What Is Capitalism in Economics

his time we will discuss the meaning of capitalism and its forms and characteristics. Here’s the explanation …


Table of contents :

Definition of Capitalism

Examples of Forms of Capitalism

Characteristics of the Ideology of Capitalism

Advantages and Disadvantages of Capitalism

  1. Advantages of Capitalism
  2. Lack of Capitalism

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Definition of Capitalism

Capitalism is an economic system that gives everyone complete freedom to carry out economic activities such as producing goods, selling goods, distributing goods, and other economic activities for profit.


Some also explain the meaning of capitalism as an economic and political system in which a country’s trade and industry is controlled by private owners for profit, not by the government.


In other words, in a capitalist system, the government only acts as a watchdog.


In the economic system of capitalism, everyone can determine their own destiny and are free to compete in business activities for maximum benefits.


In this case, the government acts as the party that ensures the smooth and sustainable economic activity, but also there is no interference from the government.


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


According to Adam Smith


Capitalism is a system that can create prosperity for society if the government does not intervene in market mechanisms and policies.


According to Karl Marx


Capitalism is a system in which the prices of goods and market policies are determined by the owners of capital to obtain maximum profit.


According to Max Weber


Capitalism is an economic system that is aimed at markets and is encouraged to generate profits by exchanging activities in that market.


Examples of Forms of Capitalism

understanding of capitalism


There are many examples of forms of capitalism that exist all 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.


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Apart from that, another example of a form of capitalism in Indonesia is the proliferation of malls, supermarkets and other modern markets that have eroded the existence of traditional markets.


The convenience, convenience and variety of choices offered by the modern market have finally captured most of the traditional market consumers.


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


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:


The recognition of individual property rights over various factors of production, including natural resources.

There is freedom for the private sector, both individuals and companies to own production equipment and assets (buildings, machinery, raw materials).

Everyone has the freedom to compete in business using any method to get maximum benefit.

The private sector has the freedom to determine what will be produced, in what quantity, and at what price the product depends on market demand.

The government does not interfere in economic activities. Although government can manage economic processes, it cannot limit the activities and ownership of shareholders.

The capitalist system will shape individualist behavior in everyone in society which is marked by the character of materialism.

People who live in a capitalist system tend to behave hedonism because they have been influenced by various advertisements of products sold by entrepreneurs.

Advantages and Disadvantages of Capitalism

  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 businesses.

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  1. Lack of Capitalism

The emergence of imperfect competitive markets and monopolistic competition markets.

Competition between businesses often leads to conflict and injustice in which only big capital entrepreneurs become market leaders.

The capitalist system makes the economy oriented only on money so that entrepreneurs become materialistic.

Big companies are only profit-oriented so they often take over smaller companies.

The emergence of exploitation of natural resources for maximum profit.

The emergence of injustice in the distribution of wealth, where only a handful of people can enjoy power and wealth.

by Abdullah Sam
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