Capitalism

Erin, Chris, Logan

Definition

An economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state.

Advantages:

Efficiency. Firms in a capitalist based society face incentives to be efficient and produce goods which are in demand.

Economic growth. With firms and individuals facing incentives to be innovative and work hard this creates a climate of innovation and economic expansion.

Economic freedom helps political freedom. If governments own the means of production and set prices, it invariably leads to a powerful state and creates a large bureaucracy which may extend into other areas of life.


Disadvantages:

Inequality creates social division. Societies which are highly unequal create resentment and social division.

Social Benefit Ignored. A free market will ignore externalities (producing or consuming a good causes an impact on third parties not directly related to the transaction.) A profit maximizing capitalist firm is likely to ignore negative externalities, such as pollution from production.

Monopoly Power. Private ownership of capital enables firms to gain monopoly power in product and labor markets.