Capitalism is the predominant socioeconomic system in the contemporary world. Its main objective is to make profits and the accumulation of wealth.
How did it come about? The origins of capitalism date back to the time of the Industrial Revolution in the late nineteenth century and the forerunner was the Scottish philosopher Adam Smith is the first to write the basic economic principles that define this economic system.
In a capitalist society, people and companies carry out the production and exchange of goods and services through transactions in which prices and markets intervene.
Capitalism is currently adopted by most countries to develop their economy. The term “mixed economy” is often used to refer to the capitalist system with some intervention by the state, a situation that predominates in the economies of most industrialized countries.
1. Making a profit and accumulating wealth
This is the main objective of capitalism: to obtain wealth. The profit is derived from the values accumulated from the collective work provided by the private companies and played by the proletariat (workers).
For-profit to be always positive, the owners of the means of production (capitalists) adopt measures of cost containment, as suppliers and cheaper raw materials.
2. Workers are wage earners
Salaried work is another of the main characteristics of this socioeconomic system. The workers (proletariat) have the right by law to receive remuneration in exchange for their labor power.
The salary began to become more common during the period known as Industrial Capitalism (from the mid-eighteenth century). Until then, servitude and slavery were the two systems with the greatest presence in the world, reflecting the customs practiced during the Middle Ages ( Feudalism )
In the contemporary capitalist system, the proletarians represent the vast majority, which depends on the wages fixedly paid by the capitalists (private property owners).
The wage earners, in turn, use this money to buy goods and services from other capitalists, causing the system to move constantly.
3. The predominance of private property
In the capitalist system, productive systems belong to a person or a group, in general. These are personal goods or areas of individual use.
There are also within the capitalist system the so-called state-owned enterprises, which in theory are state administration. But due to the intense economic crises, many of them end up being privatized, that is, sold to private companies.
4. State intervenes little in the market (Market Economy)
This is the free initiative to regulate the capitalist market, with little or no state intervention. This process is carried out through the so-called law of supply and demand, where the prices of the products are determined according to the demand of the consumers and the quantity of the product on offer.
To get a better profit, companies need to offer quality products at affordable prices. In this sense, competition is another factor resulting from this law of supply and demand, as it broadens the purchase options, which causes prices to fall.
5. A division between social classes
Considered the most polemical characteristic of the capitalist system, class division determines within the process of collective labor the side that holds power and profit and the side of those who work for the production of this profit.
On one side is a so-called capitalist minority, represented by the owners of the means of production and capital, and on the other hand, the majority called proletarians, people who sell their labor power in exchange for a salary that guarantees health, food, transportation, leisure, etc.
This is the main point of class division, for not always the capitalist offers adequate and sufficient remuneration to meet all the basic needs of the workers.
6. Free company and work contracting
People with economic resources can open any type of company that is legal and are free to obtain economic resources to produce goods or services.
This freedom also extends to workers and consumers, since workers can do any work within their capabilities and consumers have the freedom to choose what they want to consume, seeking that the product meets their needs and is at their scope.
7.Free price formation
The interaction of the laws of supply and demand forms and regulates the prices with which goods and services are exchanged. This allows the allocation of resources and the distribution of wealth among individuals.
8. The growth of social inequality
Finally, inequality between social classes can become abysmal, causing groups to be wealthy, while others living in extreme poverty.
Social inequality is one of the most problematic fruits of capitalism. This disparity is usually associated with the unevenness of the country’s economy, that is, when it is unable to guarantee basic conditions for guaranteeing a quality standard of living for all.
In a capitalist system, there is the class that owns capital and therefore the means of production, and the working class that does the work. These classes are formed by a social-economic stratification and by the distribution of income that depends on the purchasing power of the different social positions within the production structure.
In capitalism, belonging to a social class is mobile, it is not static. Ideally, societies tend to achieve greater social mobility. This means that people who strive and have the merits can improve their quality of life and climb the social ladder
It is demonstrated that the specialization both in agriculture and in other areas, generates an increase in the production and commercial activity of raw materials. The consequence of this is the increase in the circulation of capital that stimulates the wealth of society, increases savings and as a consequence generates investment.
In a capitalist society, all the investment made is focused on obtaining economic profits. Before the investors did not care about social welfare, however, today companies are concerned about the welfare of society, since with it they get higher profits.
Advantages and disadvantages of capitalism
- Private capital can generate a lot of wealth, something difficult in other systems.
- You have access to private property.
- Everyone can exercise both their individual rights and those of the sector to which they belong.
- Entrepreneurship is promoted.
- There is a constant economic movement, even if only a minimum percentage of the country’s wealth.
- There is a decision making based on the freedom of thought of each person.
- The workforces have been modified until reaching the figure of the free wage-earner.
- The decentralization of power allows that production is not distributed, so the system will not always satisfy the basic needs of the population nor will it offer the same possibilities of participation in the distribution of wealth.
- There is a huge competition for money because this is the only social engine.
- There are bad working conditions such as exploitation or dismissal, justifiable for capitalism to offer and achieve what it promises (freedom of man and economic development).
- It does not satisfy the needs of those who have least.
- There is a great tendency to monopoly (although it should not be like that).
- Individual freedom comes before the rest of human rights.
Read more pros and cons of capitalism