6 Advantages and Disadvantages of Capitalism

Coined around the mid-19th century, capitalism rose during the Industrial Revolution when individual entrepreneurs created new industries and collected wealth. Capitalism is defined as an economic system where private individuals own property and businesses, rather than governments. This means that ownership of how production, distribution and exchange of wealth is mainly made and maintained by private individuals or corporations. While some see an advantage to this kind of system, others are opposed to it. Here’s a look at why this is the case:

List of Advantages of Capitalism

1. It is the dominant economic system in developed countries.
A lot would argue that there isn’t any country in the world that practices a true form of capitalism. While that may seem to be the case, there are a number of countries that employ some form of capitalism, and these include: the United States of America, United Kingdom, Canada, Australia, Japan, Switzerland, Singapore and Spain – that’s just to name a few.

2. Some tenets of capitalism are cornerstones of representative government.
Capitalism rose when the system of feudal economies ended. It has since grown to be a dominant economic system, particularly in developed countries around the world. There are specific tenets of capitalism like property rights which supporters believed to be cornerstones of representative government. In addition, wage labor – another tenet of capitalism – can be counted in this regard.

3. It is linked with economic growth.
In a capitalist system, the production and price of goods are determined by the market rather than the government. With private property rights, private individuals are given the freedom to create the goods and services to sell in the market.

List of Disadvantages of Capitalism

1. It is focused on profit.
One of the biggest criticisms against capitalism is that it is much too focused on profit. As such, it may lead to social and economic inequality. While some may consider the chance to produce superior products, there is a cycle of boom and bust in markets. In other words, a capitalist system allows monopolies and other forms of cheating.

2. It emphasizes consumption.
For a capitalist system to succeed, consumers need to buy goods or avail of services constantly. This is something that those who are against capitalism don’t agree with. While the freedom to produce desirable goods allows the market to self-regulate (meaning, government interference and mismanagement is less likely to happen), it doesn’t always guarantee that the basic needs of a person will be met.

3. It limits the government in enforcing fair play rules.
In An Inquiry into the Nature and Causes of the Wealth of Nations, economist Adam Smith wrote about ways people are motivated to act in their own self-interest. This is a tendency that serves as the basis for capitalism where an invisible hand in the market serves as the balance between competing tendencies. The government limits itself when it comes to enforcing and enacting rules of fair play because the market distributes factors of production.