Brief Explanation of the Concept of Capitalism

What is Capitalism?

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Category :Business Management

The term capitalism is commonly known in the business and industry sector of the country. It is defined as an economic system or model to which majority of the commerce, trade and businesses in a particular country are being owned by private individuals or businessmen.

In comparison to the communism, wherein all of the commerce, trade, businesses, etc were owned by the government. Under capitalism, a person who uses his own resources (or sometimes other person’s resources) to create a profit is called a “capitalist”. The profit is the output (more commonly in terms of money) a business had made and processing of its inputted resources. A common example for this is when a “capitalist” manufacture a certain type of commodity and sells it in bulk (wholesale) for a given market price. While the “capitalist” who buys the commodity from a manufacturer may re-sell the goods in retail price for a profit. Other “capitalists” (called financiers or investors) simply lends their money or resources to other person with a promise of returning it with interests.

And no matter what the business is made or venture, the main goal of a “capitalist” is to make a profit out of his existing money.

In fact, the main reason for venturing into any kind of business is to increase a person’s wealth. But, in doing so, the capitalist do have a certain business rules and not just doing anything out of it just to make a profit. For example, a capitalist venturing into selling goods and services simply cannot charge a selling price that is way above the existing market value. He may not also sell defective products nor will not accept a bad quality product returned by the consumer.

And if capitalists do this, he may lose his consumers to other capitalist who sells the same goods. In this case, capitalists must sell his goods or services at the best possible price having the best quality. Competition dictates the prices and quality of a certain goods and services which is an important feature of capitalism.

In a free competition market, any profit made by the capitalist will definitely benefits the economy of the country in a macro point of view. As a certain capitalist will be able to gain more profit, there is a big chance that he will able to expand his business or put up another business, thus requiring the use of more people to work for him. This will result to lesser unemployment rate a country have which affects directly to the country’s economic stability.

Today, there were many countries that have many citizens who were engaged in capitalism. But not all kinds of business can be venture in by the private individuals. Some kind of businesses may still need government supervision such that it can still regulate the prices of the services and goods it offers. For example, some countries government directly in control to the some public utilities such as the basic services in terms of electricity, water, communications, transport, etc. They are also mandated to regulate the prices of basic necessities such as railroads, various travel modes and televisions.

In summary, in a capitalism system, a private individual can do business in exchange for a profit. At the same time, the consumers will be protected by the government by giving him his consumer rights. The government may also free to run his business in order to protect the interest of its citizens.