The Capitalist Economy - Assignment Example

The capitalist system operates on the basis of the private ownership of the country’s wealth. The driving forces behind the capitalist system are based on private enterprise in the pursuit of making profit. It is a system in which individuals, who privately own resources, can use these in whatever manner they choose, as long as they do not violate the minimal legal restrictions.

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The Characteristics of the Market Economy:

Looking broadly at the Capitalist System, it could be seen that there is a great amount of economic freedom granted to individuals concerning the ownership of resources as well as private property. Thus, one could question how does such an economic system with this amount of freedom not lead to confusion.

1. The System of Private Property: In the Capitalist system, property is owned by individuals or groups of individuals, indicating that the state is not the predominant owner of the property. This private ownership is harnessed by the country’s legal system and police force, so that the individuals are free to do whatever they choose with their property, as long as they do not violate the property rights of others, determined by the government of the capitalist country such as the United Kingdom and the United States.

2. Free Enterprise and Free Choice: This means that individuals have the right to allocate resources, process them, and sell a product to the market, without restrictions by the government. Similarly, any individual in the market can buy whatever good he/she chooses. Based on this it could be seen that it is the consumers themselves who decide what products are to be produced. This occurs based on the idea that demand determines the products being supplied.

3. Competition and Unrestricted Markets: Competition is rivalry between sellers in the aim of attracting consumers to buy their products. For this to occur, it is necessary that there is a large number of sellers, and that theses sellers have the freedom to enter or leave the market whenever they find it fit. Having a large number of sellers ensures that no one buyer or seller can influence the price of a certain product in the market. According to “Economics Explained”, competition imposes limits on the self-interest of buyers and sellers. Competition then is the regulating force in Capitalism. This regarded to the European Union market.

4. Self-Interest: Self-interest means that the different parts of the economy function in the pursuit of the maximum profit and the minimum losses. Thus, it is an idea of self-interest that “is the guiding light of Capitalism”1. Examples of these market are in the Middle East market.

5. The Pricing System: The Capitalist system is based on the prices set for products, which are determined by factors, including competition, supply, demand, and monopolies. Since the prices are not fixed, incentives and motivation of the entrepreneurs and manufacturers increase.

6. The Limited Role of the Government: The role of the government is to protect the property rights of the workers and entrepreneurs, and to keep control of the property vested with the owners. Therefore, it is necessary that the government plays a role in the economy, but in a restrained way. This could be called “Laissez Faire”, which means that the businesses and the economy should be ‘left alone’ by the government.

Examples of Countries with the Market (Free) Economy:

The Market Economy is seen most clearly in countries like Hong Kong, the USA and Western Europe. Other countries, which formerly had Centrally Planned Economies, such as the USSR, and China, are moving gradually towards a more Free Economy. However, it is necessary to note that none of the examples given above are pure Capitalist Economies. In practice, all economies involve a mix of planned and private sectors, though these sectors vary from country to country. Britain, though technically a Capitalist Economy, under the current labor party, it seems to be a good example of a rather mixed economy.

Some Disadvantages of the Market Economy:

Despite the characteristics mentioned above, a capitalist economy could lead to extremism in the sense that wealth may be concentrated in the hands of a few businessmen, thus, creating extreme wealth versus extreme poverty. This disparity in wealth could, in the long run, lead to recession or even depression in the economy. Furthermore, a common feature of a Market Economy is the rise of monopolies and the setting of unfair prices. Moreover, since the driving force of capitalism is profit making, some industries, albeit not profitable but still necessary, may be ignored. Examples include keeping a non-profit-making factory open so as to avoid lying off workers, or extending a bus service to a remote part of the country.

Nevertheless, it could be said that the market economy is one that has benefited millions throughout the world. However, the question as to how far this system is a good one remains a controversial issue.