What is Capitalism?
Capitalism is an economic theory where the means of production, trade, and industry are owned and controlled by private individuals with a major motive to earn profits. Under capitalism, demand and supply freely set prices in markets in a way that can serve the best interests of industry. Businesses on their own are free to determine at what price market offerings should be made, what products will be sold, or how much investment shall be made without any approvals or counter-inspection. Economic decisions under capitalism are decentralized. Capitalism has its lawyers and its critics both, however, nowadays economists prefer that capitalism is essential for any growth of the economy but due to its cons, the adoption of a mixed blend of capitalism and socialism is popular around the world. Examples of countries that follow capitalism are the United Kingdom, New Zealand, Hong Kong, Canada, etc.
Key takeaways from Capitalism:
- Capitalism refers to a Laissez-Faire Economy or a Free Market Economy, as there is no control and intervention of governmental bodies.
- Capitalism also promotes healthy competition in the market which gives freedom to choose consumers among several options available.
- Market mechanism determines the prices and economic decisions are taken in a decentralized manner.
- Businesses and consumers come together for their interests and lead to economic prosperity.
Difference between Capitalism and Communism
Decision-making regarding production, trade, and industry lies in different hands under different conditions. There are generally two basic theories, namely Capitalism and Communism. Under Capitalism, decisions lie in the hands of private individuals with a motive of profit maximisation. Whereas under Communism, such decisions lie in the hands of central authority/government bodies, with a motive of social welfare.
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