What is capitalism? The answer, of course, is difficult to define in a simple definition. It is the ideology that underpins the free market systems of countries like the United States, England, France and Japan. In these societies, capitalism enjoys widespread support among the citizens who enjoy both economic freedom and a vibrant economy.
So what is capitalism? For most people, capitalism is a political theory that describes a unique economic system in which private ownership and corporate authority are allowed to exist. Capitalists own the means of production and the operation of their business for profit. Other characteristics of capitalism include competitive markets, extensive property ownership, the recognition of individual property rights and private property, capital accumulation and the distribution of wealth through the mechanisms of market competition. For most people, this description of a private, entrepreneurial society with minimal governmental intervention into the operation of businesses and markets is what they think of when they hear the term “liberalism.”
On the other hand, the other side of the coin is also known as socialism, which is diametrically opposed to capitalism. In a socialist economy, governmental regulation of business is almost never seen or even needed. Large amounts of wealth are not accumulated through private business investments but by way of heavy taxation and the socialization of costs and risks among business owners and employees.
The differences between capitalism and socialism are not just political. Although both share similar characteristics, there are fundamental differences that lead to fundamentally different economic systems. For instance, in a capitalist economy, competition ensures that the maximum levels of productivity are reached. A centrally planned economy provides consumers with a wide range of goods and services at affordable prices. Unlike socialism, an advanced capitalist economy is based upon the natural competitive processes among competing businesses.
Socialism, on the other hand, assumes that the only way to accumulate wealth is through collective ownership and investment. Large-scale ownership, long term planning, and the allocation of resources to ensure that everyone has enough to survive are central aspects of socialist economies. As a result, public goods, or goods and services that benefit the public are not available in a socialist economy. The assumption that “the general welfare” is the only premise that matters in such societies is also a key feature of socialist societies. Wealthy individual acquisition of private property is seen as the only way to guarantee their own prosperity, and the consequent social order.
It seems that the common good must be left to the political economy. There are many who question the assumption that wealth must be left to the political economy, arguing that private property is a necessary component of a healthy economy. One of the most prominent modern defenders of traditional private property rights is the neo-afferish classical liberal philosopher, Leo Tolstoy. In his book, The Economic Philosophy of the State, he argues that private ownership is compatible with a democratic political system. He also points out that such ownership facilitates a free market for private enterprise, and that competition among companies allows them to strive for greater efficiency. Private property enables the free association among individuals, and this, in turn, fosters a stronger economy.
What is capitalism? It seems, in many respects, to be a compromise between socialism and capitalism – a hybrid, if you will. The distinguishing feature of capitalism is its willingness to use state intervention, support for small business, and a redistribution of wealth. However, while such characteristics make it compatible with a wide range of socioeconomic models, some have been left suspicious of crony capitalism and call for a return to more fundamental forms of capitalism.
What is capitalism? By most accounts, it was a product of historic conditions, and is now accepted as a part of virtually all Western economic systems. For instance, Thomas Piketty believes that contemporary capitalism is, in its modern form, nothing more than a transitional stage between capitalism and earlier forms of organized collectivism, state-guided capitalism, and centrally planned socialism. Capitalists are not fond of individual freedom, and want to increase their share of the wealth pie through a set of institutions designed to benefit them, rather than benefit the rest of us. Thus, while some would argue that we live in a world which privileges wealth and allows access to the markets of Wall Street and other cosmopolitan centers, others argue that the current economic system favors true capitalism over crony capitalism.