Capitalism is an economic system in which a country’s trade, industry, and profits, are controlled by private companies instead of the people who contribute their time and labour to the company. In this system, private entities own the factors of production such as entrepreneurship, capital goods, natural resources, and workforce. Individual capitalists are typically wealthy people who have a large amount of capital invested into the business and benefit from the capitalistic system by making increased profits and thereby accumulating more wealth.
Capitalism requires a free market economy to succeed. It distributes goods and services according to the laws of supply and demand. The law of demand says that when demand increases for a particular product, its price rises. When competitors realize they can make a higher profit, they increase production. The greater the supply reduces prices to a level where only the best competitors remain.
Capitalism results in the best products for the best prices because consumers will pay more for what they want the most. Businesses provide what customers want at the highest prices, but the prices are limited by business competition, making their products as efficiently as possible to maximize profit. Most important for economic growth is the reward of capitalism for innovation, including new products and more efficient production methods.
Capitalism does not provide for those who lack competitive skills, including the elderly, children, the developmentally disabled, and caretakers. To keep society functioning, capitalism requires government policies that value the family unit. Despite the idea of a level playing field, capitalism does not promote equality of opportunity. Those without good nutrition, support, and education may never even make it, and society will never benefit from their valuable skills. People who can find work may face low wages, limited possibilities for advancement, and potentially unsafe working conditions. In the short term, this inequality may seem to be in the best interest of capitalism’s winners. They have fewer competitive threats and may use their power to rig the system by creating barriers to entry. Capitalism also ignores external costs, such as pollution and climate change, in its pursuit of increasing levels of consumption and growth. The system makes goods cheaper and more accessible in the short run, but over time, it depletes natural resources, lowers the quality of life in the affected areas, and increases costs for everyone.