What is capitalism?
Capitalism is an economic system where capitalists or
investors are free to engage in business activities with minimal government
influence. The economy is driven by the forces of demand and supply and capital
assets and equity is owned by private or corporate entities. Capitalism has
been related to Karl Marx though to his interest lay with the social impacts of
capital economics. Capitalism is characterized by the accumulation of capital,
a price system determined by economic forces and competition between entities
for profits.
Accumulation of capital
Capital represents money that is used to acquire goods that
are later sold for profit. The principle follows that the more capital you have
the more goods you can buy and the more you can sell to make a profit which
increases the financial capital. The amount accumulated relates to the wealth
the entity controls and is used to create more profits in an endless cycle also
known as law of value.
Capital markets
Capitalism led to development of markets at different levels
as opposed to the single market for exchange of goods as practiced in
feudalism. Capital and financial markets which came as a result of capitalism
offer an opportunity for savers to invest their money in long term ventures as
determined by governments and companies. Trading of shares, treasury bills and
bonds, minerals such as gold feature in capital markets, capitalism provides
for the labor market where people produce goods and are paid by the goods and
services markets such as companies. These services and goods are sold back to
the laborers who form the consumer market. Financial markets serve as
regulators of the amount of money in the system.
The price system, rate of competition and levels of capital
accumulation point towards different types of Capitalism these types depend on
mostly the government involvement in the system.
Types of economies
Mixed economy
It is characterized by some government intervention which
varies across countries. The involvement affects macroeconomics to correct
failures in the market, stabilization of the currency and adjusting inflation.
Mercantilism
This form of capitalism was practiced in the earlier times
and involved the trade and how it is done between nations. The country that
practiced mercantilism ensured that strategies were in place to forward their
business agenda and safe guard their national interest first regardless of
other participating countries.
Free market
This is a capitalist system where prices as determined
purely by the forces of economics or demand and supply to reach equilibrium.
There is no government involvement except in the protection of property rights.
Corporate capitalism
This is a system that is dominated by corporate entities,
these entities work out methods to cushion them from economic downturns and
competition to their benefit. These large corporations have the ability to arm
twist governments in supporting their advancement agenda.
State capitalism
This system involves the state developing state owned
corporations and engaging in active business to make profits.
Social market economy
This is a capitalist system where although the government’s
involvement is kept at a minimum they are required to provide their citizens
with the basics such as unemployment benefits and social security.
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