Pros and Cons of Capitalism


Capitalism is a kind of economic system that is based on the private ownership of capital. This means that a capitalist economy sees individuals own their means of production and the pricing of goods and services is determined by market functioning.

In a capitalist economy, people are categorized into two classes: business owners and the people that work for them. The system works this way: if someone is capable of having or supplying large capital, they can own businesses and then earn profits off of it. In order to earn money for goods and services provided, they need workers who will provide labor and in return, they will be paid a salary.

To decide if capitalism can really offer benefits, here’s a look at the system’s pros and cons:

List of Pros of Capitalism

1. It provides a level of freedom.
A capitalist society is described as a free society – one where the people are provided a level of freedom that is unparalleled elsewhere. As such, this results in a political system that is rooted in freedom. The tendency with governments that own production and set prices is that it often leads to political control beyond what people expect – often including different aspects of life.

2. It improves efficiency.
Everyone in a capitalist society benefits when efficiency is improved. For example, when a certain good is in demand, it helps to meet that need so everyone can benefit. Also, firms that are able to cut costs and limit waste are often rewarded under this system unlike firms that are owned by the state.

3. It allows economic growth.
Since firms are owned privately, efficiency can be better rewarded. This can lead to economic growth as well as drive innovation. When a company embraces the chance to innovate, they can come up with various solutions on how to meet the demands of the public. As a result of this, the living standards of the people have a chance to improve as well.

List of Cons of Capitalism

1. It leads to a monopoly of power.
Yes, capitalism is fiercely rooted in freedom but those in positions of power can easily monopolize the situation. For instance, a firm that is privately owned has the power to gain monopoly in certain industries and labor markets. As such, they can charge more and take advantage of society.

2. It results in negative outcomes being ignored.
Although capitalism comes with benefits, it does lead to some negative outcomes which are largely ignored. For instance, capitalism has been linked with pollution due to the increase of production. And looking at the world today, we see that climate change is being largely ignored and passed off as nothing.

3. It creates wealth inequality.
Put simply: the rich keep getting richer while the poor keep getting poorer. Capitalism in particular favors the privileged because they are born into wealth. While those who have to work for everything find it hard to even rise in the ranks in a capitalist society.

Yes, capitalism does have its benefits but the economic system isn’t entirely perfect as well: it carries its own negative baggage.