According to good ol’ Merriam Webster, capitalism is “a way of organizing an economy so that the things used to make and transport products are owned by individual people and private companies, rather than by the government”. And since goods and services are produced by privately owned businesses, prices and products are able to constantly adjust to the market.
Everyone has their own personal tastes. You, me, and Joe all want to buy something different. Only the companies that produce what we want, at a price we’re willing to pay, will be successful. If one restaurant sells hamburgers for $1, and another for $50, it’s obvious where most of us will be eating. This is the market at work.
Now that we’ve got an idea of what capitalism is, let’s look at some of the many advantages it provides. Or check out this excellent course on economics if you’re still stumped.
Advantages of Capitalism
One of the biggest pros of a capitalist system is efficiency in both production and consumption. By letting the market rule, it can meet people’s demands while keeping costs as low as possible. Meanwhile, you get to choose what kind of work to do, where to work, and have the freedom to decide how to spend your paycheck.
Let’s consider the opposite of a capitalist system, where it’s the government who decides what goods to produce. Huge amounts of money are wasted simply finding out what, how, and for whom to produce. Should they make more cars or bicycles? Less eggs and more milk? Even after all their information gathering, they still can’t be certain what goods are profitable or necessary.
A capitalist economy, however, doles out resources based on what consumers want, skipping all those research and implementation problems completely. The market will naturally give us all the answers we’re looking for. And production automatically becomes more efficient — companies produce products, and we buy what we like. Unnecessary or unwanted goods simply fail and die out.
For more a more in-depth look at the “other guys”, read over this blog post that breaks down the other contenders in the battle royale between economic systems.
This means businesses have a natural incentive to operate efficiently. They look for ways to provide goods and services cheap, while still maintaining quality. They spend only what needs to be spent and produce only what needs to be produced.
Capitalism creates competition in the market by allowing people or firms to enter the market freely. Governments are not allowed to butt in other than to keep things fair and legal. This free market quickly helps the economy shift between losing money and making it. Only the best and smartest companies will rise to the top.
Another good way of understanding how the market works is by analyzing the stock market, which you can learn to do with this great course.
Plenty of Choices
A free market gets us the best products at the best prices, plus a wide selection to keep everyone happy. Buyers have tons of choices when it comes to where they spend their hard-earned money. Whether you want to buy a pizza or a new car, there’s no shortage of options available to make your selection from. This means everyone’s needs are met.
Anyone with money and ideas can start their own company. Everyone from massive corporations to a small business with just one employee can produce and sell products. The market doesn’t judge you. It creates incentives to work hard and innovate, and opportunities for everyone to grow. This creates a culture of progress and economic expansion that leads to a bigger, stronger economy, and a better standard of living.
Capitalism gives us more and better opportunities. Consider how our banks work. Instead of buying that $50 hamburger, you could decide to save your money. But Joe wants to put up a hot dog stand, and he’s just $50 short. Banks allow you to give the money you’re not using to help Joe fund his fledgling business.
This pushes the country’s productivity levels higher, which is good for everyone in the long run. There are more opportunities for people, and the nation’s resources are always at work. For a more complete breakdown of investment banking, give this awesome course a try.
The free market doesn’t care who you are or where you’re from. Capitalism doesn’t pick favorites, no matter how hard you may try to convince it. What matters is that you’re willing to supply what the market wants.
This means that if you work hard and work smart, producing high demand products or providing much-needed, high-quality services, you’ll be rewarded for your efforts – and maybe even get rich. It’s a transparent system where numbers and profit are king.
When you’re starting out with a business, it takes a lot of capital to really get going. But capitalism allows for corporations to be built. You and your business partners can come together to achieve more.
Instead of getting a loan from the bank, Joe finds out his friend Dan wants to get into business too. They pool their cash and it turns out enough not just for a hot dog stand, but for an entire restaurant. They achieve more together than they could have done alone. Capitalism connects more people to more resources and helps us reach greater heights.
If everyone got paid the same amount, why even bother to think outside the box? You wouldn’t care about coming up with new ideas, innovating, or putting that extra effort into making quality products. Capitalist countries have technological booms because the opportunities and incentives there encourage creativity. When quality is rewarded, we work happily and feel inspired to do our best.
Start a Business
There’s no absolutely perfect system. As with anything, capitalism has its pros and cons. But while it’s not perfect, it’s a system that gives importance to a person’s skill and hard work.
Capitalism allows us to take advantage of everything around us. It makes us compete, push for excellence, and teaches us to avoid wastefulness. It gives us the choice to better ourselves and create our own success – and that’s one of the biggest advantages you could ask for.
So what are you waiting for? This course will teach you how to draw up a business plan so you can get started.