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SS2: ECONOMICS - 2ND TERM

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Definition of Capitalism

Capitalism is an economic system whereby the means of production are owned by private individuals. The capitalist economic system is based on acquiring private property. Examples of countries that practice this type of economic system are the USA, Italy, and France, etc.

In a capitalist economy, the allocation of goods and services is done by the interaction or movement of the forces of demand and supply (through a price mechanism or price system).  The bourgeoisie are the ones that own the means of production. A capitalist economy is also referred to as free enterprise or market, a Monetized economy. 

Types of Capitalism

Capitalism as it exists in all-capitalist countries is not the same. The operation of the system varies due to the introduction of some programs into the system. The following are the types of capitalist system.

1. The first type which the laissez-faire practice plays a dominant role in the economy. Government intervention is minimal with this type. Examples include the USA, Canada, and the UK, etc.

2. In the second type, there is lesser laissez-faire and much more government intervention. The government plays an active role in the economy. Examples include Italy, West Germany, etc.

3. In theThe third type the dominant factor is national economic planning. Examples are France, Netherland, Belgium, etc.

In all the three types, private interest still dominates the business affairs or activities.

Features of Capitalism

1. Private Ownership: The means of production land, labour, capital, and other factors are owned by private individuals. People who have means of production are free to put them to use. The individual has the right to acquire, keep, and use or dispose of any property without interference by the state. They are called the bourgeoise.

2. Consumer’s Freedom: There is an existence of free and competitive markets for the production of goods and services.  They can decide what to purchase. Both buyers and sellers are free to carry on their business activities without hindrance. There are free entry and exit and perfect knowledge of price and market conditions.

3. Price Determination: The prices of goods and services are determined by the forces of demand and supply

4. Aim to Maximize Profit: The aim of production under capitalism is to make profit. Profit motive, therefore, helps the capitalist system to function effectively by directing the movement of productive resources to areas where profits are highest.

5. Freedom of Individual Initiative: Since individuals are owners of the productive resources, they can direct them to where they are needed the most. In other words, they invest their resources in areas where the demand is high.

6. Class Struggle: In a capitalist society, there are classes such as the capitalist or bourgeoisie and the working class or the proletariat. There is a constant struggle over ownership and distribution of resources 

7. Exploitation of the working class through payment of low wages

Advantages of Capitalism

1. It encourages advancement, hardworking and personal interest

2. No government interference

3. It encourages specialization and increases standard of living.

4. Efficient allocation of resources.

5. Increases the level of development 

6. It eliminates dictatorship system

7. Promotes freedom of choice

Demerits of Capitalism

1. There is existence of competition

2. Inequality of income among the people

3. Cost of goods is mostly high 

4. High rate of unemployment may occur 

5. Increases the crime rate due to overpopulation in developed areas.

6. It increases the level of poverty to an extent

7. It discourages government firm control in the area of economic activities

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