I’m sure many of you have heard the term “Capitalism” or “Socialism” or “Communism” thrown about as various media figures or intellectuals attempt to describe the current state of political affairs. Well in this three part series, I’m going to provide the noble reader with information regarding what these terms or “Economic Systems” actually are. Fear not however, for I shall not attempt to persuade you which of these systems is superior in any way shape or form. Instead, my aim here is to simply give an objective description, establishing what the term actually means.

 

Economic Systems

First off, there is a fundamental rule that should be explained prior to Capitalism.
Capitalism is part of an economic system. An economic system is a system that manages production, resource allocation, distribution of goods and services in a society.

These economics systems are required to solve several problems, they have to be able to decide:

• What goods are being produced, and how much of them.
• The method in which they are to be produced
• When the goods will be produced
• How the goods are distributed after production

Economic systems as a whole are a completely separate rabbit hole that I may or may not delve into in the future, but for now, the aforementioned information should be about to begin talking about Capitalism.

 

What is Capitalism?

It is an economic system and much like every other economic system, it needs to address the 5 fundamental rules we mentioned above about managing production methods and whatnot.
Capitalism focuses on the individual to manage their own means of production and distribution, meaning any citizen can start a business assuming they meet the criteria, and then they can provide a service or distribute a product according to their own choosing.

It is important to note however, that the Government will ALWAYS have a certain level of laws and regulations that prohibit the individual from using their businesses in certain ways.
For example, an individual may provide a private dental service, but to do that they will need a certification and a license that acknowledges them as a competent dental practitioner.

 

Private Ownership

You may come across the term “Private Ownership” or “Privatising”, these terms refer to an individual, or a group of individuals that own something in contrast to the government owning this particular thing.
A HYPOTHETICAL example of this would be the idea that the NHS in the UK is being privatised, that would mean, instead of the government owning the NHS, it would instead be owned by a company. This company would then decide how much to pay workers, what benefits the workers get, and how much the service would cost.

State owned businesses/enterprises are required to provide some kind of essential service to the public, the aim of a state owned business is not to make money, but provide a service. This will be expanded upon in future posts.

 

Competition

On a national scale, the Capitalist economy is designed to encourage competition between individuals and therefore give them the incentive to continue looking for ways to make more profit. This drive for profit then causes people to invest more time contributing to the economy via handling, managing, producing or distributing goods. The theory behind capitalism is that ANY citizen is able to change their financial situation by putting in effort in return for financial rewards, ergo the more effort/time they invest, the more rewards they will get.

 

 

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This is the first instalment of a three-part series on Economic Systems. Check out the next post in this series, “What is Socialism?” here.