What is Capitalism? – Definition, History, Features, Pros & Cons
Definition of Capitalism
Capitalism is an economic system in which the means of production and distribution are mainly owned and controlled by private individuals and firms. The primary aim of any economic activity in a capitalist state is to make profit.
In economics, capital itself means the stock of goods of all kinds in the possession of a community at a particular time. The owner of these gods is sometimes called a capitalist. He might have acquired his capital from his savings while he himself was a worker or he could have obtained it from other sources such as borrowing from the bank, friends of relations.
In short, it is not usually easy for the capitalist to raise his capital and he may have to pay back his loan plus interest. As such, he expects his employees to work hard too and give undivided loyalty to him. He also face many risks including bankruptcy and liquidation and he cannot afford to be soft-hearted with his workers.
On the other hand, the general shortage of capital in every society means that those who have it may make large fortunes.
The capitalist system is also called the Free Enterprise system. The capitalist is free to go into any business and the workers joined the business on their own free will. Since he’s the owner of his capital, the employer has the power to hire and fire his employees subject to existing labour rules and regulations.
Examples of Capitalist Countries
Examples of countries practicing capitalist mode of production are: Britain, United States, France, Germany, Israel, Italy, Canada, Brazil and Sweden.
Nigeria is in the embryonic stage of capitalist development. But what is been developed here is what has been classified as dependents capitalism in which there is virtual complete dependence on western capitalist nations.
Features of Capitalism
Capitalism has the following features:
- Under capitalism, the two main classes are the rich and the poor or the employer and the employee.
- The worker (proletariat) sells his labour to the bourgeoisie (the capitalist) in exchange for his wages. He does not eat if he fails to work.
- In a capitalist system, prices are determined by the proverbial laws of demand and supply. The market price is the equilibrium between demand and supply.
- The major aim of any business activity is to make profit.
- The history of capitalism is that of class struggle between the rich and the poor; the employer and the worker. This partly accounts for the uneasy relationship between trade unions and employers associations and governments, in capitalist states.
- The liberal democratic system or representative democracy is the political dimension of capitalism. Within this system, there is politics of competition, choice and open market, at least in theory.
- Various forms of government are found in capitalist states. The most common forms are the constitutional monarchy, presidential system, parliamentary system, fascism and military dictatorship.
Historical Development of Capitalism
Capitalism emerged after the collapse of the feudal system in the 14th century and reached a higher level of development during the Industrial Revolution, which began in Britain in 1688.
The Industrial Revolution what about large-scale machine production, which was based on a hydroelectric power and the word application of science and technology to the process of production.
Capitalism began with lassez-faire system, which means ‘free competition‘ or ‘leave things alone‘.
The philosophy underpinning capitalism was that the less a government interfered in an economy the better for the country.
But towards the end of the 19th century, free competition gave way to monopolies (that is, few sellers) which developed into imperialism. According to V.I. Lenin, imperialism is the highest stage of capitalism.
With the emergence of socialism in the early 20th century, there was a bitter struggle for supremacy between capitalist and socialist states led by the USA and the former Soviet Union respectively.
The War of words between the two groups is often called the Cold War. Eventually, socialism collapsed in the former Soviet Union and the East European states in the early 1990s and today capitalism seems to be gaining the upper hand.
It is spreading like wildfire to all part of the world including Nigeria. But it may not be more than a pyrrhic victory especially given the deep chasm between the rich and the poor in capitalist states and the high level of poverty in many developing countries.
Advantages of Capitalist Economy
There are many inherent advantages of capitalism. They are;
- Economic development
- Economic and political growth
- Democratic in nature
Disadvantages of Capitalist Economy
The major disadvantages of capitalism are:
- Wage Slave
- Income distribution
- Price system
Capitalist Mode of Production
Two modes of production dominate the present world. They are the capitalist and socialist method of production.
However, our attention here is to discuss capitalist mode of production.
African integration into the mainstream of the world capitalist system through Western colonialism and imperialism was eventful and had greatly influenced and reshaped the economic and political development of contemporary Africa.
In capitalist mode of production, three major features are visible.
- Uneven distribution
The means of production are very unevenly distributed bringing a society divided into a small group of people that monopolized the means of production.
- The greater part of the population
They are without means of production, but their labour power.
- Commodity production
It gives capitalist society some of the characteristics of a market.