Capitalism: Meaning, Features, Properties And D-Merits

Capitalism: Meaning, Features, Properties And D-Merits

6 September 2022

Meaning Of Capitalism:

Meaning And Definitions:


Under capitalism, all farms, factories and other means of production are the property of private individuals and firms.




 Pro. R. T. Bye defines capitalism as “that system of economic organization in which free enterprise, competition, and private ownership of property generally prevail.” Thus, the definition points to the salient features of capitalism.




 Pro. In The Words Of Loucks:


“Capitalism is a system of private ownership and economic organization of man-made and nature-made capital used for the private benefit.”


Similarly, Ferguson and Craps wrote that “in its own pure form, free venture capitalism is a system in which private ownership and economic decisions are made privately”.

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 Capitalism From The Point Of View Of Macconnell Is:


Prices Serve Two Functions:

(I) A Ration Function,

(Ii) An Incentive Function.


The prices of goods and services available among buyers are rationed according to the quantity each buyer has and is able to pay for others whose desire is less urgent or whose income is less, will receive smaller properties.


Prices also provide incentives for firms to produce more. Where demand is high, prices will encourage existing firms in the industry to produce more and attract new firms into the industry. Where demand is falling, prices will generally fall as well. Firms will reduce their output, releasing resources for use in other industries where they are in demand.


Firms are buyers as well as sellers. They buy materials and supplies from other firms, behaving just as private individuals decide what to buy and how much. If a new machine promises to reduce production costs or if a certain material can be substituted for another at a savings, the firm will purchase resources at a lower cost to make ends meet with other firms.


The economy is linked to millions of interactions that link producers to each other and consumers, one product to other products, and each market to other markets. The point is that all economic units in an economy are interrelated.


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Main Features Of Capitalism:

What a capitalist economy really is can be known through its salient features. These are derived from the way in which certain functions are performed and the main decisions of the economy are executed.


  Profit Motive:

The desire to make profit in this economy is the most important motivation for economic activity. All entrepreneurs try to start those industries or businesses in which they hope to earn the most profit. Industries which are likely to suffer losses are left out. Profit is such a temptation that the entrepreneur is ready to take high risk. Therefore, it can be said that profit motive is the soul of capitalist economy.


 Competition And Cooperation Go Hand In Hand:

A capitalist economy is characterized by free competition as entrepreneurs compete to obtain the highest profit. On the other hand buyers also get to buy goods and services.


by itself as well as with machines to perform a particular task. To produce the required type of goods and quality workers and machines are built to cooperate so that the production line runs as per schedule. This is how competition and cooperation go hand in hand.



Everyone is free to start any venture of their choice. People can follow professions of their ability and taste. In addition, there is freedom to enter into contracts. Employers can enter into contracts with trade unions, one firm with suppliers and one firm with another.


 Consumer Sovereignty:

In a capitalist economy a consumer is compared to a sovereign king. The entire production frame works according to his instructions. Consumer interest controls the entire production line as entrepreneurs have to sell their produce. If a particular type of production is liked by the consumers, the producer gets a higher profit.


 This Class Struggle Arises:

This gives rise to class conflict. Society is generally divided into two classes, the “haves” and the “have-nots”, who are constantly at war with each other. The conflict between labor and capital is found in almost all capitalist countries and there does not seem to be a near solution to this problem. This class-struggle seems to be rooted in capitalism.


 Leading Role Of Joint Stock Companies:

In a joint stock company, business is carried on by a board of directors that is democratically elected by the shareholders of the company at its general meeting. In view of this, it has been called joint stock companies “democratic capitalism”.


However, the actual functioning of the corporate sector is not really democratic as there is a one-share-one vote election. Since, the big business houses own the majority of the shares in a company, they manage to get re-elected and the company is run as if it were their family business.


Important Role Of Entrepreneur:

The entrepreneurial class is the foundation of the capitalist economy. The entire economic structure of the capitalist economy is based on this class. Entrepreneurs play the role of leaders in various fields of production. The presence of good entrepreneurs is essential for healthy competition. Entrepreneurs are the main source of the dynamics of the capitalist economy.


Opinion is no longer on whether the government should regulate, but on how much control is appropriate in different circumstances.


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