade unions, strikes, sieges, strikes, etc., resort to force to stop production. This reduces the level of production and creates misery in the society.

(6) Ignoring the basic needs of the society

In a capitalist economy, all decisions are made on the basis of maximum profit. The production of essential items like food, clothing, shelter is less profitable while the production of luxury items like TV, fridge, air conditioner is guaranteed to be profitable. Therefore, capitalists produce luxury goods by reducing the production of essential commodities. As a result, the majority of the society does not get the necessities of life in the market and a handful of rich people get the luxuries they want in abundance. Thus the limited resources of the country are used for luxury goods instead of being used for the needs of the majority of the people.

(7) Artificial scarcity and inflation

In the capitalist economy, manufacturers and merchants resort to a number of anti-social and unethical means in order to make more profit. By creating artificial scarcity of goods, they charge higher prices for the same goods from the consumers. There is a dearth of these items even though the production of essential items is on a large scale. On the black market, however, these same items are readily available at higher prices.

(8) Unrealistic importance of money

Money is of paramount importance in a capitalist economy. Money is the means to an end. The ultimate goal of people is to get money by any means, moral or immoral, good or bad, and the fact is that once they get the money, all the comforts are automatically squandered on the money. The one who has more money automatically gets all the comforts and social prestige.

(9) Impact of financial stability

In a capitalist economy, the cycle of ups and downs continues. The trade cycle creates uncertainty in the economy and threatens economic stability. Both ups and downs are bad. But the effects of the recession are far greater than the effects of the recession. During the recession, sales of goods stalled. Production has to be stopped. Unemployment and starvation plague the workers and the economy collapses. In the global recession of 1929, the economies of many countries collapsed in the same way.

Also Read –

Related Posts