Capitalism is an economic system whereby the rights of ownership of the means of production are owned by private individuals or private companies. The most important capitalism characteristic is that the market is controlled by the forces of demand and supply and there is no central government to control the prices. Capitalism examples, characteristics, and theories would be discussed in this article.
What is capitalism?
Capitalism can be defined as an economic system in which private owners and companies own the means of production and use it for profit. The price of goods and services is controlled by demand and supply.
In capitalism, anyone has the right to the means of production, this enables competition among different companies or individuals as everyone strives to provide a better product or service in order to win customers.
There are many countries that practice capitalism, however, most of these countries have mixed capitalism whereby there is some degree of government interference compared with pure capitalism (laissez faire capitalism). In pure capitalism, the individuals or companies are unrestrained and there is no price control; this means they can produce what they want, how much they will sell it, and where to invest their capital or money. We will discuss some examples of capitalist countries and also indicate if they practice pure capitalism or mixed capitalism. Below are some capitalism examples and their pros and cons.
Examples of capitalist countries
- United States of America (USA)
- New Zealand
Examples of capitalism can be seen in the countries listed above. Let us look at the developments and advancements brought about by capitalism in the above-listed capitalist countries.
Capitalism example: The case of the USA
The United State of America is an example of a capitalist economy, being a free market allowing investors and private business owners to innovate and start businesses, the economy has grown and developed. Running efficiently, and creating an enabling environment for businesses to strive, its economic system gave rise to technological advancement, companies, and powerful innovation in the world, in the areas of computers, pharmaceuticals, medicals, military equipment, and aerospace, with companies such as Amazon, Facebook, and Microsoft.
Ireland a practicing capitalist
The Republic of Ireland is another capitalist economy, with major sectors in agri-food, agribusiness, financial services, life sciences, and high-tech. The export industry includes the production of machinery and equipment, computer, chemicals, medical devices, pharmaceuticals, foodstuffs, and animal production. It is one of the top capitalism examples according to the economic freedom index, in fact, Ireland ranks 3rd as of 2022.
Australia as a capitalist society
Australia’s economy is widely known for its service sector contributing to employing the majority of the labor force. One of the best securities exchanges (Australian Securities Exchange) in the world, is located in Sydney and has one of the highest interest rates. Examples of some companies in Australia include Wesfarmers, Woodside Energy, Telstra, Rio Tinto, Woolworths Group, Macquarie Group, Commonwealth Bank, Westpac, and Fortescue Metals Group. These companies are privately owned and managed with little government interference.
New Zealand is a free market economy
New Zealand is a good example of a free-market economy and therefore a good example of a capitalist economy. It is one of the most globalized economies that is sustained by international trade. Its diverse economy has a sizable service sector that contributes largely to the economy, while the manufacturing sector is made up of aluminum production, food processing, metal fabrication, and wood and paper. The information technology sector is growing speedily.
Singapore, the best example of capitalism
Singapore is a capitalist example and one of the financial hubs of the Asian Pacific region; it is one of the world’s most advanced and stable economies. The economy is majorly driven by financial services, tourism, manufacturing of electronics, and machinery production. It is also the world’s busiest cargo seaport. In fact, Singapore ranks first in the world’s ranking of countries according to their economic freedom.
Japan is a developed free-market economy
Japan is a developed economy, practicing a free market system which makes it one of the examples of countries practicing capitalism. This country is one of the largest economies in East Asia, the Northwest Pacific ocean, and the world at large. It is advanced in technology and considered one of the most innovative with well-educated industrious workforces. Their advanced technology in electronics, vehicles and robotics formed the manufacturing sector.
Switzerland is an example of capitalism
Switzerland practices a free-market economy and has a highly developed economy, and the service sector plays an important economic role in the tourism and Swiss banking industry. Known for its highly skilled labor forces, the economy depends on financial services, pharmaceuticals, electronics, chemicals, and metals production.
All the above examples of capitalist countries have above 50% capitalism (according to Wikipedia list of countries by economic freedom) where the factors of production are owned, managed, and controlled by the private sector of the economy for profit. Even though these countries practice capitalism, they are not pure capitalist countries because there are some government interventions such as sanctions, regulations, taxations, and subsidies. Therefore the economic system practiced can be called a mixed economy.
Capitalism theory describes the characteristic of capitalism, and how it operates. The history of capitalism theory encompasses different perspectives of early economists, who had different ideas and analyses. Capitalism theory is divided into two schools; the first is the economic liberation of the 18th century founded by Adam smith. The second school is maxis in the 19th century with Karl Marx as its founder.
Adam Smith’s capitalism theory
Adam Smith is considered to be the father of economics and the first theorist of what we called capitalism. His early contribution and ideas to the field in his book “An inquiry into the nature and causes of the wealth of nations” theorized that within an economic system of evaluation and commerce, laborers will prefer the incentive of earning more by specializing in their production. Adam Smith figured that when a trader makes a trade, the value of the item purchased is more than the value he/she is giving in exchange for a commodity. This will lead to economic productivity and general wealth creation.
Karl Marx’s capitalism theory
Marxist under Karl Marx viewed capitalism as a unique system, with the method of production involving the capitalist class in the society and wage earner, which result in the fall of feudalism and the beginning of the industrial revolution. Karl Marx also criticizes the capitalist system and believed that the labor theory of value, by the capitalist, indicates that private owners of productive means would exploit wage earners by depriving them of the full value that wage-earners themselves produce.
Capitalism features (characteristics)
- Private ownership of the means of production: capitalism allows the ownership of land, houses, equipment, etc (these are tangible assets) and people can also buy intangible assets like bonds and stocks.
- Profit-oriented: the goal of private individuals in pure capitalism is profit and accumulation of capital.
- Capitalism employs paid labor: Just as Karl Max mentioned in his “Wage Labour and Capital” lecture that for production to occur, there must be an exchange of capital from the capitalist to the laborer; whereas the laborer exchanges his own labor-power with a means of subsistence (capital).
- Resources are allocated based on the return on investment; therefore, the private individuals would allocate resources for the production of goods and services using any method that consumes fewer resources but brings in more profit.
- In a capitalist economy, the decisions of the private owners are based on self-interest and not on social welfare. Therefore, you can have companies producing goods or services that may not be to the benefit of society but simply to maximize profits.
- People act for their own self-interest, as well as for profit and wealth accumulation.
- Prices are controlled by a market mechanism based on demand and supply.
- No government interference in pure capitalism.
Capitalism pros and cons
Capitalism is an economic system where the factors of production are owned by private individuals with the main aim of profit. The advantages and disadvantages of this economic system with respect to the capitalist example will be discussed below.
- The capitalist system of the economy gives room for entrepreneurs to acquire wealth and capital, as we have discussed in the example of capitalism.
- Economic growth is improved by increased gross domestic product (GDP), thereby improving the standard of living.
- It creates an enabling environment for foreign and international investors to invest as seen in most capitalist examples.
- It gives room for individual performance to be valued.
- The open market of a capitalist economy gives consumers a choice, leading to high competition and quality production.
- Capitalism increases income and wealth which in turn widened the gap between the rich and poor.
- Its leads to the monopoly of power, leading to inequality and social division.
- Because the wealth is controlled by few owners, it leads to insufficient welfare for the population.
- There’s high unemployment during financial crises and economic downturns.
- The high level of competition is a disadvantage for the low-skilled workers who can’t compete with technocrats.
Socialism vs capitalism differences and similarities
Comparing capitalism vs socialism, which are two common economic systems. We will outline their differences and similarities.
Socialism vs capitalism differences
- The means of production in socialism is controlled by the government whereas in capitalism it is controlled by private individuals.
- Capitalism is driven by profits whereas socialism is driven by social welfare.
- In socialism, the government can control the prices of goods and services, whereas in capitalism the prices are controlled by the forces of demand and supply.
Socialism vs capitalism similarities
- They are both economic systems
- They all have advantages and disadvantages; that is, there is no single economic system that is perfect. Both have their pros and cons.
A table showing the differences between socialism and capitalism
|Definition||Centralized economic system||Decentralized economic system|
|Owner||The government for social welfare||Private individuals for profits|
|Examples||Socialist examples include Vietnam and Cuba||Capitalism examples include USA and Singapore|
|Economic planning||Occurs through centralized political methods||Economic planning is decentralized and voluntary in nature|
FAQs on capitalism examples and theory
What are the examples of capitalism?
There are many countries that practice capitalism, however, most of these countries have mixed capitalism. Examples are; the USA, Australia, Japan, Switzerland, Singapore, New Zealand, and Ireland.
What are the 5 characteristics of capitalism?
The common characteristics of capitalism are: the means of production are privately owned, it is profit-oriented, the prices of goods are determined by the market mechanism of demand and supply, there is no government interference in pure capitalism, and it employs paid labor.
What is a capitalism in simple terms?
Capitalism is an economic system whereby the rights of ownership of the means of production are owned and controlled by private individuals or private companies.
What was Adam Smith’s theory of capitalism?
Adam Smith is considered to be the father of economics and the first theorist of what we called capitalism. His early contribution and ideas to the field in his book “An inquiry into the nature and causes of the wealth of nations” theorized that within an economic system of evaluation and commerce, laborers will prefer the incentive of earning more by specializing in their production
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