What is Capitalism? Explain its features, merits and de-merits.

March 1, 2024 4 Min Read

Meaning:

The Capitalism is also called as free enterprise system. It is a system of economic organization featured by the private ownership and the used for private profit of man-made and natural made capital. Capitalism is a system of production for profit under which instruments and material of production is privately owned and the work is done mainly by hired labor that subsistence security and freedom seem dependent on the will of the owners. Who control the organization of factors of production the product belonging to the capitalist owner or owners? The merits and demerits of capitalism is purely based on the type of private sector.

Features of Capitalism

Right to private property: Everybody has a right to acquire private property to keep it and pass it on to his hires or dispose it off.
Freedom of enterprise: every citizen has the freedom to form any firm or company and set up a factory anywhere he likes provided he has the required capital and ability.
Profit motive: The profit motive induces people to undertake any production activity. What to produce, how to produce and how much to produce is determined by individual profit rather than social benefit.
Competition: the producers compete with one another to get the consumer choice. Similarly, there is competition among workers for job.
Non-interference of the government: The government is forbidden to undertake any economic activity. It should look after only matters such as defense, internal order and some important infrastructure.
Freedom of choice by the consumer: The consumers like and dislike determined the magnitude and pattern of production. Under capitalism, the consumer is sovereign.
Price system: It is the price which equates the demand and supply of commodities and factors of production in capitalism.
Key role of entrepreneur: The entire productive machinery of the commodity is under his direction and he is the key person.
Risk: there is risk of losses. The person who risks his money can control the business.
Economic inequalities: They will be inequalities of wealth and income and the inequalities arise from UN earn income which is due to uneven distribution of wealth.
Class conflict: The society is divided into two classes the haves and the haves not which are constantly at war with each other.

Merits of capitalism:

Automatic working: Capitalism functions automatically through the price mechanism and market forces of demand and supply. Adam Smith says that and invisible hand will adjust the imbalance if any arise.
Incentive to hard work: The entrepreneur and workers are to work hard and work more efficiently to earn higher profit and wages.
Higher rate of capital formulation: People save a part of the income so that it can be invested to earn more income and leave larger property for the hires.
Economic development and prosperity: There is tremendous increase in the productive power and production of all types of goods.
Optimum utilization of resources: The limited resources of the community are put to the most economical uses in order to make maximum profit.
Reward to the risk: The richest reward that is profit under capitalism goes to the about, the most daring as well as the most prudent entrepreneur.
Goods for lower prices: In capitalism production is taken on large scale and the goods are produced at lower cost and this leads to the availability of goods for lower price
Rising standard of living: With industrialization incomes of workers are increase along with the increase of their productivity
Individual freedom: People enjoy freedom as customers, and are free to spend their income as the like and sell their produce where they are please to sell.
Maximization of welfare: Every individual achieves maximum satisfaction under free enterprise and if all people are equilibrium, the social welfare will at maximum.

Demerits of capitalism:

Economic crisis: It is characterized by regular booms and depression of trade cycle. The fluctuation of trade cycle result from maladjustment in the market forces of demand and supply.
Inequalities of income and wealth: Private ownership of factors of production automatically results in inequalities of income and wealth.
In efficiency and wastage: competition leads to wastage. Colossal expenditure is incurred on advertisement and salesmanship to defeated rival.
Unemployment: With the mechanization of production the workers are thrown out of employment temporary and it increases the army of unemployed.
Class conflict: The interest of workers and owners’ conflict with each other and leads to class conflict of strikes and lock outs.
Concentration of economic power: With the increase of unearned incomes of owner, it leads to more investment by the same person and they will become monopolist by destroying their rivals so that take can reach supreme in their line of production
Exploitation of labor: They buy labor by paying minimum wages and labor is thus thrown to exploitation.
Disregard for human welfare: For the sake of high profit they produce harmful products which are harmful to the health.
International rivalry and conflict: For world market countries like UK and Germany waged to world wars.
Malpractices: To occupy markets the producer pay handsome amount to politicians and officials. They dump the market to avoid competition; they evade taxes to maximize the profits.