Capitalism: Meaning, Characteristics, and Forms of Capitalism

What is meant by capitalism (capitalism) ? In general, the notion of capitalism is an economic system that gives full freedom to everyone to carry out economic activities such as producing goods, selling goods, distributing goods, and other economic activities for profit.

There are also those who explain the meaning of capitalism as an economic and political system in which a country’s trade and industry are controlled by private owners for profit, not by the government. In other words, in a capitalist system, the government only acts as a supervisor.

In the economic system of capitalism, everyone can determine their own destiny and are free to compete in business activities to get the maximum profit. In this case, the government plays a role as the party that ensures the smooth and sustainable economic activity, but there may also be no interference from the government.

Also read: Understanding the Economic System

Understanding Capitalism According to Experts

In order to better understand what capitalism is, we can refer to the opinions of the following experts:

  1. Adam Smith

According to Adam Smith, the notion of capitalism is a system that can create welfare for society if the government does not intervene in market mechanisms and policies.

  1. Karl Marx

According to Karl Marx, the meaning of capitalism is a system in which the prices of goods and market policies are determined by the owners of capital to obtain maximum profit.

  1. Max Weber

According to Max Weber, the definition of capitalism is an economic system that is aimed at a market and is driven to generate profits by exchanging activities in that market.

  1. JM Romein

According to JM Romein, the definition of capitalism is an economic system that aims to carry out production activities on the basis of generating profits.

  1. Ebenstein William

According to Ebenstein William, the notion of capitalism is a comprehensive social system more than just a certain type of economy.

  1. Ir. Soekarno

According to Ir. Soekarno, the definition of capitalism is a social system of society that arises from the mode of production which separates the workers from the means of production.

  1. Tom G. Palmer

According to Tom G. Palmer, the meaning of capitalism is a legal, social, economic and cultural system that encourages equal rights, meritocracy, decentralization of innovation, and a process of learning (trial and error) through a process of volunteerism in market mechanisms.

Also read: Understanding Economics

Characteristics of the Ideology of Capitalism

This economic and political system can be identified by its characteristics. The characteristics of the ideology of capitalism are as follows:

  1. There is recognition of individual ownership of various production factors, including natural resources.
  2. There is freedom for private parties, both individuals and companies to own their own means of production and assets (buildings, machinery, raw materials).
  3. Everyone has the freedom to compete for business using any method to get the maximum profit.
  4. The private sector has the freedom to determine what will be produced, in what quantity, and what price the product will charge according to market demand.
  5. The government does not interfere in economic activity. Although the government can manage the economic process, it cannot limit the activities and ownership of capital holders.
  6. The capitalist system will shape individualist behavior in everyone in society which is marked by the character of materialism.
  7. People who live in a capitalist system tend to behave hedonismbecause they have been influenced by various advertisements of products sold by entrepreneurs.

Also read: The Perfect Competition Market

Advantages and Disadvantages of Capitalism

Every economic and political system certainly has its own advantages and disadvantages. As for some of the advantages and disadvantages of capitalism are as follows:

  1. Advantages of Capitalism
  • Tend to be more efficient in utilizing various resources and distribution of goods.
  • People become more creative because of the desire to improve themselves in order to compete.
  • Economic growth is accelerating due to market competition.
  • There is great appreciation for someone’s hard work in business.
  • Consumers can regulate the market due to price competition between business people.
  1. Lack of Capitalism
  • The emergence of imperfect competition markets and monopolistic competition markets.
  • Competition between businesses often creates conflict and injustice where only big-capital entrepreneurs become the market rulers.
  • The capitalist system makes the economy only oriented towards money so that entrepreneurs become materialistic.
  • Large companies are only profit-oriented so often take over smaller companies.
  • The emergence of exploitation of natural resources in order to seek maximum profit.
  • The emergence of injustice in the distribution of wealth, where only a few people can enjoy power and wealth.

Read also: National Income

Examples of Forms of Capitalism

There are countless examples of forms of capitalism that exist around us. One example is the exploitation of natural resources in Papua by companies from other countries (Freeport) based on agreements with the government during the New Order era .

In addition, examples of other forms of capitalism that occur in Indonesia are the proliferation of malls, supermarkets and other modern markets that have eroded the existence of traditional markets. The comfort, convenience, and variety of choices offered by the modern market finally captured most of the traditional market consumers.

From this we can see that those who have large capital will get richer, while the economy of the middle to lower class people will be increasingly difficult.

Also read: Creative Economy

That is a brief explanation of the notion of capitalism, its characteristics, advantages and disadvantages, as well as examples of forms of capitalism that occur in Indonesia. Hopefully this article is useful and adds to your insight.


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