Capitalism

Definition

Capitalism is an economic system where private individuals or businesses own capital goods and are responsible for their production, distribution, and exchange. This system is characterized by the principles of free market competition, investment, profit motive, and limited government intervention in the economy. Capitalism is deeply connected to concepts of individual freedom, economic growth, and social inequality, making it a focal point in discussions about political ideologies and global economic structures.

5 Must Know Facts For Your Next Test

1. Capitalism emerged in Europe during the late Middle Ages and became more prominent with the rise of mercantilism and the Industrial Revolution.
2. In capitalist economies, supply and demand drive the production and pricing of goods and services, leading to competition that can foster innovation.
3. Critics argue that capitalism leads to social inequality because it allows wealth to accumulate in the hands of a few individuals or corporations, resulting in disparities in access to resources and opportunities.
4. Classical liberalism advocates for capitalism as it promotes individual freedoms and entrepreneurship, believing that a free market leads to overall societal benefits.
5. Marxist theory critiques capitalism as an exploitative system where the working class (proletariat) is undervalued while the owners of capital (bourgeoisie) benefit disproportionately from their labor.

Review Questions

• How does capitalism relate to the principles of classical liberalism in promoting individual freedoms?
  • Capitalism is closely tied to classical liberalism as both emphasize individual rights, personal freedom, and limited government involvement in economic affairs. In a capitalist system, individuals have the liberty to own property, start businesses, and engage in voluntary exchanges. This aligns with classical liberal values that prioritize personal autonomy and entrepreneurship as key drivers of economic growth and innovation.
• Discuss how classical Marxism critiques capitalism and its effects on society.
  • Classical Marxism critiques capitalism by arguing that it inherently leads to class struggle and social inequality. Marxists believe that capitalism exploits workers (proletariat) who do not receive fair compensation for their labor while the owners of capital (bourgeoisie) accumulate wealth. This exploitation creates a divide between classes and results in social conflict as workers seek to improve their conditions against capitalist interests. The Marxist perspective emphasizes that capitalism is unsustainable in the long run due to these inherent inequalities.
• Evaluate the impact of capitalism on global inequality, considering both its benefits and drawbacks.
  • Capitalism has had a profound impact on global inequality, offering economic growth and opportunities for wealth creation while simultaneously exacerbating disparities between rich and poor nations. On one hand, capitalist economies tend to innovate rapidly and generate wealth, lifting many out of poverty. However, this growth often comes at the cost of increased inequality both within countries—where wealth accumulates among elites—and between countries—where developed nations benefit disproportionately from global trade networks. Evaluating this impact requires analyzing how capitalist dynamics can lead to sustainable development versus deepening divides.

Related terms

Free Market: An economic system where prices for goods and services are determined by open competition between businesses, with minimal government intervention.

Private Property: The legal designation for the ownership of assets by individuals or corporations, which is a fundamental principle of capitalism.

Wealth Inequality: The unequal distribution of assets among individuals in a society, often exacerbated by capitalist systems that favor accumulation of wealth.