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Janu – Lee C. Tarnate

What is
Capitalism, economic system in which
private individuals and business firms
carry on the production and exchange
of goods and services through a
complex network of prices and
markets (Peterson, 2005).
Although rooted in antiquity,
capitalism is primarily European in its
origins; it evolved through a number
of stages, reaching its zenith in the
19th century. From Europe, and
especially from England, capitalism
spread throughout the world, largely
unchallenged as the dominant
economic and social system until
World War I (1914-1918) ushered in
modern communism (or Marxism) as
a vigorous and hostile competing
The term capitalism was first
introduced in the mid-19th century by
Karl Marx, the founder of
communism. Free enterprise and
market system are terms also
frequently employed to describe
modern non-Communist economies.
Sometimes the term mixed economy
is used to designate the kind of
economic system most often found in
Western nations.
The individual who comes closest to
being the originator of contemporary
capitalism is the Scottish philosopher
Adam Smith, who first set forth the
essential economic principles that
undergird this system. In his classic
An Inquiry into the Nature and
Causes of the Wealth of Nations
(1776), Smith sought to show how it
was possible to pursue private gain in
ways that would further not just the
interests of the individual but those of
society as a whole.
Capitalism has also returned to its
roots, in the free market, and
many defenders contend that the
problems capitalism encountered
were due to a loss of faith in the
free economy.
The Principles of
Private ownership
of property
“…human beings are most effectively
motivated by self interest (Sargent)”

In economics, this means that individuals

should be free (free market) to pursue their
interest (profit).
Private ownership of the means of
production is the most fundamental of
the institution of capitalism, along with
freedom and the pursuit of material
self – interest.
It underlies the division of labor on
private ownership of the means of
production is based on the very
nature of the gains provided on the
division of labor (Reisman,1990).
“In order for a person to act and
produce on any significant
scale… they must hold wealth
separately and independently
from one another (Reisman,
The Effects of a Free Market
Goods will be sell cheaply as
Jobs will be created
The entire economy will be
stimulated and grow, producing a
higher a higher standard of living
to everyone.
No legal limit on
the accumulation
of Property
No legal limit on the
accumulation of
For capitalist, liberty is founded on
private property.
The right to hold and use property
is the key to functioning in the
free market, and thus any attempt
to limit property holding hits of the
whole system (Sargent).
The amount of property and
money held by individuals directly
affects the amount of money they
spend (Sargent).
The amount of individuals spend directly affects the
amount of industry can produce; the amount of
industry it can produce affects the amount of number
of people it can hire; the amount the industry can hire
again affects the amount of money available to be
spent by individuals for the products of the company.
Free Market – No
intervention in the
The Free Market – no
government intervention
in the economy
No government
No government
intervention/regulation in the
economy because it destroy the
capitalist system, and, hence,
individualism and liberty.
Economic freedom promotes political
freedom because it separates economic
power from political power and in this way
enables the one to offset the other.

With economic freedom, the relationship

between the government and centers of
economic power is rather like the checks
and balances system within the government.
There is a free market toward the
establishment of a uniform rate of
profit on capital invested in all
different branches of industry
The uniformity-of-profit principle is
what keeps the production of all the
different items directly or indirectly
necessary to our survival in proper
In a free market there is a
tendency toward the
establishment of a uniform price
for the same good throughout the
In a free market there is a tendency
toward the equalization of the price
of a good in the present with the
expected price in that good in the
In a free market there is a tendency
toward an equalization of wage
rates for workers of the same
degree of ability.
What is The Role of
the Government?
Government is a social institution whose proper
function is to protect individual from initiation of force.
it exists to make possible an organized, effective
defense and deterrent against the initiation of force
(Reisman, 1990).
The Profit motive
The profit motives provides
powerful incentives for the steady
expansion and improvement of
production and, at the same time
operates to keep the relative size
of all the various industries and
occupations in proper balance
(Reisman, 1990).
The profit motive is what balances the
demand and supply of each product and
ensures the most rational and efficient
distribution of each product over space
and time – among all markets that
compete for it- and its delivery into the
hands of those individuals who, within
the limits of their wealth and income,
need or desire most (Reisman 1990).
The profit motive ensures the most rational and
efficient allocation of capital and of every type of
labor and material among its possible alternative
uses, and makes the economic system respond to
changes in economic conditions in the most rational
and efficient manner possible (Reisman, 1990).
Thus, the profit motive is what
prevents any sort of “anarchy of
production” and, instead creates
economic order and harmony who
comprise the economic system
Thus, Capitalist believes
that the profit motive
drives people to succeed
and create wealth
Critics of Capitalism
Result of Capitalism…
extremes of wealth and power, the
power such wealth gives its owners
over the political processes,

and the extreme inequality between

employer and employee (Sargent).
Reisman, George (1990). Capitalism: A
Treaties on Economics. James Book,
Ottawa Illinois.

Merci beaucoup!