Advantages and Disadvantages of Capitalism

Advantages of Capitalism

Merits and demerits of capitalism

The major benefits or advantages of capitalism are as under:

1. The resources are utilized efficiently and economically.

2. Producers, consumers and the workers all enjoy economic freedom and are free to work, as they like. Goods are produced according to the taste, preference and demand of consumers.

3. Capitalist system can make changes according to the needs and circumstances of the economy. It has inbuilt flexibility.

4. An automatic equilibrium is brought about by the operation of price mechanism and market forces. No central direction is required for the operation of the economy.

5. There is no interference in economic matters. Every individual is free to take decisions as to his economic activities keeping in mind his own-interest.

6. Every producer tries to earn as much as possible by increasing his output, bringing newer commodities in to the market etc.

7. Entrepreneurs are encouraged to invest more money even in the projects involving high risk by providing them incentives. This results in technological progress and new innovations, which involves great risks.

8. The capitalist countries have become rich and affluent, and people of such countries enjoy higher standard of living.

9. Capitalism encourages capital formation.

Disadvantages of Capitalism

The demerits or disadvantages of capitalism are given below:

1. In a capitalist economy, wealth enjoys the prestige in the society, which results in erosion of human values.

2. There is a large-scale wastage of resources due to unnecessary competition.

3. In capitalist system, owners of the means of production can earn more as compared to those who do not possess much means of production. This brings wide inequalities in the distribution of income and wealth.

4. In modern capitalist market group rivalries and price wars, price-agreements etc. are commonly found. Speculative practices also present in the system.

5. In capitalist countries, society possesses two classes such as haves and have-nots. Such division results in conflict in the form of strikes, lockouts and industrial disputes in the economy. Under capitalism, capitalists generally exploit the poor laborers.

6. There is no coordination among the activities of different producers and consumers under capitalism. It is entirely left to the operation of market mechanism, This gives rise to the problem of inflation and deflation.

7. Capitalist system creates unemployment problem also. Under capitalist economy, laborers are not paid reasonably. So their purchasing power becomes less. This reduces the aggregate demand in the economy, which results in less production and unemployment.

8. Capitalism is basically a sellers market where consumer has no freedom. This is because, under capitalist economy, producers enjoy monopoly in the market and produce substandard goods. So it is the producer who influences the market and not consume.