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Capitalism is defined as an economic system characterised by private or corporate ownership of capital goods; by investments that are determined by private decision; and by prices, production, and the distribution of goods that are determined mainly by competition in a free market. In this system, individuals and companies own and direct most of the resources used to produce goods and services, including land and other natural resources labour, and capital which includes factories and equipment and sometimes the money used in businesses. Adam Smith is often referred to as the Father of Capitalism. According to him, it is a system in which an invisible hand would maintain the market without government intervention. The government exists merely to protect individual rights, which also include the establishment of an "army to protect against foreign invaders; a police force to protect against domestic criminals; and a court system to settle disputes that arise, enforce contracts, and punish criminals according to objectively predefined laws."

Main Characteristics of Capitalism

1. Right to own property 2. Profit motive 3. Private ownership of means of production 4. Consumers sovereignty 5. Economic freedom 6. Social division of people 7. Price mechanism


Advantages of capitalism: 1. Decentralized economic system

It is considered as one of the greatest advantages of capitalism. In a decentralized economy, individuals are open to more number of options in business. They are exposed to competition and have to face different challenges and find solutions to stay in competition. It is in a capitalist economy that hard work is rewarded.

2. Reduction in cost of production

Firms in a capitalist based society face incentives to be efficient and produce goods which are in demand. These incentives create the pressures to cut costs and avoid waste due to efficient control of production process.

3. Boost GDP & economy of country

Capitalism promotes economic growth by providing an open competition in the market .With firms and individuals facing incentives to be innovative and work hard, it creates a climate of innovation and economic expansion. This helps to increase real GDP and lead to improved living standards.

4. Political freedom
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 lead to problems like corruption, total control, regulations that limit diversity and competition, lack of incentives etc.

5. Varieties of products & services

Capitalism gives rise to an economy where the consumers regulate the market. A competitive market provided by capitalism facilitates the manufacture of a wide variety of products and the formation of a wide range of services. Consumers are happier in a capitalist economy. It encourages people to work towards financial freedom.

6. Exchange of Culture
Capitalism has led to international trade and exchange of know-how. People in different countries have come nearer to each other. The development of the means of transport and communication has facilitated contacts among the peoples of the world thereby leading to exchange of ideas and culture.

7. Progress of Civilization
Capitalism was instrument in inventing new machines and increasing the production of material goods. Man is to day more civilized than his ancestors.

8. Lessening of Racial Differences:

Capitalism has also led to the lessening of differences based on race, creed, caste and nationality. In the factory the workers and officials belonging to different castes co-operate with one another and work shoulder to shoulder. Inter-mixing of castes is the off-shoot of capitalism.

o Majority of countries (almost all liberal democracies and most authoritarian systems) in the world use capitalism as their dominant economic system, including the United States, Canada and Mexico, all of the 27 countries of the European Union.

Disadvantages of Capitalism: 1. Monopoly Power

Private ownership of capital enables firms to gain monopoly power in product and labour markets. Firms with monopoly power can exploit their position to charge higher prices. It can pay lower wages to workers. In capitalist societies, there is often great inequality between the owners of capital and those who work for firms.

2. Social division & class conflicts

A capitalist society is based on legal right to private property and the ability to pass on to future generations. Often people are rich, simply because they inherit wealth or are born into a privileged class. Therefore, capitalist society not only fails to create equality of outcome, but also fails to provide equality of opportunity leading to recessions, mass unemployment and waste of talents Hence it results into resentment and social division and encourages revolt and social unrest.

3. Neglectance of environment & sustainable development.

Capitalism makes an economy money-oriented. Business corporations look at the economy with a materialistic point of view. Profitability remains their only primary business goal. Hence they refuse to put in environmental measures because it will reduce their profit margins. It may lead to a depletion of the resources on Earth and causes pollution. The governments must step in and enforce laws against the wasting of natural resources in such a flagrant manner. The future is not too late to change, and with the proper steps it is easily avoidable.

4. Leads to poverty, starvation and waste of resources.

In Third World countries, many are starving because they cannot afford to feed themselves, while those in Western countries fatten themselves with an excess of food, and waste the rest of it. Hence in a truly capitalist society with no government welfare, great poverty is bound to occur.

5. Destruction of Human Values

In a capitalist order, everything has come to be measured in terms of wealth. All values of human life such as love, sympathy, benevolence, love and affection are evaluated in terms of silver coins. Every person wants to get the maximum. The sole criterion is wealth, not value. Capitalism is based on greed for wealth. It has raised wealth to the pedestal of deity. Wealth has become the be-all and end-all of human life. The modern man is mad after wealth. He wants to earn more and more wealth by any means. The idea for morality does not enter into the means of earning. It has thus to moral degeneration.

6. Lack of basic social amenities

The sole aim of capitalism is higher productivity. Hence it neglects the basic needs i.e. food, shelter, health facilities, public transport and education etc. Hence, people have poor living standards. Often companies will cut corners in health and safety restrictions, because it costs them less to pay off the families of those who die in industrial accidents. Often staffs are not properly trained in certain areas, or provisions have not been put in place to protect them from certain risks. This has often resulted in injuries and sometimes death.

7. Undemocratic, dictatorship & war.

While every individual has a single vote in a democracy, in a capitalist system, they have very little say in the actions of govt. It will listen to big business and banks because they fund their election campaigns. It can lead to dictatorship as small group of population is controlling large amount of resources and power. In extreme case it may lead to war. Many of the wars fought in recent years have been over profit. In Iraq, the war was largely funded by oil barons, and it was private firms who handled most of the security after the initial invasion. In Libya, western forces intervened when the civil war caused oil supplies to be cut off. They only sided with the rebels because they thought they were the most likely to win. In Iran, military intervention is being threatened over the blocking of trading routes to transport oil.

8. Imbalance in Social System:

Capitalism has led to an imbalance in the social system. It has failed to adjust itself to the welfare of society. It has widened the gap between the haves and have-nots and crated insatiable greed for wealth among the people. It has changed the very outlook of human beings. Wealth has become an important criterion of status. It has led to the moral degeneration of man.

Obviously, capitalism has failed to bring about the moral development of man. It is injurious both to society and the individual. In short, it has proved a curse to humanity instead of a blessing.

Submitted byGaurav kumar singh (11BEE1019) Slot-L17 (Ethics Lab)