A Capitalist economic system is one characterised by free markets and the absence of government intervention in the economy.
In practice a capitalist economy will need some government intervention, primarily to protect private property. (this is important to distinguish capitalism from anarchism, where there is absolutely no government present)
In the real world, many economies which are viewed to have a capitalist economic system may have government spending taking up 35% of GDP. This is because the government pays for welfare, health, education and national defence. However, the economy is still viewed as capitalist because in the area of private enterprise, firms are free to decided what to produce and for whom.
Problems of a capitalist economic system
- Inequality. Capitalist economic systems invariably lead to inequalities of wealth and income. However, it is argued that this inequality provides an incentive for wealth generation and economic growth.
- Monopoly. In a capitalist society, firms could gain monopoly power over consumers and workers.
- Environmental problems. A capitalist society driven by the profit motive may take decisions to maximise economic income in the short term, but at a cost of environmental problems in the long-term.
A Capitalist economic system is often contrasted to a socialist or communist economic system where economic decisions are made centrally by government agencies.
Different Types of Capitalism
- Turbo capitalism – free market capitalism with little government regulation
- Responsible capitalism- Free markets but also a social welfare net.