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Introduction to Capitalism

Every society has both a political structure and an economic structure. Unfortunately, the political and economic dimensions of a society are often confused. In the past, two major economic systems have existed: first one is capitalism and the other one is socialism. A socialist economy is one in which most capital – equipment, factories, railroads, buildings, and so forth – all of them are owned by the government instead of individuals. Another term which is mostly used to explain this kind of system is Social ownership.

Capitalist economy is the reverse of what socialist economy is; in capitalist economy most capital is privately owned. Beyond these systems is a purely theoretical economic system called communism. Summary Communism is an economic system in which the people control the means of production (land and capital) directly, without the interventions of a government or state. In the world envisioned by communists, the state would wither away and society would plan the economy in the same way a collective would.

Although some countries still consider themselves communist – including Tanzania, North Korea, chine and Cuba – economic planning is done by the government in all of them. Comparing economies today, the real distinction is between centrally planned socialism and capitalism, not between capitalism and communism. The private ownership of resources and the use of a system of markets and prices to coordinate and direct economic activity characterize laissez-faire capitalism or pure capitalism.

In such market systems each participant acts in his or her own self – interest; each individual or business seeks to maximize its satisfaction or profit through its own decisions regarding consumption or production. Let’s examine in detail the basic tenets that define capitalism 1 private property 2 freedom of enterprise and choice 3 self-interest as the dominant motive 4 competition 5 reliance on the market system and 6 a limited role for government Private property: In a capitalist system, property resources (Land, capital) as usually owned by private individuals and firms, not by government.

In fact that private ownership of capital is what gives capitalism its name. Freedom or enterprise and choice: Closely related to private ownership of property is freedom of enterprise and choice. Capitalism requires that various economic units make certain choices, which are expressed and implemented through the free markets of the economy. Freedom of enterprise means that land private businesses are free to obtain economic resources, to organize those recourses in the production of goods and service of the firm’s own choosing, and to sell them in the markets of their choice.

Freedom of choice means that owners can employ or dispose of their property and money as they see fit. It also means that workers are free to enter any lines of work for which they are qualified. Finally, it means that consumers are at liberty, within the limits of their incomes, to buy that collection of goods and services which best satisfies their wants. (McConnell Brue) Self-Interest. The primary driving force of capitalism is self-interest. Each economic unit attempts to do what is best for itself. Entrepreneurs aim to maximize their firm’s profits, or in adverse circumstances, minimize losses.

Property owners attempt to get the highest price for the sale or rent of their resources. Human beings are, and have always been, essentially homo-economicus (Selfish), self centered, greedy and rational. Labor is co-equal with land and capital, to be bought and sold and pressed into service for production at the beck and call of capitalism. (McConnell Brue) Analysis The advocates of pure capitalism argue that such as economy promotes efficiency in the use of recourses stability of output and employment and rapid economic growth.

Hence, there is little or no need for government planning, control, or intervention. The term “laissez-faire” means “Let it be” that is, keep government from interfering with the economy. The idea is that such interference will disturb the efficient working of the market system. Government’s role is therefore limited to protecting private property and establishing an environment appropriate to the operation of the market system.


ECONOMICS (Principles, Problems & Policies) by McConnell Brue 14th edition

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