In a capitalist economic system, the means of production are owned and operated by private individuals whose main object is to maximize profits. Free enterprise, competition, and private ownership of property are the important features of capitalist system. Capitalism is also known as Free enterprise economy or Free market economy.
Definition of Capitalism
In the words of Prof. R.T. Bye capitalism is that
“system of economic organization in which free enterprise, competition and private ownership of property generally prevail”.
According to G.D.H. Cole,
“capitalism is a system of production for profit under which Instruments and materials of production are privately owned, the work is done mainly by hired labor, the product belonging to the capitalist owner or owners”.
Kinds of Capitalist system
The Capitalist system can be divided into two kinds namely,
1. Laissez Faire
Under the laissez faire capitalist system, there is no Government intervention in the economy.
2. Mixed Capitalism
Under the mixed capitalism, Government intervenes the economic and industrial development substantially. It is a modern capitalist system. It is also known as “Regulated capitalism”.
10 Important characteristics of Capitalism
The following are the important characteristics of capitalism.
1. Free Enterprise Economy
Capitalism is also called as free enterprise economy. This is because under capitalist system, individuals and private firms have the right to own and use property. They have the right to earn, save and spend incomes also. They are allowed to obtain resources, to organize production and to sell the products in any manner they like and to any one. Here, there will not be Government or any other restrictions on the freedom and ability of the private individuals to carry out any business. Hence there is full freedom of enterprise regarding choice of work, occupation and enterprise.
2. Private Ownership
Under capitalist economy, the factors of production like labor, land, capital and organization are privately owned. Private property is protected, controlled and enforced by law. Individuals have the right to own property and also free to use it as they like.
3. Freedom to Choose Occupation
In a capitalist economy, a person is free to select any occupation. This freedom of choice enables the individuals to enter the field in which they have knowledge and purchase the property, which yields maximum profit. This type of freedom enables the businessmen to earn profit from their business. More resources flow into those areas where yield is more.
4. Market Mechanism
The market mechanism is the most important characteristic feature of capitalist economy. It is also called as price mechanism. Under capitalist economy, profit, which is related with market mechanism, guides the allocation of resources. Under this system the whole economic system moves in and around the market mechanism. This system suffers from lack of proper planning for distribution of economic resources and co-ordination between production and consumption. Price mechanism determines the level of consumption, production and distribution. It is acting as the regulating mechanism in capitalist society.
5. Consumers’ Sovereignty
Under capitalist economy.consumers have complete freedom to choose what to purchase. Consumer is the king of the market under capitalism. Manufacturers consider consumers’ demand, taste, preference etc. while producing goods.
6. Freedom to Save and Spend
Under capitalism, it is also the feature that consumer has liberty to dispose of his personal income in any way he likes. At a particular time, he may spend even more than what he earns. He may save his income and can give loan to anyone.
7. Competition among Sellers
Competition among sellers is another feature of capitalist system. The competition among producers makes them to make best use of factors of production and produce goods at minimum cost. They try to excel others. Therefore, in a free market economy competition is considered as an essential feature to protect the consumers, and to maintain a flexible price system.
8. Freedom to enter into Contracts
Under capitalist economy, people are free to enter into contracts. Every person is free to sell his goods or render services to any one he likes.
The right to give or acquire property in inheritance is allowed in capitalism.
10. No Central Plan
Under the capitalist economy there is no central plan to guide and control the activities of various business concerns. It is the market forces, which influence the resource allocation, investment decisions etc. and not the Government under the capitalist economy.